Bloomberg Markets Full Show (12/09/2021)
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 December 9th. Here the top market stories that we're following for you at this hour is a work from home or Davos the World Economic Forum set for Switzerland in January. Even though a macron is forcing more companies to revert to back to work from home and JNJ a management shake up the company overhauling its executive team before spring. It was before spinning off its consumer unit. We're gonna have an exclusive interview with the outgoing CEO Alex Gorski. And the dollar in demand. You got equities rolling over investors opting for bonds and the dollar.
Do you buy into this dollar dominance ahead of tomorrow's CPI. From New York. I'm Alix Steel my co-host for today. Dani Burger in London. Guy Johnson is on assignment. Welcome to Bloomberg Markets. So Danny you setting up your camera at home. I refuse to go back to work from home life. I could not handle that again. But you know the way things are headed it doesn't look like we're too far away from that in the UK. Boris Johnson telling everyone yesterday stay home if you can. Yeah. He's raised all the questions to like do we need to be worried again about economic growth. Would that be inflationary. What would that be. You get more government support. It raises
all those kind of questions. It does and you can see that play out in these equity markets not only is there not a lot of conviction in them but the latest Bloomberg survey of year and 2022 targets the second biggest gap in terms of where people expect us to go in 10 years. People just don't know direction wise where we're headed. Yep. Which equals volatility. Fun stuff. All right. Well stay with Bloomberg because all day tomorrow Guy Johnson is going to be live on location from the GSO so nicely distribution center. It's about supply chains but it's also making sure that you get
your Christmas presence on time. And how do you do that. We'll we're looking at some robots. Really cool animation. So definitely stay with us as well. All right. As we're talking about you got equities retreating after a three day rally. You have airlines travel stocks giving up some gains. Dollar though reigning strong yields also pushing lower. Do you buy the dollar's dominance. That's our question of the morning. Bloomberg's Vincent Signorile a former trader and voice of the
global audio squawk and Bloomberg's Michael McKee and join us now. Hey guys thanks for joining Vincent. Do you buy the dollar dominance. Yes I do. I've been buying the dollar for five years and I don't see a reason why we should stop. There are two there are two arguments going forward. One the the virus dissipates and everyone goes back to work. And we have a big global growth
story. And that puts the Fed on a faster trajectory course to raise rates positive for the dollar. I think the Fed will then be in the same place as the Bank of Canada on the same trajectory. So two currencies to keep an eye on. The second is the virus dominates things shut down again by the dollar and a haven trade. So I don't see a reason to sell. Michael let me bring you in on that first part about what Vincent was talking about and that's a more hawkish Fed. How much of a divergence are we starting to see between Fed and other central banks. Well if you leave out some of the emerging markets that have been raising rates because they're trying to tamp down on inflation ahead of the Fed you're looking at some divergence among the a small amount of divergence among the majors except for the Bank of Japan. Now next week is going to
be critical because all three are meeting the Bank of England the ECB and the Fed and the Fed. Fed's the only one really at this point that people are worried about because they're starting to think the Fed is going to be raising rates getting to Vince's point. And I totally agree with him about the dollar on that. The Bank of England is a question mark. Are they going to wait. Now with the lockdowns and see what happens to the economy and the ECB behind everybody else. So you know the situation really isn't going to change a whole lot for quite some time into 2022. And that'll put pressure on the dollar as
the CPI change the trajectory the dollar tomorrow. I don't think so. I think the trajectory is pretty much established. It's going to be related to two things. One is how fast people think that the Fed is going to be raising rates. And 2 as Vince mentioned commodity prices. Where are they going. Those are going to tell us something about what the dollar will do. But at this point it looks like the market is pretty much priced in into the dollar and other assets. The Fed moving more
quickly. The only question is exactly when. Then Microsoft isn't mentioning the beauty there. To what degree have rate hikes no longer happening next week. To what degree has that already been priced into assets. I think for the Bank of England you have to see them on hold for a while. We've just seen the CNBC reporting that the UK Health Security Agency said that they could likely see one million cases of the new strain by the end of the month and that doesn't even count in the galleries we're going to see for the holidays and for the new year. So I think the UK is the Bank of England is in a really difficult place. They have inflation. They're going to see imported inflation. And yet at the same time they could see the economy slowing down a little bit. And you're not going to say stagflation per say but borderline. And
that leaves them in a tough spot. So I think a little bit behind the eight ball they're going to have to raise rates eventually. But I think they're going to have to let the very variant and the economy play out first and they're going to be very much in a catch up situation. Let me jump in and ask Vince a question about this because you're the expert on it. When you look at what is happening in terms of growth and inflation in China and the valuation of the U.N.. Are we likely to see. Do you think from your point of view a rate cut and how does that affect the global balance of currency values. That's a really really good question. I'm not so sure we'll see a rate cut in China but I think we'll see them continue to to manipulate the the reserve requirements as they did last night. And they will continue to. They do continue to
manipulate the currency. Clearly last night by the weakening of the fix they put a put a foot in the ground and basically said you're moving too fast too far. And that's always been a big issue with China. They're okay with the currency appreciating as long as it's on a very very slow managed pace. And that's pretty much the same for most central banks. So I think we're going to continue to see them manage it. They've got a really difficult situation with their with their real estate market and the developed market. They let that get out of hand. And so if a cut in interest rates possibly
