Bloomberg Markets (07/22/2022)

Bloomberg Markets (07/22/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the US trading day on Friday July 22nd. Here are the top market stories that we're following for you at this hour. You've got a global bond rally. Sizzling yields tumble investors blood into the belly of the curve. German a two year bond yields sink the most since 2008. Why. Because you've got some serious PMI pain activity in Europe close to a crawl. Recession fears mount. Well business activity in the U.S. shrinks for the first time since 2020. The market rethinks central bank rate hikes and earnings angst. Twitter revenue missing estimates. Horizon lowers its outlook. American Express

though sees spending saw what earnings are saying about the economy. From New York I'm Alix Steel Anna Edwards in London. Guy Johnson is off today. Welcome to Bloomberg Markets. I am on an economic front. I thought that the news was really going to be the European PMI ISE. Yes we're terrible. But it's 50 minutes ago. We get the services PMI here which is in contraction territory and a huge stunner for the market. Mm hmm. Yeah absolutely. And it seems no matter which side of the Atlantic you look right now you're getting bad news in terms of expectations about where growth goes. Certainly some indicators suggesting either economies are already in contraction or parts of them parts of some sectors are in contraction. And how this is being interpreted by markets. Really interesting. Alex certainly here in Europe the

conversation has been OK. So that's really bad. But does that mean that central banks don't hike as much. And that seems to be a continuation of of some of the things you've been dealing with over the past week. Yeah it feels like is the bad news now. Good news scenario is we're kind of back to that at this point. So unless high all of this together which lead us to the question of the day which is earnings plus economy equals huh. What are earnings telling us about the underlying economy. Let's break it

all down. Bloomberg's Ed Ludlow in San Francisco and Bloomberg's critic Gupta in New York. Pretty. I thought we were going to be leading with SNAP and Twitter but I just want to get your take on what's going on with the PMI as the services data here. That really underlying weakness is the bad news. Good news is that the theme for today. It is. I think when you look at the bond market we look at the equity market I think it's a little bit of a different story. But the bond market you are already seeing

some pretty crucial moves. And a lot of that really stems over in Europe when you saw that really weak German data in particular the U.K. data still looks in expansionary territory but a lot of that European sentiment is flooding into the United States now which I think is interesting when you're looking at the bull case for treasuries the idea that you still have that widening spread between Italian beekeepers and German boons and that bid for German boons that I think is what's driving the sentiment for treasuries at the moment. Okay. So we're not sure what to do with stocks in the U.S. We kind of all over the place but certainly buying stocks here in Europe and buying of fixed income. To your point Krissy is talking about let's get to technology because that's where we've had a lot of the earnings news from and that's what we thought it was going to be.

Certainly the top story this morning for markets until to Alex's point we got that set most recent data. What's the big takeaway for you from this tech readout from SNAP and from Twitter. I mean there's a lot of focus on ad spending. Yes. Certainly that there were inflation cracks showing in this early part of the earnings season and also that big tech called a snap on Twitter. I wouldn't generally regard as big tech not impenetrable to the macro headwinds that we're seeing across corporate America across the world. It's been a really weird few days right where you have these kind of quite bullish signals that we had the Bloomberg survey of economists some where inflation's at right now whether we've Pete's and what the Fed might do the Nasdaq 100 is snap three straight days of gains where we were kind of really jazzed this jazz guys going into next week and this kind of mega CAC earnings season. And we've really rethought this overnight. We basically started to worry about actually how difficult this inflation will be for tech companies all sides to manage. And then in the background you have the hiring freezes

where it has taken time to get on board people's minds. Well this is the first one. And you could still be just it'll still be fun. But this is what I wanted to get the take on sort of the snap and Twitter issue in the advertising slowdown. Is it because companies that usually advertise are themselves retrenching. Are they're cutting costs because they need to or

are their products not selling. Because those are going to tell us two different things about the economy. Yeah it's interesting. I said to John Farrow at the open that if you read snaps earnings report the transcripts of the call it's very much a kitchen sink approach to what's happening. They say that in the last 90 days there has been a pretty good was that what's deceleration in the ad market. And they cite inflation the higher rate environment the war in Ukraine but also competitive headwinds. Right. You have to remember that SNAP is competing for eyeballs against Tick Tock which seems to be doing increasingly well. Twitter again was very interesting because the consistency is the macro economics right.

