Bloomberg Markets (05/06/2022)

Bloomberg Markets (05/06/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the US trading day. It's Friday May 6th you're the top Marcus stories we're following for you at this hour. Another growth spurt nonfarm payrolls increasing by 428 thousand in April. ISE wage growth moderated in an extremely tight labor market. We're going to break it all down Friday. Blues markets sending another risk off message from stocks to bonds as a sell off continues in what's been a very volatile week. And those supply shocks they continue lockdowns in China

and threats. Supply chains have left companies around the world in a bit of a bind. We'll discuss with Curt Sievers an ex CEO from New York. I'm creating good though with Guy Johnson London. Alix Steel is off. Welcome to Bloomberg Markets guy. I'll another risk off day in the markets. A lot of this seems to have been turned around or I should say snowballed coming off in this jobs report. Good news on the surface. Not so great under the hood. Yes. You look under the hood. I think it's terrible to be honest. Everybody say this is a great jobs report and it is. The US economy is employing a lot of people but it's not employing enough people. And there are bottlenecks all over the place and it's in the labor market. And you talk to any CEO and you'll get

the same answer. I am struggling to hire people. So U.S. employers let's do the numbers. U.S. employers added 400 28000 jobs in April so that exceeds estimates. Great. It wasn't a blowout but it was a good report. It's about 400000. I think it's 12 in a row now. But it's a it's a good report. But here's my question. Look at the participation rate. It didn't go in the right direction. We were hoping participation was going to improve. It didn't. It went the opposite way. So here's my

question for the day. Why are Americans not going back to work. Let's bring in our international economics and policy correspondent Mike NIKKEI who is in Palo Alto California. Yolanda Sheila if you ever of Bloomberg Economics Mike let me come to you with that question. Look at the participation rate. Why are Americans not going back to work.

Well I don't know what you're talking about guy because I was here at 3:00 a.m. but hey a lot of people you didn't see people's jobs dropping out. A lot of people dropped out of the labor force according to the statistics this month. But that may be just as statistical discrepancy brought about by seasonal factors. We don't know.

And one month doesn't a trend make 400 more than 400000 jobs a month. Seems like it's not that high anymore because we've had 12 months of that many people going back to work. But at this point you've got a combination of retirements. People in the baby boom who were retiring anyway the labor force participation rate going down for a long time. And then just people who are either deciding they don't want to go back to work yet or just waiting for a better job. But we're still hiring a lot of people. It's just that there's just a lot more jobs open than there had been before. To hop into this conversation here we've died. There's a lot to digest in this jobs report. And I'm curious what the biggest

thing to watch for here because you have a moderating wage growth but you also the labor participation rate that's changed as well. So put this into some context for us. What's the biggest issue with this jobs report today. I think it's an interesting report overall strong labor market. But I totally agree with Michael that we saw a tick down in participation on the back of increases in the previous three months which we saw an increase of half a percentage point in participation already. We just stepped down by two tenths of a percent. I think the thing to watch is definitely wage growth. And I think that will start we'll start to decelerate from now one. I think it is speaking at this point where we'll see some moderation in

payrolls growth going forward. And we will see participation gradually continuing to improve. Yelena there are two jobs for every unemployment unemployed person in the United States. Everybody's made much of that statistic this week. This is why I am focusing on the participation rate. And I think it's interesting what you say

about wages peaking. Why will wages peak when employers are still so desperate to employ people and can't find the staff to fill those positions. Well you really have to be very careful about this job openings numbers. There's a lot of anecdotal evidence that they might be overstating the true picture of what is going on in the labor market. I think the Fed just really Mr. Powell made it very clear the other day that they are intending to put some pressure cooled down demand and this way openings will go down. But at the same time I think there is still a good chance that participation will keep going up. And this way will will bring the labor market more in balance. And this way you know wage growth will remain strong but probably it's not be as strong as we have seen it in the lake in the last few months. Michael Barr. Hop back into this conversation here because I'm