fuels a bigger problem for them in the housing sector. So they're walking on tenterhooks as well. Yeah. And I'm also wondering what you'd like let the market sort it out. Like I'm kind of wondering what that actually means and what that looks like over in China. So Danny what I also find really interesting too is wrapping in the ECB here because we had a report out that says that maybe they're going to use some of the flexibility from PEP into the ATP purchases. And we've kind of been
expecting that as Pepa said to wind down in March. I'm just kind of interested in how traders are kind of betting on the equity market in relation to that in Europe. I keep hearing like now's the time. Yeah yeah. Well I for one we certainly see it play out in currencies which I'm sure Vince knows really well. We're looking at a euro that's weaker by four tenths of a percent versus the dollar. We are looking at weaker equity markets in Europe as well. Vince I mean how to what degree is this just OK it's a global phenomenon. We're kind of worried about the economy or what is it very Europe specific about looking at pet
flexibility that perhaps is is creating some of the downer mood and in both the ethics and equity space. Well I think what investors are looking at is the ECB sort of telling a tale if you will. They really want to cut monetary stimulus but they're really not in a position to do so. You look at what's going on in the economy and Germany and the virus spread in Germany and
how it's now plaguing Europe. And you know we're going to see it here. You know the labor secretary yesterday was saying we need to get people back to work. I'm not sure what data he's looking at but clearly what happens in Europe comes here within four to six weeks. And we're going to get hit with it. And that's going to support the euro a little bit because we're going to be behind and we're going to catch up. I wouldn't be throwing the baby out with the bath water. But Europe is in a precarious situation and I don't think they're in a position to back off monetary stimulus any time soon. I'm so glad you said that
because I feel like I've been saying that for the last few weeks that we usually four to six weeks behind. So the fact we may be immune to all this seems a little absurd. So Mike to that point I'm just wondering how far ahead the Fed can run while the Fed is going to worry about itself first in the United States. And so if we see these kind of ongoing inflation pressures lasting until say March or April with no sign that they start to back off then you're going to see the Fed start to react because the markets are going to react. They're going to pull forward the idea of rate increases and the Fed is going to
have to probably ratify that. If we see some drop off in inflation the Fed will use that as an excuse to go as slow as possible. So we've got three or four months before we actually know what's going to be happening here. My timeframe a little longer than year four to six weeks. But Mike at the same time we continue to see the yield curve flatten. Can we interpret that maybe somewhat in the light of what Alex is saying that if we're going to move forward here there are still risks out there in the economy that perhaps the market is pricing in a policy mistake. Well that's what a lot of
people will tell you. The issue is the question is we never been in this situation before so we don't know exactly what's going to happen. And I think Vince started the whole conversation by talking about what we could have the virus accelerate or we could have the virus fall back. And that's going to have two different outcomes in terms of the economy. And it looks like at this point the market is sort of pricing that the virus is going to fall back. But if we have a problem then again you get that a
haven trade and we start to see changes in the dollar as well. Exactly. I'm still really skeptical of the Davos for example is going to happen in like a month in person. Hey Minton before we let everybody go here let's get back to the question of the morning which is do you buy the dollar's dominance. And you said yes against what. What has the most to decline against the dollar. I think the emerging market currencies are probably the ones that are in the most trouble for two reasons. A lot of
their debt is based in dollars. And so as the dollar goes up their their budgets get thrown out of whack. And the other is my favorite to so sorry Danny is the cable. I'm not a fan of Sterling. Even a little bit as so many things going against it both on the on the negative inflation front the Brexit story the Northern Ireland issue is still not resolved. And that's I guess my one of my least favorite in terms of G10 by the way is we as we started this
conversation the dollar pop significantly. So somebody is paying attention. Shameless plug. Also let's not forget that over in the UK we're having businesses talk about we need more support now with work from home. All right guys thanks a lot. Fun roundtable. Vincent Signorile Bloomberg and Michael McKee as well. And we'll answer this question throughout the next couple hours. So stick with us right after this. We have an exclusive interview with Alex Gorski. Johnson Johnson chairman and CEO. That's coming up next. I'll miss it. This is Bloomberg. For Bloomberg Television and Radio Worldwide I'm David Westin. We're joined now by the chairman and CEO of Johnson Johnson Alex
Gorski. Alex thank you so much for having us up to your headquarters here. The big issue I think in the globe it's not exaggeration is Covid. And now its most recent permutation on can give us a sense that Johnson and Johnson's position in that strategic battle. Well David first of all welcome here to Johnson and
Johnson. And you're right. I mean first of all I think it's important to just acknowledge the great progress that we've seen. And clearly we still have some big challenges in front of us. But if you think back to the uncertainty that all of us around the world that alone here in the U.S. face 20 months ago around when we have a vaccine would we have therapeutics. What was going to be the path forward. We certainly have made a lot of progress. But I think what Micron has demonstrated is that look we need to get everybody vaccinated. The sooner we can get everybody vaccinated the sooner. And that you know more and
more we're learning includes a booster. The sooner that we're going to be able to prevent these additional mutations and hopefully get through it. And look we remain absolutely committed to this. In fact we're working real time as we speak not only on our current version of the vaccine to get it out to as many people in the world as possible but also on the next generation depending on what we find found out about Micron. And we believe it's still going to take a collective effort of many companies many countries and frankly the world taking this on. So what do you know at this point. Because it's early going about the effectiveness of the Johnson and Johnson vaccine against the Tom Keene variant. Well we still have a lot to learn.