Higher inflation uncertainty and advertisers have shown signs of pulling back through the first half of the year. The difference in Twitter's case of course and they put this in writing is that there's uncertainty around Elon Musk's bid to buy the company. And of course advertisers may be thinking again about putting dollars within. Mm hmm. Yeah. So that's the specific once persuasive. More broadly Chrissy back to the. The earnings have told us more

broadly I suppose. So not just in the tech space. We're getting a host of different factors being blamed. We've had the macro environments and that links into ad spending and that is relevant to the tech sector. We've also had some companies still talking about a shortage of parts. We've had some companies talking about the strength of the dollar. It is adding up to be quite a gloomy seasonally gloomy gloomy earnings report in that sense. It really is. And I think it's almost a little bit of a sense of deja vu because if you were covering the market in 2020 which we all were of course one of the big I think stand out pieces was that when you were looking at the tech trade and bear with me here not to give our audience a history lesson but they think this is significant terms of framing what we might see in 2020. When you saw that tech trade it wasn't a bundle tech

trade. It was Apple Microsoft outperforming. But the companies that had that ad revenue exposure think. Alphabet think. Think Twitter Snapchat Pinterest etc. They were underperforming that tech trade. I think that's really significant piece. And the idea was simply in the face of uncertainty. Do a lot of these businesses actually want to spend any advertising at all. Then fast forward to 2021 when that supply chain issue was a far far bigger focus than perhaps a recession is right now. And once again people were pulling back on advertising with this lot of the same name saying well if we don't can't actually get the products on our shelves we really want to be advertising to consumers to begin with. So they were hitting that. Now you have

a confluence of both factors here. The idea that you do have that recessionary kind of perspective but you also have the supply chain issues. And on top of that. Well there isn't really that much to advertise to begin with in the face of a recession. This is pretty normal. So it brings back the point that when you look at the broader market sure you perhaps have a return of

that tax rate the return of the Haven trade. But even within that there are nuances here that to some extent there are parts of the tech market that we're just talking about the social media names that have that cyclical exposure and that could end up becoming the Achilles heel of the entire market. And that's a cyclical part of tech. And then you have sort of the macro part which is the dollar of course. Yes. The Bloomberg dollar index is down by four tenths of 1 percent really dropping like a stone

at pick up those PMI numbers. But that's a headwind for big tech. Most definitely. Morgan Stanley these eight percent downside for earnings because of that dollar. What are you expecting to hear on that front next week when we get into the really big tech guys like the Google the Apple the Amazon. Well this is where you want to see if these pivot their strategies a little bit because the whole point of the why the is hitting them so hard is because a lot of their exposure the majority of their exposure I should say is international. These are American companies that have multinational exposure. So I think Microsoft for example the Microsoft computers for example that are in every headquarter around the world that are bringing those profits back is going to be key. If this dollar case that you're seeing is really a consensus trade that this is going to be strength that doesn't abate do a lot of these companies then say well OK maybe we did pull back on our international exposure a little bit to face these currency headwinds. I think that's the tradeoff. I would really pay attention to. And Ed you were

mentioning in passing the job losses and this becoming a bigger and bigger theme as we watched Big Tech and I suppose it'll be a focus next week Wednesday when we move on to some big tech. Yes certainly. I mean Bloomberg our reporting particularly Apple where there was a lot of focus on hiring being frozen. You know these are companies with strong balance sheets. That's probably an understatement. And that move by Apple which Bloomberg reported was seen as somewhat conservative going into earnings season. If you don't subscribe to the tech watch column on the Bloomberg terminal you absolutely must. But we've gone from thinking about this growth narrative to protecting the bottom line at all costs. You consider the stronger dollar and the

likes of Microsoft like Christie was just talking about but also profit in this inflationary environment. The hiring freeze because many of these companies are still trying to unwind the massive boom they went through for the pandemic period. They've become bloated in many areas. Sources that all these companies tell me there are many roles in duplicate. But they have two people doing the same job in the environment's changed quickly. And you do wonder how closely the language of executives like

Tim Cook will be watched on how cautious they are about the second half of this year and where the hiring freeze is turned into job cuts. OK thanks very much. Thanks. Pretty good. So thanks to Ed Ludlow as well. Thanks to both of you for joining us to take as you dive into the tech sector once again but also the broader earnings themes coming through so far. We just had a little bit of breaking news coming through on the grain front. We've been watching this ceremony taking place in Istanbul

bringing together we understand the Russians and the Ukrainians to talk about getting grain that's been trapped in Ukraine out. We're watching the U.N. Secretary-General here talking about this saying this will bring relief and help stabilize prices. We'll get more detail though. What exactly has these parties signed up to and how long will it take to have an impact. It has been moving grain prices over the past 24 hours so we'll certainly keep an

eye on that. And we have a guest in the second hour of this program to talk more about his. Coming up though next. More on our Question of the Day what our earnings saying about the economy. We will ask Federated Home. A senior equity strategist Linda Selvey joins us. This is.

