Bloomberg Markets (07/14/2022)

Bloomberg Markets (07/14/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. All right 30 minutes into the U.S. trading day Thursday July 14. Busy day here the top market stories. Banks the bad and the ugly. Morgan Stanley's investment banking revenue slumps. J.P. Morgan halts buybacks. Jamie Diamond sees a serious set of issues clouding the economic outlook. Brian dig through those numbers and claims creep up. Initial jobless claims hitting

higher since November. Producer prices topping 11 percent. Investors look at that softer growth and persistent inflation. We're going to speak to Federal Reserve Governor Christopher Waller. And B obey words on recession. The bank now sees a recession this year a 25 percent decline in equities and 10 year yield at two point seventy five percent. We're going to be eBay's head of U.S. rate strategy Marc Cabana about that rate call from New York. I'm Alix Steel my co-host in London Guy Johnson. Welcome to Bloomberg Markets. A guy I feel like there's a push and pull here in the U.S. we have inflation earning

strong dollar curve inversion. And then over where you are you're looking at a political crisis now unfolding in Europe. And those two really playing out in many ways. And the affects market. Yeah they're playing out with a significantly weaker euro. We are now firmly below 1. Parity is in the past tense. We have

moved beyond that. We've got banks to think about as well over here. How will this impact the banking sector. I think it's something to think about too. When you look at what is going on here. But it all starts with the gas story as we've just been discussing. That's where the story is going to evolve next week into the ECB. The ECB has got a whole range of problems. But as you say the Fed has got its own problems as well. It needs to be thinking about needs to be thinking about what it's going to do. Is it going to hike 100 basis points. Are we going to get that full 1 percent. You pile on top of that. What is happening in

the banking sector as well. Fascinating to see the results kicking off in this way isn't it. You've got JP Morgan down. I think it's down 3 4 percent. Morgan Stanley's down around 3 percent right now. J.P. Morgan of course now we now know temporarily suspending its share buybacks in that part of that's regulatory. But the bank did report second quarter results fell short of estimates. It's also turning up the heat on the scrutinizing of the lending book. Now this is what the company's CFO of course Jeremy Bonham talks about on that issue on the earnings call. Obviously in this moment we're going to

scrutinize that even more aggressively than we always do elements or lending which are either lower turning or have a low client access or both. We do that all the time anyway. But of course in this moment we're going to turn up the heat on that a little bit. So that brings us to our question of the day what is the bottom line for the banks and what is the bottom line for the economy from the banks. Let's try and address both of those two questions that both germane here. Wall Street correspondent Sonali Basak joining us to give us a take on the banking side of the equation from a macro point of view. We're joined by Bloomberg Markets said it's Christine Aquino. But Sonali let me start with you. You've had time to digest all of this. What's the bottom line. What's the takeaway. Yeah there is a lot of

expectation about the banks making so much more money off of net interest income in the coming year. And now that expectation guy it's already baked in. So how do the banks make money above and beyond that. The idea here that trading revenue was a little weaker than expected at JP Morgan in the fixed income business behemoth business with a ton of volatility. It's a bit concerning to some investors. And then you have Morgan Stanley as well where the second half of the year becomes a lot blurrier in terms of what performance will look like even though they beat this time around. Investment banking has not only declined at all of the major business lines so far. We also saw J.P. Morgan take a significant multi hundreds of millions of dollars

worth of a hit when it came to its bridge loan business. These are risky buyout loans. Often there are loans to riskier corporate borrowers. And you know when you take a look at the pain you're seeing on the consumer side potentially as well as what you're seeing on the corporate or corporate side you have kind of a double edged sword there. Yeah. And I also feel like what's important is what their loan books are doing. Now it was about releases last year and now it's about bills. Christine a part of that feels like it's par for the course. But did we learn anything about the economy through the money they're

putting aside for any kind of soured loans. Yeah it's very interesting Alex that they are making these sorts of preparations now and even just hearing from Jamie Diamond in his assessment of the broader macro economic environment. He is very aware of all the risks that are on the horizon. There is of course the potential slowdown that will be the effect of just the massive tightening of the Federal Reserve is going to have to do now especially after that blow at CPI number. And then of course how that's going to impact businesses as well especially as we're heading into the earnings season. Of course we're going to start hearing more complaints from companies potentially about the impact for instance of we are of a stronger dollar on their earnings outlooks. And so all of this combined really just tells you you know that these banks are gearing up for a

