Bloomberg Surveillance 06/14/2022 Stocks Enter Bear Market

Bloomberg Surveillance 06/14/2022 Stocks Enter Bear Market

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The markets convinced the Federal Reserve to become more aggressive if they're going to do 75 it's better to do it sooner than later. The Fed doesn't have much reason at this point to slow the pace of rate hikes for the next six to 12 months. Things are going to be much more challenging. We still think the base case is no recession. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Good morning everyone. Jonathan Ferro. Lisa Abramowicz. Tom Keene. Thrilled you with us on radio and television. Clearly lines in for Jonathan Ferro in Caprice.

Thank you for your response to what we did yesterday. It continues today and I love Lisa. All the little tea leaves. We'll get to those in a moment. Hartnett over at Bank of America saying Look forward to the summer of Volcker. And are we there yet. With respect to the cathartic puke. Or is this the beginning of the summer. There was somehow Michael Barr love

what they did. But this is this is really what people were talking about yesterday. And the lack of understanding and some of the notes on Wall Street as to what was happening. Was this just a lack of buyers. Was there forced selling when the margin calls start. When do we see something break. You know that night clearly were

cathartic puke played at UVA a good night. They beat Duke and they were thrown out of Kansas where this language come from Kelly it is so unladylike to call it cathartic puke read fan. It's called a bear market. I'm all for that. Well it is a bear market. And that begs the question Tom. But now that we've fallen into a bear market is the debt viable or have we not yet seen that potentially so that you actually need and while you saw futures higher their well off session highs were only up about four tenths on the S&P 500 rise. That much of a convincing rally this morning. Lisa ruled an all nighter on a morning brief

for going to get to that in a moment. But Lisa I want to frame out the tea leaves I see right now. Big dog can't get a bid. It really had an ugly last 12 hours. Just moments ago pounds sterling broke down again to new weakness. A 121 10. There are 119. Sterling would be unimaginable. And I'd also point out Lisa maybe what matters and is your bailiwick and that's a two year

yield yet to your yield coming off the highs that we saw yesterday of since 2007 real yields. I'm watching those because real yields on the 10 year rose to the highest levels going back to 2019 almost zero point seven percent at one point yesterday after being negative just a couple of months ago. Taking a look more broadly you're seeing a little bit of a reversal. But again is this conviction buying. Where are the convicted High Flyers every time. Conviction buying. Right. But I think that that's important to know at a time after one of the worst sell offs that we have seen in a long time. Right. Solid bear market. I'm not a data check in a moment. Kelly what are you observing this morning different from

yesterday. Well at least there are some gainers and I'm looking at underneath the surface of the equity market because we have to talk about the breadth of yesterday's sell off as well. No one was spared not even energy which has been the ballots that only outperformed within the S&P 500. Energy stocks were down among among the hardest declines yesterday. Only five stocks in the S&P 500 managed to end the day in positive territory. The breadth of the selling yesterday is more turning into breadth of buying this morning. We look at equities bonds currencies commodities. We start with the VIX thirty three point six one

nicely elevated over the 30 level. A number of guests yesterday saying we need a cathartic move to 40 to really get it done. It hasn't happened. Futures bounce up 11. Dow futures up 61 is well. And the yield space Lisa mentioned to here comes back 30 year but three point three 1 percent to 10 spread is all over the place. Kurt he's got a great chart on that. We'll look at later. Looks beautiful on radio. Oil I think is underplayed. 123 off of Libya and tensions there on production 123 12 on oil one dollar below recent highs as well. Gold can get out of its way. Dollar stronger DAX. Why over 1 0 5 is very important right now. I'd note Euro 1 0 434 Swiss. He doesn't really get out of the way with euro. That's about it right now. I can't think I could

say much what we need. We need a brief. We all I'm down to three. I want to just say we are watching regime change. I was looking at negative yielding bonds. The total volume outstanding has fallen to the lowest since 2015. We have revoked the era of low interest rates in the face of higher inflation. The latest on that higher inflation. Eight thirty a.m. U.S. PPE for the month of May. Neil Dutta over at Renaissance as Matt Miller has been talking about calls this more important but portent potentially than CPI. The reason why is because it could indicate how much more pricing power or lack there of companies have. How much more margin pressure do we see. You subtract PPE and then CPI and you see what you get.

Right now we're looking at an actual real acceleration because of food because of energy prices. And that matters even though a lot of people try to strip it out for some more consistent measure at 11am. Biden is trying to shift the message again talking about labor. Speaking at the twenty ninth AFL CIO Quadrennial Constitutional Convention in Philadelphia Pa. can he shifted away from this story which is gas and all gas moving to a new all time high well above five dollars a gallon on average across the nation. How does he get out from under this and how does the Fed get out from under this considering what it is

doing to sentiment and what it is doing to longer term expectations. The kickoff to that two day meeting in Washington D.C.. We're not going to play the Fed parlor game all day although you might be in other places. I'm doing this for you Tom. People talking about possibly a surprise 75 basis point rate hike at this meeting.

My big question of the day frankly Tom is will that be positive for markets or negative for markets if they surprise with a more hawkish move. And right now that too tends yield curve the flattest that we've seen. Yes there have been periods briefly. But this to me tells a story of possibly stagflation or recession. And does the Fed care about this. They want to manage this or is it all about setting a really strong message to bar in a 40 year low yield curve as well. I'd say it's flat. It's

just bouncing around a lot. Let's get the conversation here and that's where we'll address what the Fed's going to do. A look for a special tomorrow. I've got a great set of guests lined up. We start strong. Matt Miller said he will join us from Deutsche Bank for our Fed special tomorrow. And of course Deutsche Bank out with a recession call out in the distance which right now looks on the edge of oppression as well. Always fresh in its Federated M as Linda do. Sul joins us their senior equity strategist. Is your team under the desk. I mean Linda you know are people hiding under the desk this morning.