And what I would say overall is that you know we we need to perform some additional testing. We know that this virus likely it transmits at a much faster rate and that's not good. And number two we're still trying to understand what it means in terms of the severity of the disease. You know we're encouraged by some of the other data that we've seen thus far regarding how the current vaccines particularly when boosted are are reacting against this virus. But look we've got to gather more data from testing in the clinic from real
world evidence. We'll know a lot more in the coming weeks. But we're encouraged by what we've seen this. Do you have any sense of timeline when you might have some better read on how specifically the Johnson and Johnson vaccine will work against Omicron. We should know in the coming weeks and have a much better indication of exactly how large works against this particular area. There's a lot of talk about maybe next generation of vaccines specifically tailored for Omicron. Other vaccine makers are talking about that. It's a different technology. Johnson Johnson has it's not the MRSA technology. Can you tailor make can you change your vaccine to address it if necessary. The short answer is yes. And we're working on that as
we speak. But of course where we want to start is to see how will the Annmarie Horden virus be impacted by the current vaccine. And look again we're encouraged by some of the data we need to gather more to to determine exactly what the efficacy profile will look like. But right now in fact we're already working on a next generation. Should that be necessary. One of the things that I've learned I did not know before is there's a different profile for the Johnson Johnson vaccine as opposed to the others. And that is it doesn't raise the antibodies the protection as much in the early stages but it may last longer. What do you know about the duration of the Johnson Johnson
vaccine. Well from the very beginning we tried to discover design and develop this vaccine to really have stronger ability over a long period of time. And you're exactly right. Your body tends to have to respond least two responses. There's one there's the antibody response which think that that is the first line of defense that your body musters to take on this kind of a virus. And then you have what's called T cell and B cells which are the longer term. That's what really gives your body the memories that it can respond many years later that you see with other vaccines. And some of the data that we've been able to pull together thus far does reflect that we have that very strong T cell and B cell response. And we're we're studying that
right now to say exactly how does that manifest itself in terms of durability and patent C over time. Because one thing we know for sure that these viruses are going to go away tomorrow. So it's not only important that you have a strong response immediately but that 4 6 8 12 months later particularly in some of these other areas around the world with the logistics of getting multiple doses is going to be really challenging. Those of us in the United States sometimes focus on
the United States. And of course this is a global pandemic not United States. Give us a sense of the Johnson and Johnson role in fighting the pandemic in the rest of the world. What is your position as opposed to the vaccines in for example sub-Saharan Africa. Well as I said earlier you know we knew from the very beginning that we were not going to truly have an impact with
our vaccine ISE pandemic unless we took a global approach. So whether we looked at the way that we tried to design it the way that we tested it and on a very global level even the way that we're manufacturing. Right now we have about 10 different locations not only here in the United States but in South Africa and India in Europe and in the overwhelming majority of our vaccines up to this point in time have had really been used in the developing part of the world. So we are very committed to making that possible. I think certainly something that we've learned over the last few weeks
with Micron is that you know unless we can get people around the world vaccinated. Unfortunately this virus can continue to mutate and continue to adapt itself and present a danger for the rest of the world. So you've just made some point I'm not sure I was aware of if you take the total number of doses that have been administered thus far. Johnson Johnson and compared to the United States versus rest of the world. What's the ratio we signify. I don't have the exact ratio but it's multiples more than using the developing part of the world versus the developed world. What about EM RNA. Is that something that you're interested in. Is it something given our experience in this you think maybe Justin Johnson should be taking a close look at why. I think m RNA is a very exciting technology and in fact we are working at it in a number
of different areas. And again I think that you know being in a position now based upon the research that the industry has done to have m RNA approaches to have adenovirus approaches to have multiple options again is just a reflection of how much the science has evolved and really a better positions all of us to be better prepared for the future. And we think again having multiple approaches will be the best way to go. Of course your tenure is coming up at Johnson Johnson but before you leave people have said it. Johnson there are several deals being considered active under active consideration. Might those
involve RNA. Do you need to make acquisitions to really move into that science. Well look I can't share with you of course all the details of that. But one thing that I'm really proud of particularly over the last 10 years if you'd look at our track record of innovation at Johnson and Johnson about 50 percent of the time we tend to source it externally because we know that we're never going to discover and develop everything within our own laboratories.