potential recessionary environments in the near future. It's very interesting that they're doing that now even at this stage window. You know Jamie Dimon is maintaining that the consumer looks good at this point in time but that doesn't necessarily mean that that's going to be the case six months forward should only James. And talking about how volatile the trading

environment is right now when I think about how to value a bank and I think about banks like like like kids maybe like Goldman Sachs as well that is so reliance on trading and what happens on Wall Street that Wall Street focused banks do they need to be marked down in terms of their valuation. If volatility is going up presumably there is a risk of something going wrong. How do you think the market will be perceiving what Mr. Goldman had to say. It's an interesting question guy because we talked about this at a lot value at risk. No one likes to talk about it. The banks are so-called safer since the financial crisis. But that risk is going higher and the buy side is burned. We know this. There are so many funds out there that are suffering steep steep

losses. And guess what. On top of that the cost of leverage borrowing money to put back in a market is going up. It would be interesting that the call is still going on right now. And to hear the CFO and CEO speak to Wall Street about whether prime balances are holding up at this point in time. And that's just the. The fund corporate side of the equation to the point you

guys have been making is what about the consumer. Morgan Stanley's customers tend to be a high net worth individuals here but they're hoarding a lot of cash. And you know sitting on cash doesn't make the market go anywhere as you know. Jihye Lee we've also seen the leverage loan market some really recent pain there. And I'm wondering if the banks have fully reflected or

been hit by the recent turmoil. We're also seeing credit spreads for junk bonds really start to widen out your here. Is that reflected yet in the numbers. And we they said anything about what their outlook might be. And thank you for asking that because J.P. Morgan did take a very large hit in that side of the business. But they also said that their hit was not as bad as what you're going to see in the rest of the industry. They kind of hinted at the idea that there would be more pain elsewhere. And by the way the reason that's so interesting now is that you do have a lot of folks not just on the buy side in

private equity in corporate America that is saying the banks are sitting on their hands a little bit right now. When you talk to J.P. Morgan about it what they're saying to investors is some of this is because of capital requirements. But remember now you do have a new update from Morgan Stanley as well where they do see some sort of recession ahead. James Gorman says that's unlikely

to be deep and drastic is what he says. But it is likely to hit the U.S.. And it is likely to hit Europe much harder. And again these are global banks. It's really important to look at the global footprint as there are lending. Christie was spending a lot of time talking about what rate hikes are doing and how the shape of the curve is affecting the banking sector. But alongside that we're also now into the territory of seeing cutesy which at its most basic level and I really do simplify here is money destruction always starting to see within some of these bank numbers. Are we going to see within these bank numbers evidence that financial conditions are tightening. Evidence the county is having an effect. Absolutely guy. I mean I think you know some of the numbers that we're already seeing now that net interest income that was meant to be

the the hopeful side for banks when it comes to this tighter monetary policy environment. Right. You have the adage that higher interest rates usually are a good thing for banks. But the fact that they're not necessarily able to capitalize on that as well. And then on the other hand again that that demand destruction of money destruction that you're talking about guy we're very much starting to see that flow through now just in the decrease in lending activity and some deterioration in some of those more consumer focused metrics. It really is telling the story again of the idea that with this runaway inflation that we're currently seeing now the response of the Federal Reserve has we'll have to do in order to respond to that will again precipitate that recessionary environment perhaps as soon as next year. And you can really see that it's tales of two tales

of the same sort of story here really for the banking numbers that we're seeing now. It'll be interesting to see how that develops. And I think the key question moving forward is will banks be able to capitalize on the market volatility that we're still likely to have as the markets chew through this process while saying as recession proof as possible. Last question for me. Tomorrow we get six big banks six banks reporting here. Any of them riskier here. Do they take on more risk that we're going gonna have to see them pare back or put more money aside for bad loans. It's not even just the idea that they could put

more money away for bad loans. I think you also have to watch cha jobs. How much are those loans converting into bad loans. If you look at what's happening at JP Morgan even before we saw the print today. Jamie Diamond did guide that this could be in the billions and in a year. And so is it Bank of America changing their expectation that more customers will not be able to finance their obligations if they get into a tougher economic scenario. Right now they are still spending on discretionary and

not discretionary purchases. But does that also start to change. I think Bank of America will be a big towel on where the consumer really stands. Sonali great stuff. Thank you very much indeed. Rebecca Sonali Basak. Christine Aquino thank you very much indeed for setting the show very very nicely. We'll continue with the conversation surrounding the banks in just a moment. I want to update you on what is happening out of the U.K. We're getting the latest round of voting in the race to succeed Boris Johnson. Basically what you need to know is that really soon I

can petty Morden to basically cementing their lead at the front of the race. A brave woman has now exited the race. We are whittling down the candidates we will whittle them down to to remember. And then those two candidates will go in front of the wider Conservative Party. Alex. But soon I can mordant basically leading the pack right now. And if the market update their cable rate 117 is always said as our dollar continues to climb higher. All right. Coming up we're going to get a shareholders take on those bank results. Adams Fund CEO Mark Stoeckel owns some of the names. He's going to join us next for his take. This is

