Bloomberg Markets (04/13/2022)

Bloomberg Markets (04/13/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. From New York I'm critic Gupta with Guy Johnson in London Alix Steel is off. Welcome to Bloomberg Markets. We start off on one the biggest national news stories this morning and bring you the developments from yesterday's shooting at a Brooklyn subway station. Let's bring you the latest headlines. From what we know of course we know that a gunman had opened fired in a subway

station after releasing two smoke cancers injuring 23 10 with a gunshot wound. We are still waiting for updates on their conditions of the victims. We also know that Frank James age 62 was connected to the crime scene. He has now been upgraded from a person of interest to a suspect. And the manhunt is ongoing. Let's talk about what's coming up

next in terms of what the next steps are. And for that we. Joining us on the phone is Bloomberg legal reporter Patricia HURTADO. Patricia thank you so much for joining us and of course for your diligent reporting on this issue. Let's start there. What comes next in terms the hunt for Frank James. Well now authorities have probable cause to arrest him for the attempted murder of passengers on that train when he opened fire on the commuters on the morning rush hour yesterday. If he is apprehended and there is apparently a dragnet going on looking

for him if he's apprehended I guess it built up to be determined whether federal or state authorities prosecute him. Patricia do we have any idea at this stage as to motive. He is a parent with last night. The briefings that police and federal authorities described him expressing animus against Mayor Eric Adams. Again his his beliefs. He says he is a

post-traumatic stress disorder survivor but doesn't explain a lot of ranting a lot of anger on these videos he posted on the Internet. So they're trying to track down exactly why he came to New York. Apparently he did live in Milwaukee and also at a residence in the Pennsylvania area. So why did he come to New York and do this. You know what was his motive. It's still unclear. Talk just a little bit about what this means for Mayor Eric

Adams in particular we had him earlier on surveillance. He was one who actually said that he is now being upgraded to the suspect level. But we also know that he has had increased security. He talked about the connection between Frank James and Mayor Eric Adams. Well it sounds like for James Eric Adams was a target

of his anger and possibly because Eric Adams has been very public about you know trying to clean up the city and try to handle or deal with the homeless population. This is also something that James expressed anger about. So he basically seems to have pinpointed his anger on the mayor. And as a result of that mayor had his security detail upgraded because they're concerned that he's on the loose. He perceives it as. And he may try to track

the mayor down. In terms of what New York is like this morning how Brooklyn is this morning how the subway system is this morning are we return to normal now. Have we got a full subway system up and running. Can you give us an update on that. Well the system has already been crushed by the pandemic and people ridership was massively down. It seemed to be slowly trying to recuperate. But I think it's only a third of what it was before the pandemic. People already are struggling with you know do we wear masks. Do you. Could you possibly contract a virus if you're in train and people are not wearing masks. And what do you happen. You know there are homeless people sleeping

on the train. So there's elements of other issues that are already plaguing the transit system. And now that people have this extra layer of concern that they have to look over their shoulder and find out you know to determine is this guy on the trains today. And Patricia we know that the school system is also of utmost concern. We know that there were a lot of local schools in Brooklyn also sheltering in place for much of yesterday. We wonder what that looks like today as we have

schools of course in session. And of course closing at 3:00 p.m. local time. Patricia I'm also curious about what we hear next when we talk about the New York Police Department the fire department. Any word on when we can get more more headlines from them. No I'm we're waiting. I guess they're in a waiting game to determine right now. There is nothing scheduled to be announced. I guess they're going to state now determined or announced that

there is there were video of this guy earlier in the day when he apparently boarded the train that further south he dropped. He left a U-Haul van down in south Brooklyn and he got on the train system. So now they're saying those cameras were operating. So it looks like law enforcement is still trying to determine you know track his movements and possibly determine where he went because apparently when the train arrived at 36 Street he may have gotten off. And now there's this manhunt for him. This is not the first mass shooting that New Yorkers West witnessed over the last few months. Why is this one different.

And what do you think New York will learn from it. Well I think the component is if people have been in a New York City subway system everyone realized how confined the spaces. Where do you go. You're on a train. If this train apparently stopped in the middle of the incident where the shooter was setting off smoke bombs and shoot and firing at people with semiautomatic and it was stopped in the train in the in the in the tunnel for a signal red signal. Can you imagine in the confined circumstances and the terror you're trying to get out of that train car and you can't because the doors were jammed.

