Bloomberg Markets Full Show (05/26/2020)

Bloomberg Markets Full Show (05/26/2020)

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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 this Thursday May 26. Here are the top market stories that we're following for you at this hour. Rod comes record tech deal. The chip maker offers sixty one billion from VM where 44 percent premium plus a go

shop period in a monster tech deal. And you got marvelous Macy's versus negative. In video the retailer bucked the trend raises its profit forecast while on video delivers a bleak outlook. We break down the bottom line on earnings. And the UK is windfall tax. Energy firms face a 25 percent tax on profits. They don't invest to help people pay their energy bills. Power generators now could be next. We're going to speak to Nigel Wilson CEO of Legal and general from New York. I'm Alix Steel my host in London Guy Johnson. Welcome to Bloomberg Markets. Guy I feel like we're learning nuances in the economy. There are some strong spots.

Some areas have pricing power. Retail and consumer can still be strong whereas housing inflation those are the darker spots. Absolutely. People are having to pay their staff more. That is hurting the middle of the piano. That's hurting margins. But Macy's is a really interesting one today. We'll get on and talk about this in just a moment. But Macy's as far as I can tell is the going out trade. That's what I'm getting here. People are going out. It's reopened. I'm feeling a reopening

part. Exactly. So how long does this last. And and is that message actually incredibly rearview mirror. This summer is going to be great. You look at what you look at what Southwest had to say today the quote JetBlue had to say today it is going to be an amazing summer out there. People are going to be partying.

They're going to be getting on airplanes. It's going to be fantastic. Not sure what happens after that. Yeah I don't know. Guys talking about us. I think you know. But yeah you know it's not you and me but other people. Yeah. We've got the beginning of a good summer. But other people are going to be doing these things. They're gonna be buying great outfits. They're gonna be partying. They're going to be getting on planes. Let's talk about the data. I like to start off on a bright note today. Pending home sales month a month a little worse than anticipated negative three point nine percent. That's the month or month number. The last number was negative. One point two were

accelerating a little bit. The home sales on a non seasonally adjusted year on year basis down eleven point five percent. So negative data from the housing market to Alex's point which I think is definitely worth making. You've also got obviously a firm focus on what is happening with mortgage numbers right now. We'll continue to focus on what is happening there. We should have a headline that we just see if I can get you the headline. We'll come back to that in just a moment. Quite a headline yet. Let's talk about the earnings story that I want to focus on what is happening here. It's been a really mixed picture. So number of retailers out today with earnings. Macy's good.

Dollar General looking pretty good. Costco after the bell. Looking forward to see what Costco has to say. So this brings us basically to our question of the day. What is the bottom line for earnings. What are we learning here. Let's ask Bloomberg's European markets editor Christine Aquino who is in New York for three months. So I'm not sure the European tag really applies but we'll let that one go for the moment. And at Ludlow out in the West Coast Bloomberg Technology correspondent Ed I'm going to start with you. So I've got I've got a bunch of headlines on my screen. The first one is in video plunges. Lockdowns are horrible. Everything is grim. Nothing's good. I got another headline crossing on my Bloomberg screen

right now in video hit session highs. Right is in video. Good news or bad news. Yes. I can answer the question of the day by saying you know till last night investors had no tolerance for disappointment. You know they wanted to see the British outlook. We learned that lesson from Netflix which was the opposite. We learned that

lesson from SNAP when they revised their guidance in video. The thing is that in video the numbers in the quarter gone were very strong. You know the demand is there. They're talking about the chip demand being maintained at a time where other headwinds are really focused on the supply side. Right. They talked about five hundred million dollars of lost revenue in the quarter accounts coming from China lockdowns from the situation in Ukraine. But giving a signal of demand seems to be boosting this market.

I would say we're now flat on the stock. It's bouncing everything. I came here very prepared and in videos really just right now. The window. Yeah. Markets do that Christine. So let's talk about Ben and what Guy and I were mentioning at the top which is you know the bottom line for earnings. What are we really seeing is are we seeing a re-opening trade continuing. So like the stay at home stocks they get hit. They need a super solid outlook. The reopening trades. They have more leeway. Absolutely Alex. And I think you know this is a story that will keep unfolding as we emerge from that pandemic era to the post pandemic era. Right. And I can personally attest to what God was saying especially being a visitor here to New York. You know