curious about the market impact we're seeing a major sell off when you look at the stock market a major sell off when you look at the bond market. What is it that we need to really be trading off here. There was a time when the surface payrolls number or even real wages was the driver for the markets. But I'm very confused as to what exactly the market is actually looking for here. So my kids don't really know. What's interesting is this is a conference that features a lot of people from the Federal Reserve and I was speaking to one senior Fed official last night who said what's the market doing. They don't know either. It appears that what we're seeing is sort of a realization that maybe things were overvalued and maybe in the new world of higher interest rates your discount is going to be different and you've got to bring down the price a little bit. And everybody's trying to do that at once. Throw in the confusion you get from all of the automated trading these days and you end up with something like we've got right now a lot of volatility around what's going to happen. And it will take the markets a while to reprice to try to figure out exactly what you should be making

in terms of return when you're in a world of higher interest rates like we're going into. One thing I think that I want to add that Chris that you had to ask Molina about what to watch in this report. We may be starting to run low on workers who are ready to go back to work and in certain areas with certain skills. If one month doesn't make a trend but only two thousand construction workers. So is that because they're getting harder to find they've been in short supply or is that because we're

starting to see the interest rate effect of higher mortgage rates on the planning that the builders are making for how much they're going to do going forward. It's funny. Michael good to talk to Gina Raimondo the commerce secretary in the next hour and she's not the labor secretary but it's a relevant question for her I think. Are we starting to end up in a situation. We do have a skills gap. And what can she as commerce secretary do about that. Mike CPI next week. The survey

is eight point one. That's down from eight point five. What are people saying at the conference that you're at about the trajectory of inflation here. What are people saying as well about Power's decision to take 75 basis points off the table. Well nobody really thought 75 basis points was ever a serious proposal even Jim Bullard wasn't endorsing it. He was just

saying he wouldn't rule it out. I think the market got ahead of itself in thinking that way. The Fed does want to move expeditiously as they said at 50 basis points was a big change especially when you're going to do it for a couple months in a row. So I don't think that that's going to be an issue that will really be front of mind here. But everybody thinking that maybe inflation has peaked. So we're going to want to see if that's the case now. Headline inflation may not because of the war. We have the potential European embargo of Russian oil that could send oil prices significantly higher. So the headline obviously is something that nobody can control. What'll be interesting to watch is the divergence between headline and core. If core

doesn't rise as fast as the headline that would be a little bit better news on the inflation front for the Fed. Elaine I want to ask about the 75 basis points that Mike was just talking about. Is there any chance the 75 basis points despite Chairman Powell coming on saying this is off the table. Is there anything that would bring it back on the table. I mean there's always a risk scenario obviously but I think it's a tail risk at this point. You know the Chip Powell said 50 basis points at the next two meetings. After that I think they will stop and reassess the pace of further rate hikes. And I think at that point we will see inflation has moderated. We think that CPI has peaked. So I think 25 basis points going forward is our

base case scenario. Well one final quick question for me. Was Powell hawkish or dovish this week. You just kind of give us your sense of that. Well Chip Powell was just really honest I think in a sense that he said okay this is what we did. This is how we you know soit back six months ago and we are going to be

data dependent. He's as honest as he can possibly be. I don't think he was very dovish hawkish. He just you know told us the facts. And the facts are. Inflation may be moderating and they will reassess. You know when we get to the in to that point in a few months. Bloomberg's Michael McKee Angelina Shery Ahn of a Bloomberg Economics thank you both so much a really fascinating conversation on the Fed and of course the jobs report as well. Coming up we'll have more on that conversation with Matthew Horn boss global head of macro strategy at Morgan Stanley. Stick with us. This is Bloomberg.