It's particularly heroin and chaotic situation. So that's the kind of thing that I think is a particularly frightening situation. And we've had earlier incidences in the subways. Some of woman was pushed to her death in early January in midtown Manhattan. So that's the kind of thing you know that's always a concern for people. But then this extra situation of being in a

confined subway car and having a gunman began firing rounds from a Glock 9 millimeter. That's horrifying. Patricia it certainly is. Thank you very much indeed for updating us we greatly appreciate it. Bloomberg's Patricia HURTADO. We will of course continue to keep you updated with the latest developments as they happen. This is Bloomberg. We're back to earnings season in just a moment but let's tell you what is happening now with the Bank of Canada at the top of the hour. It surprised nobody by raising 50 basis points the hike coming through. As expected the messaging coming with it is that interest rates will need to rise further. We are going to see the hulks of government bond purchases on April the 25th.

All of this pretty much in line with expectations. No real market reaction as a result. That is what we're seeing in the Canadian dollar right now. As you can see barely a blip as a result of that announcement. We are seeing a little bit of action in the bond market though certainly in the United States going into a long weekend. Something of a short squeeze taking place right now. So certainly the bond market catching a bed yields coming down very sharply. This as we watch the earnings

season develop start kick off really in earnest with JP Morgan starting that season with a reported 524 million dollar loss tied to the market fallout from Russia's invasion of Ukraine. In the analyst call Jamie Diamond also spoke of the impact of the Fed's moves. I would just be cautious. I think we should expect these volatile markets. Again that's OK for us. You know and the Fed well we think the Fed needs to do they need to do to try to manage this economy and try to get to a soft landing if possible. Jamie Diamond talking about the fact that he doesn't

see any scenario in which volatility doesn't remain elevated. The bank. As a result of that is significantly upping its provisioning. Basically JP Morgan is bracing for the worst. So the question is should you. Let's talk about what we've learned on the earnings call. Let's bring in Bloomberg Wall Street reporter Sonali Basak. Jamie Diamond the team over at JP Morgan certainly expecting

significant volatility. They're increasing provisioning as a result of that. What message are they sending. Hey Sonali. Well very simply by JP Morgan's Jamie Diamond. What he told journalists this morning is he's not predicting a recession but is it possible. Absolutely. The other thing he said is that when it comes to those reserve builds it moves around a lot. These provisions move around a lot. And it could increase by the end of the year

guy. But it's not for certain whether it will or not. They have to prepare for the bank in any scenario in this case. The other thing you and I were talking about just this morning is the fact that risk is going up in markets with that volatility rising in this quarter alone. A lot of that pertained to one incident the NIKKEI market chaos where they had said 120 million dollars worth of credit losses were tied to this incident. But is this a one off occasion or is there more risk on the horizon that can hurt the banks moving forward is the big question. Shelly let's talk about the trading revenue here because we've had quite a streak of very strong trading revenue when it comes to JP Morgan but a lot of its peers. We're going to hear from

them tomorrow in your marathon day. But walk us through J.P. Morgan's results in particular. What are we seeing in terms of volatility. In terms of the bar. Yeah with bar going up and NIKKEI being a big part of that. The big question does remain what happens if other assets blow out in a very similar way. Right now as you know in commodity markets he called the oil price movements very sharp. He really did cause that. I say that was going to be a risk to markets here. But there are other risks crediting that. They also highlighted which includes quantitative tightening which includes high inflation and it includes the war in Ukraine. So when it came to the outlook moving forward about

what that could mean for the bank and investors and the economy at large after the second half of the year into the second half of the year is when those risks become a lot blurrier to telegraph. OK. Well he brings up tomorrow so let's talk a bit about tomorrow's finale. What is the read across from today into tomorrow. Tomorrow we get a lot more in terms of the Wall Street bank reports. What are we going to learn from them. Which is the greatest correlation hits. What we've learned from JP Goldman yeah. It's interesting because on one hand you see that provisioning for credit losses here and you think that's just on the consumer side of things. But you're going to want to see questions from Morgan Stanley and Goldman Sachs about the health

