Bloomberg Markets (07/11/2022)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. Thirty minutes into the US trading day. It's Monday July 11th. Here are the top market moving stories we're following for you this hour. King dollar the greenback is continuing to gain ground ahead of the U.S. earnings season kicks off this week. Chip aid. U.S. lawmakers try to hash out a deal to subsidize the chip industry. Commerce Secretary Gina Raimondo joins us later
this hour to discuss how why this has to pass now. And Nord Stream hauled the gas pipeline to Germany shuts down for maintenance. What that means for Europe's energy supply at a crucial moment. From New York I'm Katie Greifeld with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets guy. I see stocks slipping. I see the dollar surging. Seems pretty risk off to start this week. Yeah. The dollar story I think is absolutely front and center here. Katie where do we
trading now. Well basically one for one let's call it that little bit of a blip in the last few minutes of the upside for the euro. But nevertheless a huge move over the last few weeks. The downside is this dollar strength or is this euro weakness. I think there's probably a little bit of both in the mix here but we've got a big week coming up haven't we. U.S. CPI is going to be a Wednesday. We've obviously got the ongoing saga surrounding what is happening with European gas. We got you coming up on Friday. Plenty of opportunities for either side of this path to show some significant movements. Let's talk about our question of the day. Where does the buck stop. That is our question. We also
asked this question a few weeks back. We thought we had the answer but it turns out we didn't. Christine Aquino joins us from New York. Bloomberg Markets editor and Gina Martin Adams chief equity strategist to Bloomberg Intelligence. Joining me here in London which is a nice surprise. I'm going to start with Christine over in New York Christine. Where does the
buck stop. And is this euro strength or is this dollar it sorry. Is this euro weakness or dollar strength. Well I think you're absolutely right in saying that it is a little bit of both in terms of the dollar trajectory here because of course the euro weakness that we're seeing right now is very much a big part of that especially because there is a very Europe specific reason as to why the euro is weakening. This is of course the deterioration in fundamentals in the euro area as well as renewed risks from its exposure to the Russia conflict which is still ongoing. The latest of that being that the threat of Russia cutting off its gas supply to Europe is suddenly becoming quite real at this point. It is very much a euro negative story. But of course the flip side there are also very specific dollar positive factors here of course very importantly what the Federal Reserve is doing and what they're preparing to do. We have heard from several policymakers
again flagging the possibility of a 75 basis point rate hike as soon as next month or in the next couple of months. And that is very much powering the dollar higher. Where does the buck stop. I think parity is actually quite conservative. It's probably looking more beyond that and more year weakness to come in dollar flip side. Well Christine set us up nicely. The dollar powering higher. Gina let's wrap that into what we're gonna get this week with the big banks kicking off earnings stateside. There is an interesting note from Morgan Stanley over the weekend saying that if you look at the 16 percent climb in the ISE dollar index that's about an eight percent headwind for S&P 500 CPS growth. Does that sound right to you. Is it that dramatic. It depends upon really the combination of the dollar and the
economic outlook. Katie I think when we think about the dollar. Typically the dollar is surging in periods of economic weakness or risk off periods. That's exactly what's been happening over the course of this year as we've been declared decreasing our expectation for growth at the same time that the dollar is rising. So the net result is slower earnings growth. Analysts have shown some tendency to reduce expectations in
particular for the more multi-national and growth sensitive segments of the index which may be related to the dollar. But I think it's really difficult to isolate one versus the other. It's the combination that's most meaningful. And the result is expectations for second quarter earnings growth have come in from close to 7 percent earnings growth just at the end of April to closer to 4 percent earnings growth now. And the biggest drag there is again growth for growth. Earnings are actually expected
to decline year over year. If I listen to the calls this week if I listen to the calls next week how many times do I get to hear the dollar mentioned. Microsoft's already warned. Yep. Is it going to be a big feature of the landscape and the language used you think. I think it will be for the one third of companies that actually has exposure. But I do think you want to keep in mind that that's one third of the S&P 500. A sixty five percent of companies are actually net beneficiaries of the dollar. When the dollar rises generally their earnings are positively correlated.
But for the 35 percent that experienced some negative result as a result of the dollar rising you will hear it. Many of them are the big suppose a bellwethers. That's why when Microsoft made the announcement it had such a big impact is the presumption is that it's impacting Microsoft it's impacting the entire software space.
