'Bloomberg The Open' Full Show (10/03/2022)
So let's get October and two false starts here. Live from New York City this morning. Good morning. Good morning. Equities rallying the countdown to the open stocks right now. Everything you need to get set for the start of us trading. This is Bloomberg the open with Jonathan Ferro.
Life in New York. We begin with a big issue. Kick it off Q4. Look we've done a lot of damage obviously in the third quarter. There are still a lot of nervousness. The dollar's a challenge. In addition to this surge in real rates
its location between some of the central banks there could be further downside risk. Volatility is about 10 15 percent higher than it was a few months ago. This is a hard market. Getting those earnings expectations down is something that we really need to see. Investors will get to hear from CEOs. Investors want to hear management speak.
What kind of impact is this environment has on their business. Some companies report their earnings mandated and really kind of throw in more of a towel. We're bracing for some preannouncements and and earnings cuts. The mood right now is is one of extreme caution. Number one is earnings. Number two is P.M. ISE. We haven't seen that contraction yet. Number three is job.
Joining us now to discuss is today's program Ezra Academy's Fed Chair Prayer. France has set a catch over. The first question goes to you. Jim Bianco of Bianco Research said last week was about high volatility poor liquidity and financial stress. How much stress is that out there right now. I think there is stress. I mean if you look at any measure of stress be it volatility realized implied you look at risk assets. I think you know what we're dealing with is a global economy that's headed into a recession.
And the central bank community saying we're focused on inflation. That's public enemy number one. And so their ability to respond is just much lower. So I would say there is stress test. People are figuring out how to deal with volatility. You know what's a good hedge. I would say cash is the only asset that has sort of made sense. Not that you're earning any positive
real rates there. That's what's creating the stress. But you know I don't take it as a tough way to start on Monday but I don't think that stress goes away because the US data is still strong. I mean I think globally data has started to dawn. But as the U.S. data starts to slow down I think that stress remains because we just wait for central banks to respond and we don't get that response. So you know I think we just have to get used to high volatility high levels of financial stress and keep liquidity levels high. To what extent the market's cracking
here over the last few weeks has become a little bit nervous. What's going on in large bond market. You saw the golden market kind of become an utter disaster. It's trading all over the place. I think there's some fear increasingly maybe realistic that that breaks in other markets. We saw really weak auctions last week.
Treasury market liquidity is nothing short of awful. So I think that's something we've got to watch very very closely. If this continues to wreak we can have real problems because the markets just cannot withstand this level of Treasury market volatility. It was the gilt market that really caught everyone's attention. For me it was how the market responded. That was far more interesting than what
we got announced the week before. It was how the market responded to it. And the response that I got paint was that the U.K. market was unique and it is the pension fund. The pension industry dominates that market shapes it to a large extent. Do you think what we saw in the U.K. can spill over.
We can see more of that in Europe in the United States in treasuries in funds and elsewhere. I do think so I think we've got to be very cautious we got quantitative tightening going on. To me I've always believed that quantitative tightening and easing is nothing like rate hikes. It goes directly to asset prices. We have money coming out of the system right now. And just look at our own market. We've had this 20 year Treasury trading at some awkward yield that sticks out like a sore thumb.
Right. The biggest economy in the world the biggest bond market in the world should not have such weird kinks in the curve. We've had that. We put up with that. So yeah I think we are a little bit more fraught for danger unless we get this under control. When is the long bond stop behaving like
a long bond that's gone into a recession. So I think there's some of that getting priced in. It's really hard because the U.S. data is strong for the market to price and that many cuts. And you've got a Fed that's saying look as a 1970s we're not going to respond quickly which is why I think that long bond is struggling to rally more. You still have to see weak data and
perhaps it's weak earnings guidance. I think that's when the long one walks. I mean I will draw a distinction between the U.S. market or the U.S. Treasury market and the gilt market which is dominated by FDI. I think in the U.S. this long bond is going to become the risk assets hedge. Once data or earnings guidance starts to go down.
So right now we're barely pricing a Greek. That's 100 basis points of cuts. In our view. This is going to be a recession next year a longer recession than what most people think a deeper recession than most people think. So I think at that point the long bond will start to price cuts you know at least to neutral if not below. I would argue the Fed will need to get into accommodative territory in 2024 25. But the long one is a toady of view.
I think those rates will decline but we really need to see the data crack. And so far the U.S. economy is still on fire if it is here. Another way of asking this is can we break the positive correlation between equities risk assets and the Treasury market. So I think briefly we can. Ultimately I don't think we see the lows
in actually until we see a really big Rascoff move once people really start pricing in a recession. I'm with you on that. I think we are going to get a recession. I think it's gonna be deeper. It's going to come sooner even than she's talking about. And I do argue one. I think economic data is turning over faster than we realize. Some of the old data so August data
doesn't look as bad. You start looking at stuff that's more contemporaneous. If it's looking weak housing's looking weak. Autos used auto sales. Those are looking weak. Everyone I talked to in the retail industry is very unclear what the holiday season is going to look like.