The labor market is very very strong right now. This is a very strong labor market. It's a white hot labor market. The labor market is white hot. This is an economy in a labor markets. It's overheating. The economy is red hot. The labor market is red hot. Those are Bloomberg TV guests on the health of the U.S. labor market. Let's get a little bit more insight now from Matt Hornbeck. Morgan Stanley global head of Macro Strategy. Thank

you as always for joining us. Matt it's been a rough couple of days when you look at the markets stocks bonds these extreme sell offs. A lot of these flows going into the dollar. I'm curious where the labor question really falls into it. What are investors reacting to here. Is it the 75 basis points. Either the payrolls number is the labor participation rate or take. Great. Thanks for having me on. And Happy Mother's Day to all of the mothers out there including mine and my wife's. You know I

think in terms of what the market is reacting to really is the future. And what's coming up next week is probably more important than the labor market report. That's the CPI inflation report. We've had a couple of inflation reports here. I'm thinking about the P E numbers that we've gotten over the past two months and they have been more reasonable reports than what we had over the four months prior to that chair. Powell did reference that. So I think ultimately it's it comes down to

inflation. And next week's report is going to be very key to markets going forward. What do you think that number is going to look like. Matt. Well guy we we think it's it's going to be a good number. I mean ultimately the trends in underlying inflation in the US are strong particularly with the housing market. In the last segment I saw you talk about homebuilders. You know that component of inflation we expect to continue to be quite strong. So

underlying inflation should hold up guy. But it's really about all of the other factors that had been boosting inflation towards the end of last year early this year. That's really where the rubber is going to meet the road. Matt I'm curious about the currency picture here. If you are starting to see a lot of these investors hop out of stocks hop

out of bonds and go to cash. Is the dollar here a no brainer trade. Well I mean ultimately the dollar is rallying on a combination of factors as it usually will move to one of course is you know the policy divergence that we see being put into place by the Fed against the Bank of Japan against the ECB against the PRC and China. You also have growth elements that favor the dollar currently. Those include certainly strong growth in the U.S. economy. The labor market report this morning. Hat tip to that idea. But then when you move overseas you know you do see weakness in China. There's concerns about the zero Covid policy approach in the marketplace. And then of course there are concerns about what's happening in Europe. So the growth expectation channel also has been favoring the dollar of late. Do you think we're still underpricing the Fed. How far does the Fed need to go here.

You've got Kashkari on the on the tape now talking about the fact that we basically need to deliver all the forward guidance that has been laid out by CHEP. How well do you think ultimately this takes us. How how high do rates in the United States need to get in order to deliver the demand destruction that the Fed needs to save. Well guy I mean that's that's a problem. That's multivariate. If I just look at the U.S. economy I think the Fed could very easily get back to where it was in 2000 and 18 without really causing much demand destruction. Morgan Stanley economists led by Ellen Zentner are looking for the Fed to go higher than that. And they think that seems completely appropriate at this stage in the game. But when you broaden the lens and you look outside of the United States that's where the waters get more muddy. And I think ultimately the U.S. you know

the U.S. economy does operate more on an island than other parts of the world. But you know as we make our way deeper into this year and we get to see what exactly transpires with China what's happening in Europe then I think we'll be in a much better place to know you know does the Fed have to go into restrictive policy territory or not. And I think the impulse for the Fed. Man I feel like you hit on this really key point that the U.S. does kind of operate on this island. It's interesting that you talk about the recession chasing because it almost feels like the consensus here is that recession isn't in the cards for the United States unless the Fed does something out of the ordinary. But Europe China even the export picture that comes out of there the inflationary picture particularly out of Europe is concerning. Recession is on the table for it for those two economies. And I'm curious how much of that can actually drag the United States down as opposed to the other way around. Well

Kristie that's exactly why we have to pay very close attention to financial markets because the transmission channel typically from outside the U.S. into the U.S. you're right. I mean exports and global trade that's a key component of the transmission mechanism. But financial markets are also a key contributor to that transmission into the U.S. economy. So if the equity market continues to trade on the weak side which is what our chief U.S. equity strategist Mike Wilson is looking for then that could have an impact on the U.S. economy much earlier than any traditional economic analysis would suggest. Matt let's just talk about some other central banks critique brings up what's happening here in Europe. Bank of England yesterday the Bank of England signaled a recession and hike rates. How many more rate hikes do you think the Bank of England

