'Bloomberg The Open' Full Show (01/12//2022)

'Bloomberg The Open' Full Show (01/12//2022)

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Live from New York City this morning. Good morning. Good morning. Yields drop, stocks pop inflation data in America showing some signs of cooling equity futures of seven 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.

Life from New York. We begin with a big issue. No fireworks here. Inflation data in America calling once again, putting even more pressure on the U.S. dollar as the Fed begins to lean towards a smaller deflation.

The CPI report in December, CPI report. There's a lot of hype for this number. We have no choice but to follow. Our panel is. So it's the beginning of the year. It's the last inflation print before the Fed meeting. The economic models will tell you that

we need demand destruction to get inflation to come down. So the labor market that matters more than today's today's inflation report. In other words, we need a much higher unemployment rate. The Fed is now focused on the sliver of CPI that is wage sensitive and very focused on wages. Get rid of anything that's not attached to wages. But the problem is, maybe inflation

today is not driven by demand. At this point, it's a lot more noisy. For more, let's get to Michael McKee NIKKEI Michael McKee, your read on things 30 minutes after that report. Well, steady as she goes, the progress continues on inflation. There are a few hiccups here and there. But overall, it looks like the Fed can dial back its rate increases and start to think about when they might pause. The numbers coming back on expectations down a tenth of a percent on the headline, up three tenths on the core.

Food prices up, but decelerating gasoline prices fell off a cliff during the month. Apparel prices were surprisingly up a little bit, but we were just talking with Dana Telsey about that. And she said that's because men's clothes are selling better used cars down almost the same as the prior month. So some of the categories that had pushed inflation higher over the last year really starting to back off now.

And that's true in the goods area. You can see goods prices are continuing to deflate down half a percent from the eight tenths in November. Services prices, though, still going up. So that makes us look at the core services ex housing number, Jay Powers. No. And that was up three tenths of a percent in December compared to one tenth of a percent taking out rent and owners equivalent rent. And that's a number that matters to the Fed because they know home prices are not rising anymore, but it still shows up that way in the CPI.

So the question becomes, what does the Fed do from here? They were slow to react to inflation going up. Now, are they going to be slow to react to inflation coming down? That's an open question at this point, although we do have that. Harker from the Philadelphia Fed this morning saying he's ready for 25 basis points instead of 50. And Susan Collins said the other day she is, too. We'll see who else joins that parade today. I think, John, one of the key numbers that I just got this in from Amir Sharif of inflation insights is if you look at it on a three month basis, the core CPI is three point one percent and the six month is four and a half percent. So we're really seeing a decline in

sequential inflation that is taking hold here. You got to get rid of those base effects and you're really seeing some movement. So the Fed's going to be thinking about this now. And Mike is happening with unemployment at three point five percent still.

Yeah. We could mention very quickly that we only had two hundred and five thousand initial jobless claims and press by the holidays, but certainly no indication that we're losing a lot of people. Mark McKay, thank you, sir. Counting down to the opening bell, about 25 minutes away, 26 minutes away.

Equity futures are higher by seven tenths of one per cent. See the rally come into the front end to the bond market. The yield curve down 10 basis points on a two year, four point one, two per cent now on a two year on a 10 year, down 7 basis points to 347. And we're seeing a ton of dollar weakness as well. Euro, dollar reclaim. And I want a weight hand to want to wait 22 euro dollar positive by six tenths of one per cent.

It's now, I'm pleased to say, today's prayer. Misra Jim Bianco of Bianco Research. Professor, to you your first take on this one. I guess I think there were some

positives in the form of this. You know, inflation has clearly peaked. I think we're seeing goods, inflation continued decline. What I'm a little surprised by the market reaction is that the surface inflation service CPI is shelter inflation costs services, ex shelter. That's still high.

You know, it's actually accelerated over the last couple of months. I think if you take the Fed at face value, that's what they care about. I think part of the decline in inflation, maybe underweight goods, inflation is declining, commodity prices are falling, but the much harder body is getting that selfish inflation down consistent to 2 percent.

I think the market thinks that, you know, they can extrapolate this trend and that the Fed has medium one, not too much 25 basis point hikes. I think the Fed may have to actually continue to hike to our callers five and a half or four that don't. We're calling for a 50 in February. Maybe that's a 25, but I think the Fed's going to say we're not done. I think the market's a little too optimistic extrapolating that this decline in service inflation we could do, you know, historically. So this inflation is very sticky on the way down.