Bloomberg. Earnings season is coming. Hello back and get to an exchange are 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. It's the first real indication you're seeing of both CEO confession season right. Actually really looking at what the

true impact of the earnings season that we've been kind of refusing to acknowledge in keeping these estimates high. And also the real impact. The first look at the real impact on what's happening with consumers are real effects of inflation and financial conditions. Tightening at the warp speed that they've been tightening is gonna show up in earnings. There's no place to hide on this. NASDAQ Cronk Wells Fargo Wealth and Investment Management CIO Earlier I'm Bloomberg Television. You have markets really off your S&P up by about two full percentage points. ISE Get back to the question of the day what's the bottom line for banks and what's the read through the economy in the rest of earnings season. We're joined now by Mark Stoeckel

Adams Fund CEO. Oh he's underway. J.P. Morgan an overweight Bank of America and Wells Fargo in his portfolio. Mark it's always great to see you and get your perspective looking through some of the numbers some of the things that the bank's highlighted. What's your biggest takeaway so far. What's the bottom line. I think the bottom line is it it could have been worse. But it wasn't so bad. I think looking at JP Morgan a couple of good things about it. One is they did flow through some net interest income. We need to see a little bit more of that. I think that was good. Capital got better. I also think with JP Morgan and it's been talked about a lot of the the the pause in the stock buyback was telegraphed a long time ago. That that I

don't want to conflate that with some new concern about about the economy. I mean in the call Jamie Diamond talked actually pretty glowingly about the consumer pretty glowingly about about business how it's going. I think he's hit his. His position is he is anticipating that something could go wrong as opposed to forecasting that something is going to go wrong. Okay given all of that and given the track record of what the banks have delivered thus far this year I still take a step back from what I've just seen from these banks and it's only Morgan Stanley and JPM so far. But that's a pretty big slice. And I'm thinking. Mark why do I get excited. How could I get excited

about this banking sector. It has come down pretty far so far but I didn't see anything here that gets me excited. It makes me think you know what. These are businesses that are thriving. Well they certainly aren't thriving and I would agree with you guy. I think that there isn't anything that in the short term that would say I've got to be in these I need I need to be in.

But if you're a longer term investor again I'm not calling this the bottom but I think it's pretty close. And so depending on your time horizon no JP Morgan is doing a lot of good things. We expect that Bank of America will will on Monday will report good things. Morgan Stanley wasn't so bad. So if you believe that your portfolio is advantaged by having bank exposure is this. Is this the time to begin to go into them. I think you could argue that. But certainly Guy you're absolutely right. There is nothing that would get you excited about this. And again a lot of it really revolves around uncertainty. We don't know with the with the hot number we got the other day. We don't know what the Fed's going to do in 13 days. We don't know what

the balance of the of the earnings season is going to give us. We don't know whether they'll have a special meeting at the Fed. We'll have a special meeting in August because things are so there's so many uncertain things here. Which to me means if you're a trader I would be really careful if you're an investor. It's not a bad time to begin with an eye toward filling out a position over the next three or four months. Hey Mark. So where would that be. So I know you're underweight J.P. Morgan but to your point it's at a 52 week low. It's trading at you know nine point four times estimated price to earnings ratio. So it's really cheap. Is that where you want to be. Is it tech. Is it cyclicals like what's already priced in for say 100 basis point

hike from the Fed. Or is that a big risk now for the market that you need to be protecting yourself against. I think you need to protect yourself a little bit but I do think that depending on how quickly the Fed ends up raising and who knows whether the 75 in 13 days becomes 100 and whether they do something in August and that's what it whenever September's. But I think as a longer term investor you need to to understand that at some point growth is going to become dear. And so completely ignoring

technology or health care or some of these other things that are that are growing. I think you do a long term investor does at their own peril. So I think you need to be balanced. I've always talked to you and Guy about that. I think you need to be diversified and balanced. I think student body laughter. Student body. Right. Is not the right thing to do here. So should you have some exposure with JP Morgan or Bank of America or we have Wells as well or