people are going out there going out to shops to buy more stuff and buy more clothes and preparing for their summer holidays. You definitely get that feeling that the city is back. I think very similar to the way that London was just a few months ago. I mean we do know that the UK and Europe in general a few months ahead of the curve when it comes to reopening and all that from the US. And so we're really just now seeing this activity pickup in the US and just in time for that very crucial summer holiday where a lot of retailers and a lot of travel related companies very much leaning on that season. It's kind of revived demand. It's gonna be very interesting. You know I think the question that guy's asking is very much relevant. How much of this the

activity pickup that we're seeing now is going to be enough to sustain the all these kind of consumer geared companies moving forward. I think we should we should stop the show now and figure out a way. Christine's going out and be where she's shopping but maybe we'll have to park that for another day. Probably blooming Christine. Well next door. So that's that's a pretty good pretty good starting point isn't it. Christine let's talk about the state of the consumer because I think this is what we're trying to figure out and that by extension takes us to the labor market as well. What I've heard this week from Davos has been a bunch of banking CEOs telling me that they could see was in good shape. Bank balances are in good shape. I'm also looking at a labor market that is in good shape. The debates of the moment is about whether or not we're going to get a recession with the consumer in such good shape with the labor market in such good shape. Are we going to get a recession and how does that recession start to develop if we are going to

get it. Does it come from the consumer this time or does it come from somewhere else. Does it come from corporate profitability. That's a really interesting question guy. I mean as you're saying you know the consumer is showing signs of strength. But I do of course wonder how behind the curve they are in terms of kind of really experiencing the inflationary pressures that are coming through. Again you know we have seen a little bit of tightening in financial conditions in the economy that's for sure. But perhaps there's a bit of a delay in that actually flowing through. I think also something to keep in mind is the

fact that we really haven't seen yet the full brunt of the Fed's quantitative tightening process. Right. Yes. We have seen those rate hikes coming through but we haven't seen the balance sheet run of process really starting. That's about to come through in June. And so the question for me is if we have that secondary and potentially also very important lever policy lever from the Fed coming through simultaneously with rate hikes is that really going to create a much bigger impact for it for the consumer. But also how quickly is that going to remedy the inflationary pressures that we are seeing in the economy right now. I think a

lot of these questions still very much unanswered. And for sure the consumer sentiment is going to be tested this summer. Again that demand that pickup in activity coming up against this wall of the Fed pulling back support is going to be very interesting. And I think we'll have more answers. A couple of months into the summer for sure. Right. And as we think about the consumer I just want to think quickly about Ukraine the war in Ukraine because if there's commonality between corporate America corporate Europe what you see creeping into the boiler plate beginning of earnings season to what's in the lead paragraph of the earnings statement it's that the war in Ukraine has impacted demand consumer sentiment on the continent particularly in that kind of core and Eastern Europe. But here in the U.S. as well and companies have been very quick to say we're worried about this not just because of its effects on inflation globally but because of the demand side as well. Is it the demand side though. Ed. I'm thinking about the kind of companies you cover Apple Pay people more. Right. Middle of the middle of the PML

again being hit. This is a margin story. We talk about a recession but is it gonna be a profits recession. Well I'm just thinking ISE feels very corporate at the moment. I woke up to a very worrying story a big Bloomberg scoop. According to sources Apple telling its suppliers to build 220 million handsets. The market looking for 240. That's the story. You don't want to wake up to the Bloomberg because it tells you that they're worried about demand but they're also worried about supply. Right.

There's money. There's an element of money left on the table because you're not able to make sales because this supply chain disruption. But you're also hearing that in that tone to suppliers they're not hugely confident that growth will be robust this year. Right. Because they already bought all our phones during lockdowns and now are going on buying wedding

dresses. So I feel like it's all part of that shifting demand story. Guys thanks a lot. Really good conversation. Bloomberg's Christine Aquino and Ed Ludlow thank you both very much. Well coming up Delta just said it's reducing service by about one hundred daily flights from July 1st to August 7. Now our next guest is actually betting on travel and leisure. Lisa Levine the Mountain Wealth Management head of equities will be joining us next. This is Bloomberg. There is still quite a challenging environment and I think we probably got another two quarters at least of volatility as we see this economic backdrop gradually ease a little bit and then we'll be looking towards the fourth quarter maybe to see a little more clarity. That was Fidelity International CEO Ann Richards from Davos. And our Question of the Day now what's the

