Bloomberg Markets Full Show (05/24/2022)
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 this Tuesday May 24th. Here are the top market stories we're following for you at this hour. Snapping back to reality snap cutting its outlook. Abercrombie and Fitch slowed their ad spend. Shares sink and drag. Social media and advertising stocks with them. We're going to get the read through on growth and on the verge of stagflation. Bob Prince Coast CIO of Bridgewater says markets are under discounting gains and consumer prices. More on the
consumer and the economy. The Bank of America chairman and CEO Brian Moynihan. And ECB rate hike debate. Christine Lagarde says Central Bank won't rush to withdraw stimulus. Others pushed for a 50 basis point hike. More from our exclusive interview with the president of the central bank from New York. I'm Alix Steel my post in London Guy Johnson. Welcome to Bloomberg Markets. Guy it's a really ugly way here in the stock market. We're down by over 3 percent now for the Nasdaq 100 the first gap down. You can definitely blame on SNAP but this gap down is more eco data related. The Richmond Fed Manufacturing Index negative 9 on manufacturing PMI services PMI in the U.S. coming in much weaker than estimated.
Yes the services number that really caught my eye. You've seen it over here in Europe as well the UK services no slowing down really rapidly. The Eurozone holding up. But for how long. Given the cost of living squeeze that is coming through that we get new home sales as well. They come through lights as well. Five hundred ninety one thousand versus seven for nine was the expectation that we're down from 763. That's 763 has been revised sharply to the downside as well. The month or month number is negative sixteen point six. The prime number revised the negative ten point five.
The new home sales market much more exposed of course to the inflation debate that we're having. What's happening with labor. What's happening with materials. Take a look at what is happening with lumber steel everything you have to put into our house when you're building it is going up right now. And that is certainly looking like it's going to
be slowing things down a little bit because it's going to have an impact on price. Then you throw in elevated mortgage rates as well. So all of this coming together I think showing signs now of a slowing housing market in the United States. Is this what the Fed wants. Well judging by the activity thus far you've got to assume that it is. So yeah I think Alex today
we have to come to two factors really. I think they are related. I think what's happening with SNAP and what's happening with the ad market is related to look at what Abercrombie and Fitch is saying today. It is going to slow down its ad spend because of what is happening with its costs and its consumer story going forward.
So yeah I think it's it's all related and it doesn't pay to particularly positive picture like it does get to that question of the day. What is snap signal for growth mean. We add in all the economic indicators from this morning as well. Michael McKee Bloomberg National Economics and policy correspondent Romaine Bostick co-host of Bloomberg Markets The Clothes. I mean I just want to start with you because SNAP signals something about advertising spend that we heard echoed with Abercrombie and Fitch. Now I'm wondering what your read through to the broader market is from that. Oh I think it's a big read through a big
macroeconomic rate. Look. Remember the old days. I'm old enough to remember when ad spending was sort of one of the key barometers here of a slowing economy or a stronger economy. I think what was surprise a lot of folks about SNAP isn't just the slowdown but the idea that this company came out with earnings just for four and a half weeks ago where it kind of gave soft ish guidance then what changed here over the past four weeks that caused it to come out and make this public announcement as it did last night. I think when you see how fast the conditions are deteriorating
and more important how fast consumer confidence and sentiment is deteriorating. I think that's going to have a material impact not just on ad spending but on a lot of consumer spending overall. And it's something that I think we should all be paying to. It's clear companies Mike are looking for ways to save money.