Jim Bianco, are you on the other side of the argument? Not really. I think what the market is should be focusing on as we go forward from here is where do we go next? OK, inflation peak 9 percent was the high. That's the easy call. It's very obvious that that's happened. Are we going to 2 percent without any kind of intervention, like a recession or anything else to dampen demand to get us down there? Or as Michael McKee just pointed out. Do we bottom out somewhere around 3 or 4

percent? The three and six month averages that we've seen, is that where we bottom? Because if that's where we bottom, that will be unacceptable for the Fed and that they will not be looking to pivot or they won't be looking to slow down the rate hikes. Yes, they'll move 25 basis points in February. That has been priced in for a month now, that it would be a 25 basis point move and maybe 25 basis points after that. But I think the narrative and the attention should turn to how far down are we going to go? Not has inflation peaked. This is what Sarah. House of Wow Saga is getting out as well. She says, we're approaching this last mile, this big effort, and that last mile will be the hardest mile. Pray you've made the same point.

Just how much demand destruction. You still think we need to get inflation to where the Fed wants to see it? So I think we need a lot more demand destruction, particularly in the labor market. I think businesses are hoarding labor. You know, we just did come down a little bit last week. But, you know, you used to look at your

dollar, your wages went north of four and a half percent. Not consistent with two percent inflation. I would also argue the lags point. You know, the long and variable lags. The Fed is looking at data right now. And that data on the labor market does not suggest that demand destruction. How forward looking can the Fed be to see that we take this demand? Destruction will happen in the labor market six months out. I think if you take them at face value,

they're saying they're responding to data as it comes in. So, you know, our view is they are going to be here. I think the market is cheering. We're pricing in more rate cuts at the end of this year, more cuts next year. I think that is a mistake because the

Fed is telling us they're worried about the mistake of the 70s. They really want to see that 2 percent inflation. And my views are there. There are structural forces that's going

to keep inflation high until the Fed accepts that and is perhaps low key with a 3 percent inflation. They are going to be reluctant to. I would even argue stop hiking later launched at CAC. So this optimism, why the two years falling is all these cuts getting priced in? I think that can get taken out as we hear from the Fed. They could stop it. You know, maybe it's five and a quarter or five and a half and then they're going to just stay there for a very long gain while that demand destruction that you talk about is an intended consequence of policy.

And they have to see that through. I think the markets are already looking ahead to wink and that easing happened. I think we have been reading for quite some time from Shery Ahn. You mentioned what's happening right

now. No doubt said. Renmark is pushing back against all these recession calls and talking about what he thinks is happening right now. Financial conditions are now easing and have been for a couple of months supporting economic growth right now instead of long gone forever. I think the likes a short and predictable. Jim Bianco, your thoughts on that, the fact that some people think Renzi seen an acceleration in the U.S. economy? Yeah, there's plenty of evidence to suggest that initial claims this morning at 200 and 5000.

And there really isn't a lot of evidence that the economy is slowing when Bryant says, you know, we need to see more demand destruction in labor. I want to say we would need to see any demand destruction in labor right now, because three point five percent unemployment under five thousand in initial claims and still printing 200 plus thousand for payrolls every month. That's not demand destruction at all. And if those numbers continue to move forward from here, it's going to be hard to bring that wage inflation down, which is a four and a half percent. I think much below three and a half or three percent. And according to polls, you know, services, DAX housing, you're not going to see inflation, you know, dip into a to handle without that demand destruction.

And if we don't get it, then we're going to have to pivot that narrative. As I was talking about earlier, to not just get inflation has peaked, but how do we get to 2 percent without a recession. And if we come out of a recession, does inflation just bounce right back up above 2 percent? And that's an uncomfortable question for Wall Street right now. Mike NIKKEI mentioned Patrick Harker a few minutes ago, leaning towards a 25 basis point hike over the silly said. He says this, though, in response to some questions in the queue and a safe is rising rates a bit above 5 percent. And then pausing now to your point prior. If we take the Fed at face value,

they're not cutting interest rates. But I think the problem at the moment prayer is that I can't find many people that are taking the Fed at face value. Can you? You know, I think that when you listen to the Fed, all they can sort of tell us is reaction function.

So maybe the markets understood their reaction function. I think where the debate in the market is the economic outlook. I think the market is a lot more optimistic than the Fed in terms of how quickly that inflation will decline. Look at the tips market. Market's pricing in one, inflation at 2 percent.