is going to have to deliver. We've got inflation heading for double digits. That's emerging market territory. The bank then expects that inflation picture to absolutely collapse as demand gets crushed in order for the bank to deliver on its mandates in order for it to do the right thing for the UK economy. What do you guys now thinking. What do you what do you expect to happen and how are you going to be. How should one position around that story. Well Guy if if the message from the Bank of England sounded confused. I mean I think it just reflects what most investors

are thinking these days. People are very confused now in terms of what we're expecting. We do see another hike. But but we are. But after that we don't really see much from the Bank of England because we do have growth coming down quite quite substantially. So when you look at Morgan Stanley economics and their forecasts for the Bank of England policy a bank rate in this case you know we're way below where the market is currently priced. So one of the key recommendations that we are out with after the Bank of England meeting is for investors to be in yield curve steepening exposure. So to be long to your gilts versus short tenure gilts looking for that particular part of the curve to steep and up that's a key message from us in the wake of that meeting guy. Mack great catch up. Always useful to get your analysis as to what is happening here and then critically how to position

around it. Mack hold back. Morgan Stanley global head of Macro Strategy. Sir thank you very much indeed. Here we go. Coming up for you. Could yesterday's selloff be all about ETF. Cashing out. We're going to talk about the role they've played in the story you see on the screen in front of you. That's next. This is Bloomberg. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now. Rich could get Dish as one drama falling. The athletic winemakers make us showed it struggling with supply chain issues. The company's

also being hurt by pandemic related shutdown in China says that was down from 14 percent in the quarter. Tesla's making plans to resume double shifts at its factory in Shanghai as soon as mid-May. Bloomberg has learned that the electric carmaker expects labor and parts shortages to ease. The factory was shut three weeks last month when Shanghai was hit by a coronavirus locked down. It resumed limited operation in late April and a group led by former Guggenheim president Todd Boney is close to an agreement to buy English football club Chelsea one of the most successful of the past two decades. The price is certain to

be the highest ever paid for an English club. Russian billionaire Roman Abramovich put the team up for sale in March just before he was sanctioned by the British government. And that is the latest business. Pretty good. Thank you so much. Well it's been a volatile week in the markets as traders assess how central banks are affecting price levels. Bloomberg News's Katie Greifeld looking at how the swings played out in the ETF space. Katie. Well Kristie you saw ETF volume absolutely saw yesterday. You saw the same thing in January and February.

This tends to happen when things get a little bit hairy in the markets because ETF. They trade like water. They are so incredibly liquid. Traders tend to gravitate towards these tools when there is that sort of high volatility. Now you typically see these big volume spikes precede a bottom typically. But that obviously didn't happen in January. It might not happen now given the macro outlook which of course it's got a lot of investors off guard. A ton of money this week has flowed into junk bonds. It's leveraged tech and into the ARC Innovation ETF that it added up to a lot of pain yesterday. And what caught my eye in that chart is that you actually saw traders pull money from the pro shares ultra VIX short term futures ETF. And that's

surprising because that fund actually crushed it yesterday. The ticker there is U V X Y. It soared 37 percent yesterday alone. It was the best performance by a male among US ETF. It's up another 4 or 5 percent today. We'll see if inflows follow. OK. Teddy Greifeld. All right thank you very much indeed. I think going to see a bumpy week next week as well. I don't think this is stopping anytime soon. Judging by the price hikes that I'm

seeing on the screen in front of me NASDAQ all over the place plays down hard bouncing back. We're down by around eight tenths of one percent right now. We've got to talk about one of the components of the tech landscape next. And XP reporting strong results this week. We're going to discuss the outlook what is happening with this global chip shortage particularly in the

automotive sector. Curt Sievers is going to join us from an XP. I have to say the CEO of Volkswagen thinks that things are going to improve in the second half of the year. He's expecting more chips. Is he going to get them. I'm going to ask Kurt Sievers that question next. This is Bloomberg.