of their corporate customer as well as the consumer. And when you look at Citigroup remember a lot of these losses that you saw over at JP Morgan were tied to single name securities in Russia. So is Citigroup going to show a repeat in the type of losses that you see in the corporate and investment bank portfolio again. Are there other losses that were not accounting for here or are there other risks on the horizon that could repeat itself. Guy I do want to point out that even before JP Morgan announced out of this credit loss scenario they announced about 900 million dollars worth of reserve build here. Analysts

were estimating that this is going to rise every quarter until 2024. So the question is is that going to be the same outlook for all the other banks. J.P. Morgan does feel that they're properly reserved at this time of course. But does that expectation change if the outlook were to get worse into the year. Shelly we've talked a lot about the risks fear the downside risk for JP Morgan for the larger economy. And we should point out of course that to your point Jamie Dimon has been very strong in terms of being positive on the consumers consumer strength. In other way of showing that kind of positivity or that bet essentially on the market is buybacks. And we have also the JP Morgan report a plan for 30 billion

dollars in buybacks at a time when S&P 500 buybacks are already a pretty important record levels. That's going to set the tone for the rest of the earnings season. Talk to us a little bit about the buybacks picture and what that means for the strength that J.P. Morgan sees coming. Yeah. Well there are two things going on here. One is that the shares are

still down today. So the buyback alone is not enough to give investors something to hold on to when there's so much uncertainty on the horizon for this bank. On the other hand the certainty that it does give investors is that buybacks will be robust here at a time where there are a lot of question about capital buffers and what that looks like into the stress tests this year amid this heightened volatility. So a lot of questions around those capital buffers. Jamie Diamond did answer in many

scenarios just not to really worry about it really for investors. And you see that sentiment reflected in the buyback. Well fascinating stuff. We're going to have you bright and early back here tomorrow folks. Tune in for Bloomberg's Chanel ISE Basics coverage nonstop. And of course we thank her for her time and insight right now on JP Morgan. Let's not get the reaction to those results from F and debit monitor. Chief investment officer thank you so much for joining us. We of course appreciate your time and your insight as well. Walk us through your reaction to JP Morgan's results this morning. No surprise at all. After those results we see this as raising the issues that we've been raising with our clients now for

months. High inflation supply chain constraints uncertainty in markets a lot of volatility followed by a course we expect a 50 basis point rate hikes and certainly a rising rate environment. So all of those indicators as well as the geopolitical shock of course all of those indicators are something we've been noting for some time. I'd say I actually took not a bearish indicator out of some of that telegraphing that Jamie Diamond did but a rather more sanguine indicator that they're putting them at assets in reserve. They're expecting credit losses. We have to remember in the last cycle we saw nowhere near the defaults that analysts had forecast. There was a certainly and extend pretend a desire not to force companies into default. So we didn't actually see those losses happen. I think this has been done out of an abundance of caution. I would also note that the the

buyback site is a robust signal. And also remember that J.P. Morgan is a diversified financial services firm. We saw very strong results come out of BlackRock. They're seeing sustained inflows and a continuing growth of their asset management business across all asset classes. So even though their total assets under management took a hit from the Russia Ukraine situation that's very robust. Most banks now have an asset management arm and that has been a great source often of upbeat

inflows and an earnings. Even you reference the previous cycle the previous cycle we didn't have a big inflationary problems so the Fed could step back in. The Fed was still active this time round. It's not. Judging by what we got from Barkin and Bullard overnight they are talking about raising rates effectively until they break the economy. They're talking about restrictive policy significantly restrictive policy. That is the difference between this cycle and the last. Are they really comparable. I think that we have to look at similarities across both what would have happened to the previous cycle when risk was off. There might have been a flight to safety assets such as cash.

That can't happen today. Cash destroys purchasing power today. So therefore that provides some kind of plot in its own right. I've noted before the large amount of assets and money market funds money market fund assets have soared since the pandemic and they've actually stayed quite flat. So that in itself is really a plus. Markets the fact that investors will continue to seek return in an environment where real returns after inflation are continuing to fall. And we're also looking at statistics that investors are not that leery of bond markets today even with a rising rate environment. They see that if their buy and hold investors the fixed income will still come good. We saw some headlines yesterday around investment grade bonds perhaps

hitting around 9 percent yields. We haven't see these kind of yields for years for decades. So actually if there was a yield like that that might actually quite support markets. So it's a very complex picture. But definitely the high rates of inflation are something all investors have to pay attention to when they think about taking risk off. You mentioned purchasing power. My ears immediately perked up because something that we've really seen as the legacy of the pandemic and really the surge and record issue is that we've seen from a lot of corporate America has been extreme profit. We