The middle of the PSL is being squeezed. Margins are under pressure. How useful and it is took to remains point. Advertising spend as an indication as to the health of the economy. That's a useful indicator but it's not as accurate as it used to be used to be. You would look more towards a increase in ad spend early on in a recession as companies geared up to try to get people's attention that the whole process has become a little bit more truncated. I think what people are failing to
think about though here is the difference between some of these companies. I don't want to talk about the social media space in general but if you just look at SNAP and a chart I brought along here versus Best Buy and Best Buy. Their numbers weren't great but they were they were better. SNAP has never had a positive return on capital and their profit margins have always been negative whereas Best Buy has always had a positive profit margin and their profit margins are staying up even if they are down from where they were. Pre pandemic actually they are about where they were in terms of return on capital. So there's not a
differentiation between companies here that is perhaps important. Well that's such a great point actually. And remain. I feel like if you just put money in more big America saying just this like these are the recession guy I'm sorry the pandemic names that are now feeling this pressure not necessarily the services names. I'm just wondering if that narrative holds. I mean it holds water. But remember there's been this rotation kind of going back and forth. And the big concern here is that as services picks up some of the slack once services weaken is they're going to sort of be a swing back to goods. And I think the short answer right now is no. Probably not in the short term at least based on what we're getting not only out of the economic data but more importantly what we're hearing from the companies themselves. I think the forecasts that we got from SNAP yesterday and you sort of put that an overlay that over the
forecasts effectively that we got out of JP Morgan and Jamie Diamond 24 hours prior. I think it's it's kind of telling that you have a bank here that has I think a really keen bird's eye view of the economy basically saying well yeah there are some clouds out there but nothing is really sort of going to fall out of the sky. And then you have a company like SNAP which is obviously in a much weaker position than a J.P. Morgan is basically saying things aren't all that well. And I think you're seeing the drag down now on a Google on Amazon on a Roku on a trade desk on a WPP. And I think it shows you that investor sentiment right now is in a position where they don't really want to wait around and try to sift through it all just yet. It's rather just head for the door and wait for the smoke to clear.
Romney Let's just talk about the consumer too Jamie Diamond's point. Jamie Diamond talked about it. I've heard the CEO of Bank of America talking about it. The consumer balance looks fairly good right now in terms of that bank balance. So they still have they still have a lot of the money from the pandemic still to spend that is still out there. The problem lies with companies not at the top line. It lies with the coastline in the middle. This is where the problems are showing up right now. Abercrombie
is a classic case in point where a higher than expected freight product costs. Looking forward we expect higher costs remain a headwind throughout at least this at least the year end. We continue to reduce our proponent of promotional activity that try to offset one with the other. Yes this isn't a consumer crisis. This is a profitability crisis in the consumer sector. It is. And you're seeing that now with sort of our smaller name like an Abercrombie and Fitch. You're seeing it with the bigger names. The are the same thing more or less out of Target out of
Wal-Mart. We're gonna get Nordstrom earnings after the bell here in the U.S. a little bit later. And I think you're going to hear the similar story. I mean look this supply demand imbalance that we've been seeing in the consumer space because of the pandemic there was always this idea that the supply would somehow catch up that the labor would somehow catch up. And now what we're seeing is deterioration on that side. And then of course that ends up feeding through to the demand side as well. OK. So when you take a look at the data from today it's the preliminary need for me. But nonetheless we figure 3 for services 53 for the composite. But the manufacturing is still holding up. And I guess I wonder how long that can last in the data. Well there's
a certain amount of momentum in the economy here. And that's what Mary Daley was talking about yesterday. The San Francisco Fed bank president who thinks the economy will avoid recession because it has enough momentum that it won't go to zero. And we are starting to think in terms of percentage changes as far as the way investors are looking at the economy when maybe we want to look at levels and where we were pre pandemic. We've spent a lot of money. Now we come back down to where we were spending beforehand and that's going to look bad in comparison. But then you got a couple of quarters beyond that and you start to see
growth again. So it may look like a recession in some of the returns on Wall Street but we may not get there in terms of the overall economy. Yep. Worth noting as well that the S&P went into the pandemic what we thought was elevated levels but it was below thirty five hundred. So we'll we're going to remove some of that pandemic froth. Then we go a long way to go. Might NIKKEI Romaine Bostick. Great stuff. Thank you very much indeed. Well we got coming out for you. We are going to be speaking to our regular CEO and CIO Charles Schwab Asset Management. That conversation coming up. This is Bloomberg Daybreak.
