'Bloomberg The Open' Full Show (01/11//2022)
Trying to build on yesterday's gains, a rally going into CPI tomorrow morning from New York City. Good morning. Good morning. Equities up four tenths of one percent. 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. We begin with a fake issue caught between optimism and gloom. Credit Suisse considers a 50 percent cut to the bonus pool. China's reopening sends Carrefour through nine thousand dollars as investors look ahead to the next inflation print. There was a lot of talk about a recession around the world, at least a mild recession in the US.
A lot of talk about Europe going into recession. People are starting to drop out. Recession calls for Europe and for the eurozone. The plunge in natural gas prices in Europe suggest that Europe may not have a recession after all, like European equities more than U.S. factories. We're also quite pleased to see China reopen. There's a very good case to be made for China assets right now.
The outlook for the world economy, I think, is actually improving. And then when I look at the U.S., we're looking at economic data, these forecasts about recession. We're looking at earnings data.
That's what makes me concerned about the rest 2023. Our view is to remain pretty cautious and pretty conservative here. There's quite a bit of skepticism. It's really the U.S.
vs. the rest of the world. Joining us now to discuss this cross marks Victoria Fernandez and Morgan Stanley's micro customer. To the two of you. Thanks for being with us. I want to start with you, Victoria, and just go to today's recession coat and compare it to what's happening in this market. I went through it piece by piece this morning on the plane back home, equities back in a bull market.
Copper back through 9000 dollars. European banks are up more than 40 percent from the July lows. And high yield spreads are tighter, tighter, tighter. Someone's wrong care, Victoria. Who is it? Well, I think the market is saying that they don't believe that the Fed is going to go higher for longer.
And we've had the discussion before about, you know, how reliable is the actions related to what the Fed is saying and the market isn't isn't going for it. They're saying, look, you're looking at lagging indicators right now. We're looking at more timely indicators. We're looking at things like temporary jobs coming down significantly, which means the labor market probably is not as strong as what the headline numbers are telling you. They're looking at some of the underlying inflation, the non manufacturing numbers, and that does contain construction. So we understand why that came down
some. But I think the market is basically saying we don't believe that we need to go as far as what the Fed is saying. It's why you look at Fed funds futures. The market's saying, yes, it's not going to be 5 percent. And the Fed still saying we're going five to five and a quarter. So who's right and who's wrong?
Time will tell. I think, though, the expectation the differential in the expectation is why we're seeing this volatility in the market. Obviously, CPI tomorrow will be a key component of that. Ignore the headline in the year over
year number. You're looking at that core number. That's what the Fed is looking at. That's expected to be up point three percent. Let's see where that comes in. If we start to get a pretty steady trend here, perhaps the Fed starts to bring back some of the rhetoric that they're saying, but I don't think they're ready to make a shift just yet. Michael Barr, do you think this market's
too optimistic? The recession can be avoided. Wife I think it's optimistic in the sense that a lot of things have to go right, then inflation has to continue to fall at a reasonably quick pace such that the level gets to appropriate numbers. But right now, the trend is in the right place, which I think has gotten everyone excited for several, several months now and has been ignoring the Fed from that perspective. But the Fed has to remain hawkish. Otherwise, the labor market won't loosen up enough to get wages down to the level appropriate. We're sort of a two to two and a half percent inflation target. So the point is, I think as the market gets more optimistic, the Fed may actually push pedal to the metal and be more hawkish to try to encourage the market to not get too optimistic to make sure labor markets loosen up over the next several quarters.
But the idea that inflation is going to hit the Fed's targets without some kind of a continued slowdown seems to be a little bit fanciful and might cause this dynamic. Right now, we've got this global growth relief abroad in Europe off the back of what's happening in China as well. And you see these monster moves taking place in Asia, in commodities, elsewhere in credit, too. And yet Treasury yields on a 10 year
down 358. Does that make sense to you, Michael, that we've got this cyclical appetite abroad and treasury yields are moving lower, not higher? Well, I think if you think about it, what's happened the last several months, it's kind of a reverse supply shock and oil prices are down. Where. Where do we peak in last summer, Rosa? Over one hundred dollars. Now it's down at the low 70s. We have got natural gas prices collapsing in Europe, has been credibly bent if benefited by this effect. So this reverse supply shock of lower energy prices, bringing down headline inflation faster boosts purchasing power.
And we could see, you know, consumer spending and household spending be a little more robust. So in that sense, I think that it's not it's not it's not crazy what the market is is doing right now. The question is, will it last? What is this crazy? The tide is high yield spread since August in the face of a sub 50 ISE print on manufacturing and services. Victoria, can you make sense of that? No, I really can't like high yield right now. I think it's a little too tight. I would expect to see yields widen pretty significantly, I think, as we go through the first couple of quarters of this year. I mean, our outlook is that you're
probably going to have a mild recession. So if you do those high yields, that's where you're gonna see the movement first. I mean, we have a lot of fixed income investors here at Cross Mark.