And and frankly being a good partner being able to work with scientists whether it's at an academic center or a startup company places around the world is critical to success. You know ultimately we want to have the best solution and we're agnostic whether it's developed in-house or externally. And I think is reflected in our track record. In fact I think over the last five years we've invested about 55 billion dollars internally and we've invested about that same amount externally to really try to source the best science that we can for patients around the world. How is the pandemic changed the
business of Johnson Johnson. As you look forward will VAX vaccines be a much larger portion of your of your business. I think in several ways. One we do think vaccines can be applied in so many areas. I mean think about it for a moment. If we can take some of these technologies and apply vaccines to perhaps areas in cancer perhaps in neuroscience in areas like Alzheimer's so that we can actually prevent disease from happening in the first place. What a great achievement that will be. You know all too often in these other diseases we get to things too late in the course the disease. So if we can if we can engage and interact earlier to prevent that cascade from happening we're going to be in a much
better position. So yes we're studying vaccines in a number of different areas. Two I think the understanding and appreciation whether it's MMR and A whether it's new cell based therapies or how can we actually think of as changing the software in the cells our understanding of that the regulatory process I think has been greatly accelerated during this pandemic period. And it's certainly my hope that we can use that to parlay that into other areas. And last but not least David just the way that we've been able to partner with regulators with governments with other companies you know the more we can share knowledge like that accelerate some of these development timelines the better it's going to be for patients. Alex as you say Johnson Johnson has long been known for making substantial investments in science. Is that going to be even larger. Even today you've announced some changes some leadership changes coming. If you're a long term chief scientific officer stepping down you can replace him with not one but two people. That's right. Well look this year a
Johnson and Johnson will invest know just about 14 billion dollars in research and development. That puts us among I believe the top five companies the United States the top 10 companies in the world. And we think that's essential for us to keep that rate and pace of innovation going. And you're right. Dr. Paul Staples after more than 25 years at Johnson and Johnson an incredible career and what he's done here. But for global public health helping people around the world decided to retire. But the good news is we've got a tremendous and deep bench of leaders to replace them. People like Dr. Bill Height Dr. Mattei mom and and those two leaders will be added to our executive committee and I think even increase the voice of science among our senior leadership team. An important part. Your legacy will be the dividing the company something a lot of people never
thought they'd see. Did the pandemic really trigger that. Now look this has been part of an ongoing discussion that we've had with our board of directors. I mean annually we would talk about our portfolio our diversified approach and what we've always been proud of the heritage of our three different sectors and how we took him. We also realize that look as dynamics changed as markets change the science changes as expectations change that we need to evolve with it. Works cited about this announcement. We think it's going to unlock great potential in our consumer brands. And for Johnson and Johnson for our
pharmaceutical business or medical device business going forward. One last one Alex because this is toward the end of your tenure. What are you proudest of. You know David I think what I'm most proud of is just to reflect on the number of patients and consumers. And we estimate that we touch more than a billion every day. And to know that we've been able to hopefully help people live longer healthier happier and better lives.
