'Bloomberg The Open' Full Show (10/04/2022)
Yields down stocks up. Live from New York City this morning for an audience worldwide. Good morning. Good morning. Equities out big time.
At one point six percent. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg the open with Jonathan
Ferro. Live from New York. We begin with a big issue peak everything all over again. All the conditions are there for the
peak peak yields. The peak body of peak fed hawkishness. At some stage there'll be a peak. The peak claims that would peak again. You put everything together. The fact that we have had 10 year Treasury yields break 4 percent forward. Inflation expectations have dropped. Inflation has peaked in the US. Growth is weaker.
There's a lot that is priced into the very front end. The bar is really high for the Fed. We're certainly still seeing some bond market revolt. The markets are misreading the Fed and have misread the Fed all along. That long line is struggling to rally more. The biggest bond market in the world should not have such weird things in the curve.
It's really high because the USD is strong. It just feels like we still have a few more weeks of more shoes to drop. We really need to see the data crack. Joining us now to discuss is expenditure Kenny Cameron Dawson of New Age Wealth Cameron Strait CEO pay everything. How many times have we done this and been wrong through 2022.
Yeah we just did that back in June where we saw a near-term peak in yields. We saw a near-term peak in the dollar that led to a big rally in stocks and also the pricing in of rate cuts in 2023. And then what ended up happening is that as the yields and the dollar got back to their trend lines what we saw is that they started rising again. And I think that is the risk here as we think about how long this rally in markets could continue. From a stock basis is that we will
likely see yields go back to their trend after we had that kind of big blow off rally. But we don't see any signs of a trend break yet. Hunger to go as low as three point two percent and still be in an uptrend. The move we've seen in the last week is pretty clear that 10 year yields 4 percent last week has gone down said 360 to you. Yoda just north of 4 percent. It was for 35 last Monday. P I get it you to lower. We've seen this movie a few times this year and I pay the question I'd ask you is what did we get wrong through the few times we've seen this play out last time. And how do we know if we're right this
time. Well I think there are a couple of things to consider here. The first is to the question have yields peaked. We might actually ask does that really matter at this point. You know our thesis here at Sonic has been that we were close to peak yields certainly at 4 percent on the 10 year that we'd see a retreat from there and that the next phase of the pressure on risk assets would come from earnings. And the you know the damage if you will
maybe that's the wrong word. But the damage to the real economy from hikes is just starting to occur. And the same I think therefore can be said about risk assets especially when you look at the riskiest of those which are for example equities and perhaps speculative grade loans which are two areas where particularly remain particularly concerned about. So where where have you been been wrong in the past. You know I don't I don't necessarily think that's all that relevant to the. You know maybe everybody is calling for a peak.
I'm not sure that's really the relevant question at this point. Point is even if we have peaked what's next. And I think the next leg down the catalyst will be something very different from the rating from the rate move. And I think that's really important that transition.
I think you know you're welcome to answer your own questions when I feel like the market kind of it should take a walk and had this to say. We're growing increasingly worried about central banks making a policy error while we remain above consensus policy. If these developments are likely to introduce the in the economic and market recovery but got twenty two price targets of risk. Cameron Dawson I think if you asked a lot of people for evidence of capitulation and they were snarky enough they'd say finally the biggest bell on Wall Street and showed me that individual Stein's a crack. That's what we're starting to see with JP Morgan. What does that mean to you if anything. It's so.
Well I think that there is just a growing appreciation of what the real earnings risk is of course from a contrarian perspective. It's good to see bulls crack and you start to see them throw in the towel. I think from capitulation we still haven't seen that retail investor crack. We still have about 65 percent allocation to equities. It usually goes down to 40 45 percent during major bear market lows.
But I think that when we when we look at what the real economic reality is it is one where earnings estimates remain too high. We have lowered the bar for 3Q earnings for going into earnings season and expecting just 3 percent growth compared to 10 percent growth earlier in the summer. But if we look to 2023 it's still 7 percent growth for next year. And we heard from Fed Williams yesterday
talking about a pretty significant increase in unemployment that is not consistent with with earnings growing 7 percent. And so I think that's the economic reality that the market needs to come to terms with kind of post these shorter term positioning and sentiment moves. They have said repeatedly that it is too premature to even talk about ending rate hikes. They've said repeatedly they're committed to not prematurely easing back on rate hikes.