I have to give my team credit because when we started this year we said that we thought you'd see a lot of volatility in it. Cash might actually be king. It was the first time in my career at Federated Hermes that neither the bond representative nor the stock representative was very excited about their areas. So I think we're going through what we thought we would do. In our conversations at the office we're saying that this is going a lot quicker though than what we thought. Linda is this it. Is

this the cathartic puke top. Accuse me of not being very ladylike but you don't want to buy when people are scared. And yet here we are. And that typically is the best time to buy. Is this it. No I don't think it's that. I mean we see what's happening in the crypto cryptos having their future that's guaranteed. But I'm still seeing and hearing too many buy the dip ideas. We only came down 20 percent on the S&P and I guess we tested it once here with a quick 10 percent bounce on really pretty poor volume but I don't see why we shouldn't do even more damage than that with with all the money that was pushed into this system. So many people buying up so many assets out there and that does

have to be wound back. And I think it might end up being probably a recession and probably maybe couple of hundred more points downside on the S&P. Linda Lisa raised this briefly. The idea that now the market is kind of giving the Fed permission in some sense to move 75 basis points or at least it wouldn't be all too surprising. What the greater downside risk to equities be a fed that acts too aggressively is too hawkish or is too dovish and there's little faith that they're able to rein in inflation. Yeah I think you know how it works out. Well we're not so

concerned. I think a 1 percent move would be a big shock just a big shock to the markets. The 75 basis points versus 50 basis points I think we're kind of in this situation that says you know whatever they're going to keep on going. We find it interesting very recently the the the betting out there for the Fed terminal rate is now up to almost 4 percent. So where we end this is very important. And if you're talking about the PPD how PPA and CPI particularly come down because we saw the M2 money

growth peak in February of 2021. And historically about 13 months later the CPI the core starts to pull back down which you might say did a little bit in the last two months. So it might come down now fairly quickly. I'm not betting on that right now. But that's what we really really have to watch. And the Fed will just keep going on and being data dependent. And then Kutty is

you know it's just a back story to all of us. Well Linda you mentioned PPE which raises the question of input costs and margins. Our margin estimate is still too high for the rest of this year. Yeah that's that's what we're particularly concerned about is you know as the the news coming out of target was that like just the tip of the iceberg as to what might come next and might more and more industries have to report even if they had a good second quarter that their outlook is that margins will be squeezed because to date it was all P E multiple contraction. And if we start to pull down our earnings estimates you that's great. A double whammy here for the market. So it could be a tough couple of months here. Linda thank you so much. Really appreciate a good perspective to get us started this morning Lisa. I want to go to Europe as well where we've got German yields out. We always look at them. And then as John Farrow does

we look at Intel Italy and the debt. I look at the DAX as well. But the Italy piece and it is breaking out to new wires this morning. And Liza and underplayed story that Xerox did a great job on this last night. Is the being away in IAG and a high yield credit spreads. What does that velocity right now Lisa. How wide are they going. How fast. So for a lot of the selloff

that we saw this year credit held in pretty well no longer the sell off has actually accelerated at a pace that we have seen going back to March of 2020. If you take a look at both investment grade and for high yield and the average yields that you're getting are things that we have not seen going back years particularly in the investment grade space. You're looking at nearly 5 percent on average for the all in yield which is actually what high yield was young not that long ago. This is a

complete repricing. That's why I say this is a regime shift. Tom how do we readjust and when do we start to see things well break down a little bit more or is this going to be order in 20 seconds. Lee So one of the issues is we're readjusting with a near 6 percent mortgage rate. Julia Coronado feature that yesterday all of a sudden boom 6 percent. And it is starting to slow the sales. People are saying that it might not slow the actual purchase price to the degree that people expect just because of a dearth of supply. This is a real big question. What does it do if you do get housing. One of them is mistakes. Yeah it's one of the many mysteries of the market. I will say one of the government. What happened yesterday is different than

yesterday folks. But I really want to emphasize there are certain tealeaves moving sterling 121 0 9. My attention. Bitcoin can't get a bid. Twenty two thousand three hundred as well. Please stay with us with more data checks today on Bloomberg Radio and Bloomberg Television. Good morning. Keeping you up today with news from around the world with the first word answers could get to President Biden will travel to Saudi Arabia in July and meet the country's de facto ruler Crown Prince Mohammed bin Salman. According to an NBC report no immediate comment from the White House. Biden once promised to punish Saudi Arabia over its human rights abuses. The possible trip indicates his drive to lower gasoline prices and isolate Russia over its Ukraine. To Wall Street banks are withdrawing from handling trades of Russian debt by my administration said