Obviously, we're looking at more investment grade for them. We like investment grade yields right now. They have come in pretty significantly. I don't think they're going to come in a ton more. So you're not looking at a huge total return component on that, but I don't think we're gonna see them widen.
So you can collect your coupon for a while there. So it's a good place to be. At this point, high yield makes me a little bit nervous. And you look at those 10 year yields, though, and them coming down. I think it's because the market is telling you, look, we still see rate cuts at the end of this year.
I don't think we're going to see it. I don't think the Fed thinks it's going to happen. But the market is telling you we're going to see that. So they are bringing those longer term
inflation expectations down. That's why we're seeing the longer end of the curve kind of settle in around this 360 level. Michael, how do you think this reconciles? We've got spreads getting tighter and the ISE I'm getting lower. Which one improves? Say either the ISE has to bounce back or spreads becoming wider? Which one is it? I think the ISE have maybe overshot to the downside. There's a lot of noise in economy sector disruptions in terms of the good sector versus service sector. I think the service sector print we saw
just recently was so low that almost I think it has to rebound a bit. Next next next month. So I think that is showing it's not excessive weakness, but weakness, which is not truly indicative of forecasting a recession. I think that the lagged effects of lower energy prices is going to be beneficial. But again, inflation is coming down and
this is a good story. Inflation is coming down. The Fed is reducing its pace of rate hikes. A good chance, only high 25 next month and 5 percent, maybe the peak. On the question of will they hold it longer? That's the question, I think where bond markets are moving into by the dip instead of sell the rally, which is a very different mentality.
Michael, stay there. Equity futures right now up a third of 1 percent on the S&P. Mark Horstman talked about inflation tomorrow, the latest rate coming tomorrow in America. U.S. CPI due out in less than 24 hours with Wall Street looking for some kind of deceleration. Mark McKay has more. Hi, Mike.
Hi, John. The last couple of months we have seen CPI come in lower than expectations. So that ping pong match between the Fed and the markets generally has resulted in some big moves on CPI days.
Fed can't change its forecast that quickly, but the market sure can. And look what we're expecting tomorrow. The betting is we're going to see a very good number because underlying inflation has at this point started to really, really roll over. And that's some good news. And what we're thinking, at least what economists surveyed by Bloomberg are thinking, is that there is going to be a negative print this month, down a tenth of a percent for CPI headline, which would push the headline year over year down to six and a half percent from seven point one percent. The core supposed to go up a little bit, but not significantly. And with base effects, the core comes down to five point seven percent. It's going to be overall good news and
it should spark another reaction in the markets. But what everybody is really going to be looking at is core services, ex housing. This is the constructed index that Jay Powell referenced a couple of weeks ago. The idea that housing, they know is not a correct price in the CPI right now because it doesn't capture changes in rents quickly enough.
But you take housing out and core services are really falling. So if that's the case tomorrow, look for people to start changing their Fed bets again as well all over again. That super cool, Mike. It's a little cold in that super cold. Well, there is actually a super core index, so that one is trademarked and taken.
But we could call the J. Powell core that we got would do that. Mike NIKKEI, thank you. Hey, toy fanatics, we got to do two things here. If you gave me that difficult one, what you expect tomorrow. And so maybe this is how to how to expect this market to respond to it. Well, I think we're gonna be pretty close to expectations tomorrow, and that's pretty much priced in.
So I think the market's going to say if we get close to expectations or a better number than expectations, the market market's going to say, yep, this is it, right? What Michael McKee was saying, they're going to go. The Fed is going to lower their rate hike expectations, maybe 25 basis points at that February 1st meeting, maybe twenty five in March. And that's that's going to be it. And then they're probably going to continue to price cuts later and later this year. The Fed, I think, is going to push back tremendously on that. I think they're going to say, no, we're
not going to take our foot off the gas here. We continue to be the higher for longer mantra that we've had for a while now. If they come out where core goes much higher than that point, three percent that's inspected expected, then I think we get a pretty volatile market tomorrow. I think the market will be concerned that this was just a couple months of something that just a little off.
And then we're going to head back to the trend of higher inflation. This is what the Fed is scared of. This is what I think they may expect to happen. And this is why they're continuing their narrative that they're going to hike rates to that five to five and a quarter percent. Michael Barr, my final word on this one place. I think that's exactly right.
This is simply an asymmetric bias for the market to be over expecting good news tomorrow. So they put this the risk is that we don't get as good a news as the market thinks. But on the other hand, there is a trend in place of lower inflation.
