BOJ Shocker | Bloomberg Surveillance 12/21/2022
It's clear that Bank of Japan is next year. It's the end of an era. And investors have to get used to higher interest rates across the curve. Eventually this is going to buy and
inevitably when the recession comes, spreads are going to widen further from here. The global economy is likely to be heading into a recessionary path. I think we're in a rolling recession or we're going to get one. That's a door cycle. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It is the end of an era. It's my last shot ever of 20 to 23. He was getting excited from New York
City this morning. Good morning. Good morning with Tom Keene and Lisa Abramowicz. Welcome back, Lisa. I'm Jonathan Ferro.
Equity futures up a half of 1 per cent on a S&P 500 TKI. We can finally talk about some company earnings. FedEx, Nike, IBEX this morning. You you lead with us will do a lot in Japan. Talk about the show yesterday and the path forward for Japan. But you're right, there were some earnings and I looked at FedEx very carefully, the guidance ballet, but the stocks pretty much answered. I mean, it wasn't it was like, okay.
You want good news? It wasn't a repeat of September because September was pretty brutal for this company. Although if you look under the hood, it was fascinating. They raised costs and they cut costs. They raised prices and they cut how much their expenses were. Volumes were down. This doesn't necessarily indicate a healthy economy.
What indicates is to your point, Tom, companies adapt in adjusting with adapting existing means as classmates and higher price. Mark Gurman anecdote here. The cardboard box pile up outside my walkup. I've never seen it.
This is a guy you dated, isn't it? It's a it's got to be 30 percent bigger than the pile last year. It's that time of year, though. IBEX isn't right. But I mean, anecdotally, I'm with Bill Dutton as his daughter today. I think you don't like fifteen Eastern Time. He darkens the door. That'll be good. To Lisa's point, though, you can say the
same thing about Nike. I think another inventory buildup, which may be of concern to some economists out there, perhaps that feeds into this idea that you get more goods, disinflation, but at the same time, sales profit better than expected. So consumers can spend they are being perhaps a bit more cautious with how and yet a lot of these companies are still able to raise prices again. It flies in the face of the narrative that there is some sort of bigger concern.
And Nike, up more than 12 percent this morning, will pick up on that story a little bit later. Futures right now up a half of 1 percent on the S&P. Has the price action for you. What day is it? Wednesday morning. It's Wednesday morning. Stay focused.
Just stay focused like a Friday at Simone Foxman DAX 10. You it's a 360 787. It's not you. It's unchanged in the affects market euro dollar negative a tenth of one per cent, one of 616. I noticed in Japan some the 10 year getting close to that upper limit of the band. We're getting close to 50 basis points. So all of our team yesterday was
yeoman's duty. I'm talking to you about this historic moment for Japan. I think it sort of dawned on the American financial media through the morning and even into yesterday as well.
In my major masters there, John, is there is follow through this morning. There's a dawning awareness. This was a big deal. And as you mentioned, yen comes in stronger right now through 133 through 132, 131, 85 at Lisa, the Japanese 10 year, zero point forty seven per cent this morning. I just found the story fascinating. I'm sure we'll tease it out throughout the day. But some of the biggest moves that we've seen this decade, not only this decade, but since 1998. All right.
Here's a world hang out today, 10:00 a.m. we get November. U.S. existing home sales as well as December Conference Board, consumer confidence data. How much do we get a sense of the
slowdown in the housing market? The data has been somewhat mixed, actually, of late, although existing home sales already at the lowest going back to May of 2020 cannot go much further. Today, the Embankment Freed has agreed to be extradited to the U.S.. The expectation is he will fly back, accompanied by FBI agents. And then the hearings begin about what his guilt is and whether he will serve potentially the rest of his life in jail. At 2:00 p.m., President Biden is greeting Vladimir Zelinsky, the president of Ukraine, on the South Lawn of the White House for thirty p.m.
press conference. Vladimir Zelinsky is asking are expected to receive two billion dollars as well as certain weapons, a system. That to me is going to be fascinating to see, John, how much they get some of these high tech missiles that can potentially blow Russian missiles out of the air to defend themselves. Do we find out more about what the strategy is heading into the winter? Lisa, thank you. Thank you very much. Fantastic to have Lisa back, T.K.. There is a belief reports out there that this meeting doesn't take place without a big deliverable. And that delivery this morning is
expected to be that Patriot missile would supposed hatred as well. It's a good morning for Raytheon. I've been informed by people, way, in the know on this there are different kinds of Patriot missiles and you've got to wonder which ones were delivering it and they're there what they are. But they're maybe not the most sophisticated ones. We'll get some detail from AMH in about 10 minutes time down in Washington, D.C..