More importantly what orders are going to look like for February. So I think we've got an overhang build and I think we're pointing to a lot of weak data that's already there. But you kind of have to look at the right thing. So I think recession sooner deeper and we end this all equity downside with the big risk.
OK move over. In the meantime I think we can get one relief rally. We'll keep building on that. Futures right now positive by about 1 percent on the S&P to kick off key for payrolls coming up later this way. My NIKKEI is gonna be on top of that for you. Morning Mike. Good morning John. I think the one thing I have learned is
never leave a British guy in charge of global sovereigns while I go on vacation because the questions become over the last five days. Are things starting to break or as even Peter Chair says. Are they just starting to break. Slow down as the Fed expects it to.
This week we'll find out a lot more about where we're going with that. The Fed raising rates the economy is supposed to slow but how fast and how far. The latest on manufacturing later today at 10:00 a.m. with ISAF. It's been strong but the real question is what about prices.
Are they starting to slow tomorrow. More on factories but the number of the day's job openings and labor turnover jolts because the feds made a big deal out of the number of job openings. They say that's a sign the labor market is still too tight. So is that still true. More on jobs Wednesday with ADP totally revamped.
Of course the new model no track record. So we're not sure what's going to tell us. But people trade on it. And then on Thursday we get the jobless claims numbers. Friday the big number the weak September jobs hiring is forecast to slow.
But here's the question how much and how much is it going to take for the Fed to change its mind on how much it needs to raise interest rates in November. A lot of people think this report really won't change their mind. But if it does slow significantly or we see a jump in unemployment maybe the Fed has license to not do 75. We'll have a pretty good idea of what they're thinking by the end of the week John because nine of the 19 policymakers are speaking this week including New York Fed President John Williams who usually gives a pretty good signal as to where Jay Powell is going with things. We'll also hear from new governors Phillip Jefferson and Lisa Cook.
So a lot for people to digest this week. Matt McKay Manchu and crewman almost agreeing that the Fed risk taking this too far. What do you make of that. Yeah I think what we're seeing now is the. The idea that the Fed and other central banks don't know how far they can go. And we're starting to get signs from the
markets that they may be going a little bit too far. We'll see if things calm down in markets. And if they keep getting slower in the economy then maybe the Fed will have to change its views. Mark McKay thank you sir. Pray at the line that stuck out for all of us when it came to the Fed speak.
And you can pick up on the new ones the differences between everyone but vice champ Ryan ad when she says we are committed to not pulling back prematurely. Is that one of the most important lines that comes out of the Fed speak at the moment that committed almost to being late. I think so. I think they're telling us that they are going to be focused on inflation. And you know until inflation gets down to 2 percent they're not going to ease up. The other thing it tells us is things can slow down but it's it's what the pain that they've talked about. They will be being in this adjustment process.
This is what this is collateral damage. So I took that to be very bearish for risk assets and actually telling me that the Gulf can keep inverting even the first sign of slowing in growth. The Fed is not going to respond. And so I think the problem is the cost of the 1970s is I think going to constrain the Fed. I already think that they should be
looking at lags in the data. Forget looking at lags in inflation which will take a while to come down. They're almost telling us that they will not be responding to weakness in an economic growth. And therefore you know they're going to be late. I think they're going to have to cut a lot more because if you start lean you have to grow a lot more which is why I think the market's underpricing the extent of cuts in 2024. But they might even start cutting 24 as
opposed to we're looking for them to start easing end of 23. But if they're so worried about the 1970s mystique being repeated I think they're just going to let the bean build until they're absolutely sure that inflation expectations have been anchored. But you look at the market I would say and inflation expectations are well I think that the Fed can take some comfort in that. But I think it's the 7. It's all the research on the 70s that's gonna make them leave. This time round in responding to slowdown and following the labor market being emboldened by pay.
Can you talk to me about the risk of being emboldened by a lagging indicator with claims south of 200 k just keeping the light green green green bright green for them to keep on hiking. No one will get a lot more clarity this week as there's been a big divergence between the household and the establishment survey on non-farm payrolls. So we'll see some of that. Whether that clears up at all.
I think on the Fed they've been talking very tough game since Jacksonville. They're clearly on point. They get everything together. It's relatively easy to say you're not going to shoot to see the whites of their eye is then actually do this. So I think that the data starts turning over any weakness. You're going to have a lot of second thoughts because as much as they don't want inflation job losses and recession especially coming into election are awful. So I think they are talking very tough. There's sticking to a script but how
strong they'll be if that data rolls over. I don't know about that. I think one line that sticks out to me has been used by a few people over the last week.