And yet here we are again after the RPI only hikes 25 and not 50 we're having this conversation finish. Keeney Right. Dalio of Bridgewater speaking a capitulation said this about cash. When the facts change I change my mind. What do you do sir. COTTON Of course. Cain's goes on to say the facts have
changed and I've changed my mind about cash as an asset. I no longer think cash is trash. Carter Center Bloomberg opinion followed up by saying they're strange to wait until a 60 40 is down 20 percent plus on the year. To say cash is no longer trash would've
been a good flip about some months ago. Cash is trash. Well it was maybe a long time ago. It hasn't been this year. It's outperformed in a massive way. What would you say to people who still
want to stay that they want to sit in cash. I think I think does make some sense. Look we you know the the equity market is you know from the beginning of the year for us was not the place to be. We expected higher rates. I think it is interesting how so many
big houses have pivoted recently one notably from 43 hundred on the S&P 500 to I believe thirty six hundred. So we've been seeing a lot of that. And you know suffice to say this is a hard job and we can all be wrong. But to pivot this late I don't think is very helpful to investors. Fortunately we've been positioned very very conservatively in the expectation for frankly what's been going on. Staying in cash makes sense because I do think the opportunity set will continue to improve throughout the course of the year. That said and I'm an answer my question again I guess John sorry. You know read on the in the equity
market has reached capitulated lows with I believe it's well below 15 percent of the NYSE. Trading below its 200 day moving average. And so you're going to get these vicious bull market bear market rallies that make it feel like a bull market when it's really not. So to answer your question we still like cash notwithstanding some of these vicious bear market rallies that are inevitably going to calm the markets. Get this over say it's getting better.
You're answering mine on your own futures right now at one point five percent on the S&P and the Nasdaq 100 up by one point nine percent. Just hearing from the chancellor in the U.K. in an interview with JP News a local broadcaster in the United Kingdom saying the following. The chancellor says the fiscal plan will be on November 20. Third as planned a fiscal statement will not be brought forward. There was some suspicion speculation reporting gave it that maybe that budget that fiscal statement would be brought forward ahead of the bank having the right decision on November 3rd.
The chance to saying just moments ago it will not be brought forward that it will take place on November 20 said as planned. I guess we'll see starting rolling over just a little bit. Not in a big way. Still up four tenths of one percent. Cable 113. Sixty nine. Pick up on that story in just a moment. Want to pick up on the Fed speech. We'll hear from Williams today speaking. Right now I think the latest message
pouring cold water on any hopes of easing off the brakes might NIKKEI and Mike. Every single time we get a rally we start talking about these guys back enough. Yeah. And then we go down and then people start saying well they're going to have to raise rates higher because inflation is higher. You've been talking about it.
If which were father to the man we wouldn't be at peak rates right now at least for the markets. Investors have been looking for a sign of a pivot. They did get one today. Unfortunately for them it's the Reserve Bank of Australia raising rates by only a quarter percentage point. Seen as a dove ish increase Australian
yields fell and U.S. and European yields also fell. Continuing a mild bond rebound spurred by signs of slowing in their respective economies. The bad news though the difference is that Australia has lower inflation than US and Europe and a heavily indebted population with variable rate mortgages that would be threatened by significantly higher rates. You mentioned it. John Williams and other Fed officials continue to make it clear they're not yet ready for a pivot here barring a surprise collapse in consumer prices or a surprising drop in employment. On Friday the Fed still plans to raise 125 basis points by the end of the year Williams saying yesterday. Tighter monetary policy has begun to cool demand and reduce inflationary pressures. But our job is not yet done.
Still as you noted John equities rallying along with bonds has people talking about a pivot. Again futures dropping significantly and their view how far the rate the Fed will go after that September 20. Third futures pricing in a terminal rate of four point seven percent by May of next year. Now four point three rate cut starting after that. But that's still a long time away. A lot can happen. You look at the OPEC plus meeting everybody's talking about what effect that's going to have on oil prices and inflation. Williams emphasized that not just
markets not just rate cuts but we're seeing a lot of volatility because a lot of things are going on around the world. He also noted you're still trading and the trades are working. So it's not a real problem. Mike one question I've asked is whether this rally makes it more likely not less likely. This Fed goes back again.
I think the Fed is looking at it as markets go up markets go down. They can't really control why they're doing that especially with news continually breaking. So they'll look beyond it as long as people are able to trade. Matt McKay thank you. We're going to talk about the EPA the EPA and it's so much so much attention this morning. I guess it speaks to the market move of the morning so far. Ed Yardeni if you got any research was
on with us in the last 24 hours. Take a listen to this. I'm totally stumped mystified surprised that Fed officials don't seem to acknowledge that just focusing on the Fed funds rate is part of the monetary tightening cycle is a mistake when you also have a duty to and you have a soaring dollar. These are very restrictive monetary developments. I think they got one more rate hike coming and November and that'll be it because the financial stability issue will pop up. His primary concern.