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been more than one year since she was detained on suspicion of national security violations. Barnes case is said to be under investigation. Bloomberg editor in chief John Micklethwait said quote We will continue to do everything possible to help her and her family. Hong Kong residents will have to show a negative Covid-19 test results to enter the city's bars and nightclubs starting on Thursday and running through the end of the month. The decision comes as the city is seeing an increasing number of infections in many cases driven by transmission and entertainment facilities that recently re-opened. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries and could get to Earth. This is Bloomberg. The Fed says a 50 basis point hike is coming. The Fed is telling

the markets what it wants them to do. But what's next. And big questions about that next move. The one after that and ultimately the destination. Maybe they can let the high prices naturally bring down demand. Trust Bloomberg for the fastest coverage and exclusive analysis. A press conference live. In there it'll be interesting. Bloomberg Surveillance. The Fed decides Wednesday on Bloomberg the fastest way to stay. One step ahead. You've already said you know 50 in June 50 in July. Given how bad the announcement was Friday I think what Chairman Powell can do is bring that 50 forward even though there might be an unusual sell off on a 100 basis point. I think there'd be a

subsequent rally because the Fed is finally getting hold of the narrative. The pundits out in force on the mathematics that we will look at tomorrow afternoon with the feathers are Lisa and I and John and Kailey Leinz. We're going to ignore a lot of that punditry and guesstimates because all that really matters is what the chairman the vice chairman and the governors and the presidents decide around that table at the Eccles Building. There are other tables in Washington lots going on with the

president in Washington. Annmarie Horden joins us now our Bloomberg Washington correspondent Ann Marie. You know Greg Valliere makes really clear things have to change this malaise at the White House to find the malaise that you see from that beautiful camera perch you have across the Green Lawn and near Lafayette Park. Well I think we saw in the beginning of the month right. The administration wanted to make this concerted effort to talk more at least from policy and communication of their policy point about the economy. They obviously are getting hit hard in the polls about the

economy. Inflation is number one top concern of American voters as they gear up to go to the polls in November. And that's what they're trying to do. But of course the issue is there's so many levers only the president can really pull when it comes to trying to tackle inflation. He's going to talk about the economy today with the AFL CIO. This going to be obviously about labor. We know the White House said that they're going to talk about building the economy from the middle class out. The president likes to talk about. But if they're not going to change any sort

of policies you know we're still waiting on things like the China tariffs then it is a sense that it's a continuation of that malaise. And part of the tackling of inflation maybe a trip by President Biden to the Middle East to Saudi Arabia to meet with Mohamed Bill bin Salman the crown prince. And the trip by NBC this is being reported by them would be from July 15th to July 16th. What would he be hoping to achieve in that meeting. Ideally that could help bring inflation down. So two things. This meeting would likely be alongside other Gulf members from the JCC. And right now Saudi Arabia is the country that has the presidency. It would also likely mean that Biden would have a meeting or would shake hands with the de facto

ruler right now of Saudi Arabia which is the crown prince Mohammed bin Salman. So it's tricky politically right because we all know the president had said on the campaign trail he wanted to make Saudi Arabia a pariah state. And now he would have now been going into the kingdom and setting foot on that soil. It also comes at a point though that the administration has been recalibrating in a sense in a lot of capitals around the world have. How are they going to deal with diplomatic issues. Many allies are potentially frenemies that now for some other people are becoming allies. And that talk about Saudi in general I'm just I'm just talking in general because of the war in

Ukraine. So you do have a shift in the administration on wanting to engage more with the kingdom. And also part of this of course is the price of gasoline where now north of five dollars a barrel a gallon on average. But we should note that Saudi Arabia while they do have spare capacity it is not enough to save five dollar gasoline in America. So this ultimately Anne-Marie is just about the optics being seen trying to do something about high oil prices. Right. But the trip is not just going to be about energy. I mean we've heard that from the White House from the press secretary.

But also people I'm talking to there's a lot of other deliverables that this trip would have. So this would be energy of course but also security in the region things like defense in the region economics climate ambitions. This administration has which of course Saudi Arabia we do know that the crown prince has been trying to diversify his economy.

We saw that just last week with obviously them taking on this brand new golf tournament. This is something that the kingdom is trying to do. And so there'll be a breadth of issues that will be discussed. Marie can we break open. Plus zero belief within the international relations Zeit Geist that Mr. Biden or America or the allies can break OPEC plus. Well the thing with OPEC is that even before Russia invaded Ukraine OPEC itself countries within OPEC have had wars at each other. And still the cartel has still lived to this day. So there is a lot of talk always about the death of OPEC and the death of OPEC plus. But what the Saudis were able to do at the last meeting being the de facto leader of this cartel in this group was really walk this very fine line with giving an olive branch the administration that since August has been asking for more oil at the same time keeping Russia on board to agree to this increase in production. How long are they able to do that. That's really

the question. Anne-Marie thank you so much. We've got to go and look at the markets. Annmarie Horden in Washington this morning. Lisa Abramowicz just moments ago Sterling a 121 0 0 1 indication of slowing economies in continental Europe. And that comes after that labor market report that showed that real wages in the United Kingdom kind of like in the U.S. fell to their lowest going back 21 years at least. Basically inflation is eating away. Any gains people are seeing in terms

of wages. This just speaks to the moment we're in. Also just moments ago time I want to point you to this. The NFIB survey of small business Hang Seng came out at its lowest reading in history. It's 48 year history in terms of what small business owners expect over the next six months. This just sort

of underscores this feeling of doom both with respect to markets. Also in the real economy I saw the report last night embargoed and I thought Bill Dunkelberg ISE report was incredibly nuanced. Lisa about just the battle's small businesses having pressed by inflation and yet still that impulse they can't get people to work more. And so at what point do they stop trying to hire them. And this I think is what a lot of indications of that. No not at all. Which is potentially problematic because people want to see that to release the pressure from some of the price increases.