There is a real risk to any of these social media platforms that are dependent on advertising revenues that they're going to face a near term headwind. The other near-term headwind for tech most of it's been priced into public markets and actually we see a lot of opportunity in which I want to come back to. But the other thing that needs to play out before we get a full recovery here is private markets which have not yet discounted the bad news that public markets have. That's still a couple of quarters away. That's Katie Cox and Goldman Sachs. Well speaking to Bloomberg earlier at the World Economic Forum in Davos. And that really takes us back to the question of the day which is what a snap signal for growth. I think you can kind of add that into
the weak economic data that we also got at the top of the hour. Let's ask Omar Aguilar CEO and CIO Charles Schwab Asset Management. And it's about 650 billion dollars in assets under management. Omar the read through from SNAP the read through from the weak economic data. What does that tell you of where we are with growth. Well it's it's clear that the economy is
decelerating globally. We have started the year with that you know several headwinds going into 2022 that has transpired. And you put that into context of all the transitions that we're going through. So we're going from a very strong economy to a decelerating economy. We're going through no inflation to high inflation. We're going to zero interest rates the increasing
interest rate by central banks. We're going from you know plenty of liquidity in the market to a lower liquidity. So overall the market seems to be just adjusting for that. And at the same time we're going into very accelerated late cycle. And that's you know to specifically answer your question when you have that deceleration of cycle you see you know profits started to reduce the profit margins have started to compress. And of course a lot of what we're seeing is a reduction in capital expenditure a lot
of the activity that you see in some of the stocks recently. It's a reflection of you know the potential for future discounting mechanism or what investors thinks will be the reduction in capital expenditures whether it's advertising whether it's extra consumption by consumers. But in general there will be a reduction of capital expenditure as the economy slows down. Where are we now in that process. Because what I'm trying to figure out right now is whether or not we are seeing as consumers slow down. A lot of the evidence points not to a
consumer slowdown but a profit slowdown. Companies are really struggling with margins. Ike snaps an example of that in many ways. You look at what Abercrombie saying today. We had Target. We had Wal-Mart. Company after company is basically coming out of we're saying we're being squeezed in the middle. And while a healthy top line is being maintained it ain't dropping down to the bottom line. How much further in that process do you think we've got to go. Well it's a great great question guy because
when you put it into context we went we're going from again yet another transition going from an economy that was driven by good consumption. So people were buying appliances that were investing in their houses as we were growing into the Covid years. And then that transition is going into the services side. And in many cases the consumption that we see for consumers is a set of a pent up demand. That was sort of stuck for two years. And now everybody seems to be just moving through that service
sector. Now what happens in this in this transition process as you see that is companies are starting to just figured out how much of that pricing power they still have. And a lot of what you observe in those companies you know outlooks you know it's a reflection of their reality of you know how much longer they can expand that price. You know push to the consumer. On the one hand the realization is that yes there are certain parts of the economy that is probably not going to end up in the same place as there were pre-cut pre pre Covid. And at the same time when you actually see that in specifically there is the recent results of some of these companies. It has to do with the fact that those price valuations on those asset prices that went up
during the pandemic those two years are obviously the ones that are suffering the most especially as they realized that the economy has transition towards the services side of the. OK. So if you look at the chart right there say NASDAQ one hundred or just broad tech I mean it's dropping like a stone like these are going to be ugly charts. Right. How can you still sell those sort of pandemic winners. Can you still sell at these levels say tech growth. Well the the the process of actually trying to get in or get out of the market is a very difficult one trying to find what is the right time to buy or to sell. This is just it's just just difficult being a process of create you know timing around it. The big part of these becomes that again the equity markets and specifically when you see charts like these become a discounting mechanism for the future. And in many cases you know
what it does is that if you put into context the long term trends you put into context the gains that people have had over the last several years together with the drops that we see these year overall the trends you know create that volatility that is just trying to extrapolate into the future and in many cases is just how much of these is you know highly dependent on interest rates how much the company or the sector is affected by potential higher inflation and how much of the economic slowdown and the potential reduction of consumption will affect the company down the road. But let me answer that question for a different point of view. We went into the into the pandemic of what we thought at that time were fairly punchy levels. The S&P was trading below thirty five hundred. It's still trading at thirty eight eighty four right now. How much more downside is that when you talk to clients and they say I want to get out. What do you tell them. Well we have clients that have asked us both sides of the questions. You know do I get out now or do I get in now. And we continue to emphasize that market timing and trying to call the bottom is something that we just don't think it's viable or even advisable. OK bye. OK that's fine. But but if you we you are in a situation where markets are under significant pressure. If I
was a client and I come to you and say look do I get out of this points. What are you telling me. Well what we basically say use these days location guy to try to rebalance your strategy towards your long term objectives. This is the time where you need to stay invested. If you go back in history and you look at every single one of the drawdowns that have been of this magnitude when you put it into context of the economic and every cycle is different you know a year later five years later 10 years later most of the time is stock prices tend to go up on average. And what that happens is is using these market dislocations to try to rebalance because you're right the market is these these located. And there's a lot of changes that have going on there need. And this is a time where you know you can use these market volatility to rebalance your strategy towards