Joining us now is Brian Weinstein, the head of fixed income at Morgan Stanley Investment Management. Brian, your words this morning, risky assets are overly optimistic that the Fed pivot will come before the. Brian, is that optimism misplaced? Yes, I think it's misplaced. I don't think it's will Paul Allen in this place. I mean, people always get images of 0 8 in their heads, but the market always wants the easier path. And it's just it's not that clear to me. It's coming. If you that Fed statement now may be
overshadowed by the DOJ was very hawkish. And I think the pivot will come next year, but not until risk assets have given up a little bit of the gains we've seen them make. It slowly started in equities. Brian, what 60 40 do this year? One of the great hallmarks of the last 24 hours is its weirdness. Equities and bonds tanked. Bonds have to come back.
Is it a year of clipping coupons or can you find total return? I think it's a year of clipping coupons plus a little bit. I'm not a big believer. We go back to, you know, 250 on 10 year notes or that the Fed eases right back to zero. But I do think that the income opportunities out there are real.
So I think you get income. I think you can buy 10 year notes in this kind of 375 ish range. You can get income plus a little bit more. So I think it's a decent year for 60 40. It may depend more on equities than bonds, but I do think the income part of bonds will do very differently than it did last.
I think you I've got a good understanding. I'll see if those reaction we had the incredibly low yields, money for nothing, money free. And we saw, you know, these hilarious bond tranches by tech companies. What is issuance look like when money actually costs something? Issuance slows down a little bit. I mean, again, I think it depends how quickly the Fed pivots. One thing risk assets may be telling us is that they can hold out a bit, right? No one has to refinance at 10 percent on high yield bonds or something.
Some folks do, but most don't. If you can wait a bit and rates normalize and spreads are okay, you can refinance at 6 7 percent. So you don't measure up as much. Don't borrow as much. And so I think issuance will pick back up. But it's not the same as when rates were zero. Right. There's zero point to buy tranches or,
you know, under one percent. Tranches were just too good to be true for four companies. I don't think that's coming back. Brian, throughout this year, people were talking about the risk factor that China would reopen. It would cause more demand and more
inflation and at the Bank of Japan could potentially drop their yield curve control pegs and that would cause massive disruption and much higher yields. Both things appear to be having hints of happening. And yet this market is chugging along. Yes, there was a bit of a disruption yesterday, but not as big as many people would have expected. What do you make of that? Yeah. If I was I was surprised yesterday, seeing that look back and wonder why radio back when the U.K.
mini crisis was happening and yields were spiking. You know, that kind of price action was what people expected when Bank of Japan did this. Now, if you look at their yield curve, other issues, you could argue that the market had sniffed it out. Right. There were issues that were trading recently higher than the peg. And so maybe it was just more in the
market. But but maybe that is what it tells me, is that we've seen our highs in yields and thus we have some other shock, if you would, if you had told me just what you said, that China was reopening more and that Japan moved their peg in the 10 year notes went from 340 to 370 and they'd been for a quarter, I would have yawned. Right. It's not the story that people wanted
today. So we know the market to sleep and it's quiet, which I guess is possible in December. Either that or the market has sniffed it out and it's in the price already. And we're moving on to something else. It's very interesting to me. I would agree with that, especially because the theory was that Japanese investors had piled into U.S. treasuries and would withdraw completely
and go back home as soon as there was a sense that there could be a free floating type of bond market. Granted, they haven't done that. They've just adjusted the yield curve control a sensibly. Do you look for some other indication that we have seen the peak in yield? But this isn't necessarily going to be another shoe to drop? Or do you think that the jury's already come back with that verdict? No, I definitely lean towards the fact that we've seen the highs and yields, because, again, I think you look what the bond markets are telling you, it's telling you the Fed is going to win the battle against inflation.