You can't fire what you can't hire pay. It's been a massive struggle to attract talent. And I just wonder how badly earnings are going to look how bad earnings will look. Before we even start to see any deterioration in the labor market given that so many of these companies couldn't hide what they were looking for. That's what I'm looking for is a deterioration in these service providers. So I think companies are gonna be very reluctant to hire or to fire their own people because like you say it was so hard to get people. They're going to keep what they have.
But I think we'll start looking at cutting whether they kind of cut down their accounting scars web services stuff like that. So I think you're going to have to look there to see the first signs that mainstream economy is really hurting. Peter Chase they can with us alongside premise a whole host of people cut in price targets this morning sexy cut a swathe. Jonathan Collins set this over at Credit
Suisse on the S&P 500. We're lowering our 22 price targets 38 50 from forty hundred initiating our twenty three Tom Keene to 40 50. This implies seven point four percent upside for the end of 22 5.2 percent through next year. So they're cutting the price targets
though I have to say got up over a Credit Suisse is still standing pretty bullish. We'll pick up on that story a little bit later. Equity futures right now positive 1 percent on S&P about 20 or so minutes away from the flip out of next Credit Suisse. So financial stability concerns clearly. I mean the stuff that we're seeing now with these banks UBS Credit Suisse etc.
People are just worried about potential financial stability risks. That conversation up next. Central banks embark on inflation fighting at all cost with raising rates and potentially destroying liquidity. Something can break where we are at this juncture. It's different from the Lehman moment is different from the global financial crisis that we don't have balance sheet recession. We have a recession likely engineered by central bank tightening in order to fight inflation.
Our expectation for default is more contained versus what's actually in the price. She has a credit squeeze hitting an all time low. The cost of insuring the bank's debt against default reaching a record high. The CEO writing in a memo Friday. This is a critical moment for the whole organization.
No doubt there will be more noise in the markets and the press. I trust that you are not confusing on day to day stock price performance with a strong capital base and liquidity position of the bank. Sonali Basak is going to be on top of this story for us on Wall Street. Correspondent Shannon. Good morning.
Good morning John. Thank you very much. You know you have the CEO of Credit Suisse a senior executives speaking to employees to investors to clients throughout the weekend as you see their credit default swap spread out. However remember we have to do this with a big tone of reality here. These are still very far from distressed
levels and they are not what we've seen with banks in the last decade or so. We have Boaz Weinstein of Saba Capital really tweeting online saying that this feels like a lot of scaremongering. This is not as wide as we've seen even Morgan Stanley in 2011 and 2012. Another interesting comparison to make
is more recent with Deutsche Bank in 2016. Remember Credit Suisse says capital ratios now are higher than even when Deutsche Bank was at that time. Yet again as we've been talking about the credit credit default swaps have just widened out so much at that time. Remember Deutsche Bank was facing a multibillion dollar fine. Now Credit Suisse as we know does not have one massive event like that coming up. However we know that regulators would
look at this and be worried. They'd be worried for a couple of reasons here. Those reasons include that Credit Suisse is facing here a very vicious cycle of rising funding costs as well as a declining stock price. So the cost of funding is going up for the bank while revenues are also under pressure. And there is concern among investors that the longer term here is what you have to keep an eye on. What how does Credit Suisse make it
through this market. These challenges in the near term with its stock price just makes that turnaround even harder. And like the CEO has told his employees just this weekend as the stock is falling like a thud what he told them was he's looking to rise like a phoenix from the ashes. So they are focused on that turnaround
plan for the end of October. Can they hold their stock up until then. Good luck to them snarly because we all know some fantastic people who work at that bank 2009. We always have to have the 2009 conversation. That's just part of the 2009 story.
And just focus on this bank. They're going to come out of the strategic review at the end of this month. The new strategy whatever it is. Charlie most people assume that they're
going to have to raise capital. Tell us how much they might have to raise capital by based on the reporting you've seen and how difficult that will be with the stock with straight trading with a three handle that probably one of the more prominent notes around this is are KBW estimate around 4 billion dollars 4 billion euros or so. Listen the problem here is is that raising money if they have to issue shares at this point to your point with the stock declining that much it would be highly dilutive for long term holders. And they could also sell some assets but it wouldn't get you to that four billion dollar mark. So there is a lot of money that could be needed for this turnaround plan which again this turnaround plan before we were talking about the issues on its stock and otherwise which have now been down more than 60 percent this year.
We were still looking at a multi-year turnaround. So how did these issues that we're facing today for Credit Suisse compound that issue even further as they look through a turnaround for a tough economic cycle as well 2008. John you know this the regulators really have to be watching this with a lot of bated breath. Even with those capital ratios being in the targeted range here a big sign.