Cameron Dawson that line again I think they will have one more rate hike in November. That will be because the financial stability issue will pop up as a primary concern. Do you agree with that. Well that might be the case but that
doesn't necessarily mean that it takes the pressure off of risk assets because the reality is that it's not just the destination. It's how long you stay there in very high rates and very restrictive policy because that's what will really slow economic activity. If we think about all of the borrowers who are exposed to floating rate debt with labor rates going from point two percent of four point eight percent. This will have significant impacts on their ability to hire due CapEx. And so yes they might pause to see how things happen.
But the longer they stay in that restrictive territory the more we will see it impact the real economy. And so I don't know if that would necessarily constitute the kind of dove ish pivot that would want to embolden you to be very very long into risk assets at high valuations. If he will come I just said is so important. A pivot a pause per say. It's not necessarily bullish. If you're pausing for all the wrong reasons for your thoughts on that.
Yeah I think she. I think she just answered my question of earlier and more eloquently than I answered at myself. That was precisely the point I was trying to make. I think the the lag with which monetary policy acts on an economy matters. And the longer we're at these high low rates especially when we consider where we came from what the economy had been accustomed to and what market participants had become accustomed to a higher for longer. Even if it's not accelerating higher
makes a big difference relative to how one needs to think about risk ALEC risk asset allocations. And that's really I think the key point that everyone needs to think about. There's been a paradigm shift. We have inflation now. The Fed is not going to be able to even if it's done hiking which I believe it is very close to at the end of the year maybe into early next. It's simply not going to be able to cut
as rapidly as it needs to unless there's something disastrous going on. Peter Cameron sticking with us. Futures right now up by one point five percent on the S&P. It's a nice rally yield. Allow US stocks up. Dollar weaker. Up next the UK government making a shot. You'd said it was becoming a distraction. That's why we immediately change that
policy. And that's the kind of government we are. We do respond when there are concerns and we act quickly. The fiscal issues in Europe coming into sharper focus. That conversation up next. I'm not talking about come on debt issues or with Covid refund or something like that because we know that it might raise some difficulty among member states. I'm just looking to push possibility at the national level to raise debt. But with the support and the guarantee
of all European member states a little bit at division emerging in the EU amid a call for joint debt issuance more hawkish member states including Germany pushing back despite criticism over its 200 billion euro borrowing plan. This coming as the UK makes a bit of a U-turn on its own tax plan. It was becoming a distraction. That's why we immediately change that policy. And that's the kind of government we
are. We do respond when there are concerns and we act quickly. Joel Weber no more distractions. We have a plan and we need to get on and deliver it. I am prepared to do what it takes to get us through these difficult times to get us through this difficult winter exhausting stuff. Team coverage starts right now with Bloomberg's Maria Tadeo in Luxembourg and Lizzy Burdett in Birmingham. Lizzie first to you. There was some suspicion speculation this morning that may be that fiscal statement from the chancellor gets brought forward.
What have we learned recently. Well the chancellor quasi quatrain tells us that we were merely reading the rules. I thought he was throwing a bone to the markets here because of course the lack of a Navy are forecast. The Office for Budget Responsibility when the official budget came out in the beginning undermined the credibility of it in the markets. It wasn't just Bloomberg that was
reporting it. It was also the Financial Times. It was according to government source says that crazy casting says after all we are going to have to wait till November the twenty third. That will be after the Bank of England's meeting on November 3rd. And so the Monetary Policy Committee isn't going to be able to take account of their fiscal watchdogs assessment of how much growth this will stimulate. Quasi quite taking. Seems to think that we were all fools here. It's all our fault.
Nobody assets the UK and romance criticism of the last couple of weeks. Maria Tadeo. I have to say Europe's not been spared. Germany with their own plans and their own plans also been heavily criticised.
Maria what's the tone over there. Listen Jonathan this is what 200 billion euros when you put that on the table can do to a continent that is facing a monumental energy crisis. But at the same time does not have the 200 billion euros that a country like Germany can spend. We know this is not a secret. The fiscal capacity is not even across the euro area. Now the Germans are defending this plan. They say it is big but so is a problem that we face.
We do not want to create distortions. And this is not going to be an issue for the level playing field. But Jonathan I can tell you I spoke with the French finance minister Bruno Le Mouth who told me we do need coordination and we need a joint response.