Morgan Stanley. I think there's an argument to be made. But don't overlook a little further down the road if the Fed does what they hope to do. Growth is going to become more scarce. And then you want to to really make sure you're not completely out of technology. As an example. Just just to come back to the banks if we could for a moment. Mark. When I look at what what is happening on Wall Street when I when

I look at the uncertainty you've just laid out when I think about the volatility we've already seen and what is potentially to come. Are these banks safe enough. What is the potential for a mistake hitting one of these institutions during this this volatility. They obviously have insulated themselves in a completely different way than they were going into 2007 2008 2009. But the kind of volatility we're seeing right now is that going to cause a problem. Should I be thinking about revaluing some of these businesses on a lower multiple because of the risk that we see particularly on Wall Street. I don't think so guy. I think that you know when you look at C card all of the tests that have been done. I mean we we talk about it every time.

These these results come out of the stress tests and the stress test. So almost silly and how difficult they are. So I really do think that the banks are in a from from a capital standpoint. The businesses that they're in the way they they they look at risk. I think they're in really really good shape. You know frankly that the issue here is you know the old adage you do not want to own financials if we're going into a recession. Now I don't know about you and Alex but I have no idea whether we're going into recession. It seems like it's a more likely scenario. But then how deep is it and what kind of a recession is it. You let let's let's think about this. We don't think it would be a consumer recession because the consumer is still in bad shape.

Jamie Diamond talked glowingly about the consumer. We don't think it's going to be a credit issue because the banks right now we've seen it. Their credit is pristine. And Jamie done this morning talked about his credit card portfolio being prime. So I don't think it's going to be that. Could it be industrial commercial industrial. It could be. But but I think as it relates to to the risk you're talking about guy I think that is not a not not a high risk at all as it relates to the banks. Mark though it was a really good answer to that question. And I'm wondering the dollar as seems to also be the big question mark here really strong curve inverting a five month through a 30 year in Britain again the last time since June to 10 continues to invert. What signals are you looking for that's going to help you answer that question.

Well historically the inversion that you talked about whether it's the two the three to five the seven to the ten is the rock. They're all inverted. And historically that has meant a recession. Now it is it. Is it possible that we get a recession. Is certainly possible. We just don't see it being that deep. And again there are a lot of things that are that backstop that the

consumer again everybody is waiting for the consumer to be bad hasn't shown up yet. Doesn't mean it's not going to. But really hasn't shown up yet. And I think that again credit is really good around around the economy. There's a lot of cash. So I think if we are going into recession we're going into this recession in probably the best position we've been ahead in any recession I can remember. So could it be shallow. We think if we go into recession it is likely to be shallow. But certainly the everything to the 10 year is is flashing that the recession is coming. The

proof is going to be in the pudding. Yep. As you say there's a lot of uncertainty. Very difficult to judge exactly what the granularity is going to look like. Mark always a pleasure to catch up. Thank you so much for your time. Mark Stoeckel out of fun seat. Oh this is Bloomberg Quicktake.

It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and which could get to. Amazon has moved a step closer to settling two European Union anti-trust investigations. The cases have to do with how the e-commerce giant uses rival sales data and whether it unfairly favors its own products. The European Commission is now asking Amazon competitors for feedback on a proposed settlement. Azman says it's engaging constructively with the AC. And a dispute has erupted between London's Heathrow Airport and one of the biggest airlines in the Middle East. Emirates has rejected Heathrow's demands to cut capacity and says it will

operate flights as planned. The carrier flies six Airbus 880 super jumbos to Heathrow every day. Emirates says Heathrow isn't giving it enough time to rebook travellers onto other flights. And that is your latest business flash guy Alex. It's Tim clock ticking a fairly belligerent tone. But I guess he hasn't been given much warning. It's going to be able to see whether others follow suit. Alex I'm gonna be talking to CAC in a couple of days time. Get their perspective on this. Actually airlines are

trading higher today and the reason they're doing so is that oil prices are coming down and that's sort of the feed through. You got names like Ryanair having a fairly good day here in Europe. But yeah I think this Heathrow story's got legs. That's going a big fight especially when you come up with the demand destruction at the same time maybe in the fall. I don't know. Doesn't look good. All right. Coming up. Bank of America cutting its 10 year yield forecast. We're going to speak to the man behind that cut Mark Gurman next. This is Bloomberg. We're an hour into the U.S. trading session. It is an ugly day with lots of things happening across all different asset