It's showing you growth is is falling not disastrously, but definitely going well within. The Fed told us that and we were their prediction is for for next year. So there's there's a lot of reasons why we're looking through this maybe and into lower growth and lower inflation. So, yeah, it kind of gets rid of your list of what you thought might drive yields higher. I think you'd have to see GDP numbers surprise consistently to the upside. And in fact, that's good. Maybe they don't have to go to 6 percent, but they could stay at 5 all next year. And then you have to reset rates higher
again. But I don't think we're happy going to have information for a while and I'm actually not convinced it comes. We want all the excitement up front, some all at once. It takes time. I NIKKEI and you've got a new upper
limit to that band is 50 basis points. We've got to see if that gets tested. The upper limit off the band in the next couple of months and when Governor Kuroda exits and someone new comes in. Yeah. I agree. It takes time. And it's also about flows. It's not just an interest rate analysis,
it's about what do the Japanese do with the amount romantic cash abroad. Some really smart notes over the over the the night, rather. Are they good? George Servo said about yen strength from this wall of international money that will return to Japan.
We can catch up with Eric Nelson of Wales a little bit later. 125 dollar yen as a major call. Yeah, 25 from where you want to. 50 on a non-linear basis. It's amazing.
What do we do after 125? I mean, I don't see people really framing out one 18, 115, 110, but I would suggest it's non-linear and the easy move has been made, 150 to 130. Ryan, cost squeezes in. Just quickly, I want to talk about Europe. We talked so much about the big Jan the last 24 hours and what has or hasn't happened to its base. The Italian 10 year before today was up more than 50 basis points, the two year rather, over four sessions. Not just the Italian here at the front end of Germany, the two year, they're up almost 40 basis points over four sessions.
But these are real moves. The people talking about the end of the shift, higher in bond yields. What's happening in Europe? Yeah, I know Europe is it's interesting, I mean, a very hawkish ECB and an ECB that really control like those bond markets. So listen, you hear a lot of things about me.
What if what if the Japanese investor stops buying treasuries? I'm fairly confident the Treasury will get funded. They're liquid. They're the world's benchmark. Whether it's good or bad, it's a different a different story. I think the way you can see more trouble is in the risky assets in Europe where the markets haven't functioned as well, where the ECB has been a bigger player as the big moves there. But but it's not as obvious to me that
those moves are over. Hey, Brian, this was great. Fantastic to catch up. What a move from the unexpected coming into the new year from wasting that of Morgan Stanley.
Take a look at these scenes in one SRS. Four million people descending on the capital of Argentina hitting the streets. Tom, that was meant to be this open bus tour parade of the World Cup with a team that got abandoned pretty quickly. And the players had to move to helicopters to complete set because the open top bus couldn't move until Wednesday. No way. Right, John? They're playing their real job, their day gig on Monday or Tuesday. Premier League and Con Europe commences again. Yeah, Monday like Piers choose not in
the Premier League right now. That's the French League. Do they play each other? That would be former us in Liverpool, like the Champions League. You describe to the Champions League. Is that so good? Just reinvented the Champions League. That continues. I think
the Premier League better than World Cup. You prefer my league. I know there are some people that think the actual quality, the football might be better at the club level at the title upper tier of club for even better. There's Champions League the.
So we can talk about the ratings. The ratings are in those numbers next. Right now, NASA's coming up shortly, 7:00 a.m. hour. So in about 45 minutes from now on, this
B O J decision, he's got things to say over at Wells Fargo. Keeping you up to date with news from around the world with the first word news. I'm Liane Guarantees. President Biden will unveil nearly 2 billion dollars in assistance and announced moves to deliver a Patriot missile battery to help Ukraine bolster its defenses this winter. The US State Department says Iran shipments of drones to Russia for use in the war in Ukraine is transforming relations between Tehran and Moscow into a fully fledged defense partnership.
Ukrainian President Vladimir Kailey Leinz, he is travelling to Washington today to meet with Biden and also address Congress. It is the length skis first trip outside of Ukraine since Russia invaded back in February. Now, Chinese President Xi Jinping has told former Russian President Dmitri Medvedev that his nation would like to see talks on Ukraine. The remarks come as Beijing tries to improve ties with Europe. State broadcaster China Central Television is reporting she told Medvedev that his administration has been actively promoting peace and also talks. China has avoided criticizing Russia over the war in Ukraine.