were just talking nationally about buybacks and record buybacks for the S&P 500. Talk to us about the cash picture at a time when a lot of people are saying inflation is going to erode that purchasing power. Like you mentioned does that mean we should expect more buybacks more mergers and acquisitions more deployment of that capital even if that means more CapEx. Certainly most companies are awash in cash and those that have got some kind of pricing power have been able to pass through price increases to consumers. I'm not sure that will be sustained. We do expect to see margins come under some pressure as there just isn't that ability to pass through prices and consumers start to feel the pinch. Yes I do see that most companies are quite cash rich.

They haven't been investing in CapEx. Perhaps they need to do that to alleviate some of their supply chain constraints maybe to integrate a supply chain to buy some vendors. But ultimately we will see that that that that supply the purchasing power ISE will remain robust particular among the retail investor. Even equities remain an inflation hedge. If they can pass that inflation onto the consumer. Are you confident that they will be able to continue to do so. Yes I am to a degree not to the kind of levels we're seeing today. Eight percent price rises cannot be sustained. The consumer cannot support that when they're not seeing their wages match that in terms of an increase. And they're also not seeing

for example that their residential property rise. We saw close with a 20 percent rise year on year that makes a consumer feel buoyant. We're not going to see that same level of increase. So the consumer won't have the same confidence and they will be seeing that the price increases at the pump than the gas. So we're seeing it in the grocery bill. So I don't see that

companies will retain that pricing power going forward now. But yes to a smaller degree. Low single digits. Yes. I think you hit on a really crucial point here that you will see this essentially hit consumer pockets. But there is a difference between slowing down growth demand destruction and then an outright recession. Are the fears of an outright recession specifically in the United States overdone. What are your. Your what's your thought.

We would say yes they're overdone because of the tight labor market currently. We're not looking at a stagflation free environment because the demand for labor is simply so strong. So many so much of the workforce have fallen away are not participating any longer. The picture might be different in Europe and there perhaps will be a slowdown. We do see GDP growth slowing to single digits but whether that will occur in 23 24 25 it's very difficult to say. And investors cannot simply go to cash now in expectation of a recession. We saw that J.P. Morgan was hedging its bets essentially or preparing for the

worst. And what should we do. Well we can't get cash because that is essentially just destructive right now. Even. It does sound as if there's something of alarm going off. I may leave this interview there as a result of it. Thank you very much indeed. If a deficit monitor chief investment officer thank you very much indeed. It's an interesting conversation

isn't it. Kristie this idea that you don't want to be in cash because you are obviously going to see the inflation erosion that is going to come as a result of that. But nevertheless if asset prices are going to come down you potentially could hit a double whammy on that. And and we could potentially be heading very soon as well for positive real rates. So it's interesting how all of this is changing but a lot of people saying don't go into cash because of the inflation hit. I wonder if you're gonna

see an asset price hit on top of that. Yeah I think one of the major questions is also this narrative is changing week by week. I just two weeks ago we were talking about an outright recession how the consumer in the United States might not be able to handle the thing that even was actually talking about. But here we are now seeing perhaps are a little bit more resilient and perhaps that's something the market is actually taking in stride.

It's amazing how the market is very steep and that curve. I suspect that that inversion increasingly with historical kind of hindsight looks like maybe it could have been a positioning story rather than an inflation indicator. Plenty still to talk about. Going to come back to talking more about JP Morgan a little bit later on the program. This is Bloomberg. Well we're nearly an hour into the trading session. Here's where we stand. You do see the S&P 500 up marginally up three tenths of one percent. But check out the Nasdaq 100 making quite the rebound after being under quite a lot of pressure in the last couple of weeks up a whopping 1 percent in line with the dollar which is once again up just marginally. But that's a

relationship you really want to keep an eye on tech and the dollar as well as tech and real yields especially the nominal yield actually down about 7 basis points today. That's probably boosting tech just a little bit. Let's talk about other things in the yield space. A two year yield for example coming back down you do actually see it as a start to price in some more volatility in the bond market for specifically pricing in what the Fed is going to do next. Are they going to hit it hard with 50 basis points. Another thing thriving is going to be those airlines where we're getting a lot of airlines out saying that the rebound is strong especially coming off those Delta headlines today. The intraday you see the airlines higher but