bottom line for earnings. Want to get more on this with Alicia Levine. B NY Mellon Wealth Management. Head of Equities and Capital Markets Advisory. Alicia. What is it. Answer the question. Would you think so. So we think earnings probably have to come down from here because we think the margins are really unsustainably high. Their record high margins thirteen point four percent in the fourth quarter saying pretty high this quarter. And you could just see where the commentary is going on supply chain and in the impact of inflation. So margins are going to come down. And what the market's really been grappling with the last couple of weeks is the E on the P E their earnings component. And it's likely that earnings have to soften from

here. So I don't think that two fifty three for next year is really realistic. When you think about where the real economy is going and some of the data we've seen. Where does that leave the market. So the market is let's talk about multiple for a second. So the multiple has rapidly compressed from about twenty one point five times to sixteen point five times in a mere four and a half months which is why this has felt so terrible. But it has done so with earnings staying steady and even moving up as a result of the Q1 earnings season. So we've done it all multiples. If that's the case then

you can find a bottom here. The question is if earnings are moving lower because the real economy is slowing and let's face it you don't have to call it a recession. A slowdown is enough to bring earnings lower. That's what the market's going to trade on. If learning's earnings are going to move lower than the market's going to find another foot lower from here before it

can really stabilize. So to that point at least the narrative then that we're still in a re-opening trade. So I hear you on the multiples I hear you on the earnings and the margin pressure has to come down. But Macy's didn't have any margin pressure. Their margins were better. Dollar Tree Dollar Store same thing. I mean we just actually in the middle of rotation still and a reopening. So we're still in that rotation from goods to services. You can't

get around the fact that inventories are building on the good side as sales are coming down. And you really saw it in the big box retailers which is why you've had that huge reaction to Wal-Mart and Target earnings simply because those are the the stores that that feed and clothe and sell to America a little bit to the low end. So they're definitely feeling it there. The services component is still very strong. So the companies that service whether it's vacations or travel or leisure those will be really strong. This big gotten hit in this market because of the fear of the recession. But we actually think the share of

wallet will be going to those services. That trade is still there and it's been there for six months. What happens in the next six months though. I spend a lot of time talking to airline CEOs. They are super optimistic about this summer. They can see what's coming. Everybody wants to travel. Everybody wants the policy. We're good to go. The problem comes as we go into the winter. They have no visibility. They're quite nervous. They think this is going to be a flash in the pan. This reopening trade that is still unfolding and it's going to unfold this summer. The market is a discounting mechanism Malaysia. That's when do we start discounting and more difficult a difficult winter. Look I think that is actually the

best question out there because just as that stay at home trade and the pandemic winners turned out to be something of a parabola on demand you may see it on the reopening side as well. And the market will price it in beforehand. And so you're going to the key about this recovery in the last two years is that there has been a massive mismatch between supply and demand all over the place including probably in travel. So that should moderate as we go forward. And then the real question mark is what happens the second half of the year to the real economy led by housing which looks like it could start being in a slowdown.

Not clear yet. But you know if you start seeing housing numbers and homebuilder sentiment move lower then that's going to tell you that the real economy. That's that's the tip of the spear on lower economic activity for the real economy. But did the chances of a soft landing just increase with the Fed minutes yesterday. If we are able to execute as the Fed executes a soft landing does that narrative get extended. So it's really fascinating you're talking about that because the bond

volatility has really declined in the last few weeks. And as you know the two year yield has come down because the market's starting to price in with a slow down in the real economy and a greater probability of recession. The Fed is going to have to slow a little bit. So if that's the case then to that extent which is our base case scenario you do get a soft landing. It's very possible. But the market the equity market can't stabilize it until stabilizes until the bond market stabilizes. So you

really want to see the two year kind of hang out here for a while and not start spiking higher. Of course we're gonna get PCI data tomorrow. That should be a really important piece of information. And then the rest of it is to see if that those goods the inflation on the good side which which is what general inflation originally starts to come down. That's the key to this. If not the Fed's got to go hard. What do I want to own. If we're starting to stabilize the leadership. Look I think it's too early to leg into tech. To be frank I think that the waterfall declines we've seen are

troubling. Technically they look tough here. We are overweight on health care. We are overweight utilities. We'd like select staples tobacco beverages. We're really we're really playing the slow down playbook here for now simply because we don't think those multiples are going to hold and we think the earnings have to come down. I'll tell you this once earnings start coming down