And you'll hear the same with the hardware companies that announce with the Staples companies that announced. We've already heard a bit of Staples weakness start to emerge. So you will hear it will be a big story for that one third. Okay stand. So according to Gina about a third of companies have an excuse here. But what are the risk or the possibility that we see some companies try to use this dollar strength almost as a scapegoat. Well it's very much a possibility Katie for sure. And
like Gina said it's probably about a third that has this as a valid reason for any sort of earnings weakness that comes through. But then for the rest of it it might be an excuse. But I do wonder just the effect of that in and of itself. You know a number of companies particularly bellwether companies blue chip companies such as Microsoft suddenly talking about the dollars impact on their earnings. I mean we did some analysis on this a couple of months ago. And even in the past earnings season it was quite a number of companies saying or citing dollar strength as a reason for earnings weakness. We never really seen that before at least not in this sort of environment where the Fed is of course simultaneously talking about multiple super sized rate hikes. And so it is a very unique environment in a lot of ways. And so even that the idea that a lot of
companies now more than ever are talking about the dollar impact on their earnings. Is that something that would deliver that kind of ripple effect in terms of sentiment across markets. You have you do really have to wonder. Know how extreme is is this position at this point. When we
think about history could we go much further. Euro has been weakness weaker than this. So the last time the euro was was even weaker than they started the 80s. What did the picture look like. Yeah I suspect the the overlay on growth was probably a little bit different but nevertheless it's worth trying to get a bit of historical perspective.
So it's worth looking at on a year over year basis. How big is the dollar gain. And when we look over the last 20 years we find actually 21 instances in which the dollar has gained more on a year over year basis than it has already over the last year. But that's 21 monthly instances over a very long period of time. So it's relatively consequential at this point in time. A 1 percent
gain in the dollar has about a 17 basis point drag on S&P 500 long term history. The dollar and EPA have no relationship. So that tells you it's enough that it's actually dragging EPA slower. But over a long period of time dollar gains are inconsequential to. So you do the math. We're looking at 17 basis points off of growth for every 1 percent gain you've got a double digit gain in the dollar. Those those moves are starting to really add up. And the greater the strength the greater the drag it ultimately
has. And if I look quickly at Euro USD we're about a breath away from parity right now. And Christine I like what you said that parodies conservative that we could see a big move to the downside from there at least pair wise. What sort of levels are you hearing when you talk to strategists and investors. Well we've certainly seen the level ninety five being flagged around. But I think now that we're kind of here because this this whole parity idea was actually something that came about even earlier in the year before we really got to these levels. And so as the case with markets as a case with a lot of strategies now that we're kind of getting close to the debt level it's up to them to up the ante. Right. And so we are hearing closer to the 90s for
sure. And I think what's fundamental here is really the extent of your weakness that people are expecting in the markets and also the length of time that it's going to stay there. And I think really the direction of travel regardless of the specific levels that people are pointing to it really is much much lower from here. And for a prolonged time. Christine I think we had kicked chicks on the other day from SOC Gen saying if the Russians cut the gas off we definitely go down to 90 or potentially even lower than that. So maybe this is a gas trade as much as anything else. That's the Eurozone. But let's talk about the dollar side of the equation here. Does the dollar run out of road when U.S. inflation peaks. And could that be this Wednesday. I mean it really will have to depend on the responses of the
Federal Reserve guy. And you know just from what we've heard from them recently though it doesn't seem like one data point is going to stop them from this particular cycle because they also have that other mandate which is course full employment and the jobs report from Friday. If anything really just strengthens the conviction that they do have to deliver multiple multiples of these supersized rate hikes to the market because it's not just inflation that's factoring into that decision. And so I think whether you know some semblance of a peak comes as soon as this Wednesday is probably not going to be so relevant to the longer term decision making of the Fed because it really sounds like they have set themselves up for a path of multiple super sized rate hikes at least for the next couple of meetings. All right. Gina Martin that is a Bloomberg Intelligence and Bloomberg's Christine Aquino. Thank you both so much. Great chat to start off the week. And coming up Morgan Stanley's Mike Wilson just one of several warning that dollar strength will hit earnings. We're going to discuss where the buck stops with Victoria Green.