The alternative to let your foot off the brake before inflation is come down let it settle in 4 and 5 percent. That's just a recipe for another recession down the road. That's a recession for prolonged PD making the argument longer and longer stretching out over the years. That's not good for American public relations.

As Richmond Fed President Jeffrey Lacker on Bloomberg TV saying the Federal Reserve will do whatever it takes to get inflation down. Before that PMI number that broke about an hour later. So to the question of the day what are earnings telling us about the economy and what are the economy. Then tell us about earnings. Want to ask Linda. Do so. Federated Army's senior equity strategist. Linda we've a lot of moving parts. The PMI particularly services really disappointing. A huge move in the bond market here as well as in Europe and earnings that are extremely confusing but does show that consumers are going to spend and do stuff. But tech is really feeling pain. What are we learning.

Well good morning Alex. I think what we're learning is that it's big mess out there as you as you suggest and there's a lot of uncertainty. And so it seems that the markets are moving quickly from one direction to another. So the direction in which the bond market has priced in an impending recession and as quickly as it has done is really quite amazing. And so you know we had Federated Hermes are not calling for a recession. We think we may just skirt one next year. We think the 10 year bond yield should be in and around three and a

quarter by this year in. If you if you believed that you wouldn't be buying bonds even if you were nervous you look at the consumer the consumer in the United States is really quite healthy. And even though there are job layoffs we're going to hear more about them. I think in this earnings seasons definitely from the tech sector that probably over hired there is still way too many job openings. The job market is very very tight. And that I think is what the Fed is going to look at as they do what they must and raise rates. Right. And I wonder what you make of that. You sound pretty gloomy on the earnings story that we've got so far Linda. I mean I know that Bloomberg intelligence were calling this at the weakest earnings season

since early 2020. And we all know why that went so sour so quickly. How bad does it get. And crucially what's the link between a bad earnings season and what stocks doing. Well stocks look slower. So the stock market has already been worried about this current earnings season so we're not as concerned about what companies say about what has happened as what they think will happen as they look forward. And so if you look at behavior of company we saw capital expenditures are up 7 percent year to

date basis this year. That is a bullish move in terms of the economy. The CEO roundtable has been kind of bullish and still now still pretty decently strong on on on hiring in certain areas. I realized certain areas did over hire and they need to fire. So we're not particularly gloomy but we're very much interested in what they have to say about the future. And I think you know they could be they could be more conservative looking out into the future. We'll get to more of a malaise then. Terrible. Yes. Lot of percent earnings growth. Linda what's also interesting though isn't that earnings worry most definitely out there. Bank of America and their global survey in terms of their data and from what investors are positioned for

said that that gloom is not actually felt in the global equity funds and that people haven't sold. They're worried but they haven't sold yet. What kind of volatility does that mean we're going to see in the next couple of weeks as the numbers start coming out. That's exactly right. Because there are there's too much money

still right now on the sidelines. There's too many people watching very very closely. They want to get you know they're not positioned terribly defensively although margin debt is down dramatically. It's done in most it's been since 2009. There's still a lot of money on the sidelines because it was so much money printed. So I think a lot of people are out there saying I'm going to wait and buy and buy low. I'm looking for buying opportunities. The VIX is uncomfortably low. The fear index is

uncomfortably low. Why won't it go up. Because there's still too much money on the sidelines just waiting to buy the dip. And so what does the NASDAQ do in recent days and weeks. It's spikes we need. Boring is what we need. And some would be boring for a while I'm afraid. Well I look forward to boring and I've spent a bit too exciting

recently. Let me ask you about oil then. I know that you've said that oil could drop quite significantly to sort of 80 85. Where does that leave you in terms of. Why do you think that is that all because of a slowdown and slowdown in the global economy will produce that. And what does that mean for energy stocks into which many people have piled because of fears about inflation. Well they have done very much no it's been the place to to be invested it was the best sector last year was the best

sector this year to date. And interestingly as the price of oil has come down now you see these stocks coming down. I think people are saying you know I made a lot of money in these stocks and I'm going to take this money off the table again. Trader moves fast moves. We're suggesting not necessarily the price of oil goes to 80 to 85 dollars. But if it does do that and which it very well could do because we all know buckling concerns about global recession does do that in the near term that might actually help consumer sentiment. Yes that's very close to their concerns. But in the end we're bullish on energy.