Sandy thank you. Sonali Basak on top of this story. So us should do that for a week no doubt. Want to come to you on this Peter chair. Can you tell me how useful to see this
market actually is to gauge risk like this like this conversation we're having right now. What you might call it. So I agree with what I said. I think this is a little bit overdone. One the CDO market tends to overshoot right. It's fairly illiquid. And there's a couple of other factors
that are really impacting the CBS market right now. One is overall bond prices are low par. So there are these technical factors when bond prices get below par and well below par across the globe not because of credit risk but because of overall yields. So that impacts the pricing of CDO spreads. You've got a liquid bond market so people need something down. They'll go to the CBS market which does tend to be a little bit more liquid in times of stress. So I think it's a little bit overshot
and you can only take so much out about this. And then when people start converting CBS brands to default probabilities there's a lot of noise in that one. Not every reason you're getting paid a basis point of spread is because of credit risk.
There's all sorts of liquidity risk all sorts of other reasons to get paid that you have to look at recoveries. And finally especially when it comes to banks the regulators learned one thing through 2007 that. We do not let this get to a fear point in senior credit and it's not at that point. I don't see any way they will get to
doing that separate from what they're trying to do on inflation fighting. They all know you can not let this creep into the banking system. So I would not be too worried about what's going on in Seattle on the bond side at this point. If just to pick up on that then. Are you saying on the bond side that's the better way of measuring the amount of stress that might be out there in a single name. I think you have to take a look at all that.
Yes. If you want to look at that you want to look at where the subject is. So there is some stress. I think it's overdone. I think it winds up coming back tighter in the coming days and weeks. A Mister can you tell me just how you're gauging how things are developing in Europe. Sure. Well I mean in Europe you mean U.K.
or Europe specifically financial instability. You're starting to see Italian spreads blow back out over the last couple of weeks is a worry the ECB might have to step in marathon as the theme the theme of the last week. We spent the last year talking about central banks attacking inflation. Now the concern much more so on financial instability whether it's the gilt market or Credit Suisse. Absolutely. And I think it's apt.
It may seem at odds with the ECB is going to keep moving the rates higher. It's going to be hard for them to prevent that widening in Italian spreads. I mean they've got that policy and they might engage. But in our view they know it's a little
high. I mean they're fighting one problem on one hand and then they create financial stability issues on the other hand. I mean it's a tough balance. But I I think at some point they're going to have to let these spreads widen.
And at some point it brings capital in. I think they have to get used to cost of capital across the board is rising. It could be higher for Italy than it would be for for bonds. There's only so much the ECB can push back against that. And I think that's going to hasten the
slowdown in Europe where the financial condition state and a lot ECB is unable to I think get those Italian spreads much tighter. I think they could just slow down. It's what the BOJ is doing. That is a common theme here that they are trying to tighten financial conditions. But at a slower pace.
But they are fighting. And I think all they can do is try and slow down the process as opposed to really fight it. So we're actually negative on Italian spreads on Spanish spreads because we think the ECB is going to have to continue to hike given their very high inflation print. Just finally I've asked this question 20
different ways over the last week. If these central banks have to choose between recession and financial instability or higher inflation for longer. What do you think they choose. I think they are going to have I mean I think financial stability is something they will push back against. I mean at least slow down the volatility
prevent this from beginning to end. It becomes a VR shock. You get all sorts of relation breakdown etc.. So I think that they're going to try and push back against too much financial instability. I think they're going to risk a recession. I mean six months ago I would've told you that they'll take the high inflation around. But increasingly I'm getting the sense that they are so terrified of an inflation problem that they will risk a recession just to get inflation maybe not down to 2 percent to 3 percent. Maybe that's the new 2 percent.
But I think the levels are just too high for them to tolerate high levels of inflation just to keep growth going. I've heard that from a few places now that eventually they're just going to have to accept three pretty miserable pay to chase the two of you. Thank you for kicking off Q4 with us. Features right now positive 1 percent. Coming up the morning calls and later
sites look up how long it expected the S&P 500 to head towards 3 CAC. Luca joining us around the open about from New York this is Glenn Beck. Five minutes away from the opening bell. Equity futures with a decent pop here. Will it stick up 1 percent on the S&P up six or seven tenths of 1 percent on the Nasdaq as the price action. Here are your morning calls. First up Morgan Stanley upgrading blocks to overweight 30 fourth on a price target highlighting the company's solid macro positioning and more favorable backdrop. The second call from Goldman upgrading
Wells Fargo to buy what down groaning city to neutral expected in the two banks to perform much differently in a recessionary environment. And finally August downgrading Nike to a hold warning that high inventory levels could pose a threat to upcoming earnings. That stock is down just a little bit by a tenth of 1 percent.