the long term. So if many were diversified in the tech heavy where do you want to be rebalancing. And I mentioned this earlier but relatively positive comments from Jamie Diamond yesterday about the consumer. We're gonna go from Brian Moynihan in the next hour. You need to go banks is energy is in bonds. And we're seeing a very chunky move on the front end right now. Well you know the good news in all of this area is that if you think about where we were the dynamics across asset classes from just even to two weeks ago where everything was going down you know and nothing and correlations were very high. You know right now we've seen a little more stability in the bond market. We see a little bit more of that fluctuation. We haven't gone above 3 percent on the 10 year. And that's at least a little sign that things have started to become a little more stable at least on
the fixed income side. When you when we get the question of where to go now we're clearly all the signs. We're in the late cycle. You know when you think about higher interest rates Dino tied labor comply complied a reduction in capital expenditure all that signs towards late cycle. You know six signs. And of course in that period of time these sectors that tend to do best tend to be cyclical. So we still have the energies. You still have the reeds. You still have some of those that tend to be more immune towards you know inflation. And at the same time you know some instability that comes from defensive like staples
utilities health care. Now that being said you know there's still rich valuations you need to consider. And obviously is some opportunities to rebalance across areas that have been obviously you know down more than others. For another in the bull market having a pretty good day. I'm gonna leave it there. Things are moving pretty fast right now. I mean Aguilar CEO and C I O of Charles Schwab Asset Management. Coming up Snapchat snap plunging well below its IPO price. The
last number I saw was down circa 40 percent. There you go. Forty one and a half percent. We're going more details on what we should be taking away from it both from a company point of view a sector point of view an economy point of view. This is Bloomberg.
So it's really picking up some demons. Team to the downside snap dropping like a stone seeing its biggest intraday decline since they went public back in March 2017 and is really weighing on the rest of tech and the whole equity market as well. Brian Fitzgerald is Wells Fargo's analyst. He joins us now. He's lowered his price target for Snapchat from 48 to 27 but maintains an overweight rating. Brian why do you over rate if you just lowered your price target by 20 bucks. Yeah. Look I
think what they were pointing to is a macro situation during faster and further than expected. We just got that guidance less than about a month ago. But there's no company specific problems. While there is some overlap with tick tock snap engagements and tax stories are constructed. From what we heard last night Snapchat is remain highly engaged in the content with close friends. They are substituting spotlight content for more distant acquaintances. But but they engage with this tech. The audience is intact. And so we think the long term opportunity is intact. Impact that continued strong engagement. The stock's trading at thirteen I Brian. This is a massive massive move for a company that was a darling not that long ago.
As Alec says you've got 48 to 27. We're trading 13 right now. What are you what is the right price for this stock if you were to put a number on it right now. Is it that 27 or do you think it's actually kind of the riskiest to the downside. Let's put it that way. Yeah it's a great question guy. I don't think the risk is to the downside at our price target. Twenty seven. That's trading at thirty six times next year even though they're growing that you beat up between 21 and 24 at 37 percent. We've
got no specific color in terms of what is a weakness on brand direct response. Was it specific verticals or regions of concerns. You're right. Several stocks are down in sympathy. Pinterest trade desk Facebook Google. It's hard to tell if the market is getting this right or overshooting you know throwing the baby out with the bathwater. You know I think what we wanted to highlight is there is a potential that broad add recession is emerging. One of the last things you want to cut that advertisers cut is that quantum of funnel performance direct response advertising and for SNAP. That's that's 45 percent of the business. So Brian. Brian give me a perspective. First happiness and its peers for example. So if it's a macro environment issue. Right. And all these social media something and get hit with that. Are there ones that can
manage that a little better than SNAP or is there an advantage that you see this not might have. Yeah. It's a great question. So I think the pain that we're starting to feel and we just got back from marketing in Europe internationally is. And Google pointed this on the quarterly print. It's international branded campaigns are softening. You don't want to be exposed. Some are used to international. You don't want to be exposed to somebody who's too high up the funnel and branded Twitter. If it wasn't
for what was going on with the musk and in that drama is the one that is most exposed to top of funnel branded and more exposed to international. But again there is a there's a separate situation that is maybe point putting some insulation around that stock in terms of what would fare better. You know companies that are bottom of funnel performance advertising search based click based CPA CPC those guns are fairly insulated. And then companies that have a model that goes that goes beyond just simple advertising. So Amazon with a W.S. Google with their cloud business those will provide insulation
as we go through a recessionary environment to. Brian yes or no. Would you buy a 13. Yes. We would buy a 13. Brian Fitzgerald Wells Fargo senior equity analysts thank you very much indeed. Some more headlines coming out of the ECB this time from Kazakhs. The ECB should not rule out a half point increase. That's the second voice today. Holtzman out earlier on talking about the same thing saying a 50 basis point hike would be appropriate. Back to France saying no. The president saying no as well. President Legarde that is coming up next. But Prince Bridgewater Associates co CIO he says the US is on the cusp of stagflation. We're gonna hear more from him next. This is Bloomberg.