For an hour the U.S. trading session Bloomberg Quicktake Gupta is tracking the moves Fredricka. Yes Kristie while we do continue on that downward trajectory can see we are clearly in the red. Maybe erasing some of the losses but investors really trying to find some safety here. Of course they took a little comfort from that jobs report maybe okay on the surface. But beneath that that labor participation rate looks like the Fed is ultimately going to stick on its course with those aggressive rate hikes. You see tech though having another bad day down some 1 percent here. And that's really looking was looking at when we came into this session that we could perhaps be flat on the week. But we're really going to have to see how it goes today. Certainly looking like we are going lower. But adding more pressure to that of course is the yield particularly that long

in that 10 year. Now at three point zero 7 percent. So continuing to move higher. And of course we can't talk about a risk off day when we're not talking about Bitcoin selling off. So that's down some one point seven percent really trading in tandem with risk assets and some of those tech stocks as well. Now we've got to focus in on bonds. This has been what we talk

about the sell off in stocks. We also talk about the sell off in treasuries as well. When you see that yield on the 10 year on the long end up in the past two days up some 18 basis points. So some big moves here if they're not going. Investors not going into stocks and not going into bonds why are they putting their money perhaps cash perhaps king and dollar as well. Now let's just finally just end here looking at the tech sector of course having a bad day having a really bad year of course down some 22 percent or so. But what you can really see is the white line here and this is your semi's your chip makers and this is really dragged that index lower on the year. So a big part of that is the chip makers pulling them down. You did have on a stage

Amoroso though on the open this morning saying that maybe with lower valuations that could be some kind of an entry point here for the chip makers. But I know you will discuss all of that and more. Back to you. Chris Guy Bloomberg's radical group there. We thank you so much. Let's stick with that chip story. And XP semiconductors recorded impressive first quarter results in second quarter revenue forecasts better than expected. Joining us now is the perfect

guest Kurt Sievers. And XP CEO joins us right here on set. We thank you so much as always. It's a fascinating time to talk about ships just given this environment. We've been having these chip shortages for I want to say going on a year and a half now at least. I'm curious though I'm just looking at our FDA function on the

Bloomberg Turnbull terminal. 38 percent of your revenue comes from China. We're talking about Covid lockdowns restrictions as well. How much of the China story affect you overall. Yeah. So first of all thanks for having me again this week Kristie. It's indeed a world in turmoil. I would say from a supply chain perspective and the the latest addition is the situation in China in our particular case. We do not see any demand impact in the second quarter which we just guided earlier this week. We do see however some risk on supply because some of our suppliers in epoxy in substrates which are located in the Shanghai area has been impacted by the year by the Covid shutdowns. Soviet factored in some risk adjustment to our second quarter guidance

in order to cater for that. But again it's not on the demand side because we've been under shipping the market for one and a half years now. So people just try to get every device we are shipping. So there is no there is no demand impact. And with that we again guided strong for the second quarter was 26 percent year over year growth including China. OK. Let's talk about that under deliverance and the demand that we are seeing what happens in the second half of the year. So up

involves Berg. How about these things. Things have got to improve. He's expecting that he's going to be getting more chips for Volkswagen. Is he going to get them. He will get more and not only for X1 but the whole industry. So we in our guidance we also talked about the second half of the year being bigger than the first half of the year. Yet I have to say the whole year for an XP we will continue to be sold out which means our growth or revenue growth this year though continue to be gated by supply only. However every quarter more than the previous quarter Q2 will be above Q1. The second half will be above the first half and that is strongly led by supplies into the automotive industry. Kurt are you charging as much as you could right now. And if not why not. And if you're not charging as much as you could. Does

that imply that you're a little bit concerned about the psycho. So first we do not charge as much as we could. What we do and that's a very strong and very transparent policy. The right the rising input costs which we are experiencing from our suppliers from labor costs from energy costs. We are passing that on to our customers. But just that much that we can protect our financial model and our gross margins. We do not do this in order to pad our margins. And guy. I am a big believer in that policy because in the business which we have in automotive is a good example. But also the large industrial customers we have