Up next investors gearing up for a critical earnings season. Look at power leaning warning. Recession is inevitable. Expect in the S&P 500 to head towards 3 CAC. That's next. The open about just around a corner. Live from New York City this morning. Good morning to you Bill.
Kind you tend to be open bell about 20 seconds away September. Absolutely brutal. Down and down. Hard on the month. On the quarter for a third consecutive quarter on the S&P 500 the longest stretch of losses.
Quarterly loss has gone all the way back to 2009. This year the best route to the poor to get to the bond market is shaping up as follows on a 10 year down 15 down 15 basis points on a 10 year yield to 367. Before your eyes shine a little bit of weakness you write down a negative a third of 1 percent and 97 74 and crude exploding higher on speculation that OPEC plus might be about to deliver. Cuts were up 6 percent on Covid.
Eighty four dollars and a run up at 20 cents as a cross asset price action. This gave some movers is Katie. John we have Tesla dropping from the bell and is going to have more in just a minute.
But just know that while actual deliveries were at a record we're talking about three hundred forty five thousand cars. That number still fell short of estimates of Tesla lower by about 4 percent down more than 12 percent over the past two weeks. Moving on we have Palatine oh just a little bit higher after signing a deal with Hilton to put bikes in over 5000 U.S. hotels. This is the first chain to offer pelt on bikes across all of its branded U.S. hotels.
It's needed good news for Palatine but just a drop in the bucket. The shares are still down about 90 percent over the last year. And moving on like you said it's shaping up to be a big day for oil.
That's after weekend news that OPEC plus considering an output cut of more than 1 million barrels per day. That's boosting likes of Exxon and Halliburton. This morning you have crude about six percent higher at the moment. Candy thank you. What a pop for energy and for the energy names on the S&P 500. About a minute and 20 seconds into this. The S&P up by 1 percent. Energy names are up by more than 2 percent this morning.
Stocks rebounding just a bit after recording their biggest monthly decline in more than two years. Investors gearing up for a critical earnings season. We are starting to see some companies rip off their earnings Band-Aid. We're bracing for some preannouncements
and earnings cuts. Headwinds are beginning to intensify. Getting those earnings expectations down is something that we really need to see. And the growth outlook remains dire. There could be further downside risk of starting to show some cracks in the foundation. The equity market probably has further to go down. There are still a lot of nervousness. The mood right now is is one of you know
extreme caution. There's still room people believe for more downside. For more let's catch up with Dani Burger. Hey Danny. Hey John. It's really going to be the question that we ask all this earnings season is the worst of it priced in.
If you look at just a headline basis for earnings per share per share. It's hard to argue that it is priced in. Again that estimate going forward through next year every quarter shows a gain in earnings. Have you expect a recession next year. This is certainly not an earnings
recession. Matt Miller over Matt Miller over at Miller Tabak points out that every recession since World War 2 has seen a decline in earnings. That is not what's priced in now. To be sure at a bottom up level we are seeing those revisions drop.
We have net downside revisions more so than upgrades for the seventh CAC 17 consecutive week. It's not surprising considering we've heard everyone from Micron to Nike to CarMax all of them warning on their earnings. But even this picture John we still got to ask is this the worst of it considering that margins are under pressure with high prices and a fed that is intent on continuing to tighten conditions. Many easy easy money for these companies. Certainly over the corporate guidance the numbers the earnings the sales the deliveries not great at the moment. Dani Burger thank you. Tesla front and center on that front.
We're down by almost 6 per cent on Tester in early trading. Shares of Tesla under pressure after Q3 deliveries fell short of estimates. The company running the following as up production volumes continue to grow. It's becoming increasingly challenging secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks on top of this.
We're lucky to have not fly with us money. Yeah. Good morning John. Frankly. This was another record breaking quarter
for Tesla in terms of deliveries for factories on three continents firing on all cylinders. But ultimately that delivery number three hundred forty three thousand eight hundred thirty vehicles was considerably below consensus. Now we see the stock down six point four percent biggest drag on the Nasdaq 100. Basically a transition to a more even regional mix of production across these factories meant that more vehicles were in transit at the end of the quarter. Elon Musk took to Twitter. You won't be surprised to hear to explain that they were fighting increased expediting and cost the end of that quarter.