Now this is where it gets technical but I know you're going to allow me to get technical. Remember the recovery fund. This was unprecedented for the European Union. It was loans and grants handled by the EU. Now what some of these countries now say is that they can leave without the grants but they want to see something that looks like backed loans by the EU because that would give them better funding rates.
So this is where the debate is at. This is not going to go anywhere especially as a winter crisis heats up and you're going to see more countries say we need a joint solution we have to find it. And the French finance minister told me this is not weeks is days. You can have as much time as you like Maria. You know that to get as technical issue like Richard out and unless is bad.
Maria listen to both here. Thank you. Tremendous reporting recently. Patricia Cain and Cameron Dawson back with us. Peter I want to go to the energy story and fault in OPEC as well. OPEC plus teeing up a big output cut. Just how bad are things going to get on the energy front and for how long. Well I certainly don't think the worst is behind us and in particular there there are two things happening into the end of the year that I think are important. The first is that seaborne sanctions for
Russian oil kick in on December 5th with import the import ban kicking in early next year on February 5th. And importantly and especially when when compared to the stories on OPEC the SPDR releases end at the end of this month and that is a million barrels per day. That is for sale. That will likely not be coming back for sale. Whatever OPEC's OPEC decides to do. And so I think from that perspective given that oil has become a substitute for natural gas in Europe given how high natural gas prices are oil prices will be moving higher into the end of the year which is an important wrinkle in this idea that inflation is going to decrease and that the Fed will be able to pause.
I think as energy rises that complicates the picture for all central banks and potentially the economy rose so forth and that complicates the picture. But people in markets to Cameron it's a key question I've asked a number of times through the summer and into fall. Do I want to be long. The energy names still going into an economic downturn. Well I think you do. First is because it's a great hedge in
portfolios. In the event that we see energy prices go up gasoline prices go up. You can imagine that other risk assets would do rather poorly simply because those rising energy prices would lead to an increase in inflation readings and an increase in inflation expectations. Remember gasoline prices are the biggest driver of both short term and long term inflation expectations. When we look at that University of
Michigan survey. So from a hedging perspective alone it's valuable. But when we think about the demand and supply drivers we're seeing that reduction in supply from OPEC and then we're seeing the reduction in demand from our story of a possible increase in demand in China because we have to remember that China goes into this party Congress in the next couple of weeks. They've been in lock down with the Covid
zero policy. If that starts to be released those 65 million people that have been in lockdown that aren't traveling around and half of China's fuel consumption goes for transportation fuels that could bring in introduce a uptick in demand for oil kind of regardless of what's going on in other parts of the economy that could put upward pressure on oil prices. My colleague Tom Keene said this all year. It's just amazing amazing remarkable. We've seen this take place in the commodity market this year with China still maintaining Covid 0. Peter Tom Keene and Cameron Dawson to
the both of you. Thank you. Futures right now at one point six percent on the S&P. Coming up in the morning. And later high towers. Patrick visiting from New York. This is pulling back. Five minutes away from the opening bell equities up by one point five one point six percent on the S&P 500 equities up to lower dollar week.
That's the story this morning. Some of the price action for you. Here are your morning calls. Let's begin first that with J.P. Morgan naming Amazon its favorite Internet stock seeing a number of competitive advantages with the holiday season approaching. Citi upgrading Ben why Mellon to buy 46 price target seeing limited credit risk and an attractive valuation. And finally Wells Fargo downgrading Paramount to equal weight growing increasingly concerned about the linear ecosystem across media. That such a media line isn't it.
Paramount right now 1962 unchanged in the free market. Coming up energy stocks kicking off Q4 with their biggest rally in nearly two years. Hightower Patrick Rossetti expecting the outperformance to continue. That conversation is coming up next year. Open impound just around a corner with futures up one point five per cent on the S&P. This is Bloomberg.
24 seconds away from the iPhone and found this morning. Good morning to you. Yes that I a really nice company S&P 500. We add some wipes away a gain of one
point six percent on features on the NASDAQ grew up to full percentage points on the Nasdaq 100 on the small caps. Not exactly leaving them behind by one point eight percent there as well. Jason Kelly. Still a switch of the board and get to the bond market yields lower as you might expect. We got three basis points on a 10 year off the lows of the session but well off the highs of last week 3 4 percent last week. Last Wednesday.
Three sixty. Seventy two. This Tuesday morning we're down 30 basis points and the affects market dollar a whole lot weaker euro stronger euro dollar ninety nine seventeen positive by nine tenths of one percent. Crude up six point eight percent. Up a little more than two dollars to eighty five. And it's called it 90 something. The opening bell then about 20 seconds in with positive 1 full percentage point on the S&P 500. Let's get some. Mavis is Katie.