We have an overweight there and you very well could see it go up dramatically into this winter as poor Europe and particularly Germany suffer the winter. I have to say the read through the net oil services though is that companies are spending in PS and oil companies are spending billions now like they're ramping it up. It just depends on how fast that comes to market. Linda in the meantime you want boring. We're not getting boring. So do we buy bonds. I mean that is the trade of the day like by

any bond you can get your hands on. What do you do with that. Gosh what's more boring than cash. Cash is king and we like cash. And by the time this year is out you're going to see some pretty good numbers relative to what we have been on cash. No the bond yield the long bond yield is too low now. They priced it too quickly into recession. And as I suggest we don't like that as stocks go. We still like those high quality dividend paying stocks. So if we like energy with which I've said already we'd like health care to health care in general has been ignored for quite some years. You can get some excellent dividend paying stocks out there. And if you're a good stock picker you could go over to

Europe and find some excellent names over there too that are high quality that are stable companies that pay a dividend and will suffer whatever recession that Europe must suffer just fine. Lindsay you mentioned a little earlier in passing your views on Europe. I want how those views on Europe stack up against the U.S. given all of the issues facing the European economy. We saw that in the PMI data in Europe today. Certainly for Germany. And one of the big headaches hanging over Germany

is of course access to gas. We're getting further headlines from Gazprom coming through with regards to turbines and the ones they do and don't have access to to send that gas from Russia to Japanese. Japanese looking very opaque right now. But what assumptions do you make then that inform your European stock feed. OK it's a big mess just as you've suggested. How can we invest when we're looking out to big mess. Who thinks they can suggest how this is going to work out. Germany has very high inflation just like the U.S. does. Our Fed is doing what they must do and raise rates. They can't raise rates over there.

They've got so much to deal with as it is right now. You can say and you could have said for years that Europe is inexpensive versus the United States and it is United States remains a safe haven. You've spoken about the strength of our dollar. If it's come down lately it's been extremely extremely strong. That has a lot to do with our relative safe haven status and the fact that we are raising rates which we must do. So you know Europe is going to be a great great buy but it would seem very

premature to get involved in that especially when we're suggesting cash. OK. Thanks. Yes. We had the message. Thank you very much. Thanks to Linda Diesel or Federated Homies. Thanks very much for joining us. Let's go from Europe to China with the news flow. And we're just getting some red. We've just well in the last 10 minutes or so got these red headlines across the beanbag about China everyone. Let's pull all these together. This is a real estate firm based in China of course. And we're getting some new space surrounding this company. It's a property company.

It became the poster child for all of the troubles that the property industry was facing in China which has since broadened. Well they're talking about a new CEO. Their CEO has resigned. They've named a successor. They're also talking about appointing an internal control that controls consultants. So changing that risk management procedures it seems so late in the day on a Friday over in China certainly. We're getting this news. So we'll certainly watch whether this has any impact on the ground or indeed on the broader property sector which has broadened in dates in its issues since the Afghan crisis. We will certainly watch that on Monday. It seems like a long way off. Right. Still ahead one of the big names in ETF Kathy Wood is shutting down

one of her funds. We've got that news this week. She's not the only fund manager making tough choices about about those funds and whether to shop to them. We'll talk about that next. This has been. 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. American Express posted second quarter revenue that soared as he

1 percent to a record that led the company to raise its forecast for full year revenue. Meanwhile the company's expenses are more than expected 2 percent and rising has cut its full year profit and revenue for cross. The largest U.S. wireless carriers trying to keep up with rivals made gains to heavy phone discounts. On Thursday AT&T along the industry watches with a warning that

some customers may paying their phone bills as Schlumberger is getting a boost from the global expansion in the search for oil and gas. The world's biggest service provider raised its full year sales forecast to at least twenty seven billion dollars beating the estimates Schlumberger second quarter. It also was better than expected. And that is your latest business flash Alex. All right. Thanks so much Riddick. I appreciate that as well. Cappy Woods is closing down one of her ETF and this focus on companies that received very high scores on transparency. And for the first time her investment management has pulled the plug on an ETF. But she's not alone Anna. ESG fund closures are also piling up

after drawing in billions as investors are bracing for a recession and choosing safer bets in the market. I would also argue and on the part of this is a tech thing. I mean if you take a look at some of the members within the ETF that she had to close its Spotify it's Netflix it's Splunk. It's in video. It's MMD. And that's a similar theme with the ESG

funds as well. A lot of them actually wind up being tech companies. Absolutely. So this ends up this ETF was at the confluence of two very challenged themes. One of them was tech and one of them was ESG in this case specifically transparency. But it falls maybe into the broader E