classes. Bloomberg's Abigail Doolittle is tracking some of those moves for us. Abigail. Yeah Alex it certainly is an ugly day. Lots of red on this screen and cross asset class as you were just mentioning that S&P 500 off of its low lows at the lows down more than 2 percent. But nonetheless over the last five days down five days in a row that's the longest losing streak since mid-June and the worst losing streak I think down about 4 percent or so over that time period. The Nasdaq 100 down about the same amount. So investors really not liking what they're seeing in terms of all of the uncertainty about inflation in

particular and big banks which will be getting to in a minute. But making the recession call to some degree could be oil down three point nine percent similar to the S&P 500 off of its lows but breaking critical support. And take a look at that euro below parity really pretty amazing for the first time since 2002 highlighting some of the issues in Europe relative to oil. Let's check in on a chart that we've looked at before. And the idea here is that massive move that we saw earlier this year not

sustainable. It's taken a while to come down. But here clearly is the oil coming below generic below its 200 day moving average. This entire area of consolidation up here is likely not definitely but likely to break down toward support it let's call it somewhere below 70. So should that happen. It would certainly support the idea of less demand. I was reading yesterday that

Americans are using less gas right now because of the high prices relative to 2020 at this time. That's the degree of demand coming off. As for the big banks lots of weakness here. And of course JP Morgan putting up a pretty bad quarter missing basically everything but sales down three point seven percent off of its lows. But those reserves increasing for bad loans suspending the buyback. Traders not liking Morgan Stanley well off of its lows down eight tenths of one percent. Missing investment banking estimates and then Wells Fargo and Citi. They're up tomorrow. Let's see what they bring. And then finally

perhaps the biggest culprit here a guy with rates rising. We're not looking at rates here but they are higher in the day. The Bloomberg dollar index hitting an all time high. Now this goes back about 20 20 years or so. The D X why not at its all time high but this area of consolidation it is modestly bearish. So it's gonna be very interesting to see either way this area consolidation will either break way up or to the downside. It goes a little bit to the bears. But whenever you see patches of

trading ranges like that it's not the range that counts guides the way it breaks. So we're going to see another big move in the dollar had its can be very interesting to see which way it goes. Absolutely. We are definitely watching that story over here in Europe. Abigail thank you very much indeed. Bloomberg Daybreak do it

all. Let's continue the conversation around what's happening with the macro picture. The table of President Wrath Semester making it clear that the latest inflation report means that policymakers are going to have to take another look. She spoke to Bloomberg TV. Certainly the inflation report suggests that there's no reason to say that a smaller rate increase something did last time. Right. Because nothing moved in that direction. Joining us now to discuss what happens next and where ultimately the Fed goes. Bank of America global head of US rate strategy

here of course is Mark Cabana. Bank of America just made a substantial substantial downward revision to its rate forecasts. Mark walk us through that revision and why. Sir you're right we did make a substantial revision. We took down our 10 year forecast from the end of this year at three and a half percent to now two point seventy five. And we also took down notes and your forecast for the end of next year from three twenty five to 250. Why. Well it has a lot to do with the revised call from our U.S. economists. They're now expecting a recession in 2022. So this year according to the quarterly GDP

numbers we think they think we're going to be negative each quarter this year. So we're pretty much into recession already. And with that they think that the Fed's hiking cycle will be limited. They see the terminal rate at three and a half percent. And importantly we're now baking in interest rate cuts from the Fed in the second half of next year and in the first half of 2024. So with that trajectory a slowing economy inflation that finally peaks and begins to moderate a rising unemployment rate

and a fed that's going to cut. You got to take down your rate forecasts. And that's exactly what we did. Hey Mark what do you do with your two year. And that's basically my way of asking what happens to that curve over this scenario that you laid out. Yes. So we've long forecasted a 25 basis point to tens inversion. The markets they are right now and obviously got there very quickly over the last couple of trading days with the elevated inflation print and we've kept it at 25 basis points.