So if we get a point, two percent print and core CPI tomorrow, maybe just because a rounding down, I think they'll be taking quite, quite positive. On the other hand, anything over point three would be quite detrimental. But I think that in bonds at least, they'll be quick to add.
We get to 370 back to 375, 380 and 10 year treasuries. I think that would elicit buying even in high yield and in IAG, the absolute level of yields relative to risks to equities and earnings and we get 8 1/2 percent in spreads have to widen a lot and the 8 percent starting yield to get you to a to underperform cash in on your and 5 percent a 10 year run. Now, 358 bonds running in just a little bit on a 10 year down 4 or 5 basis points on a two year Covid. No way. Victoria Krane and Michael Cushman, Victoria Fernandez, rather, and Michael Kuzma will be getting nowhere also. We had a bit of disruption for
travellers this morning. Let's get you some updates without a hangover. Hey, John. Well, yeah, pretty incredible situation developing here. Here's the latest in an ongoing and fluid situation. Just a little bit before 9:00 a.m., the FAA said that the ground stop on domestic flights that was put on just a little bit after 7:00 o'clock this morning. It's been lifted now.
Initially, it was planned to keep that into place until 9:00. So just a little bit early. And United Airlines. One airline that right around 630 came out and said that all of their domestic flights were grounded due to this outage of the noticed air mission system late last night. They just came out saying that their
flights are back in the air. But what this means, John, is thirty seven hundred flights were delayed by 830 Eastern today, 640 flights canceled. Now for today, according to data from Syrian, 21000 domestic flights were planned to be in the air, about eighteen hundred international.
So lots of kinks. This, of course, comes on top of the blizzard problems a few weeks ago. And southwest problem. And they are, of course, in the spotlight to see how their technology, what will happen after this FAA system outage. But right now, flights are allowed to fly again on a disruptive day ahead, potentially for many people. Abbi, thank you. The update is coming again in about 20 minutes time. Coming up, deep divisions on Capitol Hill when it comes to fiscal policy later this year. It's going to be a showdown.
OK. The latest on who's going to meet the Treasury next year and the latest on what's been happening with these airlines. From New York, this is Glenn Beck. When I hear people talk about balanced budgets, give me a break, the first bill that you are bringing to the floor pointing to CBO adds one hundred fourteen billion dollars to the debt. We need lectures from anybody on that side about balancing the budget. Give me a break. Debt ceiling showdown looming in Washington. The team of Barclays warning of a difficult road ahead.
Writing raising the debt limit could be messier than last week's House Speaker vote, although the X date is still months away. The Treasury's efforts to preserve its cash and borrowing authority has already begun. This coming as Secretary Yellen is reported to be keeping her post at the Treasury Department just when growth behind that report. He joins us now from D.C.. Hey, Justin, you got a late night, sir. Thanks for being with us early this
morning. Let's just go straight to it. What have you learned about Secretary Allen's future? Yeah, Jonathan, there was lots of speculation late last year, but so will she or won't she? The buy the administration has been preparing for change in its cabinet, hasn't had any, which is really unusual at this point in an administration. And so one of the big dominoes fall, obviously, is Treasury. And so all eyes were on Yellen who had been sort of saying she intended to stay, but there was reporting that maybe she wouldn't or it would be sort of into mid 2023.
What we reported yesterday is that Joe Biden himself asked Secretary Yellen to stay, said that he means her to continue serving in this post and that she agreed. Yellen has also signaled that she is going to serve and intends to serve until the end of the first term. So the full four year term of Biden's first term in office.
So these sort of sets up this scenario of quite a bit of stability, sort of quash is that speculation is a little unclear how much, you know, fire was under that smoke. Was this just chatter or not? But it was enough that Joe Biden felt the need to talk to her directly, make that ask, and have her commit to stay on the Treasury Will. We'll be we'll be staying put. John, from the time I spent a bit of time with the president, I just wonder how high up this debt ceiling debate is on his agenda at the moment. Just you think it was a factor behind
the decision to get ahead of this, to say the secretary and sticking around? I can't say for sure, but I suspect strongly that it is. I mean, this is really among the top of top of their priorities here. They are watching what's going on with their House Republicans and Democrats in the White House was sort of shaking their heads, but they're clear eyed about the fight that's coming. The questions are whether concessions will be sought by Republicans on things like Social Security and Medicare. Whether that will sort of be held hostage in the debt ceiling talks. They do not want that. We did ask you a couple of days ago, the
White House here, are you considering any extraordinary measures? You know, hashtag, mint, the coin, etc. But they said no. What they want is a clean increase of the debt ceiling. They do not want to go down this road of haggling over the debt ceiling.