We're talking about it. Well, it's secular 3. But, you know, as as as a good team. But the market's bracing and well, well below that. So I think the market pricing in these

spots is not so much second guessing the Fed's reaction function. It's saying that the economy might be much weaker, that inflation might be much weaker. And so the Fed will have the ability to cut rates because inflation has backed up. I think the uncomfortable question to just bite as know is if what if inflation does settle at 3 percent, then I think the Fed is telling us very clearly that they need a much higher rise in the unemployment rate. Still able label to 5 percent, which we're very far from before they can respond. So it's really extension off.

What is the economic outlook? The Fed has one view and I think the market is saying, oh, no, inflation is now headed down, just as we could quite forecast how quickly it would rise. I think the market's saying we've all gotten it wrong. Inflation's going to decline much faster. I think that might be the disconnect. Why the market is so much below the Fed dots. Well, there's another dynamic we need to discuss as well. And Jim Bianco, that's China reopening. How much does that complicate the

outlook? Well, I think it complicates the outlook a lot because while China is reopening 0 Covid is gone, the mobility numbers are showing like the transit numbers that people are getting out of their house and finally moving around. What does that mean? Wall Street wants to think that means or 2019 is coming back. Everybody's going to return to the factory and we're going to make iPhones just like nothing happened in the last two years.

Or does it mean in China like it's meant in the West? That's why we got out of the house and we started moving around. There are fundamental changes to the economy in the West. Work from home, remote work being the biggest one that we're all familiar with. Does China experience some kind of fundamental change? So they are just penciling in a return to 2019, growth rates in 2019 production rates because 0 Covid has been lifted. Might be a little bit premature. Yeah. They're going to reopen, but we don't know what the composition of that's going to look like. And that does complicate things.

If you've got a base case yet, Jim, is it still too early? I think it's still it's still too early. But if I had a base case, it would probably be that the production numbers that everybody's expecting were really what Wall Street is expecting is raw material prices are going to rise because China, the factory, the world's going to suck everything. And whether it's industrial metals to energy, push up those prices out, the back side is going to be a bunch of finished goods, which is going to help to further depress core inflation. That's been the narrative for the last few months. I think that probably the first half is going to unfold. But the second half as far as the

massive amount of finished goods, because if if if China is listening to everybody else where the world's going into a recession, they're not going to be ready to really crank up production as hard as we think or hope that they are, that that might disappoint a little bit as we move forward. Fred, just a final word on China, please. So why is exam watching is on the stimulus front? I mean, you know, if China has opened up, how much are policy makers now going to put? It dumps a fiscal stimulus credit, easy Matt Miller 2015. Massive amounts of credit easing then was a global growth positive. I think, you know, our view is it's going to be more targeted. It's going to be on domestic meaning as

opposed to a global growth such. But I'm certainly watching that those credit numbers. And if that starts to ramp up, I think it takes a big risk for the economy out. That could explain why we're talking

about a recession, yet financial conditions are easing. Well, because China's going to be just growth engine too easy. I think it's it's still only we're watching fiscal as well as credit easing measures in China to see what the global growth outlook, what China growth outlook would be. Beyond just what's happening in the U.S., which I think a slowdown is ISE at this point, in our view, we have a

recession, big ditch for the second half of this year. Premier Jim Bianco sticking with us. Equity futures right now fading just a little bit. Still positive by two tenths of 1

percent into the bond market where we have got this rally at the front end of a curve running right the way through the curve, particularly in the two year. We're down about seven basis points on a two year to about 415. And the ASX markets and dollar weakness for your euro dollar just in and around 1 0 8. Coming up, another caller, inflation

print to. We've got an inflation report exactly as as we expected. We also got a reminder that the labor market is running pretty high. This year from Washington. Up next.

Yes, you got an inflation report exactly as we expected. We also get a reminder that the labor market is in pretty high aggregate demand, has momentum, putting pressure on resources that puts pressure on wages and therefore prices. Maybe this month on prices and wages, but the mechanics are there is the mechanism that you worry about.

Is there a little bit of good news to the Biden administration as the nation sees three straight months of cooling inflation? The president preparing to deliver remarks at the top of the hour. This coming as the controversy over classified documents continues to unfold in Washington. Bloomberg summary joins us now from the White House. Morning damage. Good morning, John. That's right. The president's likely going to seize on these numbers, especially the month on month decline. And so much of that was driven by the drop of gasoline prices when just a few months ago this was the biggest, biggest political headache facing this administration, especially heading into those midterm elections. And now they can really breathe a sigh

of relief where gasoline prices are going. But we should know he cannot claim victory too quickly. One on gasoline prices, because whether it's P.R. on their own or will Kennedy in the last hour with you and Tom talking about oil prices. They are expected to go up. So potentially it's too quick to really claim that victory on where gasoline prices are going in the future. And there's also other factors in this CPI report, like shelter, like recreation, like clothing that is going up. But overall, this is a good sign for

this administration. Can you tell me what the plan is to refill the SBA, Emery, and how much the reopening complicates that effort? Well, now that you see prices much higher, Jonathan, is going to be incredibly difficult for the administration to refill the SPRO. They want it really below 70 dollars a barrel.