G squared Private Wealth CIO. This is Bloomberg. Earnings season is coming. Hello bank. I get to exceed our bargains out there. Bloomberg is fastest. With the numbers and analysis conflicting and complex crosscurrents strap yourself in for this earnings season. Bloomberg The fastest numbers and analysis you trust. I would be very very surprised. We went to a new bull market anytime soon. We've just been through the most speculative
period of financial history you know specs. That would be you know fangs you know commission Jason Kelly mixed. That was a mega advisers chairman and CEO Leon Cooperman earlier on Bloomberg Television. And sticking with the bulls and the bears Mike Wilson of Morgan Stanley out with a note warning that the surge in the dollar rupee a massive headwind for profits at many U.S. companies. It's another reason to expect a dimming earnings outlook which takes us back to our question of the day. Where does the buck stop. Let's ask Victoria Green. G squared. Private Wealth CIO Victoria great to have you with us. How much juice is left in this dollar move and what does that mean for corporate America. It's not good. It typically is a big earnings
drag it's important to know where companies revenues are coming from and how this may affect the currency translation. But look right now you have a Fed that's going to hike aggressively. They've got a green light to go with a good unemployment. You know we're all watching Wednesday. We'll see what happens with inflation. But right now you kind of have disparity across the world with what the U.S. economy is doing and what's happening in say Europe and Japan. And some of that I even put into kind
of the commodity makers and the commodity takers. Right. So we have companies that are producing oil and gas and then a lot of pressure on Europe on how they're going to be able consume and get their oil and gas. So I think the dollar could continue to run. Obviously it's data dependent and it's going to be a big big headwind because this is a fairly rapid rise in Q2. And you know like you said companies may try to bail out weak earnings anyway and blame the dollar. It's kind of fun. It's like blaming the hedge funds for shorting you if you're not doing well in the market.
Victoria let's talk more broadly about stocks. Still bearish. Yes I think it's more of a dead cat bounce. We'll see what happens Wednesday in earnings season. We are bearish on earnings. You know not a winter is coming as kind of our theme here because I don't think the numbers are going to be great. If you look at the inflationary pressures the labor pressures not much to happen from Q1 and expectations in this year was that Q2 was going to be the hardest hit earnings. And then we might see
a second half recovery. So I think we have a lot of headwinds. And then you throw in the dollar on top of all of these other things that companies are facing. And then some commodity price uncertainty. Yes we saw some input prices come down late June 4 but for the bulk of Q2 you still saw a lot of high inflationary pressures from metals and oil and gas. So I think it's going to depend on how successful CEOs are. We're navigating how much contracting and hedging they had and what they're able to say going forward. Guidance is something that we're listening to very carefully. It's almost like data is moving so fast. We're like oh we expected a bad Q2. But what about the second half of the year. You know so I think earnings misses are going to be
punished. I think if you be you're not necessarily going to be rewarded as much. And we saw some of that in Q1 where a good PSB but maybe a margin mess then you were punished and or a good beat and a good margin. But your guidance was was slowing. You still got punished. So it is almost like companies can't win right now because of all the worry companies can't win. But when you look across sort of the landscape here which sectors an industry standout to you right now is most vulnerable as we look ahead to earnings season. You know I think you've got some of this discretionary obviously the consumers had a lot of stress on there. They're starting out on some debt and go into their credit cards to keep spending a
little bit higher. But I think discretionary could certainly be under pressure staples if you saw awesome increase in costs. But you know Costco actually came out which is a stock we really like saying hey we actually had a pretty decent Q2 on on some of our gasoline revenues and other things. So I think you need to think consumer exposed stocks and then also the technology sector as one especially the growth sector or small cap sector where they're just more aggressive and more levered. We want stocks with show me earnings. Right. Show me cash flow now. We want to show. We don't want one that we're poor. We're getting promised things in the future. Is that our future growers and and oh we're going to make you money in the future. We've got
all of this innovation. We want stocks that right now show me you make money and you can execute in a tough market. The oil stocks will sell within that group. Brent WTI all over the place. Brent down 2 percent today 1 0 4. But we've been sub four hundred sub 100. We've been up into the kind of mid 150 area Victoria. This is an area that's all over the place as the market tries to figure out where the global economy is going. What impact is that having on your thoughts around oil stocks. We still like energy stocks. You didn't notice I left them off my list a little bit earlier. We're below more neutral short
term. You have this battle right now between supply constraints and what's happening in Russia. And then you have demand potential demand destruction. With a recession which historically isn't great. And there are some ugly charts right now a lot of comparisons about the 2008. You know you had a spike in prices up to 150 and then it immediately came down after we had a major recession. We don't necessarily think that's going to happen. If you look at what oil was doing pre Russia you are already at that ninety dollars a barrel level which is a great spot for a lot of us producers especially in the Permian where the break evens are much much lower. So I think you could have some near-term headwinds. I think they're