That's really important. Alex Gorski chairman CEO of Guy Johnson thank you so much for doing this. Really appreciate it. And best of luck to you. And back to you. That was Alex Gorski a JNJ CEO Bloomberg Daybreak David Westin. Thank you so very much Danny. What I thought was interesting is earlier the WB Joe says you kind of got to give people the same shot if you're going to do two doses unless you don't have the supply. And so I wonder how the interaction though will be between the traditional vaccines like a Jane Jane MRI and a vaccine. There
is data that shows potentially that they mix well together. And I think the future of how all this develops when it comes to Covid will be quite interesting. Yeah one of the issues though not to kind of be the doomsday are but by the time we figured this out how rampant is Omicron going to be. Tyler Cohen Bloomberg opinion columnists writing that some estimates are
that we might peak in January or February. It's unlikely we'll know the answers to these questions by that point. Yeah it's a good point. Also you see that morning guys saying probably by March 20 22 we'll get a specific on Micron vaccine. The traditional vaccines are gonna take a little bit longer potentially to do that. Which brings us to the big take story from Bloomberg which is will there ever be kind of one vaccine to rule them all at the end of the day. Yeah. And look at something that the UK is certainly grappling with when it comes to the big investment they put in AstraZeneca. This was also
touted as something that we could give to developing countries as well because the UK then needs to kind of have a mea cope with that. It didn't make sense to really put all the eggs in that basket. Oh I can't imagine Boris Johnson ever saying that. OK. Coming up we have a lot more with our Question of the Day. Do you bind the dollar's dominance particularly ahead of CPI tomorrow. Mark McCormick TV Securities Global head of ethics strategy will be joining us next. This is Bloomberg. Live from New York I'm Alix Steel Dani Burger in London Guy Johnson is on assignment today. This is Bloomberg Markets. We
are one hour into the U.S. trading session. Equities trading a little bit heavy here. Bloomberg Quicktake Gupta has some of those movers for you Kristie. Yeah let's start off with just the broad sentiment right now because the stock market is actually lower on the day this falls of course three days of gains. No surprise here. A little bit of a pullback. Remember we had a 4 percent pullback last week really led by that Black Friday sell off and now a 3 percent gain. So it's natural to let some of that steam out. And that's a sentiment shared. Cross our things. The NY crude or New York crude actually down a eight zero point
eight percent right now. So once again a little bit of a risk off mode across asset classes. But Apple is really the one I want to keep an eye on because it has had a fast and furious three day rally was starting to take a little bit of a beat after nearing that three trillion dollar mark. I we'll show you a chart here in my terminal that shows you what happens when Apple tests hit that one trillion two trillion market cap. You start to see a little bit of a pullback a 40 percent drop since
the hit that once really normal market cap a 20 percent drop when it hit two trillion. So one of the concerns for investors here is that if it does hit three trillion do you start to see a big sell off. And that's going to be a problem for the S&P 500 too because it's been leading the S&P 500 higher. So does that reflect in the macro view. Let me show you though some of those intraday movers because Boeing American Airlines losing some of its seen today. This coming after American Airlines trimmed some of its international flights. So now Boeing's delays on the 787 Dreamliner as well. They're not doing great things for American Airlines right now. As you can see. Those stocks are selling off the market. Boeing weighing the Dow
Jones Industrial Average lower. Our age is one of the sole performers in the green today actually coming out with blockbuster earnings big revenue beat big earnings surprise to the EPS slicing the supply chain issues. Well they're not hitting our bottom line as aggressively as we thought they would rent the runway though.
Also down quite a bit. Another earnings story that isn't looking good. I want to end here with a look ahead to tomorrow which of course is that CPI data we were getting going to get that inflation numbers and 10 year yields have been ticking higher a little bit but taking a little bit of a breather lately. When you start to see that expectation of growth concerns over in Europe a lot of it has to do with those Covid lockdowns. Let's see how though if that inflation report from tomorrow changes the picture for this 10 year yields. Great. Thanks so much great roundup. Nice to see the team today just told me what an hour each cloud couches and I don't get it at all. I don't personally think we're setting on a cloud. Like I mean. Which which feels nice. Although my daughter would jump on it make it so there'd be that I would also never leave the
couch. If that were the case I don't need that. I don't need that in my. I will. Alex Christie was talking about some of the strengths and the movement yields. And we're also looking at the dollar this morning holding on to its gains. Let's dig in to the currency story more. Joining us now is Mark McCormick T.D. Securities global head of SFX Strategy. Mark thanks so much for joining us this morning. You see the dollar continue to strengthen. It's the question Alex and I are asking today. Do you buy into the dollar's dominance. Yeah I think you definitely have to buy into the strength of the dollar in the short term and you have to think about what's driving getting kind of unpack that a little bit. And a big part of it as you just mentioned is risk appetite. Risk appetite is
faltering. We're seeing volatility across macro indicators whether it related to fixed income equities F X or all at relatively high higher levels than we've seen in twenty one. But at the same time we don't have the Fed anymore. So essentially the Fed has become more hawkish an environment where there's growing geopolitical and and growth uncertainty. So in that environment the play here is really it's back to safe havens. It's a stronger dollar. And I think that's going to carry us into 2022 particularly because the Fed is going to ramp up the pace of tapering in the very short run. Hey Mark can we see
higher equities in the US and a higher dollar. Yeah I think we can. There's an element here that fits that U.S. exceptionalism theme. I don't think that's exactly what's in play because if you track slower moving growth indicators the US has had the biggest trouble with growth concerns throughout midpoint of 20 21. So there's an element here that the US is slowing much faster in other countries although to date has been very positive and very short run. But there's also an element here that what's happening is that the rest of the world is still dealing with Covid lockdowns reopening struggles. And what