right now on a longer basis they are still in the red guy. Absolutely at Bastion the Delta Air CEO speaking on the call right now will continue update you on what we're getting from him. Also coming up we'll get a look at how these safety concerns that we've seen jumping to the top of the agenda over the last 24 hours are now affecting efforts to revive New York City's economy. Best for Eben Brown Harris Stevens CEO joining us next. This is Bloomberg. The man described as a person of interest in the New York City subway shooting is now being called a suspect. Guy a lot of headlines have come out since this morning. Mayor Adams earlier on Bloomberg Surveillance saying that the suspect Frank James he's 62 years old. He was a person of interest about 24 hours ago. Now he has been upgraded to a suspect of course based on

his connection to the crime scene. Key is left to a U-Haul rented van that led to his addresses in Philadelphia. In Milwaukee of course we're going to give you the latest headlines. But Guy. A developing story as we have it. Absolutely. There was some reporting earlier on that he had been arrested. That turned out to be erroneous. He is still at large. The police and the authorities are still seeking him. We have seen though Mayor Adam Security being beefed up as a result of some social posts that were made by Frank James. And as a result of which people are trying to wonder what the motivation here was trying to figure out potentially what the motive was. A lot of rants online Christi but but no real Clark sort of clear line

of sight as to why if he did do this he did do this. And I think that's what a lot of people are trying to figure out right now. Yeah guy 100 percent. I think there are a lot of questions about a social media presence. And to your point what the motive is and we are of course still waiting on authorities for the latest offer the latest in terms of reporting. We've talked to Caleb Melby of the Bloomberg investigations team. He joins me here on set. Caleb thank you so much for joining us. We saw you yesterday in Brooklyn live covering covering the developments. Talk to us a little bit about what we know what the motives are here that we polled could potentially or are potentially exploring when it comes to the police department. Just give us

the lowdown on what we need to know. Yeah absolutely. I mean we are all trying to figure out what the motives are here. And the YouTube posts by the suspect are you know people are moving through them as we talk to try to identify motive. The suspect talked about his interactions with New York City mental health on those videos and a whole host of other things and generally seem to be you know somebody who is very troubled.

In terms of what happens next. Is New York getting back to normal. I'd imagine a lot of people are very cautious about getting back on the subway. Certainly anecdotally that seems to be the case. I got on the subway to come into work here today from the neighborhood. I was not alone. New Yorkers of course are incredibly resilient. And I saw a lot of folks on the end and our trains this morning. I think the other thing we have to really talk about is the shorter term effect here. We are still have a shooter on the loose. There is an ongoing manhunt. We also have talk about how New York kind of deals with this in the interim. For example schools really in the area close to 36 street subway station.

Those schools are in session. I think we have about four and a half hours so they are let out of school again. So a lot of the concerns are about security on the ground. Tell us about what you know on that front. Yeah absolutely. There was heightened police presence on the subway system today both at the entrances on the platforms and throughout the system. It seems that of course that that's just as much about making sure people feel comfortable riding the subway as it has to do with the specific incident. Yesterday. Thank you very much indeed. We continue to monitor what is happening here and kind with the rest of the team. We'll be bringing us the latest details. Could it MLB. Let's

examine what this all means for the huge effort that was already underway post the pandemic to revive New York City's economy. We're joined now by Best Freeborn CEO of the real estate firm Brown Harris Stevens. The firm is headquartered in New York City and is known for its brokerage division catering to wealthy buyers and sellers in the city.

What impact do you think yesterday's shooting will have. A lot of people already nervous. A lot of people already were concerned about the crime in New York. A lot of people already concerned about the post pandemic environment. Walk us through what happens post this shooting. I mean good morning. First of all it's my pleasure to be here. I think look crime is a number one priority for Mayor Adams. We know that that's why he won. And I think we have to get back to

being a very safe city. I also take the subway. And I think quality of life for everyday New Yorkers is so important. And I think we need to have more police on the subway so that people feel safe because without safety it's very hard for us to move forward. As CAC said look New Yorkers are resilient. We are a very optimistic place. But we're tired. We're so tired of dealing with so many different things. And I think homelessness must be addressed and mental illness because this suspect who I hope they catch today. I think we have to address that. It's a bigger issue. And crime is not binary. It's very nuanced. And I think we need to figure out ways to deal with mental illness people that are on the street. I see people all the time or wandering mumbling sick and need to get help and get services. Otherwise they could pose a danger to people out in