One third of the total gasification capacity of the European Union is located in Spain. 50 percent of the energy storage at the European Union is located in Britain and police which is the problem that we are facing. This lack of interconnectivity and that is why I think it's really important to invest in those interconnections to prove right. Also from the south of Europe alternatives to central and northern Europe with Spanish Prime Minister Pedro Sanchez speaking earlier to Bloomberg at Davos saying his country could provide an answer to the shortfall in gas supplies from Russia. Let's get back to the U.S. markets here. We're trying to bounce off the lows. We're an hour into trading limericks. Abigail Doolittle is tracking all those moves. Abigail Alex trying is the key word. The S&P 500 off the lows but nonetheless deeply in the red down about 2
percent again though off the lows and NASDAQ 100 doing worse than three point two percent. Before taking a look at the social media tech drags. Let's take a look at the Haven bid because some investors are taking this selling in stocks after two updates for the S&P 500 very seriously. You can see a big bid for bonds that 10 year yield in 12 basis points. The yen rallying against the dollar by more than 1 percent. So again this is a classic Rick Rascoff days a day with stocks lower in Haven assets higher. As for the chance of whether or not we see a move higher. Who knows. Anything is possible in this
environment. But one thing that we do know this years it's very difficult for the bulls to keep it together because every time that there's been a 1 percent up rally generally there's a not so great rally reaction to the downside. Some of the bigger declines back in late April early May. Sharp sharp declines. And then of course last week down 4 percent after a decent rally. Right now we are looking at the possibility of an even bigger decline than that one point seven percent. This was put together a little while ago. As for the cause behind all of this it has everything to do with snaps bearish preannouncement to the
downside. Talking about the macro economic environment you can see that this stock down an amazing thirty nine point five percent off of the lows a little bit. But nonetheless the worst day on record and also very dramatic about it is just a month ago they put up a solid quarter that they were not talking about this macro economic weakness having to do with inflation rising interest costs a Ukraine war. So a very sudden deterioration in the ad spending of corporations out there. When you put that
together with the fact that Metta earlier this year down nine point three percent said that Facebook users that they are having a harder time attracting them. It's a double whammy because it's both the users and the corporations relative to the ads. You can see the big weakness here also for Alphabet and Amazon one of the keys for the market of course all of these mega weights. But I would always love to look at the Apple chart to see what's happening here. And this is a critical critical chart. This is the weekly chart of Apple. First of all you can see this beautiful uptrend over the last 10 years or so. And you can also see that when it typically goes below the 50 week moving average it tends to catch some support on the 100 week moving average. That's exactly where we're at right now. Apple right now is above that 100 week moving average. Telling you that the intermediate the serious buyers the intermediate term and serious buyers they're hanging on. They like this stock
right now. So guy this is 12 percent of the Nasdaq 100. I think about 8 percent of S&P 500. If the apple buyers hold in here. It suggests that maybe there's some kind of floor for the market. Of course we've been looking for this near term bounce and it really hasn't developed. But this is a very positive sign or at least a supportive sign for the markets with all of this
fluctuation and volatility. I think these markets need all the help they can get. Abigail thank you very much indeed. And positive noises at least on one stock. Abigail Doolittle Thank you. Let's turn back to the macro which looks pretty ugly right now. The US apparently on the verge of stagflation. And the markets are under discounting gains in consumer prices. This all according to Bob Prince of Bridgewater Associates. That's the latest grim warning about the
risks that we are seeing for this global economy. At the World Economic Forum in Davos Prince spoke to Bloomberg's Tom Keene and Lisa Abramowicz. We think we're in a monetary inflation which is a very different animal than what we've experienced in the last couple of decades. Recent inflation has a cyclical inflation is when you get a pop in the economy pushes up against capacity constraints inflation goes up but money and credit are under control. This is a monetary inflation more like the 70s. It was. It was triggered by the
massive injection of money and credit by that by policy which is now created a self default a self reinforcing process. Very high levels of nominal spending 10 percent nominal GDP growth. I mean it's a long time since we've seen high nominal GDP growth. Right. So. So there are things happening now that people are not used to because we haven't we haven't seen these dynamics for a long time. But the result of a monetary inflation is high nominal GDP growth and then that gets absorbed by prices. And so you get low real growth. Right. And that produces stagflation which creates a very difficult policy choice. So do you think