And we are already above that. And when you have PR underarm and you have Jeff Curry talking about prices north of 100 dollars, that is not going to mean a refill of the SPRO anytime soon. And China, obviously, is the biggest question mark on this in terms of how higher gasoline oil prices will go and then thus gasoline prices, because we have a quick and clean reopening of China and they start consuming a lot more. And you can see the trend of just automobiles on the streets in Beijing and Shanghai start ticking up higher than that's going to mean higher oil prices and less of a fact that the U.S. is likely going to want to refill that SPRO anytime soon. I thank you. Down to the White House, we'll hear from

the president, the United States in about 40 minutes time, scheduled to speak at 10:00 a.m. Eastern time. Prime Minister Jim Bianco back with us. Jim, I want to talk to you about something we came into this year waiting for this growth slowed down and all of a sudden people are starting to pile in too long, GM equities, longer European banks. So for the last six months, the copper trades starting to deliver in a massive way. Nine. Goldman talking up eleven point five. Maybe at some point this year, looking at high yield spreads on the screen right now. The whites of last summer were 583 with

420. Credit spreads and rally. Jim Bianco makes sense of that as we discussed the possibility he is talking about the potential of a recession in the second half. Well, let's start with the most powerful drug on Wall Street, and that's mean reversion. That when you show a bunch of professional managers markets that are down a lot, their instinct is to bet that they are going to rebound, to revert to some kind of a mean.

So a lot of what you're seeing, as you mentioned, just to pick one European banks, European Bank stock index is at the same level it was in 1987. There has been no movement in European banks for 35 years. So the 30 percent rally that we've seen and then since July is more, I think, in the mean reversion CAC. So there's a lot of that going on in the market, too. Second of all, the narrative on Wall Street has always been a weak first half strong second half. So to take a word from the recent past. Everybody thinks that the weakness is

going to be transitory. Yes, it will give way to a second half strength. So look, past whatever weakness we see, look past whatever potential recession talk that we've seen caused only by the third or fourth quarter will be past that in stocks. And supposedly markets, as you mentioned, are supposed to be more forward looking than that consensus start to crack pretty quickly. It's only January 12th. We'll see how this shapes up in about a week from now. Just a final word from you on this.

This headline across the Bloomberg a few hours ago that you've responded to already. But I'd love your input on three months labor dollar life or exceeding the 2008 financial crisis. High pressure. I guess my first question to you is just how relevant is that anymore? It's not relevant.

I mean, there are very few new contracts actually do not decline or existing contract labor is going away in less than six months. They're all going to Moscow. So first, I would say it doesn't matter. What it does is bank funding costs are going up.

I mean, the banks are having to be more to keep deposits. They've been losing a lot of deposits as as Fed funds rates have been rising. You know, these are banks raising money in the wholesale market. I think the gender change, why it used to be I think is not obvious. But, you know, there's a process how that label is computed. It's still a floating rate index. It's going to go away.

I think it doesn't matter, but it does reflect that bank funding costs are going up. I'm under pressure. If the Fed keeps hiking, I think you will continue to see these funding costs for banks continue to rise. I think that's what it's reflecting. But it shouldn't be money for anyone. Thank goodness that sense is going away. To morrow morning. JP Morgan PFA will be focused on that area. Thank you, Mr..

And Jim Bianco with some big calls looking to sign 50 on Fed funds later this year and potentially a recession as well. Inflation data in America bank in line with estimates. Equity futures positive by just a tenth of 1 percent on the S&P.

The NASDAQ now slightly negative. That rally in the bond market fights a little bit. It's still low at the front and it's down by six basis points on a two year to 415. If you look at the affects market, that dollar weakness is started to come through. Recently, Euro Dollar had a look at one

away. Dollar Yen had a look at 129 euro dollar right now, 1 7 98. More on that in just a moment. Coming up, the money calls. And later, big banks kicking off earning season tomorrow. Jonathan Karl on Credit Suisse expecting a three to five percent contraction in earnings this year. That conversation coming up shortly.