Hey John. Well a lot of those gains are coming from Amazon dot com climbing after JP Morgan named it as their favorite Internet stock by a wide margin. That is a direct quote. Analysts there cited Amazon's inventory advantages heading into the holidays.
Amazon up three point six percent. Also Bank of America climbing just one of several big banks pushing higher this morning. That's even with a price target cut from Goldman and yields dropping this morning but still. Bank of America up over 2 percent. Moving on we have revision also in the green after sticking to its goal to produce 25000 cars this year. That means that Rubio has a market cap
of nine hundred fifty four thousand dollars per completed SUV. For comparison Tesla has about four hundred twenty five thousand in market cap per car. So make of that what you will. And finally posh mark. I've never used it John but the online fashion market it's soaring after news that its Korean rival will buy it in a deal of about one point two billion dollars.
Shares up about 13 and a half percent. Is this when you sell your old designer clothes I assume. Is that what that is. I mean someone wants to buy it. So there you go. Check it out. Sure. Tom is incredibly active. Tom Keene of course.
Katie thank you. S&P 500. To me he said at one point five percent on the S&P. Every single industry group on my screen right now is positive led by consumer discretionary up by two point seven percent. Talk a lot about where we've been in the bond market. Last Monday on a two year 435 on a 10 year.
Last Wednesday north of 4 percent. Where are we on this morning. Big turnaround from the yields fading off the lows this morning but just compared them to last week. Still four point one percent almost on a two year 10 year 361 all the way down from 4 percent last week.
It's a turnaround. Yields lower. Stocks up with more highs. County line. Hi Kelly. Hey John. Yeah that turnaround definitely applies to equities as well specifically those very sensitive to rates. Just take a look at the homebuilders.
For example an ETF that tracks those names is higher by about two point nine percent here at the opening bell as you're seeing yields coming in once again today. You also have the financials getting a bit of a lift in the Art Innovation ETF which of course houses stocks with really really high multiples. Those are getting a big lift as well. Up nearly 6 percent. And this echoes the moves that we saw in yesterday's session. All of these groups were outperforming in the Monday rally. For the homebuilders for example they gained nearly 5 percent in yesterday's session.
And you've got the utilities and banks and communications and software stocks all in the outperforming group as well. And of course for software and communications that all falls into kind of that tech basket. And I just want to spend a moment longer on those names because we know a lot of them are richly valued more value placed on future profits which is why higher borrowing costs have been so problematic for those names and have brought those multiples lower with prices going down. But as rates have come down you're starting to see a little bit of ketchup being played. And according to our colleague John Patrick Barnett and his analysis this morning based on the latest moves we're seeing in yields the Nasdaq 100 may have another 4 percent of upside. I will just end though with a word of
caution John something you've noted throughout the show. We have seen a number of head fakes in the bond market over the course of the last year. When it comes to that whole peak yields narrative if we're not there yet. That doesn't necessarily mean that the
tech stocks pain is over John. We've done at least full time. Yeah. And at least twice in the last three months. Kelly thank you Kelly. Thank you very much. I think we did it shortly after Chairman Pao spoke in Jackson Hole maybe a couple of weeks later and then with doing it all over again a few weeks after we heard from the Federal Reserve. Just recently I'm exhausted. You are too I know.
And the S&P were positive one point nine percent on the Nasdaq were up by two point four percent. Stocks rebounding after shedding 10 trillion dollars in market cap through September setting the stage for one heated debate on Wall Street. Where we are in terms of capitulation the sign of capitulation that feel like capitulation. We want to see capitulation. You really haven't had that. Getting those earnings expectations down is something that we really need to see. Investors want to hear management speak. Some companies rip off their earnings
Band-Aid and really kind of throw in more of a towel. If you're looking for panic even though you've had as much volatility as you seen you're not getting it yet. The equity market probably has further to go down. Inside the race has more heights Ala. Hey John and take a look at. Well at least yesterday one trading day into the fourth quarter and things look pretty good.