going to have a great Q2. You still have them print cash. We haven't seen a ton of CapEx. They're distributing their earnings and cash flow to their shareholders. And so I think you've got a little wildcards and we're a little little worried about what the trajectory is going to be short term. And some of that has to do with is Russia going to cut off all natural gas to Europe
which could force a massive price. And you look around and you had what J.P. Morgan at 380 as I was a tail and risk if if Russia fully exits Europe and then you have you know 65 from Citi. So you have this wide dispersion and it's just going to be data dependent. We tend to think that's going to be a mild recession. So we are holding tight with our oil and gas. Well we'll clip our dividends. We're getting paid to wait there right now for most of these companies and pay very handsomely. And we
tend to think that 90 to 100 dollar oil is very sustainable. We didn't like oil over 100. That's where all of a sudden you see this demand destruction. Yeah you certainly do. Everybody complaining about what's happening when it comes to gasoline. We've got to talk about that a little bit later in the show Victoria. Thank you very much indeed. Victoria Greta. G squared private wealth. Great stuff. Still ahead Wall Street very much focusing on what is happening surrounding the Bitcoin story trying to work out where we go from here is bitcoin crash. Lots get hot about. It's got a whole lot worse. We're going to bring you the details from Bloomberg and like Pulse survey next. This is Bloomberg.
In a Bloomberg survey of 950 investors about 60 percent say that Bitcoin is more likely to fall back to 10000 than it is to go back to thirty thousand. Here's what our TV guest had to say. We are in a crypto winter so again that could be an area where you dabble. I wouldn't necessarily allocate Mark Crumpton of my portfolio to it but I am comfortable taking smaller positions. The volatility is excessive. It's very it's volatility like currencies but nevertheless it can find a place in that portfolio. Notwithstanding what I've said it's very difficult to predict. We struggle to find a valuation model. How do value
bitcoin or the other currency. So we have always advise all clients or investors to tread carefully. It is very much a risk asset rather than a store of value. And it is in some sense a bet on a business model that has very much yet to be proven. My suspicion is is that this is here to stay. And I think that as I said you know you write off the mass movement of these super talented super ambitious people at our peril. Joining us now is Bloomberg Cross Asset reporter Isabel Lee and
Isabel looking through the results of this survey it seems like the read was pretty bearish. It was bearish but it's not that big of a difference at 60 percent of the respondents in the survey think that Bitcoin will hit 10k first over the 40 percent who thinks Bitcoin will hit 40 capers 30 K rather. But the sentiment is indeed bearish. I mean I don't blame the investors with everything happening from the collapse of Tara Luna and other currencies. And a lot of these crypto lenders are also just imploding from Voyager and digital. So the sentiment is like that. But I checked the bitcoin price before coming on TV and earlier in June bitcoin was around 29 K.. But in the past 30 days Bitcoin was just ranging from 19 to 21. So it's a tight range and it's not the bitcoin or the crypto that we know. It's usually crypto currencies are volatile but now the kind of
stable. Bitcoin crypto has been almost religious in terms of the way that people have approached debts. But now you've got institutional investors in who in theory should come in. Isabella Madoff got a more pragmatic approach to what is happening here. Are we seeing significant differences between retail. I'm and what's happening on the institutional front so institutional investors are less apprehensive and investing in crypto currencies which I kind of understand because you hear a lot of stories of retail traders putting in significant chunks of their life savings or even their entire life savings and digital assets and they got burned because now crypto currencies are really just in the doldrums. But also one would argue that maybe institutional investors maybe they have a bit more cushion. But if you also look at the survey more closely it's
not that big of a difference as well. And even then each for example retail investors 24 percent of them think that crypto currencies are garbage. But twenty three percent of them think that it's the future. So it's still kind of polarizing within the trader group and also outside of the trader group. So it's still a space that I think has a lot of development and maturing to do. And Isabel before we let you go just quickly we're talking about crypto broadly here. But what was the breakdown between the different coins. There wasn't a lot of details in all coins. But then in general sometimes all clients in the past few days have outperformed crypto currencies. Most of the time that have sometimes that
happens most of the time. All clients move in lockstep with Bitcoin because bitcoin is the dominant coin. It's still the largest in terms of market cap. It's the most famous. It's the most established. So it's still the leader by far. Is about really interesting survey. Thank you so much for bringing us the details. Bloomberg's Isabel Lee. And tune in of
course to Bloomberg. Crypto Matt Miller Kailey Leinz 1 p.m. New York time. All happens on Tuesdays. Coming up President Biden visiting the Middle East. This week we're going to talk about what to expect. We are going to be joined by Terry Haynes Pangea policy founder. That conversation is coming up next. We've got Israel first then obviously the main event Saudi Arabia. That is where we're going to be focusing our attention next. This is Bloomberg. We're an hour into the U.S. trading session. Bloomberg's Abigail Doolittle Do Little is tracking the move and joins us now. Well
Katie a bit of a rough session here. You can see the S&P 500 down one point two percent. The tech heavy NASDAQ down even more down 2 percent. This of course after last week's big rally. Those buyers not here. I would point out though it's very thin trading glass and it looked at volume 25 percent below the average. And it's interesting also because yields down typically would help out stocks technology in particular valuations would be more attractive.