24 seconds away from the opening bell this morning. Good morning. This Thursday morning, CPI data has come out. Bank in line with expectations. Equity features off the bank just about positive by two tenths of 1 percent, putting together two days of gains coming into Thursday. Can we make it three on the S&P? So let me down to the board and get to the bond market. Yields taken up as follows on a 10 year

yield in America. That's 3 or 4 basis points, sub 350. A little bit early this morning, 60, 41 right now. The high of last year, the 10 year peak to full, 33 back in October.

The well below that level now by more than 80 basis points affects market Eurodollar. Hello. One, two weeks away. Nineteen twenty on the dollar of six tenths of one percent. This dollar weakness is kicking in. It's real. I'm going to pick up on that story in just a moment. Crude right now approaching seventy nine on WTI, up by two percentage points on the session.

That's the cross asset price section. About 30 seconds into this one. We advance about a third of 1 percent on the S&P, on the Nasdaq, up a third of 1 percent. Also, one stock to watch at the open. It's Disney, the company facing a proxy war with activist investor Nelson Pound.

More on that is AP. Hey, John. Well, yeah, it looks like it's going to be a battle with the stock higher right now, up more than 2 percent. It suggests some shareholders and at least one analyst on Wall Street agree with Nelson Palace's view now. They, of course, did this morning try try on management file a preliminary proxy statement urging shareholders, other shareholders to support his nomination to the board. Some of those other shareholders,

Vanguard, BlackRock, State Farm, Newport Royal Bank, now currently tree on management has a roughly 900 million stake that would put them right around 22 or 23. So a pretty big shareholder there. And they are criticizing a number of factors right now. First and foremost, they really want a Bob Iger succession plan put in place. They're also talking about excessive compensation and the fact that the company has perhaps overpaid for some assets, including some of those 20th Century Fox Media assets. Now, relative to paying for them, the debt is high. This could be another issue right now.

Disney's long term debt, about forty nine billion dollars. So relative to the stock, though, this is another issue brought up in that preliminary proxy statement since its peak. It is down and this was came as a surprise to me. It's down 50 percent. I mean, it's really pretty incredible decline at this point that it's gonna be interesting to see how this plays out. And Nelson Peltz is known for having won some of these proxy wars in the past.

They're not for the faint of heart. It'll be interesting to see whether or not he convinces other shareholders to allow him to be nominated to the board. Brutal 12 months. Thank you. I started the show by saying that fireworks once some fireworks were surprise sanction. Bed, Bath and Beyond.

Monster. Monster, move. Have a look at this. Up by 15 percent. And have a look over the last three days as well. Kailey Leinz, explain this place. I wish I had a good explanation for why fundamentally this was happening, John, but it has indeed been remarkable.

This 15 percent actually now 17 percent gain today would be the smallest we've seen in four days, a four day period in which we have seen the stock rally 200 percent. It was up 69 percent yesterday alone, a record day of gains and really for no good reason considering last week this company warned it was maybe going to have to file for bankruptcy. Then we actually got results from it this week that showed a wider loss than expected. The company attributing part of that to its inventory struggles, struggles because suppliers have lost trust in the companies ability to make payments. SALES growth also has been floundering. So do fundamentals really support this rally whatsoever, John? The answer is no. Maybe we can attribute some of it to a

short squeeze, given that short interest in the stock has been rising and is now about 52 percent a float. But mostly it just seems like meme trader behavior is making a comeback because this has extended beyond Bed, Bath and Beyond. We've also seen gains in the likes of AMC and GameStop, even Carmona rising as well. So meme stops as a group actually had a pretty solid start to 2023, up about 10 percent so far. That only goes so far, though, to undo the damage that was done to these names last year that mean ETF down more than 60 percent in the last 12 months. Joel Weber. Bath and Beyond. Up about 20 percent right now.

Katie, thank you. Three or four minutes in then that unchanged on the S&P, almost negative. Now on the NASDAQ night by about a tenth of 1 percent. Some good news for the airlines after a rough couple of weeks. American Airlines beating estimates in

its prelim results on robust holiday travel demand low. These numbers pretty impressive. Yeah, they are impressive. You take the group as a whole. That group of U.S.

listed airlines, they're on track for their seventh straight day of gains, which would be the longest winning streak going back to August of 20. I like some good news at this time in the week. Jonathan, what's interesting is what the story is here. The EPA range for the fourth quarter, a dollar twelve to a dollar 17, almost double what the street was forecasting. Again, these are prelim results from American Airlines. They're talking about here. And this story is a there was demand over the holiday period, which is interesting because we're kind of trying to get a sense of how the consumer is doing right now. But there is some specifics within that,

which is these are not big corporate accounts in business travel, that is. Boosting American, it's actually SMB small, medium sized businesses along with that large, large leisure travel. That's boosting the airline. But again, a strong outlook or a strong premium call for the fourth quarter. Not so much sense, though, of what's happening start this year. Abby mentioned the airlines to start the year. The airline stocks are doing great. And thank you, buddy.