But given how elevated inflation is the risks are that the curve can get more inverted not less. The Fed has to continue hiking aggressively. We can debate 75 or 100. The market's thinking where one hundred and seventy five at this point in time. And with that it's no surprise that the curve should invert because the Fed will be putting monetary policy in restrictive territory. And that's going to slow the economy. It's going to increase the unemployment rate and it's ultimately going to

result in the Fed needing to lower rates. But that's probably a year or so into the future. Just out of curiosity Mark where do you sit on the 70 500 debate right now. You say it's something that everybody's watching. What what are your thoughts. Was he was still seventy five. But goodness. Have the resources shifted. And if you're the Fed you have to ask yourself why not. If the market's giving us this option why should we not take it. Even if the Fed hikes 100 the top of the Fed funds target range will still be two point seventy five percent. That is not in restrictive territory according to how all Fed officials are thinking about the long run. What they've thought about 3 percent or above as being restrictive. And so even if you like

100 you're still not according to everybody on the committee in restrictive territory. So if the market's giving you the option why not take it. Certainly the risks are skewing in that direction. And look I know the Fed has provided guidance saying that the next move will be 50 or 75. But ahead of the June meeting they also told us that 75 was not on really the table and that's what they ended up delivering. So the market is somewhat skeptical of the Fed's forward guidance and the markets is certainly pricing an elevated probability of 100 basis point hike at this meeting. In just a few minutes we're going to hear

from Fed Governor Waller. He's someone that we are going to be paying especially close attention to for his guidance on the 75 versus 100 debate. And again he's been traditionally hawkish and we think that he will probably come out and certainly not try and tamp down market expectations for 100. We think that's going to be a pretty good signal that the Fed is leaning in that direction. If the communications do evolve that way just a little. Mark let's just say that they can. And they do. Do. One hundred and July. What then happens some in September and the rest of the year. How quickly can they get to restrictive territory. Doesn't feel like they can get to 4 percent at this point.

Yeah the market is no longer thinking that they'll get to 4 percent. I mean they certainly can if they want to. They can keep going. One hundred a huge meeting for the rest of the year but that seems like a very low probability at this point in time. The question is going to be how does the data evolve. And the Fed has told us time and time again that there will be data dependent. We believe that they're data dependent today and you've got a bad CPI report yesterday. So that increases the odds that they go more aggressively in the future. And then they're going to be watching to see how other economic

indicators evolve. And look there are some signs that the economy is slowing. Certainly saw a small uptick in claims today that may pre-sales a broader slowdown in the labor market. You're seeing oil and other commodities come off to some extent. That's going to reduce inflationary pressures to some extent. And we're also seeing a pretty meaningful deterioration in

consumer is the sentiment along with consumer spending. We really see that clearly in the B of A credit card data. We think we're gonna see a pretty big miss on retail sales tomorrow consistent with that. And if the data does indeed slow along these lines then the Fed can dial back and come September. They can do 15. They could do 25. They could do seventy five depending upon how the data comes in. But certainly they're going to have a lot more flexibility in the trajectory once they

get to around 3 percent. And we do expect that they will ultimately slow things down. Mark are we sure that a mild recession is going to be enough to fully eradicate inflation from the US economy. That is the biggest question I would say we have on the macro outlook is a mild recession going to be enough. Right now our economists pencil in increase in the unemployment rate. That's just one percentage point. So it's from three point six to four point six. And we think that will be enough to slow inflation moderate the economy and bring inflation down. But the real risk is that inflation remains more persistent and you might need to see a larger increase in the unemployment rate. Either way the

Fed is going to be slowing the economy down. We believe there are clear signs of that today. There's been a material loss of momentum in the US economic outlook and we do think that the Fed will be successful in slowing the economy. The real question is just how much slowing will it take to get inflation to moderate. Right now we're in the mild recession camp and we certainly hope we stay that way. If I ask the opposite question mark. Is there a way that inflation actually comes down a lot faster and just take a look at oil for example WTI below its 200 day moving average. What way to possibility do you put on that. It's where the opposite question from Guy what happens if we actually get inflation moving down much faster than we think.

Then the Fed is going to I think have no problem filing things back quite materially. And then you know ideally pausing perhaps sooner than the market anticipates and maybe holding their cutting rates a little bit sooner than the market may anticipate as well. I think that this is a problem the Fed would really like to have. It's just that when you look at the underlying components of that CPI report it just seems like things are trending in the wrong direction for the Fed owners equivalent rent. The single most important component of CPI is accelerating not slowing down. Also on the good side you're seeing a payroll

household furnishings used cars. They appear to be reaccelerate to some extent. And so if you're the Fed you can't really be too worried about what happens on the backside of this as inflation falls. Because right now inflation is continuing to move against you and it's continuing to surprise to the high side. So I think the Fed would very much like to have that problem if it does happen. I think they'd be very happy to take back some of the cuts that the market is currently priced and not remain in restrictive territory for as long. But right now that's not the issue that they face. It's like that soft runway soft landing runway getting smaller and smaller. Hey Mark it's really great to get your perspective. We appreciate you joining us on your