we'd be buyers of this market. I think that's where you can turn. As you said Guy the market anticipates. And as soon as those numbers come down then you're free to go back up again. But until that happens there's going to be a reluctance to step in front of it. Before I let you go. Citigroup strategist had a note that says it's time to buy the dip in stocks. And they're saying look you can't stomach us. You can buy the dip in Europe in emerging markets. Would you agree with that sentiment. I would not. I mean we are overweight U.S. compared to Europe in emerging markets. You know the ground zero for the slowdown on the supply and the demand side is China that the zero Covid policy won't work and it will be a struggle to come out of it and be a struggle to maintain the disease level there. So we're troubled with emerging markets. Obviously the commodity

exporters are doing much better. So you have to play that with active management. And Europe looks like it's headed into a recession a real stag stagflation free environment with higher energy higher food prices and lower activity. So I think still the U.S. is the best place to go from here. Now that the multiples have come down. If I were choosing I would choose the U.S. market over overseas markets. Felicia great to see you. Great to see you in the studio. Thanks for stopping by. So good. We really appreciate it. Thank you. Fantastic. Alicia Levine a Bank of New York Mellon Wealth

Management. Thank you very much indeed. What are we gonna do next in video. Stock rebounding a little despite that apparently disappointing earnings report. We're gonna break it down next. This is Bloomberg. If a powerful rally underway here particularly in tech and part of that is in video. Shares are recovering after the largest U.S. chip maker missed revenue forecasts in the second quarter. It also said the lockdowns in the war in Ukraine weighed on its sales forecast. Typically that would be bad for a stock. But more on this is Mandy saying a Bloomberg intelligence and Mandy

earlier in premarket. We were down hard foreign video. Why the turnaround. I think no one is clear yet in terms of what sort of deceleration we are going to see on the gaming side. That's the point of concern. The data center side remains strong and in video said last night they have good visibility in the data center. You know chip demand but gaming side. Look I think it's a toss in terms of you know there are some positive drivers but

then you see consumers pulling back and then the consumer device shipments slowed down. That will hurt and video. So I don't think the market is clear yet in terms of what sort of deceleration we are going to see. But clearly data that was very strong and you know hyperscale cloud continues to be a big driver for all the semi guys. They are making all of these data centers you know for migrating the workloads. And I think that's going to last for at least three four years. So we are going to

see a slowdown on that front. Mandy how exposed. I know they're exposed to gaming and and the chips are often interchangeable in some ways between gaming and crypto. What is happening in those two separate markets right now. Yeah so we know crypto is really going through a testing period and there is a lot of volatility and there has been demand destruction on the crypto side. You can see that in the open market. The chips that is piece of some of them video chips have come down but gaming is a long term. I do think you know a company like Facebook spending you know 30 billion dollars in CapEx and a lot of that is geared towards building the network.

That's a long term driver on the gaming side and it's coming from the hyperscale cloud vendors. So that's why I think that side of the demand continues to show good visibility. It's the consumer pockets there you know. Yes. The Bitcoin prices and some of the cryptocurrency prices taking a nosedive will have an impact on on the chip demand as well. So let's do the supply side for just another second here. Let's pretend that China reopens all of a sudden tomorrow and there's no more zero lockdown policy. How quickly can in video kind of take advantage of that. Like what. What could the potential tail

a tail risk me. Yeah. So there is clearly some pent up demand when it comes to China particularly. I think the Russia revenues probably lost revenue at this point of time. But and videos whole thing is they want to bundle software with their chips and they called out automotive last night as a big potential driver. They have eleven billion dollars in design wins. Now it hasn't translated into revenue. So that is where they could see some upside. But it's still you know of maybe a couple of years out. I don't think you are going to see in the next couple of quarters.

Can I just bring in the Broadcom VM where deal into this conversation. Chips. Chips generally really cyclical. The Broadcom deal is effectively going to make them 50 chips 50 software an and. And I'm wondering whether or not that's an indication as well as to maybe there's a rig kind of reawakening of the idea that ultimately this industry is still cyclical. I heard the VW boss earlier on talking about the fact that we're starting to see signs maybe of the super tight market beginning to ease. How quickly can Michael reassert itself here. Mandate. No you're right. So clearly I think video has that risk. The what and video have done well is lid on software on top of their GP use

and some of the newer chips. And they keep touting the fact that even though they're not charging for the software right now they have the potential to charge no license fee later on. And look they were looking to buy arms. So that was a 40 billion dollar deal that didn't go through. But really and video its strong balance sheet will look to add on either you know more companies

on the chip side to fill the functionality gap. I gave you potentially software Monday. Great catch up. Thanks very much indeed. Steve Singer Bloomberg Intelligence visibly but. But as far as the cost is concerned we had a kind of perfect storm. Because it's not only the coffee due to climate change and you have packaging due to the general situation and then you have energy as a consequence of the war and then you have shipping costs as a consequence of the economy. Let's say logistic you sick it either. The cafe chairman speaking earlier with Bloomberg Television at the World Economic Forum in Davos. We are an hour into trading right here in the U.S. section. A rally underway in part led by the technology sector. Bloom is Abigail Doolittle is tracking some of those moves. San Miguel.