that the US is facing stagflation. We're headed toward it. Yeah in the near term in the next twelve months we're headed toward game. That looks like we are. You are. You know we're on the cusp of it. Yeah. And it's now it's. How do you define stagflation. There'll be different ways. But basically what's the way we look at stagflation is in terms of how it affects markets. And the way it affects markets is if the inflation rate is higher than discounted and the growth rate is lower than discounted. And we're in a situation right now where there's a very low inflation rate discounted. Therefore it's easier easy
to be above that. And we've got a high growth rate discount. Therefore it's easy to be below that. So relative to what's discounted we could very easily be into this very quickly. What is the macro call right now for you and Mr. Dell. Well our whole team you know we shouldn't just as soon as we recall that the markets are under discounting. This the inflation picture that the sustainability this self reinforcing of the inflation is not discounted. The degree of tightening over time is not discounted. And I think within the stock market different even different types of companies and how they benefit or are hurt by a high nominal GDP rising interest rate environment. It's a it's a unique environment. They have to you can't just take the average of the stock market. You have to go inside it. That was Bob Prinze Bridgewater Associates co CIO ISE speaking
with Lease and Tom over at Davos. And you can see that really reflected in the markets as well as you see company. If your company have to rethink their margin guidance and not taking down their share prices and that taking down the overall market. The S&P holding onto the lows but nonetheless still up by full 2 percentage points. Tech getting hit the hardest down by 3 percent. The reason why that's also interesting is because you're getting a huge move into the bond market. So yields coming lower. But so as tech as well flip up the board and you can see kind of what is leading the decline. We know it. It's snap. You got met. You got Google. All of those companies that are ad based are going to be getting hit on this next leg lower
of the margin recalibration and the economic data. As we saw earlier with the Richmond Fed index rolling over you have U.S. services and manufacturing PMI rolling over. We'll get your trade on this volatile market day. This is Bloomberg. This is Bloomberg Markets ISE could get. You're looking at a live shot of the principal room coming up. Ron Kaufman the Petco CEO joining Bloomberg Television 2:00 p.m. New York Time. This is Glenn Beck.
For the moment we are not seeing a recession in the euro area. Clearly the economy is starting to weaken. Really. To me it comes down to inflation. Supply shocks demand shocks all together mixed in one. Of course it is unclear at this moment in time we may see prices even going CAC be much more volatile and becoming a major risk for recession for the global economy. I worry that a recession eurozone and European Union will not go into recession. There will be a slowdown. But you know labor markets are so tight there is now an increased risk of recession. But we do not anticipate a global recession. World leaders there weighing in on the recession risk from the World Economic Forum at Davos. Get right to this market. Sell off
here. The S&P down by two point two percent. Try to find a bottom here. Chris Murphy says behind a financial group. Cohan during his strategy joins us now. You can't really see a Chris but the first gap Laura was definitely the snap situation as we opened lower. The second gap was the economic data that we got out right before 10:00 a.m. which showed that services and manufacturing rolling over new home sales. Really terrible. What do you what's the low here. Hey how you guys do it. Well you know I would I've been pointing out we have not even had an S&P close to close bear market of 20
percent. That's thirty eight. Thirty seven and a quarter. So that's obviously going to be something that we're most likely heading towards at some point. We've had a couple of bear market bounces to interrupt us but we really just had much more of an orderly sell off as is growth is being repriced due to the Fed and things like that. You know VIX at 30 S&P realized volatility how much it's moving also at 30. We're going to want to see that higher before we can feel comfortable about a bottom for this. Chris how much higher do we need to see VIX in the mid 40s before we kind of realize that things are really breaking here. If you look back historically at a lot of the other times that would be correct. Yeah. VIX around around the 40s you know and
that's when some new uncertainty would be introduced. We know we have kind of had an orderly sell off. You know we're looking at inflation. Growth is being repriced. The Fed is coming back. A lot of things are known right now. You know for VIX to really pop. And also we're really not seeing very impressive just volumes in general. You see a lot of turnover. We need some
more. You know maybe another shoe to drop in terms of say the dollar in yields have both of those peaks now. You know it looks like they have you know as they become starting to become the traditional kind of risk havens. So that's obviously going to help the stock market and equities a little bit.