That's not even counting the strength of course that we're seeing. Within a few minutes of the opening bell today it is going to be if you look at yesterday the third best start ever to a fourth quarter and to October and yesterday's two point six percent gain on the S&P. Just about the sixth time that the market has added at least 2 percent on the first trading day of October going all the way back since nineteen twenty eight. So you're getting a little bit of that bullish tone yesterday and that continues into today. I want to be careful with the next chart though when we think about the Fed and rate hike expectations because every time we think about a dovish pivot the Federal Reserve comes out and says no that isn't going to happen. But at least you can see that expectations through March had been about 165 last month. And then of course today you got maybe
only market expectations of an additional 125. So thinking again about a 75 or 50 and then a 25 through March and just sort of how bullish. Sure. Well I should say hawkish or not this Federal Reserve base or some of that plane into the equity markets as of late.
I think when you think about capitulation John is it orderly or disorderly. Yes it has been a grind lower but it has been orderly. I've heard a lot about some liquidity issues within the bond market. But this is the market within the equity world. As you know it's falling but it's not panic and it's not disorderly with massive dislocations.
Apart from the Gail market and other pockets of side. Thank you. Hey Taylor Riggs that on the latest. Looking forward to the collapse a little bit later.
We're building to the gains of yesterday and the S&P up 2 percent on the Nasdaq up two point four percent. Yields are lower than they are off their lows this morning and the dollar index is a whole lot weaker. VIX. Why the dollar down weaker for a fifth consecutive session high time was Patrick presents a pointing out the risk for any further gains saying the following. As the dollar strengthens foreigners who need dollars will have debt in dollars south they told our assets putting downward pressure on U.S.
equity markets. Patrick I'm pleased to say joining us right now. Patrick let's start there. Walk us through the relationship between what's happening in foreign exchange and what we've seen play out in risk assets in the U.S.. Sure. Well you pointed to it that the dollar
is weaker over the last couple of days and the market has rallied. You know when it when it strengthened those investors globally or even sovereign countries that are looking for U.S. dollars sell their U.S. dollar assets and that puts more downward pressure on equity markets here.
Is that durable market pressure durable downward pressure or something that exhausted sounds pretty quickly. Well it depends. I mean as the dollar peaked here. I don't know. I certainly don't think rates have peaked. I would not be long duration here. I wouldn't be long duration equity you know long long duration equity ISE Holdings as well.
So when I look at the broader market I see the dollar weakening temporarily. And quite frankly we're positioned you know in the energy space in the commodity space for the coming months. Patrick I'll pick up on the commodity story in just a moment. With regards to the bond market that judgment call you just made what are the assumptions that underpin that.
On. On the rate market. Yeah. That we haven't seen peak yields. Yeah. So when I look at broader commodities
again you know right now we're in a subclass supply constrained market. So I continue to say we saw we heard oh back. You know they're going to be speaking tomorrow. They're going to look to cut roughly a million barrels per day. So that's going to continue to support energy. When we look at gold you know again just look at the dollar being down roughly 15 percent through today. Gold is down roughly 6 percent on the
year. I actually think gold is held up pretty well. If you look at gold in yen terms you'll get gold and euro terms. It's held up.
It's held up well it's done. It's done its job. It's really provided a hedge against the risk of you know fiat fiat currency debasement. So we still continue to like gold exposure here. Actually I wanted to tell you about cyclical exposure as well. It's still like energy.
You like the rails. I understand from the rails perspective this more of a long term story underpinning that. But talk to me about how you want to want to think of accountancy at the moment. Yeah. So the real space is sort of a good example of the fact that right now you know we're in a time where we're globalizing. Right. So when we think of structural inflation
we look at globalization we look at sort of demographics and the labor market. Right. So who's going to benefit. So just look to a country like Mexico. They can still produce cheaply. So only a class one rail like say for example Canadian Pacific.
You know there they have rail lines all the way from Mexico up to Canada now after their acquisition of Kansas City Southern. So we like that space. You know there's been a lot of consolidation in that space over the last decade. They're getting pricing power. It's an onshore play
you know. And they can they can move a lot more material cargo et cetera using a lot while burning a lot less carbon. So I think it has a lot of structural advantages over the next 10 years especially. What would you say to people who say why would I want to buy here. I get in the long term story I get all of that. But why would I want to buy here before we seen the economic downturn really gain momentum.
Yeah. Because quite honestly you know I don't think there as you know. I think they're actually a little more defensive than than people think. We're gonna continue to to move product you know across different sectors. And again when you have this on shoring
play. That's a bullish tailwind. And then you know you you fold that into you know compare that dovetail that with where valuations are today. I think it's a very attractive situation. We'll return to that call before the end of the year no doubt Patrick. Thank you Patrick for setting that on the rails there and where he's optimistic more constructive on this equity market. Up next on this program mezzo dining bank rose plants in New York City as corporate America turns to hiring freezes and hiring freezes and drilling down to a lower level are appropriate.