Hey Alex. Yeah. Lots of strength here. The S&P 500 up one point five percent. The Nasdaq 100 up even more up one point eight percent to Alex's point on tech strength. If we take a look at bonds not doing all that much but we do have the 10 year yield in ever so slightly. So a small move that move there and then oil up three point two percent. Oil of course a risk asset traditionally. So today it seems as though investors are taking it as more of a risk on sign as opposed to an inflationary. Now if we flip up the board we are going to take a look at some of the other. We're going to take a look here at the idea that the volatility is coming in a little bit while we're taking a look at here in Orange is the VIX. That

is of course stock volatility in white the move index bond volatility. And back in March you can see both toward a peak to some degree and then have come in in in one reason with the VIX coming down back in to think that it hasn't taken out that last high. It suggests that maybe again that there could be some sort of a bear market rally. You can see it doesn't show quite as well here but definitely lower than the march try. So the fear the uncertainty coming into some degree that means we have possibly the first up week in eight weeks for stocks. These of course are the weekly gains and losses for the major indexes here in the US. The S&P 500 a brutal stretch of seven down weeks in a row the longest since 2001. And now we have big big gains. What is it reflecting. Lots of different factors. But of course yesterday the Fed talked

about flexibility later in the year given the fact that they have been so aggressive so far and plan to be I guess for the beginning part of the year in the mid half here. And then finally another driver for stocks being higher. And it's so interesting guy because of course last week it was all doom and gloom around retail. Take a look at this screen. Not so much. Macy's up fourteen point two percent. They beat they raised on special occasion addresses but also Bloomingdale's and Blue Mercury. That's very consistent with Nordstrom. They own those brands. Higher end to the high end retail consumer really still pretty strong. Williams-Sonoma also a nice quarter up eleven point one. And then put this together guy if we take a look at the discount retailers. Dollar General and Dollar Tree both of these companies their stocks clearly soaring. And all of

these stocks had been down last week in sympathy with retail. So you see a nice bounce back but net sales for both of those discount retailers up mid single digits. So a very different picture than what we saw. And it seems as though some of these retailers do know how to manage inflation. So more information needed. But today definitely a bit of a risk on feel.

It's only getting better at managing inventory. That's for certain. Abigail thank you very much indeed. Interesting. We're also of course going into a long weekend in the United States Memorial Day without the end of the month. So just maybe there's a little bit of positioning today as well into both those those two events. But the retail story is definitely front and center

today. And as Abigail was saying a fairly positive one at the upper end of the income bracket. Bloomberg's Caroline Hyde just had a phone interview with Macy's CEO Jeff Guinn that he told her the consumer is healthy and they have more active customers compared to a year ago. Let's talk more about Macy's. Stephanie Seeing Jeffries senior analyst joining us now. She has a buy rating on the stock 40 dollar price tag. Let's talk a little bit about this set of numbers. They were good. This is clearly a company that is enjoying the post pandemic bounce. How sustainable is it. What are we getting in

these numbers that tell us the answer to that question. Yeah it's great to be here. Thank you for having me. So I think this is a really important diagnostic event for Macy's not only for the consumer but also for their business portfolio and for some of their strategic actions. So the portfolio from a performance perspective as you mentioned Bloomingdale's was really the shining star at 28 percent. The overall business up about 13 percent on a comp basis. That was just a little bit below consensus. But I think again the composition indicating that that upper end consumer is holding very very strongly. The other thing I think they need and deserve credit for is that they have done an exceptional job of putting stronger processes and controls into this business. And so that the inventory is very much in check. This is not the case that we saw last week which I think created a lot of consternation in the market for Macy's. The inventory was up about 17 percent their sales up