So that's a fair point. How much lower do we go. Do they increase. What does your gut tell you right now. We went into the pandemic at around what thirty eight hundred thirty nine hundred on the S&P. We're still trading way above that. We're at all right. I get my numbers right. We went in just below 30 400. We're now trading at thirty
eight hundred. Do we need to unwind the post pandemic gains for this market to kind of at least assert some sort of normality. You know I don't think so. I'm still going to focus more on because that's what I look at the VIX and volatility levels. But in terms of an S&P move if you look at the 2013 parallel and the 2011 parallel you know you're a little more than 20 percent. So we're not that far off. A Covid was obviously a different story but it was also very fast. That's just assuming that the high
end of the inflation tail is off the. You know is off the menu. You know if that if inflation doesn't come down it continues to surge then you know certainly a lot lower. But I'm thinking more like twenty two to twenty five percent off the all time highs with the S&P. So it interesting is in the last week we saw some call buying come in the triple Q's which is basically a tech ETF. Right. And I'm wondering in terms of the options market what kind of positioning are you noticing particularly if you're
looking at the VIX and we're starting to position from more call. So we try to position for some more upside here as the positioning tool still kind of skewed. You know I think that Q's observation is a great observation and I kind of look at it like this. If you were to look at a call open interest in the Qs it's exploded and you're thinking wow
are people suddenly getting bullish here. I'm not sure. It's really that I think it might more be. Everybody has taken down their positions. Everybody is gross. And if you're an investment manager and you don't have a lot of upside exposure. The worst thing that could happen is your investors are mad at you on the downside because the market sold off and then they're even more mad at you on the upside. If we rip higher and who knows what's going to happen next. Right. So if you don't have those upside calls on you're setting yourself up for a potential bad situation. If we do indeed rip higher in the second half of the year. What are you seeing in single stocks are you getting some really big names at the moment Chris moving around aggressively. Do we need to see are we going to see more single stop flights.
I wonder where they're kind of the epicenter of this is is it in kind of in single stocks. Is it at an index level. Where do you see the biggest kind of moves right now. And how should we how should we think about those moves and the signal we get from them. In terms of the signal in terms of a bottom signal I'm really looking at the index level of continuing to see broad everything selling off. We did see that in the consumer staples last week. That was maybe a sign we're getting closer towards the end on the equity level. You know all those high growth tech names have
already gotten hit so so hard. I'm not sure what you're taking out of them right now. We're actually seeing a fair amount of volatility selling in some of the larger cap names you know even Wal-Mart after last week. Citi call selling after the big move in the banks yesterday. So we're still seeing some selective call selling in the individual names for people with a little
bit of a longer term view. You mentioned dabbling into some call options to not miss any rep to the upside when you see upside. How do you measure whether it's just like a rally in a bear market sell off or for actually having something a little bit more substantial. You know I'm just gonna go back to. We're not seeing much volume and turnover just in general. We're not seeing a real spike in VIX fixed term structure realized volatility for the S&P. So until we see that odds are it's a bear market bounce. OK. In terms of the mix of institutional versus retail what are you seeing right now. Chris.
You know two thousand twenty one if you guys remember we were talking so much about the small lot called buying all that activity. The meme stocks etc. you know we're really not seeing much of that right now. We're seeing more institutional. And if you were to look at you know expiring positions let's say may expiration that we just passed we saw a lot more positions in index and ETF s than we have been seeing over the last couple of years and less you know still a lot of positions but less of an extreme increase in the equity level. So it's really a sign that the maybe institutional players whether it's hedging or those upside calls in the queues they're getting more involved. It's obviously much more of a focus on the macro right now compared to 2021 when we were more focused on the micro. And before we let you go I want to point out S&P is now in close the session down two point two or thirty eight eighty four NASDAQ one hundred down by three point three percent. So it is getting
relatively ugly out there. Chris I know you're a derivatives guy when you come in the morning. What do you look for. What's going to be another catalyst here. We weren't really expecting snap earnings last night to be that catalyst. What are you watching. You know you just just you just said the snap snap being the catalyst. Obviously that's not good for sentiment. But if you think of SNAP for example that's in. It's not even in the SLC which is the communications ETF. So I think we're going to see
these moves that are we're going to try to pin a reason on them. But it's really just the market that we're in the volatility that we're seeing when I come in the morning. I'm just looking at the VIX and the volatility the structure of that. You know that's kind of the first thing that I would look at to start to wonder if we're getting close. Chris thanks for jumping in. Really appreciate it. On a busy day like today Chris Murphy has kind of financial group CO had a derivative strategy sir. Thank you very much indeed. Glencore stop on the move right now. Bloomberg now reporting that we are