Whether they have that luxury. I think is really unclear right now. The target date continues to ship. No one really knows. Right. But it looks like sometime in the middle of summer is when this will really sort of come to a head. And at that point, with Treasury looking to turn to its extraordinary measures to try to drag out as much time as it can. I think that's when Joe Biden wanted a steady hand at the wheel. And that's why he has Secretary Yellen
to be that way, to win it all over again. Just a final word. Just the president not exactly getting some rest this morning. You're not either. And I imagine people are just pretty depressed after the Christmas he had given how busy it was with Southwest. I just can you tell me what's going on with these airlines and what's going on with the FAA? Yeah, I mean, the latest is the peep has a lot of files on seems this case. The latest is that things are seem to be turning around right now. And so Joe Biden, of course, this
morning saying that this is was affecting excuse me, I'm just reading the no show affecting only takeoffs and landings, that this is not sort of, you know, die hard to scenario where people are sort of just circling in panic. But it seems like things are coming back in the right direction. But of course, this is just another series of delays for people after the holiday delays concentrated on Southwest, of course, that they saw. So the bridge's secretary has really tried to sort of, you know, flex the muscle. The administration here. But there'll be sort of ask the answer
for what the heck happened this morning with the FAA. Nobody wants a die hard scenario. That's for sure. I just thank you, buddy. Always good to catch up, Mike, as always. Just growth down in Washington, D.C., of course. Straight over to the panel just for a final word. Victoria Fernandes and Michael Cashman,
who are back with us. Victoria, we spent a lot of time talking about the potential for recession in America, a slowdown abroad, even with the reopening out of China. You've been buying you've been buying Apple, even adding to JP Morgan. Can you tell me why? Yeah, I mean, look, I think you have to be opportunistic in these markets. I don't think you're going out there and you're trying to throw a Hail Mary.
I think you're trying to go down the field yard by yard, and that's what we're doing. So you take a name like Horizon that was up 11 percent last month. You trim that. You take a little bit off the table and you go into some names, names we already owned, names that we were underweight, we've been underweight. And Apple then adding a little bit to that in order to build that position back up. It's an advantageous pricing because we think the second half of this year will be a better a better year for us and we'll be able to see some return there. So it's not necessarily a buy the dip. Go in and buy everything. It's be selective.
Find the names that have that are good quality, strong balance sheets, good management teams that we think are going to do well. We like the financials going forward. So we think it's an opportunity to go in and add to some of those names. Michael, are the opportunities at home
or abroad? I think the opportunities are increasingly abroad in emerging markets in particular, as you mentioned, emerging market equities have had a turnaround and we've been waiting for a couple things to happen. One, for the get to the peak of the Fed rate hiking cycle, which is seems to be close at hand. Secondly, the dollar has stopped going up and they may not go down a whole lot. At least it stopped going up. A lot of the pressure coming to embrace
emerging markets is dissipating. And these countries have in many cases, have a much higher real interest rates than than exist in the United States or other developed industrial countries. And it's starting to look increasingly attractive as their monetary policy cycles turn over as well. I just wonder how sustainable these moves are in Victoria. Take a stock like Caterpillar, which so many people are talking about this morning. We spoke to Christopher Ryan this morning of strategic us about it. That stock bottomed at the end of
September on the same day that the dollar index topped. And I don't think that's a coincidence. Victoria, I'm trying to work out how much of this is sustainable. Yeah, it's a tough question, Don, and I
don't really have a good answer as to how much is sustainable, but I think you have to look at the momentum and the trends that we're seeing. Look at copper, look at the steel stocks. Steel stocks have been doing tremendously well over the last month or so and industrials. I mean, they're not complete. Leaders in the market, but their momentum is turning better. I know Chris had some work done on the industrials not too long ago that he talked about. So I think you have to look and see where these trends are. I don't think we're actually in a
sustainable bull market right now. Like I said, we think we're probably going to have a mild recession. And if so, that means we haven't reached the bottom. You don't reach a bottom before the recession. So we actually think there's going to be some more pullback. I would again, be cautious, be
selective. You can go U.S. international is not a bad place either because of some of the changes that we've seen and inflation expectations and growth in Europe. So I think you have some opportunities there. I wouldn't say that this is a sustainable bull market at this point. Well, pick your poison. We haven't seen the bottom or we escaped
recession. And that's the debate right now. Victoria Fernandez, Marco Cushman, so the two of you. Thank you. Coming up, the money coach. And later, earnings expectations are still too high. Monday's Monica defend why Europe is now less risky than the United States. So many people start to get on that train.