the streets. And so look I used to be a prosecutor in my former life. And people we have to deal with our most vulnerable in a lot of this has to do with mental illness and drug addiction. I don't know about this suspect. I have no idea. I saw some of the rants. But our city we want to get back to work. We want to be safe. We want our kids in school. You know we have so many things to deal with. So it does have an impact. And people are nervous. That's one of the key concerns especially when it comes to this particular shooting is that it's going to discourage more people from the revival of New York City that you were just discussing. I'm curious though about perhaps the other deterrent when it comes to the arrival of New York City. And that of course is rising great at a time when you've had about two years of a

pretty decent housing boom coming on the backs of the pandemic. Talk to us a little bit about the future of housing not just in New York City but across the country. Well yes rates will certainly have an impact. We could see a little bit of a slowing down. We've seen that already in other regions because of a lack of supply in places like Connecticut and in Florida. You know we've seen a little bit of a slowing down and rates are ticking up and inflation as you were talking about in your earlier segment. And so we may see a slowing down of discretionary spending but the housing market in my view continues to boom. People continue to buy and believe in the home buying process.

So we'll have to see what happens for example with the war that Russia raged against Ukraine how that will play out we see gas prices going up. No. What we have no more peace dividend which is unfortunate. And so we're just going to have to see. I think there is nervous energy. We see the stock market doing a little bit of a cha cha. You know it's little volatile. And so we're going to have to see how everything plays out for us. When you think about New York City it is in competition with

other cities. How is how is it stacking up as a competitive place to come to to bring people into. People have left. Maybe that coming back as you say the market looks pretty solid right now. But as people think about what is happening in the city and they describe it they see the scenes that you described as well. Do you think that looking at other options other cities more competitive right now there is no other option. I mean to New York City I mean obviously I'm biased and I am raising kids here. I live here. I'm a New Yorker. Tried and true. But New

York look you have Microsoft Google Disney opening up these huge office spaces. People here try getting a reservation and restaurants are packed theaters open. I don't think listen there's always competition but we are our own competition. We need to improve our city for ourselves and we want tourism to be revived. I mean I think Mayor Adams has a lot on his plate. And Governor Hochul they have a lot to do. But I think if they work together and make safety a priority and get people back to work I think our city will be the number one spot. That's my biased opinion. Vessels talking about the other issue plaguing markets play the economy that of course is the war in Ukraine and Eastern Europe in particular. But that's also something that a lot of people are saying. Perhaps the United States is a little bit more

insulated from is there a connection between the war in Ukraine and the real estate story here in the States. It's a great question and I've thought about that. I mean I think on a human humanitarian level people are upset concerned. I mean we raised as a firm more than fifty thousand dollars to for the International Rescue Committee. I think people are upset about what they're seeing. How it will impact real estate is hard to tell. We'll see. Except for inflation it's we don't

know. And I don't think I think Putin obviously miscalculated when he started this. And I think nobody realized or understood that the landscape was going to be this icon of liberty and courage and freedom and that the landscape his courage was going to be contagious with his people. And so you know I don't know. I think it seems like it's so far away from here and people don't really connect it to real estate. How will impact us is we'll have to see. I do think maybe discretionary spending that

is the one place where people may pause and wait before they do something. Well Best Friedman Brown Hair and Steven CEO. Thank you so much for your time and your insight. More coming up next. This is Bloomberg. This is Bloomberg Markets CAC Gupta you're looking at a live shot of the principal room coming up on a stage Amoroso the capital chief investment strategist joining Bloomberg Television at three thirty p.m. New York time. This is Glenn Beck. Keeping you up to date with news from around the world here's the best word I could get to. The man who police identified as a person of interest in the New York City subway shooting is now a suspect. Frank James is still

at large. Based on the briefing from my law enforcement officials and based on the evidence that we were able to accumulate he has now been upgraded to a suspect. We ask you know New Yorkers to assist us in his apprehension. Please do not approach him. If you see him or you know about his you know his whereabouts please notify law enforcement. The attack in Brooklyn left at least 23 people injured 10 of them shot. The Biden administration is preparing a military aid package worth roughly 750 million dollars for Ukraine. The president is allowed to transfer equipment from U.S. stockpiles without

congressional approval in order to speed up delivery during an emergency. The U.S. has provided more than 2.5 billion in military assistance to Ukraine since President Biden took office. And in the U.K. inflation jumped more than expected last month to a 30 year high. Consumer prices rose in March an annual rate of 7 per cent. And the higher inflation is on the way. This month there will be a fifty four percent increase in the energy price cap. Global news