we've seen as U.S. equities have outperformed rest of world equities again by a pretty hefty margin almost 14 percent throughout 2021. So there is a handover here again where tighter fed a relatively slow ECB and then other central banks around the world dealing with other themes. There's an element here that U.S. dollar does do well when U.S. equities are outperforming along with a hawkish Fed. Well you mentioned that one of the plays here is one for a bed for havens. I wonder if and that also extends to the end. Or does that dollar dominance also mean that a yen out can't outperform in this environment. Yeah it's a great question. And you know the way you want to
think about it is real yields. Yields moving higher. I think in an environment whether it's stagflation or reflation. Right we still need higher yields. If it's reflation and global growth recovers which is what we're expecting in the first half of the year the yen's going to weaken because you're still going to be persistent outflows from Japan to the rest of the world. And if
it's stagflation then we run into a little bit of a concern. But initially the knee jerk is is yields are going to move higher. The central banks are going to have to essentially quell the inflationary pressures. But the fact that in an environment where the global economy slips and we start talking about deflation then the yen will start to strengthen in 20. We think
we'll be somewhere in the sweet spot. But the immediate move here is that if risk is stumbling and we're seeing a shift back toward safe havens the yen would be relatively upbeat in that environment. Though I do think we're getting to levels for dollar yen 111 112 where you want where you want to re-engage by the dollar against the yen on the relative divergence. Hey Mark I'm saying call after call that's looking for below 1 10 for euro dollar for next year. What camp are you going to be in as we see the central Japan central bank divergence. Pretty much yeah. I think it depends on which part of the year we're talking
about. It's very clear that release Kirribilli moving towards 1 10 in the front half of the year. I still think in the back half of the year we're still probably talking 1 15 1 18 largely because what we're seeing is it's kind of like first move in and then the last movers are are underperforming. So there is an element here that what's happened over the last six weeks in terms of the variance the uncertainty the global growth the volatility the fact that we are now seeing very clear divergence between the Fed and the ECB. That will push euro probably towards 1 10 even below probably in the front part of early next year which is the carryover. The rub here is essentially that once we get the Fed price did we know that the terminal rate in
the US is not extremely high it's its markets are pricing it around 150 maybe one point seventy five percent and we're already there for 20 24. So there's an element in the back half of the year the global economy starts to recover. The supply chain issues are mitigated. We have cyclical and structural inflation. I wouldn't say there are cyclical drivers of inflation. They're going to drop next year. So next year we're not gonna be talking about accelerating inflation around the world. So there's an element here that the ECB comes into play. Global economy still doing OK. We've priced in the Fed cycle and that's where the euro starts to bottom out. It's probably a question of around whether it's due to early Q3 but that is where I think we're headed for 2020 to. Well if we have central bank divergence at this moment at this moment now. One of the
banks that stands out that's newly joining that divergence story is the VOA. It was not long ago we were talking about the BNP leading the Fed in terms of tightening policy. What is this about shift. This about face from the markets. What are the consequences of that in terms of looking at how these assets are priced. Yeah it's a great question because they have kind of
differing characteristics like the US can run a current account deficit. And as we talked about equity flows are very ample that you're seeing the broad balance of payments supported in the U.S. because people are buying the equity story. There's foreign investment coming into the U.S. The U.K. on the other hand runs a large current account deficit and it requires the kindness of
strangers to fund that deficit. And so that's another way of saying is that the fact that we are pricing in a very hawkish Bank of England just two months ago that gave cable the rate cushion it needed to be insulated from some of the shocks that are going on around the world particularly a very poor inflation and growth mix for the U.K. 2022. The fact that they have already kind of moved off of the 20 20 rate hike and now it seems like we're already moving into you know jeopardizing this story for 20 22 and how many hikes we're going to get. The concern is is there is no longer the rate cushion or the stability of the carry that you would get from owning U.K. based fixed income products. So there is an element here that no one wants to buy UK stocks. But there was know you could cushion the deficit and you know the lack of funding flows through higher interest rates. That being questioned has now put Sterling in a camp where you
know there's a lot of uncertainty around it and it correlates very well with risk appetite. So you know the next move here is if we don't get a rate hike next week it's very likely we'll probably retest 130 because we've lost that rate cushion now. And also the Kerry story that comes with it which you kind of even lose even more that dollar dominant story there. Hey Mark thanks a lot. Mark McCormack RTS Securities. Stay with us because we want to break down ever grand's default. Next the
market seems relatively calm but this comes as days after the U.N. hit its highest level since 2000. A team will break it all down for you. This is Bloomberg. This is Bloomberg Markets much can get done you're looking at a live shot of the principal room coming up Cathy Wood the Ark Investment Management CEO. That's at TPM in New York 5:00 p.m. in London this is Bloomberg. Let's check in on that for us what these numbers could get. A new study is likely to confirm fears about the contagious ness of the Annmarie Horden variant. It warns that McCain is four times more transmissible in its early stages than Delta. Japanese scientists analyzed data from South Africa the epicenter of the outbreak. He found that Obama can transmit more
and escapes immunity. Jobless claims in the U.S. have fallen to a fifty two year low. That's seen as illustrating the difficulties adjusting the raw data for seasonal effects. Initial applications for unemployment benefits totals one hundred ninety four thousand last week. That's well below estimates. For the first time Chinese developer ever Grant has defaulted on dollar debt. Fitch cut the company's rating to restricted default after it missed. Dollar bond interest payments. We asked Hong Kong's top regulator about the impact. It's a significant event. You can't possibly underplay it but it
basically is. It's not that category of event for the financial system. You believe that. You believe it's ring fenced. Yes. Everyone has about 300 billion dollars worth of debt globally. Is 25 the day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. And which could get better than that. All right.