That conversation coming up shortly. Live from New York this morning. Good morning, about 20 seconds away from the opening bell. Equity futures coming into it, up a half of 1 percent on the Nasdaq 100, up four tenths of 1 percent, trying to build on the gains of yesterday's session going into CPI tomorrow morning. You have an event in New York City race, which at the moment gets to the bond market, yields look a little something like this. They come in four or five basis points on a 10 year lease, 57, 42 to start the year running at the front end, a two year yield lower for most of the year so far in the face in the face of some hawkish Fed speak.
Let's see if we get more of that later this week after CPI tomorrow morning. And the affects market Eurodollar holding on to one of seven. I'm having a little look at one, a white one, eight up a third of one percent and crude. Look at the stock price DAX later up 2 percent on crude WTI. Seventy six.
Sixty, about 20 seconds into this equities up by half of one percent on the S&P and the Nasdaq up by a half of 1 percent. Also, the number one sector to watch at the open. The airlines FAA system outages disrupting U.S. travel flights now resuming and airlines feeling the consequences from all. Let's get to Abbi. Happy?
Hey, John. Well, not surprisingly, Southwest is feeling the pain the most because, of course, just a couple of weeks ago, about 17000 flights were canceled because of their outdated computer systems. So today, of course, we have disruption all over the map in the U.S. with the disruption relative to the notice for two air systems emissions system. It conveys advisory information essential for flight operations that happened last night. And then it caused United Airlines to cancel all domestic flights this morning a little bit after 630 and then a little after 7:00. The FAA grounded all flights.
Now, the FAA has said that, quote unquote, normal air traffic operations are resuming gradually. They're working to really resolve these issues. Not surprisingly, all the stocks are down. But again, Southwest the most relative to the overall impact for flyers today and the airlines today from a fundamentals perspective. Thirty seven hundred flights had been
delayed until about 830, 640 flights were canceled. 21000 flights domestically are expected to fly today. How much disruption works through the system? We don't know. But one really interesting thing, John, this is surprising to me. The airlines are one of the best sectors
on the year, up nearly 14 percent. It's not clear, entirely clear why. But today is just a small blip for these big, big gains. Take a look at that right now. Up again, about 14 percent on the year yet today. What a rush.
Yeah. Thank you, sir. Not hugely disruptive for the stocks, but potentially hugely disruptive for you. Over at LaGuardia Airport, critique of the blimp exploded on joined us. Syncretic. Good morning, John, you are, of course, talking about those delays that Abbey was just discussing. One of the key pieces of the equation is how much damage you are going to see throughout the rest of the day.
Southwest, for example, very specifically saying in an email statement to Bloomberg News, talking about some of these schedule changes that are going to continue throughout the day. A similar story when it comes to United. They're talking about delays, cancellations, a lot of what you're going to last through the rest of the day. The good news, though, John, is simply this idea that's been a one or two hour delay for the domestic flight, which is throwing a little bit of the schedule into chaos.
But going later into the day, a lot of the international flights, the real moneymakers for a lot of these airlines, they are still on track. You're hearing from a lot of the airports internationally think London Heathrow, Charles de Gaulle as well. They aren't seeing any interruptions, whereas, for example, Logan International in Boston, Atlanta, even Newark are starting to see a little bit more pain when it comes those domestic flights. Really.
Thank you. Looking forward to your reporting from there throughout the day on TV and radio. Bloomberg Quicktake up to that. Another stock to watch. Apple just about positive on the day by almost a tenth of 1 percent and rapidly gone in the wrong direction, delivering another blow to suppliers. The company planning to start using its own screens in 2024, leaving partners like Samsung Ghannouchi behind at Ludlow.
That dishing out the pain out there. I mean, this is the latest in a series of moves. According to sources, this will materialize in the high end. Apple watches as soon as the end of
2024. Technologically, it's about transitioning from old LEDs to micro OLED, starting with those high end apple watches. And then later introducing them to the iPhone handsets, as you said, particularly for LG, which drives around 35 percent of revenue from Apple. We saw their shares suffer in the Asian
trading session. Really interesting because it's just, as I say, the latest Bloomberg report, according to sources this week, where Apple is not just thinking about the supply chain, John, in terms of where those components are made and where they come from, but also owning the technological control over what they're doing. Earlier this week, we reported, for example, according to sources, that Apple was moving away from Broadcom for its Wi-Fi, Bluetooth, Bluetooth hybrid mode and the chipset and doing that in-house.
It's really focused on chips as well. Also a play for Samsung, which has significant exposure to Apple in terms of that display. You know, it'll be interesting, I guess, to ask the question, where will these displays be built? Will they be here in the United States? Is this in an on shoring move? But as you say, the stock kind of paring its early modest gains now up three tenths of one percent.