going to see a settlement with U.S. and U.K. authorities into alleged wrongdoing by the commodity trader. Looks like potentially we could see some sort of a press conference a little bit later on today. U.S. Attorney General Merrick Garland hosting a press conference this afternoon to 30 p.m. in Washington. It's on quote unspecified foreign corrupt practices act and market manipulation matters. So it looks like we are seeing some sort of news on Glencore going to come out a little bit later on. The stock was up a little bit more just a moment ago. Up 5 percent were still up over 2 percent. This is
Bloomberg. Keeping you up to date with news from around the world here's the best light armored you can get to a European Central Bank president. Christine Lagarde rejects the idea that the euro area is heading for a recession. The boss spoke to Glenn Beck in an exclusive interview at Davos. We have the negative the adverse the know various alternatives there. On the basis of hypotheticals such as boycott of oil interruption of gas supply that clearly ruled out a significant impact on the economy. For the moment we are not seeing a recession in the euro. God spoke a day after
laying out her vision for the ECB. Next steps it's likely to exit negative interest rates by the end of the third quarter. In Russia Opposition Leader Alexei Navalny has lost his appeal against a new nine year prison sentence. He'll be transferred to a high security prison that supporters say is aimed at isolating Vladimir Putin's top critic even further. Navalny was convicted in March of fraud and contempt of court. American households are about to get some unwelcome mail. Some of the highest power bills they've seen residential electricity rates are poised to climb even higher this summer. It's a combination of tight supplies of natural gas and coal. Drought in the West and a nationwide forecast for extreme heat. Barclays
estimates monthly bills will be more than 40 percent higher than last year's global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more. One hundred and twenty countries I could get to. This is the index Alix Steel. All right. Thanks so much Riddick. So at Guy that's gonna be pretty severe if you raise those power prices here in New York over the weekend it was 90 degrees Fahrenheit. That's about like 32 degrees Celsius before Memorial Day which is nuts. And you get like you know 300 400 500 all our monthly
power bills. That's what that's going to really dent. We were able to spend on other stuff. Well that's what you're beginning to see. This coastal living squeeze is manifesting itself around the world. The U.S. in the U.K. essentially see Europe holding up at the moment. I think if we were paying top trumps I'd win this round because here in the UK our bills are going to be going up even more. So we've already had a near doubling of energy bills. And it was
announced today by off Jim. It was there were indications from Gem the regulator here that they're going to go up another 42 percent in October. That means in a year we're up nearly 100 percent. Alex. Is all for people if it feels like they have exactly that. The tide is rising and as somebody said in one of the articles I
read this morning it's going to cause people to drown. Now obviously not physically but I think the the financial stress is going to overwhelm people and it's going to cause the government to have to do much much more. There's a huge conversation here in the U.K. about whether or not we should be having some sort of a windfall tax. Look at what is happening with Drax today S.E.C.. Those prices are sharply lower because there is an expectation that the generators are going to get tax as a result of this but I'm not sure how that works. The long term contract story is really difficult to untangle. Plus you're asking these
guys to invest more in the grid. It's a really difficult difficult one to manage. I don't know whether that Ofgem story is designed to prevent a windfall tax or encourage a windfall tax. And I also wondered too if you want to tying it then to the manufacturing and services data that we wind up seeing is factories at some point might have to stop. Like you can't afford your power bill or if there's literally not enough power to get to you. Either one you stop operating and what's the knock on effect of that. So the numbers we got today about how much pricing power how much pricing power do you have. Can you pass on prices. The top line is going to be this is we're seeing this time and time again though aren't we. We're having an
inflationary world. Of course the top line is going to be moving along quite nicely. But the middle of the PML is where the pain is felt because that's where you take your costs. Profitability gets hit. That is that is the new leg of this. You would expect that actually the top line would continue to do really well. You've got to have pricing power. We don't have pricing power.
You are going to see reactions like the one we're seeing in Instinet today. And that's where that's where it gets ugly. To say the least. We'll carry on the conversation the next hour. Europe is by no means immune to this. The PMI data today out of the eurozone oil services I thought held up quite well. But for how long. The U.K. absolutely trashed Alex. Chris Williamson IHS market chief business economist is going to be joining us next to walk us through the data and give us an idea of what it ultimately needs. Equity markets are certainly under pressure. The European close is coming next. This is Bloomberg.
2022-05-26 20:55