24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries. I'm rich Kid Gupta. This is Bloomberg Guy. Thanks very much indeed. JP Morgan has wrapped up its earnings call. It's the first of course of the big Wall Street banks to report first quarter earnings. Its results were a little marred by a 524 million dollar loss tied to Russia's invasion of Ukraine. Here's what Jamie Diamond had to say on the earnings call. That's another huge cloud horizon and I weren't prepared for what we understand that we're just I can't tell you the movie. I hope those things all disappear and go away. We have a soft landing and the war is resolved.

I just wouldn't bet at all that. Let's talk about what we heard on that cold Bloomberg Bloomberg's Wall Street correspondent Sonali Basak of course listening and bringing us the takeaways from what we heard from the team over at Jamie Diamond at JP Morgan Jamie Diamond. Obviously the rest of the crew should not talk to us a little bit about what we heard about volatility because Jamie Dimon and the rest of the team went through a whole range of issues. And basically if you pull them all together how much visibility do they really have as to what comes next. Yeah that's a great question because there's not a great sense of volatility being either good or bad for banks and the market at large.

Remember we've talked about this before Guy. The idea of gapping volatility will keep clients on the sidelines. One positive note and it happened very quickly in the earnings call today is that J.P. Morgan did say that prime client balances are hovering near all time highs. So after a quarter in which you saw a lot of carnage in the

hedge fund sector and the buy side you do see J.P. Morgan saying that there is money to be spent among clients and they are working with their clients to make markets. Well certainly when we talk about the war in Ukraine a lot of people are saying it's really a Europe story in terms of just how much is affected in terms of going into recession. The United States although affected by high commodity prices is relatively insulated. Jamie Diamond has been very vocal about being in that camp saying the consumer can weather all of this. Yes. You have JP Morgan J.P. Morgan excuse me coming on and creating these huge loan loss provisions and in a very stark reversal. And at the same time 30 billion dollars in buybacks. How do you square the two. Yes.

Interesting. I remember provisioning is just that provisioning. But something interesting about the reserve build that they talked about here was about a third coming from single name specific Russian securities. So the rest of that also some of that is related to not just inflation but what might happen as a result of the Federal Reserve's actions here. Q T Quantitative tightening is something that they voiced a lot of uncertainty about something we've never seen to this scale before. The other issue interestingly Kristie that day Jeremy Barnum the CFO here talked about a Volcker style Fed induced recession in response to inflationary pressures. Again when he talked about the probability of that kind of a recession he said it's low but slightly less low than before which is causing those provisions in those reserve belts.

Fascinating stuff. We will of course have you back for more and what I think is Sonali Basak Super Bowl tomorrow. Thank you so much for your time for insight as always. Let's talk more about those bank earnings with Gerard CASSIDY RBC Capital Markets head of U.S. Bank Equity Strategy. He has an outperform rating for J.P. Morgan charade. Thank you so much for joining us. Let me put that question to you. J.P. Morgan coming out with loan loss provisions a pretty stark amount but at the same time buying those 30 billion

dollars in buybacks or I should say authorizing a plan to do so. How do you square the two. Sir thank you for having me on the program. The provision was higher than expected. No doubt about it. And it was driven is as you guys just mentioned partly due to what's going on over in Russia and the Ukrainian Ukrainian war. But they also had to just build reserves based on the new accounting methodology that all the banks had to use. And so they have to take a look at life of loan losses. And in doing so they built up the reserves. Because when you think about what the world was like when they announced their fourth quarter results in January versus what it was at the end of March it is trade changed dramatically. And so it's very natural to boost up the reserves in that kind of change. And so as we go forward here they did

talk about the possibility of a recession increasing versus what it was at the end of December as well. So that was the driver on the provision. The authorization is what it is an authorization. It doesn't mean that they're going to buyback their stock this quarter or next quarter. They just want to have it on the shelf so that it there's no expiration to it. So if they want to buy back their stock a year from now they can do it. The stock's down three point two percent. If today was a bad day for the U.S. banking sector will tomorrow be worth. Interesting question because JP Morgan Chase which is often used as the bellwether for the U.S. banking industry. They have a number of businesses that most regional banks for example do not