As always, you will hear from the president of the United States scheduled to speak in about 25 minutes time. We've had a tweet from the president, the United States just moments ago, the president saying the following For the sixth month in a row, yearly inflation is down. It might be rising economies around the world, but it's coming down here. And gas prices, food and more a following course.

There's a political line here that adds up to a break for families. Some proof that my plan is work. And you'll hear from more from the president in about 25 minutes that I say a third straight month of calling inflation. That is what we're focused on here, Jonathan. Got a big Credit Suisse turning his focus on what it means for earnings. Inflation coming down means companies

lose pricing power, even though we don't expect a recession this year. We do expect earnings down 3 to 5 percent in 2003 compared to 2010. Jonathan Karl joins us right now. So, John, I give you the opportunity

just to reflect, first of all, on what we heard in the inflation report about 50 minutes ago, an hour ago and five minutes. Your thoughts? Well, first of all, this was good news that inflation is coming down. But you have to really look under the hood and ask why is it coming down? And what we saw was that goods prices are basically free falling. We saw in I think it was February,

March, goods price inflation was up twelve point three percent and now it's down, I think two point one in this report. And that's because of, you know, we're further away from the heart of the pandemic in supply chains are opening. And, you know, autos are now more available. And that's very good news. However, service prices have remained sticky. And if you take out the you know, the rents, which are considered part of services, if you look at the plain old vanilla services, it's basically flatlining at a reasonably high level. So there's a little bit of noise.

But bottom line, this is really good news overall in terms of the strength of the consumer. So, John, I think if I look at the same thing you're looking at, the equity strategy team expects margin compression in twenty three, a mid to mountain sentencing and a tough pricing environment. They sent this and I know you thought about this. And that's why I want to ask you. They said still, inflation wasn't a uniform.

So, yes, positive. Where can you find that margin improvement in twenty three? John, you know, we have earnings coming down this year from, you know, something like two twenty one to twenty three, something in that range to 215 without a recession. So we're not doomsday on doomsday as on the economy, but we think that margins are going to be under pressure. Margins are relatively high broadly. But if I kind of look at this employment report and see whereas the real big issue is that wage growth right now is advancing faster than overall inflation, which means companies, the wage growth is going to be their expense and the inflation, which is their pricing power is coming down and companies have to pay out more employees and have less ability to pass that on.

Last year was the opposite. Everyone thought the companies were going to get squeezed by higher inflation and that was the opposite. They got huge pricing power. This year it's going to be a little bit more challenging, which is why even though we don't think we have a recession, we think profits are going to be incrementally lower.

John, earnings season starts tomorrow morning. They have HIV. Morgan next week, Morgan Stanley. And we'll hear also from Goldman Sachs as well.

We just talked more broadly about we are expecting an uptick season in just where it compares to, say, expectations at the moment. Is the pound low enough for you? And where is the lowest? Well, so does a couple of things that are going to we're going to see this earning season. Expectations are that earnings will fall 2 percent relative to the fourth quarter of last year. But if you look at the median company or the typical company, it's actually expecting to see a three and a half percent increase. What it really means is that the really big companies are having a harder time on earnings. And if you're a portfolio manager and you have a whole bunch of stocks in your portfolio, the majority of them are going to beat to the upside overall. So that's going to be one big theme.

A second big theme is that tech companies have been a source of Dow Jones downward revision, meaning that the earnings estimates for tech companies have been falling a ton. And in the last quarter, not only did they float on, but then they missed the lowered estimates. And we actually think that that's going to continue.

That tech is in kind of a sour patch, if you will, for for several quarters. Now, on the other side, even though energy is the price of oil is down, you know, over the last three months or so and gasoline prices is down over the last three months or so. The energy stocks, their earnings, their expectations are ripping. And we think that they'll actually surprise on better numbers. So there's you know, there's a number of different themes. The headline will be worse, but on a company level, things will be OK.