ESG theme which yes we want to talk about a lot. Yes. A lot of investors still want to talk about. But at the end of the day we're also dealing with war in Europe. And that has changed people's perspective just a little. Yeah. Just sort of moves the S and the G but the E it's a lot of different interconnectedness that are going on. All right. Well coming up more on earnings. Very tough quarter for Twitter going through that battle with Elon Musk just reported disappointing sales numbers. We're going

to speak to an analyst who is bullish on the stock. Barton Crockett and Rosenblatt Securities is coming up next. This is Bloomberg. We're about an hour into the U.S. trading session and looking at the S&P pretty much flat on the day despite those horrible PMI

numbers out of the U.S. Kitty. Gupta is back tracking all the moves for us Christine. Yeah Alex the thing waffling is a good term. When S&P 500 is doing. But the NASDAQ decidedly underperforming here dad a six tenths of one percent was put into the context of the volatility we've seen lately with the stock market. It kind of feels like perhaps there's a little bit of a wait and see cautious mood in at least the benchmark level of what you're seeing. And if you want to really keep an eye on

the kind of subsectors within that because underneath the hood if you look at some of the social media stocks that's where a lot of the paint is down three point eight percent to dive into the second. But a quick check on the VIX here a 20 to handle. We're getting closer and closer to a 20 handle that is significant as we talk about what the normal gauge of perhaps post Covid low volatility is and that is that 20 handles. So if it drops below 20 that might be significant reason or significant signal for some people to hop back into the market to escape some of that volatility. But once again let's get back to the social media story because that's really where all the action is today in the equity market. A lot of that has to do with Snapchat a variant of bad news when it comes to Snapchat. Yes they came up with some better than expected numbers when it

came to users but they are suspending their third quarter financial guidance there. Also they do have a stock buyback though. Five hundred million dollars. But they're also slowing down some of their hiring. Very concerned about the advertising story. I remember as a perhaps proxy for growth broadly that is not a good time. Nevertheless investors really punishing the stock here looking at a 10 handle on the share price a 36 percent drop intraday already. And that is kind of translating

some of the other social media names Pinterest for example taking it on the chin Metta even Twitter is lower. What's interesting with Twitter though is it's only down four tenths of one percent. They came out with their earnings this morning. They're talking about missing their revenue estimates. But once again for that particular share price it might be more about the legal battle than perhaps or future growth. And of

course we're gonna dive into that in the hours ahead. Across Bloomberg Television and Bloomberg Radio was not just the social media part of the tech complex that you want to keep an eye on. It's semiconductors as well. If you're talking about volatility in the likes of Apple Microsoft well the ripple effects happen and the likes of the Sox index for example your videos your microns. And right now you are seeing this massive sell off pressure but a little bit of a bounce back which you can kind of see right here when it comes to semiconductors. And that might be a good sign if we're talking about the bull case for tech broadly. Usually semiconductors react first. The rest of tech falls. That's going to be a major gauge to follow on the macro sphere though. Let's bring it right back to bonds because that 30 year

bond is crucial. It drop below the 3 percent level. Remember duration has been a major trade here. I wonder how much of this is going to be the haven trade. How sustainable is the bull case for treasuries right now. OK. Christine thank you very much. Christine was talking about Switzer. We will continue to cover it in the hours ahead but also in the minutes ahead we'll do it right now. It's another blow to Twitter which has already seen a fair share of blows the

past few months. Eight reported disappointing second quarter sales and that comes on top of its huge legal battle with Elon Musk. With us now Barton Crockett senior research analyst at Rosenblatt Securities. He has a buy rating on Twitter with a fifty two dollar price target. He also lowered his rating on Snapchat to neutral from Buy while trimming his price target there. Let's start with Twitter then Boston. And you've got this price target and you've seen what they've said today. I'm guessing your target is really entirely based around the legal decision that's going to be made around whether Elon Musk can walk away or not. What does what are the assumptions you'll making. Right. I mean are reading that lawsuit you know with

some help from some. Some advice is that Twitter's in a very good position and Musk is very likely to make beef see very clearly from the judge that you'll be compelled to do the deal. So our fifty two dollar price target is really just a slight break from the 54 20 deal price just assuming there's a modest settlement to speed this along.

But we think there's a lot of leverage on Twitter's side. And you can see from your stock word there earlier that it's nice to have something other than fundamentals to drive a stock which is what we can get with Twitter right now Michael Barr. It also seems to think that he won't pay for Twitter at a lower price because part of the story that everyone seems to be thinking about is that off line out of the court. They'll negotiate sort of a lower deal for Twitter maybe in the 40s. What's the

probability you think that happening. I don't put much possibility in that as well. I mean if the board at Twitter has to move ahead and maximize value for shareholders the judge we think has very clear precedent. And so far the early rulings are helpful. It is very clear reason to basically compel must to do the deal as agreed. So 40 bucks would be a huge concession and there's no reason to do that. So no I think you're a better bet is you're going to do better than that. OK so you think the mask has to end up paying what he said he would pay for this business but where does that leave Twitter. I mean there's a lot that would be a lot of uncertainties about