have. Obviously regional banks are not very large trading firms and they don't have global businesses like JP Morgan Chase. I think the reason that JP Morgan Chase is suffering today has more to do with their capital ratios coming down due to the trading risks that were elevated as well as counterparty losses that were trading partner losses that were elevated. And then more importantly their bond portfolio has to be marked to market and reduce capital as well. So will that affect some of the report some of the companies reporting tomorrow. Yes we have some very large companies as you know Morgan Stanley Goldman

Sachs Citi Wells. But on the regional banks like PNC or U.S. Bancorp who are also reporting tomorrow they're not going to have the same issues as what you saw with JP Morgan's capital levels in our view. And therefore they should do maybe fare a little better. I won't talk about that trading revenue that you just mentioned. He was also walking us through the fact that those continue to rise and rise really a function of the volatility that you're seeing in market. One of the bull cases though for the stock market in particular is simply that that volatility is going to

decrease as you start to see some lows shipping race the supply chain issues the inflation pre-war kind of ease just a little bit. Talk to us a little bit about what that means for the banking sector. If you start to see volatility come back down does that hurt some of these banks and their trading revenue. It's interesting because there's good volatility and bad volatility and you know the unexpected volatility we saw in the first quarter was handled very well. But if we get into a more normalized market or a more stable market and you start to see the 10 year government bond yield stabilized and maybe come down a bit you could actually see trading increase without that volatility as more investors become comfortable in going out and buying bonds. We also any pick up in the easy embassies which as J.P. Morgan pointed out was down dramatically Europe year which everybody expected from the numbers that we can glean from the geologic data. And so if we see a pickup in investment banking that could lead to further trading and that could offset any slowdown in volatility. And so the net of it is that depending

on where rates go it's not necessarily a negative for trading as we go forward. This is a point the Jihye Lee was making earlier in Q1. VAR went up and went up quite significantly. So in order to generate the trading returns you are having to take significantly more risk. Spreads are widening. As a result do we need to think about the way that we value trading revenues differently. If the bank is taking

significantly more risk. I wouldn't say that we would have to think of it differently for the long term because eventually the bar will come back down as the volatility declines and we get into more normalized markets. But at these markets that we experienced in the first quarter and again remember what it was like on January 1st versus March 30 first in terms of volatility. If that kind of rate of change and volatility continues throughout this year then you're right. I think the valuation of those revenues would fall. But if we get back to you know somewhat normal that not like what it was

in the fourth quarter of last year. But if things start to get a little better than the VAR VAR comes back down and therefore there will be as much of a discount on those revenues going forward. Gerecht always great to catch up and get your insight. Thank you very much indeed. Gerard CASSIDY RBC Capital Markets head of US Bank Equity Strategy. Thank you sir. Janet Yellen the treasury secretary speaking at the Atlantic Council right now. Let me just bring you some of the heads that we have from what she is saying. And she's got some history with

the Fed here. So just remember that of course you do. The Fed's job is to bring inflation down. No comment on strategy. The labor markets measures are the tightest in my lifetime. She is a labor market economist. Remember Yellen says it is not impossible to slow invasion to slow inflation and maintain the labor market. The implication there would be I would suggest that it's quite difficult. And the worry is now that we see a recession. She's worrying more basically about the recession prospects growing in Europe which makes sense given the geographic proximity that Europe has to the war in Ukraine right now. That will be the ECB problem tomorrow Kristie. And we'll have extensive coverage of what Christine Legarde has to say on

that front. I think the ECB has got some real challenges ahead of itself. The Fed's got some challenges. The ECB ISE are even greater I would argue. Yeah it's really fast anyway type of historical precedents can Europe actually drag the rest of the world into a recession. I think that's really the risk here that Yellen is perhaps alluding to. Absolutely. There will certainly be some read across the US is a more insulated economy. Europe certainly more trading economy with the rest of the world. We'll come back. We will focus more

on what is happening with these markets. Something of a short squeeze taking place in the Treasury market. Today I would argue ahead of the long weekend. This is Bloomberg.

2022-04-16 21:20

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