But today with stocks down and yields down it suggests that there's some haven buying for a bond. So true risk off day added to you by the fact that you have that VIX just a little bit higher but still well below 30. As for one pressure on stocks it could certainly be the dollar. Mike Wilson over at Morgan Stanley is saying that he thinks that we could see some more weakness ahead for stocks in-line with his bearish call this year as the dollar climbs.
In fact the Bloomberg dollar index here in blue it is at its highest level of the pandemic and you can really see the inverse relationship. This of course one health though relative to commodities because oil is back down lower today as the dollar surges. And a big piece of that of course euro weakness. As for another area of weakness that's China Tech over the weekend that Covid zero policy more Covid outbreaks. The lockdown in Macao that has technology shut shares. The Golden Dragon index down six point nine percent overall for this space the worst day in more than two months. Of course it comes on the
back of a 50 percent rally on the year. So some profit taking here. Let's see which way it plays out. And then finally some names moving here in the U.S. The big one the big story stock of the day the week the year. Twitter right now down about 7 percent at 34 27. This of course is Elon Musk has walked away from his 44 billion dollar bid. The question is of course is likely big time legal action ahead. The question couldn't be though. Is he going to try to bid for this company at a lower price. Many have suggested that all along that that could be a piece of
what's going on. Lululemon down three point seven percent as Jefferies has cut its stock along with Under Armour to underperform saying that some of these demand in this space was pulled forward by the pandemic go best in class. That's Nike. According to Jefferies Wynn Resorts on that China lockdown down the Macao lockdown for a week down seven point eight percent. A
good chunk of their revenue comes from the Macao region. And then finally bitcoin guy can't get out of its own way. It is still above twenty thousand dollars per bitcoin. But the weakness that we're seeing today it is dragging on all of those crypto stocks and marathon digital holdings. No exception. Down 4.5 percent. Makes you wonder where they'd be if we get to 10 as
we've just been discussing. Abigail thank you very much indeed. Abigail Doolittle what's happening in the markets. Let's talk about what's gonna be happening in the rest of the week. President Biden leaving Tuesday for his trip to the Middle East. He's hoping for higher oil production from Gulf allies. Is he going to get it. Joining us for more. Terry Haynes Pangea policy founder. Terry great to chat. Ahead of this trip what would be a win for the president and how high would you rate his chances of getting such a win. Good morning guy. I know what this trip to me is about is about real politic and about engagement.
And if what we see coming out of this meeting between the president and the regent Mohammed bin Salman is a closer alliance on Middle East security where the United States and Saudi are going to be jointly pushing. You know that's a plus if they work jointly with Israel. That's still a bigger plus. And judging by the president's itinerary that's more than likely what's going to happen. So. So Terry just to just to jump in here what you're saying is that this trip is not about oil. Oh I'm but I'm saying this is very much not about oil. The. For a couple of reasons. So one is of course OPEC has
decided OPEC makes the decisions on pumping. Overall OPEC is already at the Saudi's behest increased pumping slightly something that was seen as both kind of a welcome mat for Biden and a push back at the Russians a bit. So the benefit on oil that the United States or the president gets out of this has already happened. So you know in terms of political consequences here immediately the president takes a double hit. He takes a a human rights hit from his progressives and at the same time forgotten middle America and middle class takes a hit on oil prices because the line will be well you know Biden went cap in hand to the Saudis and came up with nothing which was I say isn't strictly really true. But that's that's actually what will
come away from. But the. But but this is much more about Middle Eastern security and trying to shore things up in advance of a possible new Iran deal pushing back at Russia's pretensions to a sphere of influence in the region dealing with the Chinese economic interests. And again you know trying to forge common cause with Israel here. And so Terry if President Biden is going to take a hit from the human rights side if he's going to take a hit on this not being necessarily about lowering prices at the pump what would a win look like for this administration in the court of U.S. public opinion.