And going forward they hope there will be a smoother and more even distribution intra quarter in terms of those delivers some on the street. And indeed the big test the fans took to Twitter at the weekend to kind of front run this stock drop. Right. And say the naysayers are going to say that this is about demand. Well the sell side seems to believe Tester's excellent explanation that this is an issue of the stakes. One other data point I point to is the percentage. Vehicles produced that were delayed
delivered around 94 per. That is very low relative to the prior 15 quarters which does give some further evidence that this is not a demand issue. Simply the cars were ordered. They just weren't delivered as customers. We looked in that December quarter data to find out what the true effects of global raising rates is and inflation on the consumer. And are you surprised we're still grappling with these issues right now going into 2023. No not not particularly partly because this commentary has been consistent right.
I'm thinking about what I'm hearing across some of those preannouncements in earnings. I spoke to Amazon's SVP of Devices Dave Lim last week and he said actually the components picture is improving various semiconductors parts for electronics. The issue that is lingering is moving things from A to B. He talks about ocean freight for example having basically unpalatable high costs. Well this is what Tesla's saying as well that there's always a sprint finish at the end of the quarter for Tesla.
What they seem to be doing is saying we're not prepared to pay what all carriers are asking us to pay. We need to fix this longer term. And you wonder how much that is an inflationary factor. Right. I remember talking to you from the port that a you know a year ago thing. What's the read through here from these
freight costs through to inflation. What was we zero in the freight cost is still high. John is what I'm trying to say. A company that's already been a year. And thank you. I don't like on a story for us all day on TV and on radio.
Tester down about 6 percent the biggest one day drop going back a week. A stock has been all over the place for Dan for three straight sessions on Tesla. Pete take a look at how many expect in the S&P 500 to head towards 3000 since the following global recession is inevitable. Inflation is always and everywhere a
problem. US investors should diversify away from US stocks start reallocating strategically into government bonds especially in the US as nominal GDP growth has peaked. Luca awesome to catch up some big cause here. Let's start with the bond what you call the peak in government bond yields. Why yes monitor that. I think the main reason look is that
inflation has peaked in the US. Growth is weaker and I think the Federal Reserve is coming to the end or weakly. I think to this kind of monetary tightening. So I think you put everything together.
The sentiment is very bearish on bonds. I think all the conditions are there for a peak in bond yield especially in the US. I think much much less so in the rest of the world especially in Europe. Lucas specifically in the US is that right. The way through the curve 2s out to tens or is it a particular part of the curve where you have a little bit more conviction on. Look we think that bond yields have peaked.
I think the two years have probably peaking right now as well. So I think as a general kind of decline in bond yields that we see across across the curve and I have to see that we need to see a steeper yield curve to get more optimistic about than the markets in general. Look at the 10 year peak in that. Is that dependent on what this Fed does or does not do. Or is this just a world where you think this bond market particularly the long bond starts behaving like a long bond typically does coming into a recession. Well look I think the situation I think is pretty clear. You have a peak in nominal GDP growth
and bond yields always followed that. I think the question is if the Fed is going to tighten much more than they should and I think the jury's still out on this. But I do believe that the Fed will look at the growth numbers and I think you're going to hike a couple of times more.
But markets always anticipate the next move in the next move I think is going to be for the Fed to sound a little bit less off cash. And this should really give a lot of I think a boost to bond markets in general. Mike Wilson of Morgan Stanley talked about what that might mean for the equity market. This is what he had to say. The moment the Fed decides to put out the fire stocks and other risk assets are likely to rally sharply.
Trying to play that for more than a tradable bounce is a bad idea in our view because we still have to deal with the upcoming oncoming earnings recession. How bad do you think these earnings are going to be lucre. And do you think what's happened with Centex. What's happened with Nike. The reports on Apple are a decent indicator of what you can expect through the next few months. Well look I think as always earnings we
probably saw a president the upside. But the reality is that we need to look at the guidance. And I think what I want to see is what companies are planning to do especially in terms of investment plans. We tend to focus a lot of consumers. Are the consumer spending yes or not.
I think we have really to look at what their plans are in terms of investment and that I'm ready worried because earnings are falling. I think obviously confidence is down and it's difficult to see any reason why there should be an expansion in investment spending. And if there is no expansion investment spending you have a recession. And I think so there is more downside on earnings in the coming in the coming quarters. But I have to say that what I'm going to
look at is the guidance not so much the earnings per share which I think they're going to be very weak but they're not going to throw markets down. Luca on your latest note you you wrote down the preconditions for adding to equity exposure. Could you share that with us. What are the preconditions. The list of things you're waiting for to add to equity exposure. Well the first is to to have earnings
kind of expectations at least in line with trend. If you look at the U.S. we're still. 18 percent above trend and we are just pretty much entering a recession. That's clearly not sustainable. The second thing that I want to look is a peak in short term interest rates or a steeper yield curve. And then ideally I would like to see more attractive valuation which is not necessarily what you want to have because it means that the market should fall a little bit more but definitely a steeper yield curve and a trough.