very long and very important customer relationships. So it is not a reflection of the cycle. It is purely a reflection of how much I personally and our team how much we honor our customer relationships because you talked about folks flagging other car companies. I want to be in business and I want to be there a good supplier and trusted supplier not only for next year but for the next 10 years. Kurt you were talking about demand not being impacted supply is really the issue here. If you can't meet capacity what kind of timeframe are you looking at to get back online in terms of getting to 100 percent of what NSP can offer. Yeah. So we think currently that as I

said this year clearly not. It is going to it is going to good good improve next year. I mean it all depends on how the demand continues to go. But I believe with the strong continued penetration of ex for example which needs much more chips than conventional cars the demand will continue to be strong. So ISE I started the foreign treaty I think in 25. It will be certainly fine. I hope we can be fine in 24. But I think 20 23 will still be a challenging year. Where where are you. You said a moment ago that you were focusing because on pricing because you want to be in business with your customers for a long time. Where do you think we are

though in the cycle. This serious recession fears here in Europe. What do you think the macro backdrop looks like right now. Where where are we in the cycle. What kind of a cycle is this. Well from a semiconductor perspective which which has always been very cyclic. I do believe the semi industry will continue to have strong cycles.

However in XP is operating in is a subsector of the semi industry which is about these trailing edge notes. And which is about from a market perspective automotive and industrial. So two thirds up to three quarters of the revenue of an XP is in automotive and industrial. And given that most of the CapEx which is currently being spent in the semi industry goes into leading astronauts which do not help the supply shortages which we have I do not think that we see anything like a hard landing or soft landing anytime soon. So I think we have a pretty strong ongoing demand pattern also

through the next few years. And that also comes then back to the pricing. So I think the pricing levels which we are achieving this year though continue to stand over the next year. Again this is not a statement for the total semi industry. It is a specific statement to bear in XP is operating. Given the overly strong exposure to trailing astronauts the capacity continues to be constrained. Colonel I'd like to ask you about the sourcing of metal. We know that metal prices and commodity prices have risen around the world. A lot of that in response to the war in Ukraine. But for chips that's an extra burden on top of the supply things. How much of the supply chain in terms of sourcing metals

specifically are you adjusting. Are you looking at other countries for example. Metal isn't really our our concern. There is one concern which came up after the horrible invasion of Russia in the Ukraine which is neon gas. So we need noble gas especially neon which is largely coming from Ukraine and Russia. The good news is the industry has strong buffers. So we have the time now to actually look for alternative sources before this might be totally cut off going forward. So from that perspective I think we are not in diverse place as an industry. I mean you talk about the metals and that or the gas part as

well eating into it. I want to ask about your margins though. How much longer can you perhaps pay extra for some of these raw materials. That comes back to what I just discussed with Guy Weevil. We will continue to protect our financial model by raising prices in line with the with the increased input cost. And that that's a matter of fact for energy prices at large are

going up even labor costs. Here in the U.S. we have three large facilities in the U.S. and Arizona and in Texas labor cost is going up. But so far we've been successful to pass that on but not more than that. It's really important to say we keep a fine line here but I'm confident we can continue to do this because the world

needs chips. The world is short of chips so we can command the price which is fair. We're gonna be speaking to the commerce secretary general John Doe in the next hour. She is actively trying to push legislation a bill through the houses of Congress that is going to allow the US to support the chip industry and its restoring efforts. What do you make of the efforts thus far. Are they going fast enough. Are they going to have an impact quickly enough. Talk us through what you think the government is doing what it could be doing still. And we are a very very big supporter of the chip sector by the way not only in the US. There is a similar situation in Europe

which followed swiftly to the US. I think it got significant momentum and without being able to give you a specific detail. We are significantly participating in this. One reflection is that large U.S. customers are demanding U.S. soil chip production for big new deals which they would be avoiding for the year 2025 onwards. So we are now working on design wins for that timeframe and our U.S. customers are having an absolute requirements that the chips which we will ship them

are manufactured in the US. That can only be enabled by the CHIPS Act which you which you mentioned. And I see that system is at work. It does work. So I am I'm not only supportive I one source thankful to it because I think it's the right it's absolutely the right way to do it. Kurt we'll put those points to her. Thank you very much indeed. Greatly appreciate your time. Thanks for dropping by. Kurt Sievers the NAACP CEO. Thank you sir. Coming up we're going to take you back to China. Lockdowns in