So let's just build on that. If tech can't regain leadership and last year's winners, energy to maintain momentum. That's going to leave the index. Pretty challenged, isn't it? Yeah, I think I think Jonathan Ferro. Yeah. So first of all, what would be the index from an earnings perspective? We think the numbers are going to be down.

Well, we. What we found we just did some research on this. That is that the majority of the years that when earnings are up, the multiple contracts or when earnings are down, the market goes up, as odd as that actually sounds. Last year, the earnings weren't great, but they were okay and the market was terrible because the earnings came down like the multiples of. So why did the piece come down is because last year, the cost of capital.

Your 10 year bond yield started to at one point five and ended the year at three point nine. This huge increase in interest rates and it knocked down the valuations of companies this year. We think the opposite is going to happen. We've already seen interest rates fall. We're seeing that even even today and yesterday. And that's part of the reason that

stocks are off to a good start. It's not because earnings are good. It's because interest rates are rolled down a little bit. People tend to not focus on that. And with that, John, the dollar is way to a whole lot weaker from its peak back at the end of September. Is that going to be a factor this earnings season? It's pretty well understood. We can see on the chart what's he going to show up? You know, it's never as big as we make it out to be. Roughly speaking, a 10 percent move in

the dollar is about a 1 percent move in earnings. So the dollar as U.S. inflation has been falling. The expectation is the Fed has to do a little bit less and the dollar weakens on that. That's incrementally good for corporate profits. But, you know, maybe that gives you 20

or 30, 40 basis points of earnings. It doesn't really change the overall earnings season, but it does make U.S. companies a little bit more productive. And you may hear some of that in the language from companies, but it really doesn't change the picture that much of a jump. Going to catch up. Jonathan Karl, if when an eye for a Credit Suisse. Appreciate it, John.

As always, buddy. Your broader equity market down about a third of one percent, 20 minutes into the session. We move on pretty quickly from CPI. The next stop for this market, of course, is J.P. Morgan tomorrow.

Banks America running. Then on to next week, we'll hear from the likes of Morgan Stanley and Goldman. Then on to the week after that. A week after that, we start to focus on tech. Tesla. Apple. John Tucker. Tesla Tech Company.

I dunno if you do, but Apple in early February is going to be a massive focus given the weakness we saw at the back end of 22 in a bond market rally on a two year yields lower by 5 basis points right now for 16. Fifty five, 10 year, basically unchanged at 363 64. I mentioned that weakness. We're starting to see in the US dollar. You can see it right the way through G10, particularly on the Japanese yen, dollar, yen. I said at one point five percent move today off the back of a local report in Japan suggesting there might be a policy review at the VHA as soon as next week. And now there are all these calls basically from Citi. Thomas talking about that a little bit

earlier this morning, that maybe yield curve control gets dropped completely. A Japanese 10 year new threshold, 50 basis points. This market is pushing right up against it. Keep an eye on that one. Coming up on this program, positive

signs emerging in the semiconductor place. It seems that there is such is that the border that the recession is going prove to be a major one. Then the impact on the semiconductor sector is going to be made one as well. We'll talk chips. Up next.

There sense is that the movement that the recession is going to be made worse than the impact of the semiconductor sector. Paul Sweeney is going to be made one as well. Makers like TSMC or Centro, the treaty had just to be there. Get back. This is a war between the leading edge chief manufacturer. They have to be in front of the race.

So so they keep on spending. Also learning, suffering, a mixed outlook for the industry. Sam is planning to cut spending, but the CEO striking a more optimistic tone, sinking into the chip crunch. It's a similar story to VW. The automaker expecting supply

bottlenecks to ease despite sounds plunging to an eleven year low. Team coverage starts right now with Olympics and not like here in New York, alongside Craig Trudeau in London. What are we learning on the chip from? It's a mixed picture, isn't it? On TSMC, they are cutting CapEx for a range of 32 billion dollars to 36 billion dollars, down from thirty six point three billion in 2022. They're talking about a decrease in

sales in the first half of the year and slight growth in the second half of the year, netting out at slight growth. Overall, less than single digits for the full year sales is going to be between sixteen point seven billion dollars and seventeen point five billion dollars for the fiscal first quarter. Below analysts consensus is seventeen point nine billion. So it's not clear whether the market you look at the US listed shares of TSMC the 80s were up 5 percent. Other chip makers lower. I guess, given the outlook broadly for consumer electronics demand.