But without price increases people have that much less to spend on an inflation adjusted basis. How. I mean I know we do want to play the Fed parlor game but how is it going to get ahead of this if they don't make a big move at a meeting and recognize. Yes we're seeing pain and the response is opposite to what we otherwise would have done say a year or two ago her cathartic loose passing my buttons because you know I believe no central bank ever quote unquote gets a how did this. I mean clearly

lines that were not really guarding Michigan. Yeah I liked it. And I try to do that as much as everything. Michael Barr. Yeah. Jonathan Ferro. Hard to hear you starting fresh. Kelly I mean this is like you took your seat. You learn in monetary history freshwater history at UVA. I mean the bottom line is central banks don't get ahead. They're data dependent. Right. Yeah. And they're following these markets and the markets keep pushing them farther and farther. Tom we

now see even odds of a 75 basis point hike tomorrow. That is what the market is pricing. That's what the market's pricing. We will see. And I can play the cathartic button pushing game John. You know what. Let's go. Well good luck to you. Some will join you. We are thrilled to bring you Claudius some on this moment for the markets. Futures fade. Good morning everyone. Bloomberg Surveillance on another day of market turmoil and do

more data checks here right now. Lisa I just note a 120 print on Sterling as well. What do you see Lisa that sticks out right now. And if you take a look at the tape and you look at the cross currency pairs a lot of it has to do with the dollar strengthening and ebbing away some of the weakness that we saw earlier in the morning. And this comes along I mean actually if you look at RTX why I just broke out positive here. So we had seen it weaker versus pure currencies. Now it's stronger. We're looking across the board. We had seen stronger gains. They are fading. The S&P up nearly just a tenth of 4 percent. But also that 10 year and two year yield we actually saw buying come into the bond sector. The conversion any moment is fading. And I

really am watching that because at that point the rate fear is not over a different character than yesterday folks. But I really want to make clear there little tea leaves here including Italian paper moving the Italian German spread moving out to new widespread for Italy right now. And this is a treasured moment. If you go to Fred the St. Louis Fed iconic database there is the sum rule. It would be good to speak to Claudius some about her rule. The rule which is a wonderful zero B.S. formula saying wait let's look at jobs and guess the recession. We get away from the Fed parlor game with some real economics. Claudia Sam

joins us today from So I'm consulting Claudia real simple here. The job market says there's no recession right. Right. That's correct. We have a really strong job market. Lots of demand for workers lots of jobs. Do you see any indication that the market turmoil that we see the financial system can go over and amend the job market. Right. Well what we're seeing both in financial markets with what the Fed is doing in terms of raising rates they both have the ability to depress demand how much consumers are willing to spend in the United States. Consumers are the engine of growth. If they start spending less there's less need for workers. And it will could lead to layoffs. And then that indicator the Somme

rule is all about watching the unemployment rate creep up. And that's an indicator we're in a recession. So that's what we're looking for. And honestly it doesn't have to be a lot of weakening. Claudia where are we considering all the fears of recession right now. Where do you think we are. Right. Well I feel really strongly that we are not in a recession today again the labor market is really strong. If you look at consumer spending. People are out there spending. Right. I mean that's part of why we have the inflation. People are still spending a lot. And so we're not in a recession now. But

that should be no comfort necessarily that we won't end up in one. And frankly what we're seeing in the last several days is what could easily turn into a self-fulfilling prophecy of spiraling down expectations both in financial markets and also potentially among consumers. We need to see things cool off some again on the demand. That's the tool the Fed has. But if we cool off too fast and too much that's where we end up in a recession. Cloudy those can come quickly. We've heard that for a number of people that it's the media or people who are coming out and saying oh look at how terrible things are. And then people get scared and then the inflation expectations go up. However if you drive down any highway and you see the gas prices climbing as

quickly as they are if you go to grocery stores and you see how much higher your bill is than it was before. If you take a look at that real wages the United States on a weekly basis are negative three point nine percent the weakest in a long long time. How do you get a sense that this is going to be positive for consumers and it's just a messaging problem. Yeah. No I don't think this is a messaging problem. I do think in the consumer sentiment we saw really low numbers not like Friday but we saw numbers really head south on consumer sentiment last year around this time. And that coincided with gas prices really starting to take off gas and also food. Gas in particular just looms really large in how consumers think about inflation. It's

the price they see every day. They don't need the media to tell them what gas prices are. What is difficult is that it's really hard by reduce. It's really hard for the Fed to get food and gas prices down. And that's what people are really concerned about because we need those. Those are more necessities. That is a supply side

problem. That's not the Fed's problem. I mean it is their problem right now because they're about inflation. But that's one that we shouldn't be promising consumers a lot of relief by the Fed raising 75 basis points 50. That's just not where they have the lever. Yeah it may be a problem for the Federal Reserve but that doesn't mean that the Federal Reserve is inherently the solution. Claudia. Obviously it's not just about rate hikes. It's not just about Kutty. We're also going to be looking at that summary of economic projections. I was speaking to a gas or macro hive earlier Dominique d'Or for who basically said the SVP is going to show that the Fed has given up on a soft landing. Do you agree. So I

don't think the Fed is going to give up. I think what the one lever the Fed controls and what I'm looking for in the ACP is how fast do they want to push this to get inflation down. Right. If they were really pushing in the past SVP didn't say it. Like if they wanted 2 percent and the this year early next year then yeah we've got to reset because they've got to turn the screws. I'm so happy. Clearly you brought this up. Claudia there's more fed pontification going on right now than any one thing I've

seen. No one's read Bernanke. No one's read the wonderful Allan Meltzer. Nobody's read Richard Timberlake in the Georgia school as well. Claudia stop. Can you explain to all the Fed pundits ventilating including to Kailey Leinz lines. Can you explain that central banks are always exposed and data dependent. Do I have that right.