about 14. So it's moving really really closely. They do have some pockets. They did admit to some of the Covid benefiting categories. They're going to see some markdowns in the second quarter. But the counterpoint to that is occasion based Barrett work based apparel working really well for them. So Stephanie I does feel like that the narrative is that it's still the reopening trade right. Like Target Wal-Mart. We're totally Covid beneficiaries. And now it's about reopening. How long are we opening. Less. Like you're only going to buy X amount of work clothes. You're only going to go to get by X amount of wedding dresses. I think it's a fair question. It was one of the things that we

wanted to unpack a little bit more with them in terms of the durability of some of these drivers. Weddings tend to be a summer season affair. And so if that's what's driving some of the occasion base where that's going to fade out as we get into the back half. But I think going back to their ability to manage into inventory control it means that the risk profile for the back to school in the holiday season is just not going to be as extreme. So from a performance perspective across the piano. Yes sales may slow and the guidance would imply that they will as we get into the back half. But the ISE expansion that this company has delivered is substantially better than anyone expecting.

I also think today and I don't like to get into an arm wrestling match with that with investors on department stores but I think these department stores as a collective are showing that they are survivors. I mean Macy's put up one of the strongest operating margins across the entire group 9 percent operating margins in the quarter. This is not a business that's on the brink of bankruptcy. So I think we also have to recognize that consumers still still do

shop these venues. And these companies are putting up fighting to make sure the game. Stepping we just talk about the margin story just for a moment. These are companies that have invested in inventory management. These are companies that have invested significantly in their back office. They are running their business leaner and meaner. As you say the jinx are up. We're getting. I'm going to whisper this because Alix Steel

isn't gonna like it. We're getting fewer or fewer promotions. Is this now a new state of affairs. The consumer's got very used to this kind of promotional story discounting. Are we done with that. I think so I mean I facetiously said to the management team just a few moments ago that the Macy's one day sale is no more because it was becoming every day. And so when it happens you know that it's going to be very isolated and tactical. And so I think they are they're winning the consumer off of this idea that every day you go into Macy's you're going to get a discount. But I also think they're being much more proactive about their point of view. And I think it comes together. You're

making more strategic decisions around inventory not just buying an inventory to have it but being very disciplined about what you buy when you flow it and how you price it. And not getting into this promotion analogy constantly where you actually train your consumer to only buy on discounts. I think you're doing a good job of navigating that finer points of offering value but not creating dependency on discounts. So dirty little secret. I only buy on discounts I've had in our resort to sample sales because I will not buy full price and I cannot get decent discounts anywhere anymore. To your point

let's talk about the stock for one second. How much of the move can that we're seeing today. Can we attribute to the actual numbers versus hey these stocks got beaten up so badly after the Wal-Mart Target earnings fiasco that they're just making up a little bit of lost ground. Yeah I think it's we're just seeing a bit of a recovery in sentiment. I don't know that the operating margin at almost 9 percent is priced into this stopping. We're still seeing these stocks trade at. Bizarrely low multiples in my opinion these are not businesses

that are going to fail anytime soon. So I do think part of it is just that the sentiment reversion. But also if we start stepping back and looking at your cash flow working capital dynamics and the operating margin structures of these departments there is again the surviving class. I think you are seeing real business models here that should be valued. One final quick question. More of a macro question. What does this tell us about what these numbers tell us about what is happening with the consumer. I saw a pickup in credit card spending and I'm wondering if that is an indication that maybe actually the consumer is beginning to reliever or whether or not this is just a return to people just using their credit cards. They've got the cash balances to support those credit cards and therefore we're good.

Yeah I think this is a big question for us. When you look at the economic data it would suggest that the consumer is stable and that there is capacity to spend. But when you talk to business operators in the retail marketplace they're conscious of the fact the consumer is showing up feeling differently and purchase decisions are often made out of perception purchasing power and feeling not balance sheets. And so very few consumers go in and check their balance sheet statement when they're shopping around the store. Instead they're based on confidence. And so I think there's an element here of maybe the consumers starting to show that OK I made it through some of that hyper inflation. Boy I didn't like it but I survived it. I have some intentional

purchases to make. I'm going out to weddings and events and returning to the office. And so I need to update my wardrobe. So I think it's both confidence may be starting to stabilize composition of what they're buying. And then as we start to see some clarity around how the consumer is positioning for the back half maybe we get through and the consumer seems OK. I still don't think we're kind of back to the glory days of the stimulus proceeding. The consumer is not panicking. Yeah which is

certain. Yes. And tomorrow we get some personal spending data. We also get you more sentiments there. I mean another read through on the consumer there Stephanie. Thanks so much. Really appreciate it. Wonderful insights. Stephanie Resnick Nick Jefferies senior analyst. Thank you. Coming up we're going to stay with the

urgent mark the margin and also their earnings story and the demand story. Apple says it's going to start boosting pay to keep their employees happy but they may not need to make as many phone time of the demand. Destruction is kicking up a little. Dan ISE Wedbush Securities senior equity research analyst is on with us next about what it means for their bottom line. This is