Are they cheering that cutting CapEx? It's only very slight. On the other hand, as you say, when we look at the auto sector and these are pretty basic semiconductors, things that are processors translating the push of a button to an electronic signal, actually we see more availability of supply and growth in that market in 2023, which of course, is a boost for some of the automakers who left vehicles on the concrete right waiting for those chips to come through before they can be sold. A crazy thing. These auto makers get some relief sometime soon.

Yeah, I think you look at what happened with Volkswagen sales last year, an 11 year low for them, a 7 percent decline to just over 8 million. This is a company that for years in the lead up to the pandemic was doing 10 million plus units a year. And we know that this is a supply issue from just looking at the order book. They talked about one point eight

million vehicles just here in Western Europe that are ordered and awaiting delivery. So we know that, of course, this is a company that has had some some issues with product appeal and China has had some issues with software that, you know, potentially are costing it some customers. But this is absolutely the case, that they also have some demand that they've been unable to meet because of the semiconductor issue continuing to give them problems. The other big question as well for companies like Tesla is how much capacity do they need? Bloomberg learning that an expansion of this plant in Shanghai has been delayed over data concerns. And can you run me through that one? Yeah, I again, I think that the data concerns this is an interesting one reporting from sources over in Asia.

I think the risk here is that you pump out vehicles at high volume that then don't get delivered. Right. We know that in China, while there's been supportive policy and pullback on the Covid 0, the consumer is under pressure. But also, there's a risk of the spread of the virus, which has impacted overall sales in that market in the month of November and December. There's a column out this morning from our colleagues at Bloomberg New Energy Finance, which says basically overall, globally, we'll see a slowdown in the demand we saw in 2022 for electric vehicles.

Whether Tesla actually has a demand problem, we don't know. We have to go in is the reporting. They've used the lever of price cuts, which is indicative that they are worried about the need to at least catalyze a new demand going forward, particularly in China. I think let's finish that China reopening. Is this the game changer or not? Can we just put a bow on that? Yeah, I think there's absolutely the case that some carmakers have have, you know, pointed to this idea that they've just not been able to get, you know, people in the showrooms. They've not been able to get staff into those showrooms or into offices. So will we see an uptick in some

activity? Absolutely. I think the question to Ed's point is whether or not some of the issues that pre-date the most recent sort of round of lockdowns still have an effect on that market. When you talk about the profit property bubble and the sort of air coming out of that that Musk pointed to quite a bit toward the end of last year, whether or not that continues to be something that that plagues the industry going into 2013. Craig, thank you. Craig Tudor over in London. It's not like here in New York. Thank you, gents. Appreciate it. Tesla getting hammered this morning

again. The broader equity market totally rolling over here within six tenths of 1 percent on the S&P, on the Nasdaq were down one full percentage point IBEX the breakdown at the sector level. Hey, John. Well, not surprisingly, we have most centers lower with this decline, it sort of feels like it's out of nowhere, but it is somewhat substantial, down six tenths of one percent.

Now, the worst sector, health care. Down one point two percent. We then have discretionary tech and communication services. So not surprisingly, those are your heavy weight tech sectors. The big weights to the S&P 500 and therefore, do you have the index? Lower energy is up 1 percent as oil is also up one point two percent. But you know where I want to go, I was going to take a look at those techs rolling over, but they're not huge, huge declines. The bigger declines are smaller names. Take a look at these moves on the year.

Now, does this look like a recession to you? John, we have the airlines, as we've been talking about, up 18 percent on the year. Metals and mining and expectation of the global economy up more than 15 percent. And then entertainment and leisure products all sharply higher. Does not look like so far investors are planning for a recession. Let's see what happens. There's some big moves down. It's early days, but the big moves,

Sunday, January 12th. Keep saying that we're already questioning the consensus view. You can hear the cracks in it. That's twenty three minutes into the session. And then seven cents on the S&P. The Nasdaq now down by more than 1 percent. Coming up, you're trading down. Guessing the data is one thing. Anticipating how the market's going to

react to it is quite another in line on inflation right across the board slap bang on estimates. Directly markets lower by three quarters of 1 percent on the S&P and the Nasdaq were down by one point three percent. As the price action is the trading diary, President Biden delivers remarks on inflation at the top of the hour. Plus, we hear from Fed presidents bill out of Barkin. More Fed speak from Williams, Kashkari and Harker. Coming up tomorrow.

And it's the big banks tomorrow morning, say J.P. Morgan, Bank of America, Citi, Wells Fargo kicking off earnings season and finally to get to the weekend. We'll get you some. You miss consumer sentiment survey results to rant out the week from New York City. That is 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.

2023-01-13 18:30

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