China continue to slam manufacturers. The CEO of a major supplier to household names such as kitchen aid pirates. Joining us on the impact on his business Robin Gundy of GM. M is going to be joining us. That conversation coming up. Got lots to talk about. This is Bloomberg. This is Bloomberg Markets numbers could get to you're looking at a live shot of the principal room coming up Stanford University professor of economics John Taylor. This is Glenn Beck. Keeping you up to date with news from around the world is the first word I could get to. The EU has proposed a revision to its

Russian oil sanctions ban to give several countries more time to comply. Bloomberg said that Hungary and Slovakia would get an extra year until the end of 2020 for the Czech Republic would get an exemption until June of that year. All other EU members would phase out Russian oil imports by the end of this year. The United Nations says global food prices continue to hover near an all time high. The crop trade has been disrupted by the war in Ukraine. The country has been one of the world's largest shippers of wheat and vegetable oil. High fertilizer prices and drought have added to that problem. And the US labor market kept expanding at a robust pace last month. Plus wage growth moderated but a

surprise drop in the participation rate suggests the labor market will remain exceedingly tight. The economy added a better than expected 428 thousand jobs. The unemployment rate held at three point six percent as the size of the labor force declined. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. Can get better. This has been bad guy. Okay. Thanks very much indeed. Let's talk about what is happening in industry. We've talked a number CEOs over the last few days. Consistent themes keep coming up. What's happening in the labor market. What's happening with supply chains what's happening with China. All of these seem to be reasonably consistent and everybody is

struggling with it. GM nonstick coating says some of its most reliable clients are beginning to not be as reliable. The company is a supplier of course of house where names such as Kitchen A Pyrex Black and Decker and many many more Ravine Gundy. The company's CEO joins us now. Talk to us about why that is the case ravine why some of your customers starting to struggle. It's so if I'm an optimist I basically say that it's supply chain and people order too much stuff in Q4 and that is inventory sitting in warehouses now. And that's why things are slow. We're down about 11 percent. That's what we think that we're going to be down for 2020 too. That's if I'm an optimist.

If I'm kind of a pessimist or even a realist I say there's some very troubling signs that I see. We have a lot of clients like you mentioned they're very reliable where we can predict their ordering pattern and we are seeing air pockets their pockets where people suddenly just stop ordering for 30 days 40 days with very little explanation. And honestly the last time I saw patterns like that was around 2008 or 2009. And I I don't I hope we don't get there but it's quite troubling to me right now. Vivienne are you saying that we're headed for a recession in the United States perhaps. Yes that is what I'm saying. I think I hear I hear a lot of denial I hear a lot of anger I hear a lot of bargaining and I

think the market's telling us it's time to have a little acceptance. I think that the consumer is stretched tremendously. I think this Fed has been accommodative for the last decade. I think they're taking the punchbowl away. And from where I sit it's just really hard. We see slowness in the EU. We see slowness in Asia. We slow it. We see slowness in America. And you know everyday 40 million people use products that have my coding on it. And so let's say you have a plan or you have a grill you may not need to buy one of those things if things kind of slow down. So I've always feel like I've always felt like we were a bit of a canary in the coal mine. So when we see a slowdown as we do now it will be before a lot of the big numbers

that you see printed. Robin is there an element of pull forward here. We are starting to see people switching to spending money on services. They bought a lot of stuff. Maybe they want to go out for the night. Yeah I mean I. So your your question is that that can you. I didn't really understand a question. Well my question is

everybody's both a lot of stuff. I bottle the pots and pans I need. I haven't been going out as a result of which I bulked up on that kind of stuff in my household. Do I need to go out and buy some more. Or am I now that I am released from lockdowns. More willing to go to a restaurant rather than cooking at home. Yeah I mean I think that that that is potentially the case. But like I just said we you know in during Covid we were kind of a