Absolutely. They they are data dependent. In this episode the data that we are dealing with right now are fundamentally different than what the Paul Volcker Fed was dealing with. And I think yes no but clearly I think this is really important. There's a lot of ventilation going on and I get it. People are scared of VIX of thirty three. You know the numbers better than me. Kelly the bottom line is adults like Claudia some are saying they've got to wait to see the data. Yeah. Fair enough. And I'm glad we have Claudius on here to talk about it because as you say Tom there is just so much murmuring going on as investors try to figure out what exactly they are supposed to do with their money. And of course investors are also looking ahead to

that producer price inflation data later on this morning. Claudia are you in the camp that that is actually more important than the CPI data was because more components of that feed into OPEC which is what the Fed is really looking at. Yeah. So the Fed isn't going to like hang its head on some nuance that the couple series that the PPA informed. P.S. we're the ones doing

well. I mean this the CPI was uniformly a bad read on Friday. Now what one could hope for in the in the producer price index is we're starting to see some easing on the prices that are going into businesses the kind of prices they're passing on because at the end of the day though it is not talked about a lot. We have some very serious supply disruptions from Covid and from the war in Ukraine. And we need to see like to avoid a recession. We got to get some help on those pieces. It's not looking real. Claudia encouraging. Claudia when we talk about data dependency we are looking at data we have not seen in 40 years. We are looking at data that is potentially catastrophic for the lowest income in the United States and frankly around the world.

At what point do the Fed respond to this data that we're looking at right now rather than passing out the nuances and just take a look at that and say we act we act big and that is what our job is. Yeah. So Fed Chair Jay Powell was very clear recently. They are looking for clear and convincing signs that inflation is coming down. Right. This is not about jobs right now. Maybe they do you know say hey we're gonna give up some jobs. Unemployment will rise. But really this comes all down to what is that CPI look like. Are we really making progress. They got burned last year. I did

too on thinking that cold disruptions would ease and and that would help bring prices down. That wasn't the case. The data are too hard to pass right now. The little moving pieces. So it's just all eyes on the big number. Courtney Sam thank you so much. To say. Of course some consultant here and the same rule. I really urge you to study it if you're part of global Wall Street linking in job dynamics into the recession. Call Lisa the tealeaves right now and get sterling 121 0 7 had also note the

Italy Germans spread. Maybe one of the litmus papers of Europe is just wide. Note to new with here the distance between Italy and Germany ever wider ever wider back to levels that we saw during the peak of the pandemic in 2020. But if you take a look at an absolute level Italian 10 year yields higher than 4 percent at this point. That's the highest going back to 2014. We're looking at new levels that we had not seen in years and had not imagined. Is this what the ECB wants. At what point do they come in with some other program or do they allow this spread to gap out and allow some of the euro existential crisis that people are wondering about that could potentially raise some. I don't know discomfort among the member states. And clearly to be to be honest here to me to be honest here with futures up 12 it's not that large of a bounce off negative 700 Dow points yesterday. No it's not convincing at all. Obviously futures were up much more earlier on in the future session but

we have not given back a large majority of those gains at least when it comes to S&P. Many is not a convincing bounce at all which raises the question of whether or not we are done whether or not the worst is over. If yesterday was really the cathartic puke ladylike or not that is something you could call it capitulation whatever the term is that you want to use Tom people are looking for that chaos that forced selling that ripples across the market. Was that it yesterday. I don't think we have an answer to that question. I got a wonderful e-mail. Michael thank you so much for listening. In Austin Texas cathartic pubes playing cheers shut bar down in Austin Friday and Saturday's weekend just for Tom ISE tickets. Anybody who is playing again is Amari said you know is we continue to monitor these markets lease. I'm sorry the elephant in the room is oil

just has not given back. You know is a global slowdown. Oil sales to go down. Not yet. And that's what people are looking for. But even if oil prices come down is that really going to change the price of a gallon of gas. Because refineries have been in short supply and that's been a huge issue. You know it doesn't seem like the input prices are going to come down all

that quickly. We had a crisis upon crisis. We had Ukraine in the war that Russia waged. We had the shutdowns of China following endemic. How do we model this out. How does the Fed parse out nuance in a very UN nuanced inflationary headline number. Stay with us through an eventful morning including business inflation the PPA series as well. The Dollar DAX y 1 0 5. Mark McCormack in the 7:00 hour. This is Bloomberg. Keeping you up to date with news from around the world with the first word hour mix you could get to President Biden in an Oval Office meeting last week with key members of his cabinet indicated he is leaning towards removing some products from the Trump administration's China tablets. According to an access report with inflation at a 40 year high. The Biden demonstration

is looking to show action on bringing down those prices. Beijing has reported the highest number of daily Covid-19 cases in three weeks 74 infections reported on Monday. That is the most since May 22nd when the capital hit a record for the current outbreak. The nation's top official for pandemic control vice premier son Chin Line is urging Beijing to control the outbreak as soon as possible. Hong Kong's lobby group for fund managers is urging incoming chief executive John Lee to scrap quarantine rules for travellers. Hong Kong Investment Funds Association says the city needs to restore its status as an international financial centre. The body represents firms with more than 50 two billion dollars in assets under management spending power. UK households fell the most in more than 20 years as wage increases were eaten up by what is the boss's inflation in decades according to the Office for National Statistics. The figures show how pay for most workers is failing to benefit from what is the tightest

labour market in living memory. Hot dry and windy weather is challenging. Fire crews from California to New Mexico would want by forcing hundreds of people to leave their homes. Roughly twenty five hundred homes have been evacuated because of two blazes on the outskirts of Flagstaff Arizona. The high winds have grounded. Firefighting aircraft company is 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries and could get them. This has been IBEX. The fact that the markets are performing incredibly well there's a ton of liquidity in the market. There is a lot of transparency

in the market and the processes are operating incredibly efficient. You can't look at the Daily News. You should invest for the long term particularly if you're a retailer. Lynn Martin a spirited conversation in Davos. Good to see you again with Bloomberg as well of course holding court at the New York Stock Exchange. No doubt interested in what happens with Mr. Gensler in trading in it for retail trading for retail here in the coming months. We welcome all of you on radio and television worldwide and particularly on the evening on the Pacific Rim. We're going to digress right now from the markets.