China has confirmed it has narrowed how it defines a Covid death. Counting only victims who tested positive for the virus and then died of respiratory failure. The decision adds to speculation that China's low official tally is hiding the true picture of the chaos unleashed by this month's abrupt pandemic pivot. The entire country has reported fewer than 10 deaths this month. Global news 24 hours a day on Bloomberg.
I'm Liam Gavin's. What are the real needs of the country right now? Making sure. The Defense Department can deal with the major threats coming from Russia and China. Providing assistance for Ukrainians to defeat the Russians. That's the number one priority of the United Food right now. President, the landscape heading to Washington, D.C.
That was Senate Minority Leader Mitch McConnell from New York City. Is the price action for you when he S&P 500 snap in a four day losing streak in yesterday's session? Just about equity futures right now up a half of 1 percent on the S&P and the bond market yields unchanged at 368. Tesla up by just 1 per cent, was up by more than that on the month so far with yesterday's losses of eight per cent with down by, yes, 29 per cent month to date on that stock. Tom, with all this speculation swirling as to what will or won't happen with the leadership over at Switzer and ultimately what it means for the leadership at Tesla, I'm glad you bring this up, John. We got a damn rare. But but what do they do today? What does Tesla do today after the price action? Just one report just came through from electric Tesla to implement a hiring freeze and another round, a new round of layoffs, Lisa. So these reports keep coming through,
but at light, they've been talking about this. I think investors of Tester would like to hear from the company and not just these reports from different major organizations. They'd like to hear from the company directly at this point after the weakness we've seen, particularly over the last month. Who is running a day to day? Are the concerns you're seeing in stocks truly due to anything fundamental with how the company is being run in with respect to some of the demand issues that you're seeing over in China in particular? Or is this due to potentially some risk tied to Twitter and Elon Musk's focus there and what the collateral could be of Tesla shares for some of the Twitter NASDAQ? I think the question that Ed and I've been exploring and others as well over the last couple of days, last couple of weeks, have a leadership problem over there or just a macro problem. And does the stock have a leadership
problem or just a broader equity market issue? Because I go through the names, listen to this matter. Yet today, that's 65 percent. Apple is down about 25. Amazon's down 49. Google's down 38.
Microsoft is down 28. A lot of these big names, big tech names, if you want to call test of that, maybe you don't want to. But a lot of these names that have had weakness off the back of higher interest rates. They're all in the same grouping, aren't they, yet today? You could say that. But if you look at the actual correlation of the price action to some of the drama around Twitter, the correlation is pretty direct.
So there is a question about the reputational risk. And Dan ISE, I know he spoke with you about this as well. How do you tease out the man from the company? If the man is really represented and sold the company and really created the fan base that drove Tesla to what it will turn super bullish on the stock still, Tom, and that's been pretty clear it once Elon Musk out at the Twitter situation and focused on Tesla. I think it's gonna be difficult, difficult to make that happen. Even if he steps down as chief twit as he calls himself over at Twitter. And then still a new leader because he's still got to be heavily involved in that company.
Seems to be a lot of damage, as Howard put it, particularly over the last month. You know, I talked to her. Auto guy at Bloomberg News. And he was he did hear the competition coming. Tesla's woes is huge. Like 20 cars show. And look at the manufacturers in cars. Look at the American car manufacturers this year. They haven't done well either. Those stocks are really suffering
because they don't have tassels on the back of Patriot missiles to get to the Annmarie Horden. Give us a brief this morning. This is really interesting news. Missiles, well, an X number of millions of dollars. They're on the back of a truck. They take a lot of staffing their fancy. And, of course, the memory of the Gulf
War when Raytheon launched these what are considered wonder missiles by defense experts. Emery Horton, how many of those missiles will Ukraine have? We're still getting details on exactly what will be announced. We do know that the president is going to be announcing that they are sending these Patriot missile batteries to Ukraine. Ukrainians will be the ones that are staffing them. They're U.S., according to a senior administration official who briefed US reporters last night with the news that President Zelinsky will physically be here in Washington, D.C. today. The fact of the matter is, they said
they're not changing their policy of troops on the ground. But Zandi has been pushing for more high level defense weapons and he's getting them today. Those missiles be able to land in Russia or take out missiles launched from Russia. I think the idea is that these missiles are defensive, and right now what you have seen and this is why Zelinsky has been pushing for it so much, is really a barrage of missile and drone attacks on critical Ukrainian infrastructure.