After we get some clarity when they report in early February, I think. February 2nd is the day and all night diaries. Just quickly at some news on Tesla as well. What are you hearing? Yes, the sources are telling me that there is a deal closed with the Indonesian government to have a pretty comprehensive production plan over the long term in that country production facility for electric vehicles, kind of targeting a million units a year, which is kind of in line with with Tesla's strategy globally. Or remember that in August, Musk told shareholders that Tesla has plans to build between 10 and 12 factories globally. And this kind of 2030 target to have annual production of 20 million units.
So, you know, we're hearing signals from the Indonesian government that this is taking place on the record. But according to sources, Breeland talks and of course, as with all deals, it could fall through. But interesting to see the stock point this morning at great reporting, as always. Tester up by a little more than 2 percent. You brought the market up a half of 1 percent on the NASDAQ, a four tenths of one percent. Katie Grifo gets the challenge in the morning.
Katie, you've got to explain what an earth is gone on with this stock. Bed, Bath and Beyond up 18 percent. John, honestly, I can't because there is a total disconnect between this company's equity and its fundamentals. It's up for a third day of gains, double digit gains.
Add that up about 20 percent at the moment. That was 30 percent when trading kicked off just at the bell along with some other mean names, but specific to Bed, Bath and Beyond. Of course, this rally comes with this company on bankruptcy watch. The company warned of that possibility last week. That was the focus when it reported a wider than forecast net loss yesterday.
It also reported that cash and cash equivalents position of just over 150 million dollars. That's slightly higher than six months ago. But really a staggering chart there. You can see that that figure. That cash position. It's down 88 percent from two years ago, John. Now, while comp sales there were even uglier.
We're talking about down 26 percent in the third quarter. That falls double digit declines in the previous two quarters as well. So, again, this is a company struggling with inventory on the brink of bankruptcy. But you wouldn't know it by looking at the share prices, John. Essentially a penny stock.
The name all over the place, Kate. It's your job to explain that one. Not mine. I'm not gone that. Katie. Thank you. Thank you very much. Another big debate for many of you.
I know it's international versus the United States. What you want to know what you want about Morgan Stanley is my home backswing, a challenging backdrop for the U.S.. We caught up with him just yesterday. The fiscal side trajectory in the US could actually look much worse as we make our way through this year vs. China. Fiscal policy in Europe.
Fiscal policy. Those are pushing in a different direction. It's really the US vs. not the rest of the world in there. I think you can have some differentiation, which is again, another reason why I think the US dollar can go down as global growth outside of the US picks up month. Monica Defend echoing some of that sentiment writes in the following. Earnings growth is too elevated. Earnings are vulnerable to any economic downturn.
And the downside risks in the US are high. Europe is less risky. Earnings expectations are weak. Monica, I'm pleased to say, joining us right now. Monica, we've got to start that. Welcome to the program. Why is Europe risking? Well, it's what you saw in the street, basically when you go to expectations in the United States.
They are still extremely ISE to today's prices, do not reflect any sense of profit recession, which we do believe are in the cards. Indeed, in the U.S. So to this extent and with the idea that the US dollar is going to get to get weaker than this is opening up in relative terms, the window of opportunity of European versus U.S. equities. Having in mind that you need to be
overall cautious. So help me clarify that. Is that a tactical call coming into earnings season or a fundamental one with sustainable tailwinds? Which one is it? Well, I don't think I if I think it's more tactical call, meaning there are too many uncertainty had related to monetary policy. For example, an economic cycle that might prevent ISE for the time being. Two on board the structural positioning. Let's talk about the bigger call that's taking place right now. It is buying international. It's getting longer M M equities and buying into this China reopening story in Monaco. The debate we've had on this studio, on
this program over the last couple of days is what an aspirin IP pricing, a growth rebound off the back of this China reopening story or a growth slowdown of the back of the monetary tightening we've seen over the last 12 months. Which one is it? I think that you need really to disentangle the various economic cycle. China is one story is driven by the reopening and they are going to struggle this winter and to get chopper during the during the spring out when it goes to Europe. This is mainly dominated by the energy crisis and we are seeing prices softening. And this might be about while in the United States. It's mostly about the monetary policy that we think it will fall apart.
525, by the way. Does that mean by them versus D.M.? Is that the cool emerging markets over developed markets? Maybe not really now, but approaching the end of the first quarter, that might be the case. 60 40 is your other big call. You say the 60 40 portfolio is reloaded. Can you walk me through?
Why? Because that has been terrible over the last year. Well, you know, last year there was no other alternative to to equity. Now, with the current level, there is some appeal that you might find out in the fixed income space.
This is why you might expect easier with rates are moving higher. Rebalancing, rebalancing. And they are appealing of these kind of portfolios from an income to 64. That probably makes a lot of sense to a lot of people.