Also negative revisions as well. And you have seen a lot of negative news on revisions. So I think this is the preconditions that I want to see before turning more optimistic on stocks.
Look we went through the opening quote of yours and we picked out the peak in nominal GDP picked out the move into government bonds. Let's pick out that final piece of it. The US investors should diversify away from US stocks. Look at to where and why away from the US. Look John it's not going to be easy. And when we have a global recession and markets down there are not many places where you can hide. I think I can mention one though. Japan. Japan.
You have an economy that is actually growing. Interesting. Now there is no risk of inflation. Monetary policy is supportive and you still have decent valuation and obviously the cheap currency as well. So you have to mentioned one now
probably the Japanese equity markets the most attractive for U.S. investors. Are you comfortable with that over a long time horizon. What is the time horizon for that
investment. We're talking about six months of 12 months. I think if you go or read that I think the attraction I think of the of the of the US markets probably more more significant. But over the next six to 12 months I think for the U.S. is going to be difficult is going to be difficult for Europe to cut Asia especially Japan.
Look about leading a think tank. Fantastic. To catch up sir. As always the S&P 500 up by around about six tenths of one percent. Talked about this energy move in the
commodity market rallying off the back of this story around opaque plus energy names on the S&P right now of three point nine eight percent up almost 4 percent. That's a big story for us this morning. Coming up Europe's energy crisis continuing to escalate. We're challenging at a very challenging moment now because the war is entering a new phase now. So it seems we also see that Nord Stream supply was cut first of September. We'll get the latest on Europe and the latest on OPEC. Plus in a conversation about output cuts next.
This is Bloomberg's The Open I'm Lisa Mateo live in the principal room. Coming up Bob Dole Cross Mark Global Investment CIO. That conversation at three thirty p.m. in New York at 3 p.m. in London. This is Bloomberg.
We're a challenging and a very challenging moment. No because the war is entering a new phase. So it seems we also see that not stream supply was cut first of September because of the positive element here is that the prices are not continuing to escalate as a deed passed lows when Putin was using the energy blackmail.
But in conversation there with Spain's deputy prime minister Nouri Covina speaking to Bloomberg's Maria today I got to some breaking news here stateside. Let's get to it. Is my McCain. Well Joe the Fed is trying to slow growth but the first indicator of the month of October suggests there's still strength in manufacturing. The S&P global PMI for manufacturing in the U.S. is at 52. That's up from fifty one point eight the prior month.
The forecast was for no change. So a little bit stronger on the manufacturing side than we had anticipated. I said manufacturing comes out at 10:00 top of the hour and that is also expected to register 52 which would be a decline in that index. We'll see. The world is struggling right now with
manufacturing outside of the United States. We're pretty much the only country showing expansion. You look at the global slowdown in Europe today. All of the countries reporting in the 40s.
Italy had a slight rise but still below the 50 mark. And so we're looking at numbers that are just telling us recession is pretty much here on the European manufacturing side. Might NIKKEI what you learn from the regional Fed Indicators at the same time.
Well the regional feds have been telling different stories depending on what region you're in. But they have all kind of at least regrouped I guess was the way you'd put it. They're not all falling anymore. They're not rising hugely. But it does show there's still some strength in manufacturing in these regional indexes. And it suggests that the Fed's work is not done on that side. We've been expecting manufacturing to slow in favor of services but so far manufacturing.
Hang Seng Matt Miller thank you. Looking forward to the breakdown of the data in around about 13 minutes time. Mark McKay and the team breaking down. I assume it ran about 13 minutes. Looking forward to that. Yields much much lower this morning with down 15 basis points on a 10 year to 360. Eight at the front end on two is down about 15 basis points to four point one to six per cent in the equity market rally up by more than 1 per cent leading the way energy stocks up by four point six. Energy and commodity market running in
hard opaque plus considering an output cut by more than 1 million barrels the first of that size in more than two years. And as you aspects and read a sense saying the following OPEC price are very focused on stronger U.S. interest rates and its impact on emerging market demand. Hence they want to pre-empt any possible surpluses in the global market. Team coverage starts right now with Bloomberg's Maria Tadeo in Luxembourg alongside Will Kennedy in London. Will first to you given the team surprised by this one from a pack plus in the team. I think we were surprised that they
suddenly switched to an in-person meeting which suggests that they are going to take significant policy action. And of course a cut by 1 million barrels a day or more would be a significant policy action. But I think OPEC has been headed in this direction for a little while. They are clearly as one meter said concerned about the slowdown in the economy. They're concerned about the weakness in China's economy. And they felt that they needed to act
and act soon before the market got away from them. So to an extent. But I think that the momentum to some sort of cuts has been building. Well we're having the bets waste right now whether this one goes on for twelve or thirteen minutes or longer or shorter in person in Vienna. Is this gonna be a long meeting. I think it will be longer than the 12 to 30 minute meetings that we've been used to because you know they've all traveled a long way to get there. Apart from anything else. But clearly it's an important moment in
OPEC that getting back together in person after two years I think there are a lot of ministers are keen to do that to reconnect with their colleagues to sit down and have a one to one bilateral as they haven't done this for more than two years. So I think we can expect a slightly longer meeting. And if they are going to discuss things other than production levels perhaps they're going to discuss how the agreement works into next year what people's baseline quotas are.