where you know Musk would want to take Twitter even if he'd gone in a while even if he remained a willing buyer. But now he's. By your reasoning he's going to end up being a buyer who really doesn't want to buy this asset. Well certainly not at the price he's had to pay. I mean what kind of assumptions can he make about the future direction of the business in that environment. Well it's it's not kind of bizarre in our lap. It's kind of being Elon Musk's lap and that's what the board is working for right now as the shareholders look I have tons of sympathy for the employees at Twitter. I mean this is really a terrible

circumstance. You know I don't know what do you will do. I don't know that any of us do it. I would hope that he would refocus and use some of his genius to figure out the best road for Twitter. He clearly has a lot of abilities. And if he brings that to bear maybe there could be a good outcome at the end of the day here. I mean you also are looking at a neutral rating on SNAP and obviously the stock is down 36 percent today. It was destroyed before

that. Your price target is 14. We're at 10 14. Feels really far away at this point. How do we get there for SNAP. Well look this is an incredibly volatile stock and you know I think that the fundamentals. You know I believe warrant the neutral rating the 14 dollar price target you know as compared to a stock that's clearly moved a lot. So who knows what it'll be in the next couple of days after it settles down. You know I think the 40 dollar price target is really based on the assumption that this is a real business. You know there was

much that was difficult in terms of the ad recession that we've seen at SNAP and Twitter you know big step downs in growth from in the second quarter from the first quarter and trending that suggest it's getting worse in the third quarter. And but they did grow users at SNAP. And I think that in time when the macro recovers the eyeballs will drive the advertising. We'll see growth again at SNAP. And so you know the there is a business here. And if you're long term enough you know there might be entry points that are interesting. But right now we're not pushing that. OK. And should this story from SNAP about and be as impactful on other big tech names as it seems to have become. Because this is the second time in a row that we've heard bad news from SNAP and it's taken down really big names in the tech sector. I'm looking

at massive platforms down 6 percent alphabet down what three point three percent. But you know by points these are the biggest negative drags on the Nasdaq right now. Does that make sense to you. Look I think that it does. You know I am still recommending Alphabet I think that their ad exposed but there have a lot of strengths relative to peers and that would be one company you'd like to own. Even through a recession valuation is not really I think demanding there. What we've seen though is obvious deceleration obvious macro headwinds at SNAP and Twitter. We haven't seen the others report. They'll come next

week. But everything we've heard ahead of time in terms of headcount controls cost controls you know cautious chatter from some of the media companies on the TV side at the conferences tells it that this is real. You know you look at the telecom companies which are big advertisers talking about you know cautious consumer environments. Things are getting tougher. And I think we'll see that when the other Internet guys report next week. So right now you've got to position yourself for an ad recession and think about you or you want to have any exposure if you do. You know I'd like Alphabet. I think they'll come out

good on the other side. But we're going into a rocky road. You've got to be prepared for that. So where does that leave Apple. Barton there's been some downgrades price target downgrades this week parts of dollar story that the part is just a weakening environment. I'm reporting on next week and Thursday. I think it is.

Morgan Stanley though is really bullish on their services shift saying that gold hit three trillion is at the same spot as Google. Like we're going into a recessionary environment. Apple's obviously going to get hit but longer term it's OK. How do you view it. Look I have a neutral rating on Apple and I know it's a much loved equity. But you know our concerns are one party's surfaces and another part is China exposure. And I do believe that in services they can't escape and had when ad headwinds you know Google is seeing it. They'll see it in services. I think they're extracting larger fees than I think they can sustain long term. I think that Google Play has already conceded a lot on fees and their app store revenues and Google

Play were down in the first quarter. And I think Apple isn't seeing that but I think they're likely to have to go there. And I think China never ending Covid zero is a difficult backdrop for durability of Sumer demand in China which is an important end market and the stability of production. And I think a lot of the smartphone sales that we saw the strength we saw at Apple was 5 3 G driven and we're starting to comp that fact. AT&T was talking yesterday about expectations for less sales of this generation of phone than the year ago or so. You know I think for Apple you want to see great new product and apple cart is not going to happen and a supply chain disrupted environment like this with so much turnover. And you know I'm not a believer

in the A.R. VR is a monumental change. And I think you're tiptoeing into that to begin with. So yeah you know a difficult spot for Apple. That's why we're neutral. You have to point out though and this is really for my team my phone is stop working at this point. So I'm going to have to get a new iPhone. I say this because it took me like eight years to get a new iPhone. I

had like before for very long time. Hey Barton thanks a lot. We really appreciate it. Great stuff. Barton Crockett senior research analyst at Rosenblatt Securities. I Covid everyone stay with earnings for a moment. How consumers are now managing inflation. We're going to ask the CEO of one of the biggest regional banks in the US. Steve Steinhauer of Huntington Bank shares will be joining us. This is. This is Bloomberg Markets farmers who could get through you're looking at a live shot of the principal rim. Coming up Brian