Futures up 20 Dow futures up 110. I agree with Lisa. It's fragile. I note dollar's strength this morning. Sterling 121 0 8. Can't get out of its way. Our definitive coverage of Asia has been led by Stephen Engle. He has had the honor from the span of Hong Kong and Lord Patten to the turmoil of Carrie Lam to see modern Hong Kong change. Stephen Engle sat down with the outgoing Hong Kong chief executive Carrie Lam. Despite some skepticism and cynicism about Hong Kong's future I remain very optimistic and confident of Hong Kong's future. And one of the reasons for my confidence and optimism is Hong Kong's unique strings. On the one country two systems is Hong Kong's a high degree of autonomy to conduct her external affairs

particularly on the international arena. So we have the autonomy to set up our own oversees economic and trade offices. We could enter into bilateral agreements on free trade avoidance of double taxation investment protection. So I do want to complement my term by reinstating the importance of Hong Kong's international connectivity and her status as an international city. But is the damage already done. Well yes and no. Because if you look at the past two years that

is before the fifth wave hit us for a period. Hong Kong was ranked the world's number one in terms of normalcy. That is when other countries and places were imposing the stay home permits and lockdowns and closed the airport and so on. We were by and large operating normally. But since the fifth wave hit us and it hit us very hot. But really in terms of the number of deaths we were 300 dead. So we're extremely cautious. And at the same time because of the transmissibility all Micron and the mildness of this virus then

other places opening up. So by comparison I'm the person who believes in relativity. So everything is relative. When people are opening up and Hong Kong is still imposing that seven day designated hotel quarantine that to a certain extent weakens our position as an international city. But mind you during my term while the daily cases were still quite high on the twenty fifth of March this year I already announced the gradual opening up in terms of social distancing. It's a three stage relaxation. We

have done the two faces. And in terms of coming into Hong Kong I lifted the ban on the nine countries and then I reduced designated hotel quarantine period from 14 days to seven days and then made other adjustments in the tests and hold at the airport facilitating people to come by. So prior to the first of April and for almost two years the daily arrivals at our beautiful Hong Kong International Airport was a few hundreds. Now it's back to 3000 plus. So I hope that

gradually we'll able to progress on this route of normalcy. At this moment of transition Stephen Engle joins us in Hong Kong. Carrie Lam will pass the baton of Hong Kong leadership a different Hong Kong to John Lee. Stephen Engle joins us now. Stephen Engle I'm absolutely fascinated by Carrie. Lam is a citizen of Hong Kong someone whose father worked on ship. She grew up poor to a guy who was a police officer from day one for the Chinese government. John Lee how abrupt will the transition

be from Lam to Lee. Well you could say you could argue from the other side of the coin as well that could it be any more tumultuous than the last three out of the five years of her term because she of course her term coincided with the protests the national security law a complete overhaul of the electoral system and then a pandemic was a sponsor that was widely criticized for allowing more than 9000 deaths when they had a year a couple of years a year and a half to prepare for that. That was one of her regrets even though she says she has very few regrets. She did say that she regrets getting more people vaccinated. But you turn the page to John Lee. He's a lifetime police officer the former head of

security. He was here her deputy and he was the only candidate that was endorsed by Beijing to be her successor. And she only served one term out of all the four previous chief executives. Not a single one in the past 25 years since the handover from Britain has made it through two terms which they're allowed.

It is a difficult job serving two masters Beijing and the people of Hong Kong. She pretty much acknowledged that John Lee he has a clean slate. He has a police background. Will it be more of a police state. That's the big question. Stephen we've got to get back to the markets as you well know but good to catch up and let us not be strangers. Stephen Engle. True and losing all of our reporting in Asia over the decades. Carrie Lam leaves as the leader of Hong Kong. Lisa we see the shifts in the Pacific Rim. We see the shifts now. And I guess we could center on a Japanese yen of substantial depreciation. Did you see what they did overnight that they they actually bought a record amount of bonds in order

to suppress yields. Back to that yield curve control. Two point two trillion yen worth of bonds that they came out and purchased according to the government records that came out. This just shows how hard it's getting for them. And you've got certain hedge funds betting against them and actually trying to short jeebies. But again that policy divergence is showing up in the ways that it can. And right now what you're seeing is that dollar is

reasserting its strength albeit tepidly. But still we're not getting away from that time even as people try to come in and buy this step. And clearly this is really important. And that from the market turmoil of yesterday to today. Yes there's green on the screen but it's remarkably fragile isn't it. It is. And you've already seen that borne out over the last several hours where futures have fallen off the highs of the session where it kind of just fluctuating here. There doesn't seem to be much convention really time across any asset classes. Foreign exchange included the dollar now fractionally stronger. The yen has been fluctuating since the overnight trade right around the weakest level since 1998. Strolling with the 120 handle right at

one point 2 1 0 0 right now maybe one of the international indicators with Italian paper as well. But to look at the U.S. market it's simple Lisa. I looked at the Bloomberg total return indices and bonds yesterday. They had a bad day. They got hammered. You can say that they got absolutely hammered and particularly in the credit space. This is a new trajectory. At what point does the Fed take notice

of that. At what point does that kind of create a bottom. In some weeks. They have to respond to it. A cathartic camera. It was a cathartic hammering Violet. Cathartic a loss for words. Tom Keene. Yeah we did it. Burning. The markets convinced the Federal Reserve Bank to become more aggressive if they're going to do 75 it's better to do it sooner than later. The Fed doesn't have much reason at this point to slow the pace of rate hikes for the next six to 12 months.