Thank you so much Riddick. And it feels like the market took that ever grand news very much in stride. Let's break that down a little bit more. Damien Sass our Bloomberg intelligence chief emerging market credit strategist joins us now. And Mark McCormick of G.D. Securities are still with us. So I was gonna go with Amber Graham but then they had this really great conversation in the middle of the commercial break about what the trade is with the U.N. And we just saw the PBS see come in
and raise their reserve requirement for foreign currency. And that kind of tamped down the U.N. rally because we've seen the highest level since 2018. Damien what was your take on that. So look I mean Mark and I were we were talking about quite frankly is the fact if you look at euro you on euro you on is up ten point two percent today ten point two percent. I mean meaning the renminbi is appreciated ten point two percent relative to the euro. It's only up 2 percent relative to the dollar. That differential is huge. And that's what's causing people to make those comparisons between now and the shock to valuation which
we saw by the PBS see in 2015. Right. I don't think we're there yet. Certainly China wants stability is very very important to the BBC and they're gonna do everything they can to maintain that. But certainly what we saw overnight allowing banks to hold more foreign currency reserves you know they're doing everything they can to try and weaken the yuan in the face of what's happening here. Of course their triple archive is going to go a long way to alleviating some stress in the property sector. But my goodness we're only in the early stages of that in the loo of the defaults by ever grand. And now Keiser. Yeah I think that's an interesting point too because you're are you on. He's your kind of global macro. Covid backdrop which is all about capital flows. It's all about current account dynamics. And one of the things that's interesting is China has
not been able to recycle all the excess flows coming into its country. So you have the trade surplus building up because manufacturing is booming because of the real openings in one country versus a lack of demand and or the lack of supply in another. And on the other side of it there's all this equity inflow coming in. So there's an element that the current count has risen. The broad balance of payments in surplus in Europe has the opposite problem which is they can't stop money from kind of leaking out. There was a story where equity flows were coming back into the eurozone in early 2021 but that's partly
reversed. So a big part of this trade is if supply chains reconnect and if we see energy prices stabilize and we see some of the reopening around mobility and the dispersion of mobility start to ebb in the next three to six months Euro China is trading on our valuation models at almost three standard deviation discount. So it's a slow moving trade but it is one of the most mispriced trades around the world that fits into this Covid macro story that we're in.
Mark I was going to ask exactly that do we want to take the opposite side of this trade assuming that if you're looking for currency pairs that will start to reverse given a more normalized world. Is this really the one with the most room to run. I don't think it is. It's you know this is partly a relative value trade. Right. So I guess as we talked about in the first segment we're still partly in a dollar dominating driving world. It's risk appetite. It's global growth is fed. The factors have kind of narrowed a bit. But I do think that 2022 is going to be about fundamentals. It's about macro fundamentals. It's about which countries are reopening. Again who's a war of vaccines rising and reopening. It starts to kick in. Who offers more Kerry. Can central banks are moving in different directions
where our terms of trade again what are the most important stories around effects is the relative difference in commodities. The disruption that's happening in the commodity markets can have a huge impact for four currencies. And lastly valuations are also very different across currencies so that it will be a big driver. I just don't think we're going to be trading those themes in the next six weeks. But that I think is going to be the key for 2022 which helps New Zealand and Norway in the G10. So in my view. So Mark I'm hearing you correctly. We're talking about diverging markets not emerging markets. And from that perspective I guess you know the question is where do you want to go. Where do you want to position. I mean are you going to look for this inflation theme. I mean the focus on the reopening on the inflation on the persistence of inflation. At
what point does that shift to growth. I mean we talk about transitory inflation but a lot of this is transitory growth. You see that happening at any points in the first or second quarter of next year. Well yeah there's an old but we have to kind of move out of the stagflation environment like we built. A simple indicator that
looks at the volatility of mobility which we can measure every single day. So as we have more mobile mobility volatility we use that as basically an anecdote that supply chain disruptions will continue and that will still have that cyclical volatility. I do think a big part of it is we have just thrown a monkey wrench into the growth story because of omni KRON. We're not sure how much governments are going to respond to it. I think most people in the market assume that it's not going to have as much of an impact on Delta as Delta has. If you can look at Google Search Trends the search transfer on Micron have not had the same
impact that they had at Delta. You know that's one simple indicator. Think about. But what most people are worried about is how governments respond to. And so you know we're still dealing with a lot of uncertainty whether or not lockdowns are going to become more stringent whether or not mobility has to aggressively decline. But what we're seeing on our global mobility tracker we're still at three times a level higher now than when we were at this point last year. So I still think that there's still going to be above trend global growth next year but we're not sure when inflation is going to peak and moderate. It still could be in Q1 it still could be in Q2 which is still not going to get us into that growth mindset. Well Damien to