That would be very difficult to come up with in the court of U.S. public opinion Candy. I think that's an excellent point. But the the Middle Eastern security needs here and the need for the United States to work in concert with people throughout the countries throughout the Middle East not just one or another anything else are really are really outweighing the need to get something dramatic done on oil which as I say is really possible anyway. And and clearly outweighs the concerns of part of his party. Who would prefer that he prioritize nothing but human rights issues here. So Terry a lot of focus has been paid to this Saudi Arabia leg of this trip. But Biden also said to travel to Israel. How does that fit into the broader picture of
what the administration is trying to accomplish here. Well what they're really trying to do is is forge an all Middle East solution. You know historically there have been a lot of factions within what generally gets loosely called the Arab world. And a lot of tensions of course and and sometimes more between the Arab and the Arab factions at Israel. And what Biden is trying to do frankly is build on the progress of the past few years and come up with an all Middle Eastern solution that provides an effective counterweight to Iranian Iranian pretensions in the region as well. And whether or not the administration gets an Iranian nuclear deal done again that's going to be an very important counter to Iran. So this is about Middle Eastern security and then more broadly worlds together. So very important importantly.
Terry CPI inflation data Wednesday. Before the president goes to the Middle East do you think there's any chance he announces some sort of easing of tariffs with China. I think that's certainly possible. But markets should not states that they're going to be large or consequential. The administration has been signaling that as much in the press for the past week or two. That number
one. Number two they've been fooling around with the whole tariff issue for going on a year and a half here. So markets should not look for anything consequential number one. Number two even any small adjustment in tariffs doesn't have either an immediate or a real long term impact. And it also is not going to change the the the the difficult trajectory the United States China relations are already on. And Terry let's talk about the elephant in the room. Of course Russia. What message is the administration trying to send to Russia with this trip in addition to trying to shore up stability as we've talked about.
Well really two things Kate. One is that. As I say that Russia has had pretensions for quite some time and the Russian pretensions go back all the way back to the kind of great game in the 19th and early 20th century predating the Soviet Union about a sphere of influence in the Middle East. And that's in part what the Syrian incursion is about. The previous administration allowed that to happen firstly. Secondly what it spread. You can
tell a lot about what the administration is up to from the conversations that Secretary of State Blinken and the Chinese foreign minister had in the sidebar at the G 20 foreign ministers meetings recently. And Lincoln's readout of this was that the United States is really pushing hard on China to get off the neutral the so-called neutral foot on Russia and put some more pressure on Russia. I don't think China's inclined to do that certainly but whether under pressure from Secretary Blinken or not. But the administration has made it very clear that China needs to join in to to fend off complete the encirclement of Russia in the court of public opinion and push for a solution to the Ukrainian matter that is more favorable than it might be today. Terry Haynes Pangea policy founder thank you so much for your time. And don't miss our exclusive interview with U.S. Commerce Secretary Gina Raimondo at eleven thirty a.m. New York. Time for thirty p.m. London. And coming up
Twitter slumps after Elon Musk's about face on buying the company. Twitter and Elon Musk are about to go to court. We'll talk with Angelo Zito who covers Twitter at C F.. All right. This is Bloomberg. This is Bloomberg Markets hemorrhage can get to you're looking at a live shot of the principal room coming up. Robert Hormats they teach him an advice as managing director and former Goldman Sachs vice chairman joining Bloomberg Television. Noon your time. This is. Keeping you up to date with news from around the world here's the first word on this could get 10 meaning two thirds of Democratic voters say they would prefer someone other than President Biden as their party's candidate in the 2024 election.