Things are going to be much more challenging. We still think the base case is no recession. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Good morning everyone. Jonathan Ferro. Lisa Abramowicz. Tom Keene. On radio on television is a Tuesday before a fed Wednesday and it is extraordinary the market

turmoil yesterday and in some ways different but continues today. Kaley lines in for John Ferro. Lisa the character of the market this morning different than 24 hours ago. It is it is more constructive than it was 24 hours ago where it felt like it was in freefall. But it is fragile. There is a feeling of a lack of conviction and a lack of full

understanding of what exactly happened. Yesterday we saw a sell off unlike what we have seen in a long time is a capitulation. Is it's for selling. Is it just buyers stepping away. People trying to pass that. But we're watching the grind of a low interest rate era in real time. LISA MILLAR Call it tea leaf Tuesday. Getting away from 75 beeps 100 beeps.

Lots of the tea leaves folks that we have. Bloomberg Launchpad Kailey Leinz is different than John Farrow's leases is different than mine. We all have our own red and green blinky Blinky Bloomberg. This is why people spend 20 some thousand a year to get a terminal. This kind of flow into us. And I'm looking at my tea leaf this morning Lisa Sterling 120 89. John Farrell may not be able to afford to return from Caprice. Well we'll see if he decides to

although he has paid in dollars. I just want to let you know that what I'm watching right now is actually the spread between 30 year and 10 year Treasury playoffs which has turned negative yet again for the first time in years in more than a decade. I find that interesting the sort of long term gloom not to be gloomy but a long term feeling that we could not be growing so much and this flight to safety. In the longer term with such uncertainty in the in the near term in 30 year that's price

yield down. Worrying about economic growth out there somewhere. It's a lesser high than 10 year yields which means that people are expecting growth to be slower over the long term in inflation to be slower over the long term and seek that haven. Kelly where do you see I want to get to our guest here. What do you see here. And then I'll do a quick data check to Lisa's point about those long term growth concerns. Just take a look at the Bank of America Fund Manager survey. Thank you. DAX fears at the highest. Going back to 2008 profit expectations at the lowest since 2008.

Global growth expectations at the lowest on record. What does Bank of America call it on the summer of Volt's summer. Volker Claudia some pushing against it saying this is not a Volcker moment. There are too many differences now. From 1979 1980 one of the of course is a bond bear market. A bond bear market is price down yield up. And we see that with a vengeance. Three point to eight on the two year yield 329 almost

inversion right now and the 10 year yield. Lisa will give you a great perspective on that. The VIX is critical to meet a 30 breach not to 40 not to catharsis but 33 points for it today with futures up 15 dollars strength RTX y 1 0 5. Bloomberg Dollar Index a deeper index confirming that yen 134 32. Euro 1 0 436 and sterling stunning stunning one twenty eighty nine. We

need a brief Lisa brief thirty a.m. the latest in a series of data having to do with U.S. inflation PPA ie the prices at factories pay for goods coming out for the month of May. The expectation is for a re acceleration because of what we saw in the CPI report on Friday. Food prices energy prices climbing. How does this pass along to margins of companies. They can't pass along the price increases as much as they could before. That is the anecdotal evidence. Do we see this turn into even weaker margins. At 11:00 a.m. President Biden is going to dovetail the message into the labor market. Speaking at the twenty ninth AFL CIO Quadrennial Constitutional Convention in Philadelphia Pa. how much can he pivot to these strong labor

market in the face of five dollar a gallon gas. And this is what a lot of people are focused on right. Really shaping the sentiment of many consumers. And today the Fed is kicking off that today meeting to discuss interest rates. I'm watching that two ten's yield spread. How much are we looking at a baked in scenario of recession that we have to respond to. And at what point does a faster than expected tightening cycle actually end up giving the market support. Because the Fed is trying to get ahead of what we have already seen the market tried to do for it. We do economics finance investment international relations and politics. And the foundation of this particularly in investing has been trading weather. Trading is for short term.

Trading is for long term. We're going to change the show right now and we can do that with Katie Kaminski chief research strategist Alfa Simplex who's having a killing year shorting the space. Katie I want to go back to what you've got tattooed your brain from a CTA crew which is and time Martin Gayle theory which is when you're successful you increase your bets when you're not. You have your bets. Are you utilizing in your record year of getting shorts. Right. Are you utilizing antique Martin