call. Ten year yield forecast now going to be at two point seventy five percent. Mark the band and Bank of America ahead of U.S. rates strategy. And you just heard him tease it for us. Chris I will be speaking at 11:00 and then Michael McKee. We'll do a Q and A with the Fed governor. As Mark was saying he's hawkish. We'll be looking for what how he talks about 100 basis

points coming up right now on this program though. A new study is showing that the cost of living crisis is going to hit women the worse. We're going to talk about the World Economic Forum's report with managing director isn't he. Su Keenan is a Haiti. This is Bloomberg. This is Bloomberg Markets I'm Rich Kid Gupta and you're looking at a live shot of the principal room coming up Fred Hochberg the former chairman and president of the Export Import Bank of the U.S. joining Bloomberg Television 12 New York Times. This is Bloomberg. We just saw prices paid by U.S. consumers roaring to a fresh four decade high. The ripple implications there were huge. The

World Economic Forum is out with its latest global gender gap report. And in that it talks about this deepening cost of living crisis saying it's also likely to impact women more than men. As women continue to earn and accumulate wealth at lower levels. Get it. Let's get more into this. Joining us now Sahadi is a Hedy World Economic Forum managing directors. How are you. Thank you for joining us. Walk us through your findings as we sort of manage this high inflation strong dollar story right now.

OK so first we're looking at how well countries are performing overall and at the very top of the rankings. There's Iceland which is closed about 90 percent of his gender gap at the very bottom. Afghanistan about 44 percent. But overall if we take the trends of the past and project them out into the future it's going to take a hundred and thirty two years to get to gender parity. And what that means in today's economy is that we won't have the right kind of creativity and ideas. And in the midst of this cost of living crises women are going to be suffering more than men. Sonia we have a labor shortage around the world. Many women have left the labor force and they have not come back. Is there a

connection that you can draw between those countries that are doing well and those countries are doing less well in terms of the tightness of their labor market. If I'm doing well and I have both genders fully engaged in the labor force is my labor market looking better. Absolutely. The countries that have made it easier for women and men to be able to combine their family responsibilities with their drive in the workforce and have made it possible to have that balance. Those countries are doing better. So Scandinavian countries are doing better. And they have put in place the kind of care infrastructure and the kind of workplace policies that allow for that to happen in many other parts of the world. In most cases men are spending less than a third of the time on unpaid work responsibilities that women are. And that basically

means we all have 24 hours in a day. And women are starting to drop out. And that of course has major long term implications. That means households are saving less. That means there's less income available to invest in the future generations. So there's a lot of long term repercussions beyond what's happening at this moment in time. So how do you talked about it in terms of the corporations that are having the right kind of policies. And I'm wondering where are we in terms of governments having the right kind of policies if everyone everyone's kind of hit with this rising cost of living increase at the same time that doesn't have enough workers. Everybody is in need of people. How did they get them into the office. So you know there is one piece of

one silver lining in all of this and that is when we look at leadership levels. So just before the pandemic there were about 33 women 33 percent women in leadership positions. That has gone up to approximately 36 percent. So some kind of leadership or a senior position shakeup does seem to have taken place. That's a relatively fast change over the last couple of years. But that is only going to be sustainable if more is done on the overall environment in a company. So is there the right kind of pipeline in place. Are companies reaching back into colleges and schools to get the right kind of motivation the right kind of talent in. And are they providing the right environment to have

balance in the workplace and ensure that there's equal opportunities for progression and promotion. That's on the company side and on the government side. It is really all about the care infrastructure. OK well let's talk about care. Anything with a high labor force participation is currently going up in flames. Labor is getting more expensive. That means that child care is getting more expensive. Is this probably only going to get worse.

It is likely to if certain governments don't invest in a care infrastructure and they really need to think of this as an investment in the same way that we think of physical infrastructure as an investment. If you invest in the care sector the education sector the health sector not only does that solve a lot of problems for families and now people to be able to flourish in the labor force. But it's also a massive job creator. And so that will also again address off a lot of other needs across most economies. Do I thank you very much indeed for bringing us the report. Saudi has the World Economic Forum managing director. Thank you very much indeed. What we've got coming up for you next President Biden still in Israel. He flies to Saudi tomorrow. He's going to meet with the crown prince. We're going to have a live report from Jerusalem on what we should expect. This is Bloomberg.