That is according to a poll by The New York Times and Siena College. A third of those who want a change cited job performance. Another third cited the president's age. Joe Biden 79 the oldest president in U.S. history. But they just gave an outbreak in Shanghai is getting larger. The city recorded 69 new infections on Sunday the most since late May. There will be more mass testing in parts of Shanghai and some variants of the virus are proving a constant challenge. The country's zero tolerance
approach and their shares of Twitter from when the company is preparing to go to court to force it all must have followed through with its commitment to buy Apple 44 billion dollars. Bloomberg learned that a filing in the Delaware Court of Chancery could happen as soon as today. The court has rarely sided with parties who like Musk attempting to bail on acquisition commitments. But when he is 24 hours a day an hour on Bloomberg Quicktake powered by more than twenty seven hundred
journalists and analysts and more than a hundred and twenty countries can get. This is back bad guy. Thank you very much indeed. Let's pick up on that last point in almost dodging Twitter questions when he spoke at Sun Valley over the weekend at Ludlow was certainly listening. He was there. He's back for us now. He's here to give us a bit more analysis on what is going on with this Twitter story. Ed as we head to court who has the
upper hand. Yeah it's interesting because what Elon Musk has to prove is that the issue over bots in that he argues that Twitter was not forthcoming and did not respond to his multiple requests for information for bots equates to a material adverse effect that is very codified in the original April agreement between the two parties. What a material adverse effect would look like. But it basically means that it was so significant that it impacted the company's fundamentals. And if you look at past
precedent in disputes of this type I think there's just one or very few cases where a judge has found in favor of material adverse effects. So you know you guys you know I've been discussing it. People been telling me for a week now that they thought about buying Twitter's stock. They thought about trying to get in touch with Musk about participating in the deal. But they hold held off because they thought that a legal battle was coming anyway. And you know I think we've been braced for this for some time. And that's what I want to dig into because you were doing some absolutely fantastic reporting out at Sun Valley. And in the conversations that you were having with investors I mean what was the mood music on this deal. Would they come in after the legal battle. What was the overall vibe. Yes it's that mosque was volatile.
And when they sat down and thought about what they wanted to do they just thought it wasn't worth it. You know the behavior is so interesting. He in the room at Sun Valley sources tell me who were listening to him speak. He was very clear. He declined to answer questions about the deal itself. He said you know generally he felt Twitter needed to be more transparent about its user data and its algorithms but resisted the urge to comment on the deal. Fast forward 36 hours. He's tweeting a meme about himself. I'm not going to read it verbatim but just go in his Twitter account saying you know they said I couldn't buy Twitter. He asked for information on bots.
Twitter is suing Moscow. Now Musk says that Twitter is going to have to hand over this information on bots anyway. So you know it's a very volatile situation. I think there is a feeling that this will be settled out of court potentially. And you know the question I've always had is why did he go through this anyway in the first place. But watch
this space filing could come today. Settled out of court means he buys it pro for a lower price right. Yeah I think I think the consensus has been if you look at the spread the merger all you talked to investors he talked to emanate experts. Haven't we always been moving towards a position where he comes in at a lower price. You know Twitter's stock has been somewhat
immune to the pain in public market or tech shares this year because it was subject to a bed. And any investor would have bitten off your hand at fifty four dollars 20 cents a share. A lot of people I speak to say maybe he'll come back in lower but the box issue remains. And that's what's so strange about all of this. Twitter has always said that bots are less than 5 percent of users on the platform. It's standard boilerplate language and has been for some time. He
waived due diligence. He lambasted in April when he signed the agreement. And that's always been something that's not made any sense to a lot of people. So is there a possibility that someone not named Elon Musk could come in here and make a bid on Twitter. Then that would be complicated. You have to be pretty brave to make that decision. I think the interesting piece of reporting that we kind of forget so quickly about is that according to The Washington Post Elon Musk stopped speaking to potential equity partners last week. But as of that point there were lots of names across the world of private capital strategic investors Silicon Valley names that Musk is associated with. Who are. Participating in a deal. What about all those people who are now sort of subject to mosque's decision to terminate the merger agreement. And then I guess the other one is you know
Twitter's role in all of this. You know they want to fight this but a protracted legal battle you know people I speak to say this could go up to 10 years in a worst case scenario. Financially this is very difficult. Ten years. That would be fun. Bloomberg said. Ludlow that'll keep you busy. Thank you so much for your time. Just doing fantastic work out there. And for more on Twitter we're going to welcome Angeles Xeno. He is senior equity analyst at CFR a research. He cut his 12 month price target on Twitter to thirty three dollars from forty four dollars. And he has a hold rating on the stock. Angelo great to
have some time with you after this news on Friday. You saw Dan ISE from Wedbush say that must terminating the deal was a quote disaster scenario for Twitter. Would you go as far as to say that. Yeah I mean listen I it's definitely not a good situation at the end of the day. Yeah I mean we did see your point. We did cut our target price to thirty three dollars at the end of the day. Really. We we peg about an 80 percent probability that Twitter now remains public and on a standalone basis the basis we do value the company at 26 dollars a share. But when you kind of
look at the company here if they were to were forced to operate on a standalone basis here there are just so many headwinds kind of going against them here whether it be an uncertain advertising market. Right. Whether it be kind of in a damaged employee base here or whether it be kind of the kind of the opening of Pandora's Box in many respects by Elon Musk in terms of the fake accounts and even the strategic direction of the company up here on a going forward basis. Angelo if that is the case what what does the Elon Musk exit looked like. What do you think it costs him.