Gill theory to take bigger short bets. I'd have to say yes in the sense that we do really well when things are difficult when there's dislocations when people don't know what to do. And that's exactly what's happening this year. We have complacency. We have denial. We have fear. That is a perfect scenario where markets can be a little bit more behavioral and less efficient and thus falling. The trend is actually a very diligent and less emotional based way to actually trade such difficult markets. Are you able and I'm thinking of the work of Wells Wilder of the late 1970s and looking at something mumbo jumbo like ADX TMI. Does Bitcoin trend. Can you guys take a short on Bitcoin and extend it out

here at twenty two thousand right now. So I have to admit I don't trade Bitcoin because I'm a risk manager and there's just a lot of risk there. But what I would say if you did look at a trend signal in bitcoin is that it's definitely gone down quite a bit but you might need to see a little bit of recovery before we would actually consider that we're having a new trend. I mean I think that is a very difficult call but it has significantly reverted from what would have been its previous highs. Katie what do you know to close out your shorts. So we have a process where we're very much about focus on scene confirmation and data. So if you if I give you an example people have just been calling this peak of inflation. We say you can't call a peak until the peak is over. And so I think this is an

example. People were too early to call the peak in inflation. We're going to start calling those type of peaks when we actually see that the market confirms that they are going down or that prices are going down. So Katie if it's too early to call the peak in inflation is it too early to call the bottom in the equity market. Certainly. Unfortunately that's the case. We need to see more confirmation that we're kind of starting to see some sort of recovery. I think it's easy to react. And one day's news particularly a day like yesterday we may have some reversal but we do actually really need to see some confirmation instead of just reacting to one day. So what are you looking at specifically in the data to indicate that we are seeing peak

inflation. You're saying you have to look for confirmation in markets. What are those signs. I think the biggest things that we look are empirical trends in asset prices. And what's interesting right now is that you're seeing very very similar patterns to what we saw during a rising rate environment. And I think what you said earlier in the show about is this the true bottom of the falling interest rate environment. What we have seen is that we're going to tend to be short in a rising rate environment particularly where we're going close to an inversion type point where we're moving into a more recessionary environment. And those are particularly the technical signals we've seen in bonds. And this is actually quite interesting because during those environments our strategies are going to tend to be 70 percent short bonds. And if we move into that

environment we're going to see a lot more short bond signals over the next few years. Is it a crowded trade. I mean you're in a trend based. Clearly you've hit the ball out of the park this year. But are you concerned that everybody's on board with Katie Kaminski. I mean that's always a question when you're a trend follower and you follow the trend. You got to get out the doors. But the truth is very few people are comfortable shorting bonds and very

few people have been comfortable with the trade. We've had this year. And that's I think why it's been such an interesting year and a trend follower because we're doing things that haven't worked since 1994. Very quickly are you levered up. I mean come on. Even you know nobody's listening to you. You could tell me are you 3 to 1 20 to 1. Are you doing a 1998 redux. No. I mean we're we're definitely risk managers in the sense that we run it about 12 vol which is much lower than what you'd see in the S&P if you looked over a long horizon. I think it's about diversification and finding opportunities across the entire spectrum of bonds across a large geographical region and really sort of falling macro trends with an eye to many different traits. Katie Kaminsky thank you so much. Greatly appreciate it. And congratulations on getting so many facets of this market right. Lisa we got to go to what we do which is not trend trading and not CTA work but just looking at the Bloomberg total

return indexes and I'm sorry the phrase log rhythmically folks on the y axis is yesterday was jump this year. Yes. It's starting to see some of those series. It's a new regime. I keep saying this. We don't know when we see the peak in yields. We don't know when we've seen the full reset what the scope of it is going to look like if suddenly the market is pricing in the end fund Fed funds rate the Fed funds rate peak of 4 percent or north of that by next year. How does that reset valuations that have gotten accustomed to a zero percent Fed funds rate. This is uncharted territory in a way that so many people are unprepared

in your life. Why are you laughing. Oh the language today is just too much. I've gotten more mail on cathartic puked in three years. Please say something intelligent while I give Lisa the number she wants. Well as I listened to Lisa talking about all the uncertainty out there all the things we do not know maybe that is why we see so little conviction in the market this morning. What does an investor do after a day like yesterday as brutal as it was in S&P 500 and bear market territory. What do they need to see to have the confidence to dip their toe back in. Because that confidence. Looking at futures Tom seems like

it's waning as we get closer to the opening bell. Lisa just did the Bloomberg total return index draw down sixteen point nine percent in the world. These are bonds. They're supposed to be safe. These are supposed to be areas of capital preservation. And you're starting to see the outflows. You saw that from al-Qaeda. It's the biggest investment grade high bond index. And you know you saw record outflows when you say bonds are safe. My grandfather would throw his blues Standard and Poor's bond guy that they are not safe. Futures up 9. Stay with us. Keeping you up to date with news from around the world with the

first word I'm sure you could get to. President Biden will travel to Saudi Arabia in July and meet the country's de facto ruler Crown Prince Mohammed bin Salman according to an NBC report. No immediate comment from the White House. Biden once promised to punish Saudi Arabia over its human rights abuses. The

possible trip indicates his drive to lower gasoline prices and isolate Russia over its Ukraine war spending power. UK households fell the most in more than 20 years as wage increases were eaten up by the false inflation in decades according to the National Office for National Statistics. The figures show how pay for most workers is failing to benefit from what is the tightest labor market in living memory. He's been a member of Bloomberg News. His bureau in Beijing was released on bail in January according to the Chinese embassy in DC. It has been more than one year since she was detained on

suspicion of national security violations. Tom Keene is said to be under investigation. Bloomberg editor in chief John Micklethwait said quote We will continue to do everything possible to help her and her family. Two Wall Street banks are withdrawing from handling trades of Russian debt. The Biden administration said last week it's banning U.S. investors from scooping up such assets. JP Morgan Jason and Goldman Sachs was still matching sellers who wanted out of the debt with buyers. The US Treasuries Office of Foreign Assets Control says U.S. investors aren't allowed to acquire them globally 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm two could get to this is Bloomberg.

The Fed says a 50 basis point hike is coming. The Fed is tel

2022-06-20 01:24

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