Monica, given where you were to rent and given away, you know, it's one, two years ago, three years ago, five years ago. Can you tell me about that portfolio from a diversification, uncorrelated diversification perspective? Can you tell me whether you think the positive correlation between equities and bonds does actually break this year and why you think that's going to happen? I think this is really related to the inflation pattern. So anytime DAX inflation tends to stay high, this is having an impact on the correlation between equity and bonds and vice versa when inflation is moving lower had the correlation is it is getting to get inverted. And this is exactly how where we do expect to be by the middle of the year when that we will see our regime shift from. I brought inflation to inflation and this is where you might shift from a mindset of capital preservation into risk accumulation. So minded the inflation part. Don't mind the EPA partner to shift your
allocation by mid of the year and turning more positive Monaco's event. Thank you. Appreciate it. Catching up. Her views on this market right now, international versus the United States in bonds vs. equities at the moment, your equity market up a half of 1 percent.
Eleven or twelve minutes into the session on the Nasdaq, up a half of 1 percent. Also, earnings season just around the corner. Bank earnings kicking off on Friday. Credit Suisse Wang, big bonus cuts, the slowdown in the economy and really do making almost shutting it completely shutting down last year.
These are not helpful factors for the banks. That conversation next. This slowdown in the economy and really do making almost shutting, completely shutting down in here. These are not helpful factors for bedbugs. However, there is one new thing. An additional factor is structural change. I would call it that. We haven't seen names in previous
recessions on our slowdown environments. And this, of course, central banks hiking. And this is helping the overall banking sector. Bank bonus counts making their way to Europe. Glenn Beck reporting.
Credit Suisse is considering slashing the bonus pool for 2022 by about half. This coming before the biggest banks on Wall Street report earnings. Bank of America, JP Morgan coming up on Friday morning. Team coverage starts right now with Glenn Beck's Money and health Dima in Zurich and Sonali Basak here in New York. And first to you. Can you walk us through what you've
learned about what might become it over Credit Suisse? Right, exactly. So Credit Suisse is deciding its bonus pool for last year and it's considering cutting that by about 50 percent. Now, that comes after last year's bonus pool already being cut down by 35 percent. So this is just a continual cutting for these bankers. And that's off the back of. You know, it's not been a great year for four dealmakers.
So bonuses are down across the street. But also with Credit Suisse in particular, there's been a lot of issues lately, a lot of profit loss. So that's also factoring into this. That's the question, isn't it, Marian? How much of this is a Credit Suisse story and how much of it is just a banking story? Part of it is a banking story.
And then there is the Credit Suisse element that you have to add onto it. You know, it's been two years of problems, management changes, restructuring, and we're still seeing that come through. They just raised four billion in capital.
So there's there's definitely a credit squeeze tweaks to this as well. Jihye Lee, I imagine Credit Suisse, another loan and that it's not just the Europeans, it's the American banks, too. Absolutely. You have the bonuses being cut across across the banks. But listen, John, it's easier for the bankers to cut bonuses than to cut headcount. And we are seeing a lot of headcount cuts certainly on Wall Street already there. There's a lot of sense in a lot of these banks that they want to hold on as much as they can and really not signal to a lot of firms that they are not open to hire and open for business. Remember remember what David Solomon
said just late last year, which is the talent war really isn't over. And once that bonus season hits that musical chairs restarting again on Wall Street, the buy side picking at the scraps. That is something to watch out for. Jihye Lee, if you've got names in mind that weren't able to hire the people they wanted to hire.
And they're looking to pick up the pieces from the banks that could hire and perhaps over hired over the last three years. You have to pay attention really closely here to the buy side after some of these big multiple drought funds have done so well, are able to really have some leverage on fees here. Big pension funds, rethinking their hedge fund strategy after a year like last year and into potential troubled time ahead. I would also look even on the dealmaking side, the top two deals of this year, a big presence on those deals were ever core. It was an independent investment bank. So when you look at the competition in the big banks, even on the investment banking side, it's significant from players outside of the big six. Lastly, let's not ignore the private credit firms that private equity firms that are also picking out Wall Street right now after a really troubled year and levered large finance that will keep these banks bleeding for the next couple of months as they've lost money on those deals.
And as the market itself has not really cleared and opened up yet. That means the private credit guys are really the ones with that dry powder and the ability to hire Jason Kelly. Let's set things up. So Friday and the week after that, we have this graphic up a little bit on the earnings. We can expect BFA, J.P.