pick up on that in terms of the re-opening trade even if I'm a it's not something that we're all focused on as much as Mark was pointing out. What's the reopening trade in your world right now. Well I mean we were just talking about this has got to be type of right within Asia. I mean Thailand has been the haven. It's been the place where you would go to go on vacation. It's the king of mobility. Unfortunately we haven't seen tourist flows. We haven't seen travel come back and the Thai baht has weakened off the back of that. And so you know I think if you're looking for a relative value play within emerging markets
getting longtime board as things kind of subside as the market reopens relative to other Asian crosses it's probably an area you want to be positioned in. Mark before we let both of you go I just have to ask we've talked a lot about a lot of central bank decisions. Next week we also have Turkey the lira. Is it a market you want to play in at all. In my opinion no. It's just there's too much uncertainty there's
too much in flux there's no liquidity. We're in a world right now especially when you look at seasonality. We've also got this tracking of G10 government bond liquidity government bond liquidity is at the worst position we've seen basically all year. This is probably an impact of tapering and also the fact that you know just people don't want to warehouse risk in this environment. So yeah Turkey is really not the place to kind of take tactical decisions right now. In my. All right guys sorry for yet Damian says our Bloomberg intelligence and Mark McCormick of G.D. Securities. That was really fun. You said their combination was awesome. Who talks faster. That's really the question next. All right. This is Bloomberg.
It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and which could get for the first time since 2017 CBS is repurchasing stock and raising its dividend. The drugstore chain announced it would buy back up to 10 billion dollars worth of shares. It's also increasing its dividend by 10 percent. CBS also said that earnings and sales this year would be at the high end of its forecast. Bank of America is rolling out the pets to attract big spenders to its 550 dollar a year premium rewards elite card. It competes with cards offered by American Express and J.P. Morgan Chase for cardholders who have had at least a million dollars in the assets at the bank B of A will offer them the chance to book private jets and drive exotic cars on NASCAR track in Manhattan. Apartment lenses soared last month by the most on record. Median
rent jumped 23 percent from a year earlier to almost thirty four hundred dollars. That's according to a phrase at Samuel a broker Douglas Element real estate. Still the median rent is almost 4 percent below where it was two years ago. And that is the latest business show. All right. Thanks so much Riddick. I'm wondering of the amenities come in on that because there is a ton of amenities out there and these new luxury buildings and I wonder if there is a like which buildings or those included in. All
right. So Danny we have a sell off here under way. We're still relatively calm. But here in the US the NASDAQ hitting the declines in NASDAQ. One hundred down by seven tenths of one percent. The S&P up by about four tenths of one percent. Yeah we're off the lows of the session but some of the worst performers are Devon Southwest and Tesla and the best performers are swear the safety we mentioned at CBS as well as Twitter as well as Pfizer. I'm also interested to see what's happening with the re-opening trade because airlines and casinos etc. cruise lines they've
been really well. We've seen these monster rallies and they're sort of rolling over here. We're seeing buying coming in Treasury market. Big move in that we have a dollar a dominant story as well. Those exact themes are really playing through in the European section as well. Alex as you say same with the US. We're off of the lows for the session. We're down about one tenth of one percent. Energy the worst performer. We're seeing some of that weakness in oil prices as well. Really feeding into a lot of these regions. That especially spells trouble for the footsie. One hundred and that strong dollar really what we've been talking about today this policy divergence including this Bloomberg scoop ECB looking at reinvesting some of those pet funds and the dovish earnest really embedded in the euro just continues to bring this pair lower. We're looking at a decline of about half a percent for the euro. I've had my eye really on
the entirety of the U.K. rate market because we've seen those bets for the B a week to tight next week completely taken off the table. We're looking at a more stalled B.O. We were looking at bond buying not just in the U.K. I should say really across sovereign bonds in Europe Alec. Yeah it's a great point because you take a look at the two year say in the U.K. versus here in the U.S. we're pretty much not moving here in the U.S. which really goes home to your point. And that central bank diverges. I'm wondering if it goes even farther though. Break this down in the next hour if you have to work from home. And A do you have some sectors that are going to need more government support. And are we gonna be back to that narrative when we bought it when
it's been drained out of the economy. Do we have to go back to that now. Yeah I have to say there have been a lot of calls in the U.K. to give back government support again with this call to work from home. You're not the only one thinking that. We're going to dig a lot deeper into that in the next hour. That's coming up on the European clothes and keeping them as SB Health Investors managing partner. She's going to join us next. How do you finance vaccines. How do you get it out there also. Do the measures that we're seeing in the U.K. that Plan B is actually going to work and make any kind of difference when it comes to Omicron. This is Bloomberg.
2021-12-10 23:28