Bloomberg. This is Bloomberg Markets could get to you're looking at a live shot of the principal room coming up. Steven WHITING Citi Global Wealth chief investment strategist joining Bloomberg Television through 6:00 PM York time. This is Bloomberg. Keeping you up to date with news from around the world here's the first word sure you could get to the UK will impose a so-called windfall tax on the profits of oil and gas companies to ease the cost of living crisis for the poorest residents the 25 per cent levy will raise about six point three billion dollars. It will pay for a one time grant of about one hundred twenty dollars to more than eight million low income households. Prime Minister Boris Johnson's government is under pressure to

help struggling. Britain's US corporate profits fell the most by the most in almost two years. The overall economy shrank in the period according to revised data. Inflation adjusted GDP decreased at a one point five percent annualized rate. Corporate profits decreased an annualized two point three percent from the prior quarter. The last year was the most profitable year for American corporations since 1950. In China Premier League Chan warned of dire consequences. Officials don't move decisively to prevent the economy from getting worse. Li told thousands of local officials a contraction in the second quarter must be

avoided. His comments were CAC more candid than the official readout published by government media companies 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 220 countries embers could get to. This is beanbag Alex. All right. Thanks so much Vertigo. Let's look at China for a moment. Secretary of State Tony Blinken is speaking right now on U.S. China relations trying to walk that fine line thing. The U.S. is determined to avoid a new Cold War with China and that they will shape strategic environment policy around Beijing and that the strategy towards China is invest align and compete and that they're ready to increase communication. Guy it's really about walking that fine line between pushing China but still maintaining that that friendship. Absolutely. This doesn't feel like the big kind of strategic shift argument that we've been hoping for in some way. I think I get some point that's going to

come. It's back to the Cold War its cannon its containment its rollback its all this kind of stuff is going to be RTS ultimately where Washington lands in this kind of reorientation when it comes to Asia. Asia obviously pivotal when it comes to corporate reporting season. We're watching so carefully at the moment. Ed Ludlow was saying that the news he saw first this morning was on Apple and it certainly casts a long shadow. Apple says it's not going to boost iPhone production as 2022 becomes more challenging for the smartphone industry. We've also seen reports that it could be going to be lifting wages as well circa

10 percent. Dan ISE Wedbush Securities managing director a senior equity research analyst joining us now to talk about this. He's got a buy rating at a 200 price target on Apple. Then in order to get to two hundred and we're around 140 now do we need to see China unlock. And is China a supply problem for Apple or is it a demand problem for Apple. I think it's both very narrow. I mean zero Covid has been a dark cloud over Apple. That's the 100 percent of iPhone production about 20 percent

demand. But with that said I mean RTX in Asia I think even what you're seeing in this report better than expected. It's holding up well in terms of what Apple sees. On the other side of this storm and I believe the stock is way overly discounting. Now what I believe is going to be much better news as we go out next six months. Nevertheless 141 it's hard for overall tech to bottom without Apple. Do you feel that Apple has bottomed here. I get the six to 12 months out. You're constructive for sure. But right now. Has it bottomed. Welcome to our viewers. And the video is bottoming and I think

we saw that this morning. And I believe Apple is basically bottom. I think right now expectations our numbers get cut anywhere between five to 10 percent. I think you're baking in a hard landing. You're big in 0. Covid basically continues for the rest of the year. If anything happens it just a little better than that which we believe just given what we see in demand. And I believe that we basically start a bottom here in Apple.