I think there's probably some concern in Q1 of next year. So I think we're kind of showing that things are slowing down. Order books are still not too bad but clearly Q1 is a concern.
That conversation next. This is Bloomberg's The Open I'm Lisa Mateo live in the principal room. Coming up on balance of power. Sanjay Mehrotra Micron president and CEO. That's a twelve fifty p.m. in New York 550 p.m. in London.
This is Bloomberg. The hiring freezes and the drilling down to a lower level are appropriate. I think there's probably some concern in Q1 of next year. Nobody ever wants to lay people off for Thanksgiving Christmas holiday. You really can't do a layoff to Jihye Lee. So I think we're kind of showing that things are slowing down.
Order books are still not too bad but clearly Q1 is a concern. Cellphone manufacturing takes a softer than expected yesterday. The weakness starting to creep in and we're seeing it in corporate America as well. Mets are closing one of its New York offices with more cutbacks looming. A spokesperson saying the following.
We are working to ensure we're making focused balance investments support our most strategic long term priorities tighter. That corporate speech jumps in nuts with the lights. I know. I hear you John. And I think the comments from Zuckerberg last week are really interesting thing that he's looking at a company in 2020 through that actually might be smaller than it is today. And you see that maybe coming from the pressure on top line growth as you have a company that's looking at what could be a 4 percent maybe a 1 percent decline year over year in this quarter and then that drops as much as maybe 5 percent on a year over year drop in sales and revenue next quarter. That might be peak is when the company rebounds a little bit but then still looking in the fourth quarter at what could be still a decline on top line growth year over year up about 3 percent. So all of those headwinds that lead into
a company that's looking at maybe job openings that are easing but the companies say not layoffs but maybe hiring freezes and indeed pulling back on some of the New York City offices that I know that we had a great story out this morning talking about that and just sort of rethinking as you mentioned some of those long term priorities and balancing the investment versus the growth side of. Thank you. I think the phrase title used then is really important. Hiring freeze is not layoffs. And a line we've talked about repeatedly
over the last couple of weeks is that you can't fire what you could not hire. So we're going to see this show up in jobless claims or show up in JOLTS job openings job openings coming out a little bit later. And arguably that's what the Fed is shooting for to get job openings lower without really taking a big chunk out of the labor market.
Mary Daly speaking right now. If the San Francisco Fed and saying the following inflation has not gotten into the psychology of Americans I guess that's the good news for them. Sees a lot of room to slow the labor market. That's what she's speaking to. Looking abroad as well not just domestically saying the following. The Fed is aware its moves affect the global economy. The global economy is having a tougher and tougher time of it.
Can you imagine trying to put together a strategic reorg in a world like this one. Credit Suisse rebounding this morning from a record low. The spotlight on the company's restructuring plans amid concerns over financial health.
On top of this story for us has been back. Sonali Basak Monash NASDAQ. Good morning John. You're looking at Credit Suisse 80 yesterday closing above where they closed Friday and you're watching the shares also closed higher in Switzerland. So yesterday was a bit of a blip on the
radar but that does not ease many concerns still on the horizon. There's a lot of calls here from Wall Street sell side on whether they should be moving up their strategy review the announcement that they're supposed to be making at the end of October because the stock is trading something close to a mean stock. Until then if you take a look online it's kind of incredible. You're watching crypto traders looking to buy credits. Suisse said it's low but at the same
time there's a lot of struggles ahead. And Bloomberg's Alison Williams pointed it out very very craftily which is that until you have a sense of what potential capital raise could look like it's very difficult to figure out what that stock is worth today because it's such a such a bank could be quite dilutive. Listen Credit Suisse is really trying to pull a Deutsche Bank here potentially sell from assets get rid of some businesses to help fill that gap in that capital raise. But let's plan.
That's one banker here for just a second because it's not where Deutsche Bank was just a couple of years ago where the market was still soaring. High selling assets at these levels will be lower than whether they started to sell just a year ago. They also had to drum up demand. And right now a lot of firms are very reticent to take on risky assets. So the types of deal making Credit Suisse could make in this environment could have to get very creative here to start feeling that what analysts think is a four billion dollar hole that they'll need to fund this restructuring. Certainly I think you framed it perfectly just now that this is going to be difficult to achieve. What's frustrated me when it comes to the likes of Credit Suisse the likes of Deutsche Bank and I wonder it frustrates you that we keep benchmarking to Lehman that I see the Lehman or it's OK and there is something in between nationality and it's still not great if for no other reason than that these firms have become something utilities since that. Right.