My views on crucial show you made it absolutely positively clear. The reason I'm going to Saudi Arabia though is much broader is to promote U.S. interests promote U.S. interests in a way that I think we have an opportunity to reassert what I think we made a mistake of walking away from our influence in the Middle East.

That was President Biden earlier at a press conference in Jerusalem talking about his upcoming meeting with the Saudi crown prince. Joining us now Bloomberg's Annmarie Horden joining us from Jerusalem. What you began moving to that we need to pay attention to and kind of what are we looking at over the next 24 hours. Well I would say one thing and the president said this in his op ed and then he repeated it today in Jerusalem is the fact that he is no longer saying he's going to meet with King Solomon. He's saying he's meeting with Saudi leaders he said in his op ed and then today he said Saudi leadership. So he's not exactly saying the words. Crown Prince Mohammed bin Salman. But that is what everyone is going to watch one. What is the physical interaction between these two. The president wasn't really going

to be shaking hands on this trip because of Covid precautions. He did so in Israel. So will he. Shaikh Mohammed bin Salman's hand. It's a big deal considering when he was campaigning for the office he had vowed and said that he would like to make the kingdom a pariah. The current government which we know every day is led by the crown prince Prince Mohammed that had no redeeming qualities. And then the second of course is he needs the kingdom now. This about face is dealing with the fact that he needs a foreign policy change because of domestic issue at home. Poll after poll and we saw it yesterday in the data. Inflation

topping 9 percent. So much of that has been driven by the price of gasoline. So this is what all eyes are going to be on when he heads off to Jeddah tomorrow. We should note would be the first president to ever fly directly from Israel to Saudi Arabia. See big bass Annmarie Horden. Thank you very much indeed. Let's turn from what is happening in the Middle East to what is

happening here in London. The ongoing contest to replace Boris Johnson really seen competing more and now cementing their lead in the race to become the Conservative Party leader and by extension the next UK prime minister. With us now are UK government that Joe Mays. Joe we've now had two rounds of voting. How does today's vote in particular start to accelerate the process towards what increasingly looks like a mordant sooner CAC battle. Well as you say it shows that really unique is the frontrunner in this contest with more than clarity in seconds and the key question now is going to be how does the support reallocate itself from celebration. A man just been knocked out. Twenty seven votes. Where will they go. Will they go to these trust currently sitting in third. Some say it could push her into the

final two. And then as the candidates get to ISE all about the relocation of support and who can make it into that final runoff when it goes to Conservative Party members. I'm Joe Teeny Securities came out after these results and said that they think a 2023 election is their base case and that Labor could actually win. What do you think about that. Well it would be the Conservative Party to call an election in 2023. It doesn't have to happen until January 2025 but it could be the case that public opinion is overwhelmingly in favor of a general election. But the Tories still have the power here to call it. So I would I would caution about the idea that being an early general election. It's not the case that when you have a

new prime minister elected in this way that they have to go to the country. They might want to establish certain personal mandate. But the Tories are lagging Labor in the polls at the moment. So maybe there'll be a honeymoon period for the new leader and they see a leader or a nowadays the country. But don't take it for granted. That will happen. Joe thanks very much indeed for the update. We'll continue to watch what happens next. It's interesting to see what is being debated amongst parliamentarians. What is going to be debated ultimately as the

key factors when it comes to the Conservative Party and the country more broadly. Okay. Coming up on the European Close I'm going to turn our attention back to what is happening with European politics and European economics. Polish until only the EU economy commissioner is going to join us. We have some forecasts from the commission a little bit earlier on. You've also got this added wrinkle factor for consideration. What is happening Alex with the Italian political see which is breaking down. We understand that Prime Minister Mario Draghi has gone to see the president Matt Miller ELA. Are we going to

see a resignation. And how could that offend the European story. It's going to be interesting. Euro dollar firmly below one at the moment. Yeah. You're referencing the reaction in the markets. I mean you see the Italian equities off by over 3 percent. And with 4 percent you see a huge move. An Italian bond yields enough with the pressure even more on the ECB. They're gonna be dealing with price stability and then now potentially a political crisis in Italy all at the same time and a potential energy crisis. I don't know how do we do all of those three things. Huge challenge for the ECB of course spread widening.

Is it justified. Is it not justified. I think that's a really big issue for the ECB to handle next week anyway. Palace until only is coming up. The EU economy commissioner looking forward to that conversation. This is Bloomberg.

2022-07-16 23:00

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