I think that's kind of. I think that's the main question out there right. I mean at the end of the day you know we do think kind of Twitter is on a much better footing kind of going into the courts here. And that being said we do think they stand to receive some sort of compensation from Musk. Again the question is how much we do think at the minimum they get the one billion
dollars. But ultimately the actual valuation of the company is going to highly depend on how much he gets at the end of the day which is why we have a 33 dollar target well above the 26 dollar target on a standalone basis. And Angela I want to ask you the same question that I ask. And I mean is there any chance that someone else comes in here and tries to make a run at Twitter.
You know what. We told investors we think we don't see any other potential interested bidder a white knight out there for Twitter at least at these current levels. And given some of the nightmarish conditions that they're going to have to deal with here at least over the next two to three quarters. I think you know I think to the day Twitter does have value right. There is value with that kind of ecosystem there. But it all remains kind of how low can this stock go. And if it kind of gets to too extremely depressed levels could there potentially be a better out there. Potentially but not at these levels in our view. What is your sense of what's happening within the firm right now as you say. Morale pretty low. How low.
We think extremely well in terms of kind of what we think at the end of the day. There were there was definitely some mixed views in terms of the kind of the employee base out there. I think there were some out there that probably wanted to get a feel on must a chance to kind of get a fresh start there. Some new ideas within the Twitter ecosystem Ben and there are others out there that they're kind of the last thing they wanted to see was kind of must take over and you know be part of the circus involved there. But as far as kind of the morale there right now we think it's extremely depressed. Not to mention not
only with what's going on with the iron musk but also the the underlying kind of ad market and you know the macro conditions going on right now. And Angela you cut your price target but you sell the hold rating on the stock. What would you need to see that would bump you up to a buy. You know I think at the end of the day we would have to say I don't know if there's anything to be honest with you that would kind of get us towards the buy at these levels. And a lot of that really has to do with the valuation out there. But if investors were to kind of somehow see a higher level than where we're sitting here today you know it would largely have to. It would all almost almost entirely be dependent on what actually takes place in the courts. We
continue to see positive developments in favor of Twitter over the next couple of months and quarters. I think that's where you kind of get some momentum in the stock price. Well Angelo thank you very much indeed. Angelo Zito CFR a senior equity strategist on what's happening with Twitter. Thank you very much indeed sir. This is Bloomberg.
Thirty five minutes to go until the European close. Now not all red is negative but when it comes to Europe most of it is. Let's talk about what we see on the screen here. Stock 600 down by around half of 1 percent today. Miners in particular are down. You've got the Chinese story filtering through into the commodity market then fetal filtering through into the mining stocks and names like Rio and BHP tracking the lower today. Certainly bringing up the rear when it comes to the European equity performance of 415 is where we're trading. This is the main event. Actually I think this is the main event. But the euro just below 1 0 1 right now 1 1 0 0 7 is the kind of the recent low area. Most people seem to think that actually we're heading well below parity. And the reason we're holding below parity is because of what is happening here. Dutch natural gas
today coming lower. The Canadians are going to hand over a Siemens turbine bank to the Germans who are then going to hand it to Gazprom. This relates to the maintenance on Nord Stream 1 which is shut down today. Will it be turned back on again. That's the big question that we're watching. We got a lot of things other things we need to watching as well. What is happening with the city of London what's happening with UK politics. Vincent Covid lord mayor of the city of London joining us next to discuss what the city of London wants. This is Bloomberg.
2022-07-12 19:45