In terms of the margin story they're raising wages. Other companies are raising it ways. Raising wages as well. That seems hard to say right now. Dan. Is there going to be a margin hit here. And and given just the profitability given the top line is that something they can absorb relatively straightforwardly. Well I think they're a unique company that could pass price increases to the consumer with minimal churn. I think that that's what we see with iPhones coming out from the iPhone 14. But the biggest thing the biggest innovation is the chips. I

mean they right now or in the record system it's giving them a huge margin with enabling them to do things like cost increases raise wages make sure they keep developers. And that's why it's that Rock of Gibraltar and solve this. You've got a billion iPhones right now. You still have a quarter of them that have not upgraded three and a half years. That's why in our opinion this continues to be in these types of sell offs and the chaos. Apple's goal and the intern year. Hey Dan there's a headline that's crossing that's Microsoft's going to slow hiring in Windows Office teams groups. You've also seen the likes of like

list and some of the high flying tech companies. But a hiring freeze or wage freeze on what. What do you make of that. What is this just a tech thing. Is this going to spread to other sectors. Like what's your take. Well first of all why this was planned. I mean if you look what's a Microsoft I mean some of those areas they basically increased by 70 80 percent in terms of some pockets of cloud spending. So you just see a natural slowdown. Again many will yell fire in a crowded theater. But if you look ultimately at Microsoft the cloud storage we're still only a third of the way through in terms of this cloud chip. But these companies are starting to see some of those sort of headwinds. They're slowing

hired to make sure that they do not sort of wait to the game. And I think this is good. It conserves margins. And that's something right now in terms of what the street's baking and it goes back to expectations. Look in the video is a good example of and I believe those are signs that we'd start to get some sort of bottoming when it comes to tech. Dan how long do we stay down for that. That's the bigger question I think here. These companies have revalued lower. We we probably kind of got too far ahead of us. Overall skis we've come down we've come down pretty sharply. My question to you is why did they go back up again. Well I think first off I mean right now with Beacon it's a

Rubik's Cube Makar right from zero Covid horrific situation Ukraine inflation fed chasing after it. You start to get numbers in June that are what I believe as we go into earnings season slightly better than expectations in terms of where fear sells side brings down numbers which chop it across the board street goes to 2023 and it just comes down to if we have a mild recession then tech stocks rip from these levels. I believe you are baking in just Armageddon like expectations into some of these names. That's why when you have names like the video that have strong earnings well we're guidance and you start to the

stock trade up in my experience 20 plus years cover these tech stocks through recessions. That's where we start to get to some sure. Bombing. You're basing around that bottom. Hey damn fool I let you go. I just want to end on Twitter. So apparently Elon Musk is dropping plans to partially fund his purchase of Twitter with a margin loan. And I just wanted to understand what you understand from that doesn't mean he's going to walk away doesn't mean he feels super confident he can get a lower price. What was your takeaway from that. I think a slight percentage chance increase now goes up that he will do the Twitter deal but

it's still 50/50 in terms of the odds and I believe 54 20 there's a better chance me playing for Golden State Warriors in a playoff than that. So it's about is it a lower price for or does he walk away for the billion and Paul Sweeney fight. Twitter board in court. That's why the stocks traded. Thirty nine streets basically saying it's either a lower bid or he ultimately tries to walk away. A slight positive for Twitter but definitely many twists and turns ahead in this circus. Yes indeed. All right Dan thanks a lot. Appreciate the insight today. Good to have you on. Dan ISE Wedbush Securities managing

director and senior equity research analyst. Thanks very much. This is Bloomberg. So around 30 minutes away from the European close remember we are coming into a long weekend. The states are coming into the end of the month. Just factor that into your thinking right now. Stocks excited up by eight tenths of one percent. Retail is doing well. That could be down to the windfall tax story here in the UK. We'll talk more about that in a moment. But also the luxury stocks are having a very good day today. That feels like it's a read across in the Macy's story. We're talking

Bloomingdale's here. We're talking high end luxury. That feels like a logical line to draw. The euro trading with a 0 7 handle 1 0 7 0 9 were up by around three tenths of 1 percent. The cable rate though is notching a little lower where we're basically flat on the day. Big day out of the U.K. We've had the announcement of a windfall tax on energy companies. We've had

from the chancellor additional help coming through from the most stressed in society as a result of the cost of living squeeze. All of that coming together today in the European market. You can see it in the pound. You could see it in the footsie one. You can see it in the 250 as well. You can see it in the yield story right now. The question is is this going to be a short term benefit for the U.K. and a long term negative for the U.K. in terms of the investment narrative. You may like is going to

be joining us. He is the head of EMEA Oil and Gas Research front and center in this story. He is going to join us next from JP Morgan to give us his sense of what impact this is going to have on those sectors. But beyond the long term investment case around the UK see Michelle's is going to join us on the same question. This is Bloomberg.

2022-05-29 12:03

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