Deese the director of the US National Economic Council joining Bloomberg Television. 12:00 p.m. New York time is Bloomberg. Keeping you up to date with news from around the world is the best word answers you can get. So there's another sign that a recession may be on the horizon in the euro area. Private sector activity in the region unexpectedly shrank this month for the first time since the pandemic lockdowns of early 2021. A survey of purchasing managers by S&P Global dropped to a 17 month low. Manufacturing output fell and service sector growth almost stalled. That charge you Rampell probably will slow the pace of

interest rate hikes off for a second straight 75 basis point increase next week. That's according to economists surveyed by Bloomberg. They expect policymakers to raise rates a half point in September and then shift to quarter point hikes. The last two meetings of the year in New York state the Republican candidate for governor was attacked at a campaign event. Officials say a man with a pointed weapon tried to drag Congressman Lee Zeldin to the ground before being subdued. No one was hurt. The attack took place outside the city of Manchester companies 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than one hundred and twenty countries on which you can get. This is Glenn Beck. Thanks very much. Sure. Thanks to risk now. Bank of America chairman and CEO Brian Moynihan sees inflation peaking but we're not quite there yet. He says the Fed has more work to do.

Moynihan spoke to Bloomberg's David Westin. I think the Fed is raising rates quickly which is the tool they have. And also telling people whether what they're doing and being transparent and then you start to see some adjustments being made. The rate of increase in certain areas is tipped over a little bit but there's still work to do. And the other day the Fed's toughest job is the fact that it's trying to slow down an economy which has strong employment strong wage growth and strong spending. And that's not to use. That's an unusual case to see all that go

on at once. And by the way with the US being one of the strongest economies in the world. And so I think they've got a tough job ahead of it. But they're using the tools they have which is to basically raise rates and change the balance sheet. But more importantly tell people what they're doing. And you've seen the markets adjust to that. Brian you so many ways a Bank of America looking into the U.S. economy getting a sense where it really is. One of the big questions is do we think inflation is peaked. If you were asked that question what would you say. Well I think could be different for different areas. So you're seeing in some areas the rate of increased slowdown is starting to tip over. But you're seeing other areas. Wage growth is still

very strong. So I don't think it's peaked yet. And your economist would say it's peaking probably as is our team. Our team basically says that the Federal Reserve could do to raise rates and actually kind of standing by the team that research team at Bank America has the year end recession which they made a call on a few weeks ago. But it's a it's a slight recession. And a recession is not accompanied by high unemployment which means it auto right itself and come back out. But it's more impact of the Fed raising rates a slowing economy. So it's peaking is probably more appropriate than peak. It was Bank of

America chairman and CEO Brian Moynihan speaking to Bloomberg. And you can watch that full interview later on today and wants to meet we David Westin at 6:00 p.m. in New York. Olympia I'm in London. Great lineup for you. Well joining us now more on the Fed's inflation challenge as well as what it means for the consumer and business is is Steve Steinhauer chairman president and CEO of Huntington Bank shares. Huntington is the top U.S. regional bank with one of the country's largest small business administration loan originators. The company reported record earnings this quarter. Steve it's great to get your perspective. You're in the heart of the country. You have huge exposure to the consumer as well as to commercial businesses. Are we headed for a recession. What are you hearing from your clients. Well thank you Alex for being able to join you this

morning. Our clients are clearly concerned. There is so much discussion about recession as a consequence of inflation. The Fed clearly has to fight inflation. And as as we all expect there'll be rate increases throughout this year that will help do that. With that by way of background these businesses have been labors constrained and supply chain constrained for years. And so there's an unfilled demand that's been out there for quite a tough period of time. And that continues. Some supply chains have improved. But we chronically hear that there's a labor shortage. And we've seen China open and shut as a key supplier of many

industries in the US multiple times this year. And so we are not out of the woods in terms of supply chain. Now that benefits the Midwest and other manufacturing sectors but particularly the Midwest where we're seeing a lot of capital expenditure and investment going in for plant equipment means to automate and bring the productivity up to meet demand. Yeah that's an interesting dynamic isn't it. As labor continues to be scarce to what extent we see investment and let me tap into your not your knowledge and your your connections within the sort of small and mid-sized business community then see to get a bit more of a sense as to how they're feeling when you talk to them are they saying they're worried about recession just because everybody else is. Or do they say that their businesses are starting to hurt already. How far into the sea do you sense we are. We're very early into it but they are clearly worried. There's a general communication around recession a