That kind of thing then yes it may take a little longer. We'll see. It's probably not what energy ministers across Europe would like to hear. Maria Tadeo what's the latest where you
are. Listen they have to deal with a lot. Here they have to deal with an escalation in the actual war in Ukraine. They have to deal with the energy war double digit inflation and of course calls now for a recession. So it is a lot. And then on top of that Jonathan and I really want to stress is a number of countries also taken aback by the mega package that was announced last week by Germany. Two hundred billion euros.
Of course there is. To put it diplomatically some questions around whether or not this is a problem for the level playing field in Europe. Remember not everyone has a fiscal capacity to deal with a crisis of this magnitude that Germany has. And to me what this says and this is a
takeaway that I take from this is that the countries that are pushing for this price cap on gas will now double down on this saying OK you do it 200 billion euros but then we need to cap gas prices. It's the only way everyone gets a fair deal. So this story is far from dead. Maria just pick up on something you said. How united the Europeans still on this issue. Look this statement does rule.
Here is that you need to stay united and show solidarity is so far the European Union as you know has approved every sanctions package. Unanimous. It's the only way this can get done. But there are a number of countries that behind the scenes here will tell you they were taken aback by the lack of communication from Germany. The fact that the announced a huge package.
Two hundred billion euros it is very difficult to match for another number of countries. And they now want to show or see from Berlin what is a political direction in the next few months. So there is a lot of pressure on the Germans to not change course but explain themselves. Richard I will. Kennedy to you. Thank you. Appreciate your time as always on the commodity market and beyond. Brent crude by four point ninety three percent on Brent to any not 40 on WTI.
Up by almost 6 percent this morning. Up by five point nine percent to eighty four seventeen. So we get you some sector price action. Let's do that. We categorize it out. Hi Katie. Hey John. Well if you look at the sector level you're looking at a big broad rally.
I see about 10 of 11 sectors higher today with energy leading the way. That's of course in anticipation of that potential OPEC plus cut. Consumer discretionary is your sole laggard. As you can see there that is mostly Tesla's fault.
That's the biggest percent and points loser in that sector. And if we focus on autos and on oil specifically of course Tesla missed on those delivery forecasts. It's dragging down the likes of revision. It's dragging down the likes of lucid. That is bringing down an index of U.S. automobile makers. So you didn't have the likes of GM turning positive oil.
Meanwhile while America's oil and gas it's the U.S. shale producers that are actually up a bit more than the larger multinational rivals on that potential cut. But all oil today really just screaming higher. John crude getting a nice rally. Casey thank you. Up by five point eight percent on WTI up by four point nine percent on Brent Energy Equities up by four point two percent on the S&P 500 on the S&P on a benchmark we travel higher pushing higher by a little more than one full percentage point. I'm next on the program. The trading diary from New York City.
This is pulling back. Equities rallying this morning 25 minutes in. Good morning to you. State of play looks like this on the S&P advancing by one full percentage point on the Nasdaq 100 up by seven tenths of 1 percent within the S&P. The sector breakdown of the rally this morning leading the way. The energy names off the back of the
rally in the commodity market with crude pop in higher off the back of a conversation about our OPEC plus cuts cuts to output supporting crude supporting the energy stocks this morning to yields are lower. I would say aggressively so too stands in 30s. This market's all over the place. We're down 14 basis points on a two year yield there 413 82 on a 10 year down about 12 basis points to 370 through 4 percent last week. Briefly and I think we closed last week for another weekly gain in yields for a ninth consecutive week.
Well we get some kind of sustainable retreat through this week. So far on a session we're down by 12th basis points to 370. But a bit more economic data around the corner as the price action. Let's get you trading tarry on that economic data. You get the ISE and manufacturing numbers at the top of the hour. President Obama speaking at 245 this afternoon at a busy stretch of Fed speak. New York Fed President John Williams
kicking things off at 3:00 p.m. Eastern. Mr. and Daily Headlines Tuesday followed by Bostic on Wednesday plus meeting in Vienna on Wednesday. And finally looking ahead to the main event the US payrolls report. Coming up on Friday from New York City. Thank you for choosing Bloomberg TV. This was the countdown to the open. This is Bloomberg.
2022-10-08 22:16