They had the full faith of the governments behind them. But beyond that John you have this firm trading at you know less than a fourth of its book value. Take a look across the European banking sector. Most of these firms are burning money and are also trading below their book value pretty steeply. And I think that's a pretty remarkable event to face. Jason Kelly thank you. Looking forward to your coverage.
As I've said repeatedly for the next several weeks on this into the end of the month when we expect to hear that strategic Rio of that big plan from Credit Suisse and then in a few weeks time you'll hear from. Morgan and we'll kick off earnings season as well. Equities right now at two point four percent on the S&P 500 yo to a much lower. I have to say that stories fight at the
10 year basically unchanged at three. The two year big move lower yesterday by about 17 basis points off the back of the I said manufacturing number that came in a bit soft a lot more coming on than just that four point one per cent on a two year. This morning we're down about 2 basis points. Get some sector price action. Lift the debt on the equity market with more is coming. Well John literally everything is in the green. That is true on a sector level and on an individual mover basis.
There is only right now three stocks in the S&P 500 that are not in positive territory on the day. So no surprise when you look at the map function on the Bloomberg everything is gaining to the tune of one and a half percent or more. And of course you see at the top there some of those rate sensitive sectors still outperforming even though we have seen things turn around in the bond market the likes the financials up about 3 percent consumer discretionary. Also higher by more than 3 percent.
Of course big weightings in that index include Amazon in test less than big tech names that are seeing some big gains today. When you take a look even further beneath the surface at some of the more isolated sectors as well. Consumer finance this of course has a rate sensitivity factor when it comes to mortgages.
If mortgage rates aren't extraordinarily high you may have more people looking to take out loans and buy a home. So that's beating through to names like Zillow higher by about 4 percent with about 20 minutes into the trading day. And then you also have some Internet retailers higher as well. Part of this is idiosyncratic. The story with posh Mark being bought by
a Korean rival for one point two billion dollars. But part of it as well is just the broader risk rally. We are seeing the idea that if borrowing costs aren't as high. People may have more money to spend. So you're seeing Wayfair up about seven
point four percent as well. But again John now looking at the moves in the S&P 500 just one stock is in negative territory on the day and that would be Dollar General. There we go. I think that speaks volumes at the moment right at the moment at least. Let's see how long it lasts. Heidi thank you. This from memory daily the San Francisco Fed president.
A narrow path to a soft landing but it's not closed. Every time we can have rally we end up having the same conversation. Fed pivot. The S&P 500 up two point four percent. The Nasdaq up 2.8 percent. And to be fair if you compare well with price in a terminal right now compared to last week we've come in about 30 basis points. That's material space that readjustment in the equity market. Whether the Fed's going to pivot or not
is a separate debate on whether the Fed is pivoting full bullish reasons is a very different conversation as well. Up next the trading diary from New York. This is Glenn Beck. The reality is though the interest rates are set by the independent Bank of England. They make these decisions on the basis of what's happening with inflation and other factors. The energy intervention that we have done is likely to curb inflation by up to five points. So that has a positive effect.
But ultimately what we're seeing around the world in the wake of Putin's war in Ukraine is interest rates rise. So the Federal Reserve for example has pushed up interest rates that we will do what we can to support people but ultimately is a decision for the independent Bank of England. Of course to do first mission of the new management of Earth NIKKEI more will be at the head of EDF is to have those 12 nuclear plants be we opened as soon as possible. I mean by the beginning of 2023 we won't all these 12 nuclear plants being reopened because there is a need for new CAC. So there is a need for nuclear capacity.
It's a difficult time in Europe and it might not be just for one winter. It could continue for a number of years. Speaking to a number of energy experts equities right now up two point three percent. The gains continue on the S&P on the NASDAQ 100 up by two point six. The gains continue even as the move in the bond market fades to his tens and 30s. Yields were so much lower now basically
unchanged at a 10 year 363. Forty nine year to year four point one per. With that in mind we'll see if these equities gains stick. If that bond market carries on moving in this direction as the price action as you're trading tarry.
First up durable goods and jolts. Coming up the top of the hour President Biden delivered remarks at 3 p.m. Eastern. Busy stretch of Fed speak continuing with daily again this afternoon followed by Bostick on Wednesday. Plus OPEC meeting in Vienna. And finally the US payrolls report is coming up on Friday.
Saying say the estimate right now on payrolls to sixty five in our survey down from about 315 from New York. Thank you for choosing Bloomberg TV. This was the countdown to the openness is pulling back.
2022-10-06 18:18