quote unquote recession proof business. Right. Because everybody needs to e but in this situation. I know for instance if I look at us it's a proxy for other consumer might be thinking. I would say that that prices for my hand are just going up and up. We raise prices something like 20 25 percent last year. And while I have not raised prices this year if I had my druthers we would probably go up another 10 to 15 percent based on what we're seeing from our raw material suppliers. The reason I can't raise my prices is it's very very difficult for my clients at Amazon and at Wal-Mart to get that stuff through. But I know it's

coming. So I know that that will end up at the foot of the American consumer. And so to that point I think that you might end up in a situation later this year where people aren't buying new cookware and they aren't going out to. We'll have to ask about the China situation I believe Jeb has two plants there. We're talking about Covid lockdowns an extension of restrictions in Beijing now. How does that affect the bottom line for you and arguably for other companies in your industry the consumer industry that has this global reach. So one of our plants is pretty well okay in the south of China. There's no lockdowns there. But the other one is in the north in

the Shanghai area and they are under under total lockdown. And it's stark. I mean when you you know everybody thought that this was in the rearview mirror and China obviously was touting their ability to top down you know authoritarian systems worked in. And we were seeing pictures and in Wu Hahn of thousands of people all while all of us in the states were locked down. And

now we see that you know this is a pretty tough disease and you can't really control it that well. So it is very very tough right now in the north of of China. And that that extends to everything besides the demand that we we don't see from a consumer perspective in Asia. It affects all of that logistics supply stuff that you know what you're talking about.

Ravine Did you see an impact from the start of the war in Ukraine on the business in Europe. Is it possible to draw a line between one and the other. Well we did have a few clients in Russia that we actually supplied to from our India facility. And obviously from a sanction perspective we stopped having having that that sales go

on. I think the biggest thing from my perspective with Ukraine is just uncertainty. It's just yet another thing in an environment where it seems like every time you turn on the news it's just it's bad news. It's whether it's price increases whether it's you know GDP shrinking and now you have a war. I just think that people go wow we've had a really good 10 years. But maybe this is the time where we have to look you know maybe 20 20 30 gets better from my perspective. I'm an optimist. And I

think that that within 18 months everything will be fine. I think one of the things that I just don't I don't see talked about is the economy sometimes contract. That's the way it works. And our government on both sides of the aisle has just not allowed that to happen for four kind of last decade. There is a spend this extraordinarily big moral hazard accommodative situation. And now you know the piper has to get paid. Vivienne Gandhi a really interesting conversation. GM nonstick coating CEO thank you so much for joining us. More ahead. This is Bloomberg.

Okay we are looking ahead now to the European close the end of the week. Wow. Has it been a long week. Let me just take you through the price action that I'll talk what what we've got coming up in the next hour. European stocks are down. A bit of reaction. What we saw yesterday obviously in the United States and continue to see today 430 is now the number we continue to

get dragged lower a lower one point eighty five percent off the pace today. Euro dollar though entering enough catching a bear. There's been a lot of chatter out of the ECB today about rate hikes. June maybe not July quite possibly. We'll talk about that in just a moment. The other factor in all of this is what is happening with the Italian yields which continue to push higher. And the spread bunds to beekeepers also continues to go wider as well where around 200 basis points. Is there a pressure point

coming. Is there a spread management issue that is going to emerge here for the ECB. We're going to talk about that in the next hour. We got so much to talk about with our next guest Jean-Claude Trichet. The former ECB president is going to be joining us. We need to talk about what's happening in the economy. We need to talk about how the ECB is responding. Well the communication strategy is and what it should do in terms of the core periphery management story all of that is something that we need to be talking about. The euro is another factor that is worth dwelling on for just a moment as well. If we get to parity how problematic is that going to be. Because obviously that's an impulsive inflation factor that we need to think about

as well. All of this of course in the light of the Fed this week and the Bank of England Jean-Claude Trichet is coming up. We're gonna be counting it down to the European close. That is coming up. This is Bloomberg.

2022-05-10 02:14

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