Morgan this Friday, Goldman the following week, the Morgan Stanley. Just one of three things. What are you looking for? You Bank of America comes out with a note today saying it's Friday the 13th and certainly it is. There's a lot of worries out there about
the worst being materialized here. Remember the big consumer banks? Bank of America, J.P. Morgan, Citigroup, certainly they have fallen much more than you've seen Goldman Sachs and Morgan Stanley's fall, which is not what you typically see in a cyclical business like trading and investment banking. Goldman is held up better than all of
them in stock market trading. But remember from Goldman, there is a lot of questions about the big reorg, that big Investor Day ahead. You just got the notification to register for the Investor Day this morning. And so a lot of stories to calculate that are very idiosyncratic, even aside from those big macro worries that could lead to potentially billions of provisions for loan losses.
We've got a busy Friday morning coming up, that's for sure. Sonali Basak with some Bloomberg Surveillance throughout the morning on Friday. Breaking down those earnings. Thank you. And thank you to my own health to as well. Breaking down the latest reporting from our team of Credit Suisse. The equity market at the moment positive by five or six tenths of one percent with some sector price action is here's.
Hey, John. Yeah, we're looking at another gain for the S&P 500 at this point, up nearly 3 percent this year in just seven days. It is on below average volume today. But not surprisingly, with the gain, we have most sectors higher. In fact, at this point, ten sectors are
higher. Healthcare is down fractionally. Real estate, the best sector up one point eight percent. That could have something to do with the fact that yields are low. That could, in fact, of course, help lending activity, but it also makes the dividends of that sector look more attractive. Consumer discretionary materials both up more than 1 percent. Communication services and tech doing decent.
Up more than half a percent. Chance are today a little bit of a risk on mood, at least relative to the sector allocation. Let's check back in on the airlines. We were following them earlier on those flights, all domestic flights being grounded and then that being lifted around 9:00 a.m. At this point, the airline index on the day is higher up a little bit less than 1 percent and on the year.
This is just incredible. Up more than 15 percent. This is sort of the surprising bowl year, at least early on, at least so far. It's January 11th. Let's see how that goes up. Thank you.
Wonderful work, as always. Just getting some headlines from an ECP official. The Governing Council member, Olli Rehn, speaking in Helsinki, saying interest rates must still rise significantly. If you take a look over at euro dollar at the moment, the higher the session, one of 776 just off those highs on euro dollar of one of 770. Compare and contrast this. Let's step away from Europe and look at
the rest of the world right now. The rest of the world. Here's the global GDP forecast from David Malpass of the World Bank. Global GDP one point seven percent this year. That forecast half of what it was just back in June. Some perspective here. That would be the third worst forecast. The third worst year of growth in the last three decades, with exception being 2009 and 2020. And just to put some numbers on it.
U.S. GDP, they're looking four point five percent. Eurozone GDP, they're looking for 0 percent. And for China in the low 40s. Now, I want you to compare and contrast those forecasts to what we're seeing in this market, just piece by piece. E.M.
equities back in a bull market. Copper prices back through nine thousand dollars. European banks more than 40 percent since the July lows. And even in the United States, high yield spreads, the tightest since August. Tight, tight, tight. China by more than 100 basis points from
where they were just a number of months ago. The forecast is, tell me one thing, the market's pricing something else and someone's gonna be very wrong. And I imagine we gonna find out soon. Coming up on this program, the market moving eventually to be watching that movie. Next in our trading diary, live from New York City with your equity market shaping up as follows.
About 22 minutes into the session on the S&P positive by half of 1 percent. Elsewhere in the Nasdaq up by six or seven tenths of one percent. And in the bond market, going into the inflation report tomorrow morning, your two year go nowhere for twenty five on a two year, your tenure going somewhere yields lower by four or five basis points. Three fifty seven. Is your tenure yield from New York? This is Bloomberg. A second day of gains here on the S&P 500, at least for now, about 25 minutes into the session, equities higher by half of 1 percent on both the S&P and on the NASDAQ too, as the price action. Here's your trading diary.
Coming up, a White House news conference coming up at 2:00 p.m. Eastern Time. Fed speak from Harker Bullard embarking on Thursday that will follow the US CPI report and another round of jobless claims. Then we just get the earnings deluge for the big banks. J.P. Morgan, Bank of America, Citi, Wells Fargo all kicking off bank earnings on Friday. And we'll hear from Goldman and Morgan Stanley next Tuesday before we close out the week.
We'll get you Miss Consumer Sentiment survey as well. Kind of just round things out with the recession debate. Neil Dutta of Renmark published in the last hour. He said Many commentators continue to suggest that a recession is imminent and both the economy and earnings. I think the consensus is offsides. He said at least in the short run, finished with this.
Financial conditions are now easing and have been for a couple of months supporting economic growth right now instead of a longer variable. I think the legs are short and predictable. That debate is going to go on and on as we continue this year from New York City. That does it for me. Thank you very much for choosing Bloomberg TV.
This was the countdown to the open. Good luck for the rest of the trading day. This is Bloomberg.
2023-01-15 02:36