slight recession a shallow recession. So they're not spending money unless they have to at this point. But they're in very good positions generally. There's been a number of significant years. They do leverage. They have liquidity. The consumer has liquidity. So we're well positioned at this stage to go. If there is a slight recession to go into one that hopefully bounce back out. Demand is very strong. It's not being fulfilled in many sectors. We see it in our day to day lives. Think about restaurants hotels baggage claim that areas in these in these airports now are like stacked warehouses. Yeah. So there's just not enough labor. And that's going to be an ongoing problem. And I think that will

work ultimately to the advantage of a slight recession. I'm Steve along those same line. This isn't a labor problem but along the same lines we hear a lot about on shoring. Right. We're going to build stuff here. Who to worry about a supply chain issues. Since you're in the Rust Belt there you have a unique view on this. Are companies actually doing it. Are they

going to spend the money on shoring right now. But we see a massive amount of investment going over the fifth sixth seventh largest equipment financer in the country. And so there's a huge amount of investment that's being made to record second quarter equipment financed. And usually our fourth quarter is the best quarter of the year. So our backlogs are very very strong. And

we're we're we're we're excited about what we see going forward in terms of investment both in terms of building plant and equipment for the onshore and or near shoring capabilities but also expansion. Again a lot of unfulfilled demand exists. And and and there's still massive amounts of liquidity by consumers businesses and state local governments. Yes you mentioned consumers there. Let me get your sense of where we are on the US consumer right now because a lot of people have mentioned yes companies have strong balance sheets coming out of the pandemic and so do consumers where they've been able to save. But at the same time we see a lot of a lot of banks talking about the amounts of the amount that customers are now relying on credit cards that might play well for banks. But what does that mean for the consumer do you think. Steve. Well the consumer still is a very substantially liquid and there's been so much more mortgage refinance over the years. It's

increased substantially disposable income. So the consumers never been in better shape in my 40 years in banking. It doesn't mean they'll be impervious to this but I think what the Fed's doing focused on inflation trying to break it and bring it back down. Cost of energy cost of food is reducing that in the near term is absolutely imperative. And that will help all consumers and that frankly flow through the business as well as we are sort of moving into this very uncertain environment. Steve. Would you be interested in buying more stuff. You buy a capstone partners back in March here meaning that middle and

many market things are no doubt going to go on sale particularly we're headed for something a slight recession as you're intimating. Well Capstone Partners is a fabulous opportunity for us. We know them well great culture great people. We're excited. They're a middle market company. That's generally what our business activities revolve around. And so this is like a marriage made in heaven. Now we also bought a payments company in the second quarter. That's a business to consumer. It's a it was a terrific opportunity for us. There may be others that present themselves. And if so these would be payments related or somehow building out our capabilities. Generally fee businesses we would look to to pursue those. But the but the focus is on driving the poor. We had a great growth in the second quarter record level of

performance almost hitting on all cylinders. And we're very focused on continuing to do that I think. What are your hiring plans right now. But we're hiring in certain businesses. Now we just a year ago completed a large acquisition of a company called RTS. So that combination has given us great new markets. Colorado Minnesota we're now a meaningful presence in Chicago

and it's also given us wonderful national businesses. Our equipment finance doubled our inventory financing brand new business a host of new businesses all of which are doing well and reflected in the results that we just posted from second quarter. OK Steve thank you so much for your time. Steve Steinhauer chairman and president and CEO of Huntington Bank Shares. Thank you very much for your time. This is. Welcome back to Bloomberg Markets. We're just coming up to the European clothes still half an hour to go until we close these European markets. Let's have a look at where we are trading right now actually seeing some strength coming through. Perhaps

less affected by the negativity surrounding tech earnings today. And so stocks are actually up half a percent on the stock's 600. Euro was volatile earlier on. Now pretty flat. The German five year yield reflecting some of the data we had earlier on. We see money going into bond markets. Some are buying stocks. We're also buying bonds as those expectations around the ECB and just how much hiking it gets to do before recession feels fears really come to the fore. That seems to be the story in Europe as we come to the close this Friday or at least in half an hour we will the pound is up by four tenths of 1 percent against the US dollar as Brexit rears its head once again. We'll talk more about that in the next part of the program. Will also deep dive into that data about Europe. Chris Williamson joins us. IHS Maki chief economist. This is Glenn Beck.

2022-07-25 07:50

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