We've talked about it a number of times. Many analysts have said it and it is playing out every single day in Ukraine. Putin is weaponized this winter. He is really starving civilians of the power and the energy that is needed. And this is something that is critical, obviously, and the very harsh cold winter months in Ukraine, especially eastern Ukraine, where the fighting continues. And that's where Zelinsky was yesterday. So, Tom, these missiles, the hope for the Ukrainians that they'll be able to shoot them down and directly hit Russian aircraft and missiles.
Anne-Marie, we've heard about Patriot missiles being delivered to Ukraine for a bit now. Why the significance? Why the importance of Latimer's Lenski coming in person to Washington, D.C. to meet with the president and lobby the cause? So this is incredibly significant. And to be honest, I think many,
including myself, were in shock. He's leaving. He's leaving a war zone. He was just in back mode. Like really central area of Donetsk of fighting.
Yes. Just yesterday, he was handed a Ukrainian flag by the soldiers there. And actually, he alluded to his trip and many didn't see it, saying that he is going to pass this on to U.S.
Congress and the press United States for their support. It is coming at a critical time. I've mentioned once, once because of, obviously, the weather. Ukrainian officials have also been telling the press that they do believe that come just as soon as January, maybe February or March, if it's later, that Russia will attempt a fresh take on Kiev, especially from Belarus. Is on the heels of President Putin being
in Minsk just earlier this week on Monday. And then a second. This is really Zelinsky, his appeal at a joint session of Congress this evening. Two Republicans that are taking over the
House that have said they do not want a, quote, blank check in terms of funding to Ukraine. Right now, we're also hearing about Xi Jinping, that meeting with Medvedev of Russia on the other side, urging for talks, urging for peace. How does the U.S. give aid to Ukraine without seeming like they're moving away from that kind of reconciliation and being more antagonistic than defensive? Why did the United States has said constantly nothing about Ukraine without Ukraine, so they would welcome peace talks.
If Putin was going to leave Ukrainian soil, as Lansky has said, the US has always been sending funding. I don't think the Patriot missiles or the extra 2 billion funding the president, nearly 2 billion the president's gonna announce today has really changed that calculus. This is something that they have started since February 24th when Russia invaded. What is interesting is China's tone yet again shifting slightly and directly to Dmitri Medvedev. He is the former president of Russia. And what Xi Jinping is saying, and this is almost an olive branch as well to the Europeans and the United States is that China wants peace and they want talks.
And he's saying this directly in public, too. You know, really a key Russian player, maybe not so much inside circle of Putin yet, but he was Russian president when Putin stepped down and and became prime minister for those few years. And just quickly, you were at the G 20. It was like to me that since the G 20, there's been a real shift from China just in time with the rest of the the West. What happened over the. So you're 100 percent right. There has been a shift in tone still. China has not come out and condemned the war, but what they have done is they've signed on to the communique that said most of the countries at the G 20 are against this war of Ukraine.
They allowed that line. They didn't name which countries were there, but China allowed that. And China has continuously said they do not want to see a nuclear war. They do not want to see nuclear weapons
being used. Obviously, this is something that Putin has continuously flirted with in terms of his language of maybe digging into his nuclear arsenal. China is questioning without directly saying it. OUTFRONT, Russia's plans.
And we also saw that moment as well. When Putin said to Xi, I know you have some questions and concerns, AMH, Dan RTS, Emory, thank you. I think we can all feel that shift him since the G 20 in Bali for the Chinese leader. Oh, yeah. There was a feeling going into it that China might be isolated by the United States and other nations and that just didn't really take place.
I believe it's winter in China. Can you imagine the weekend, a template the president faces from President Xi on Covid? No, nothing. I'd just like to get to Monday in China. I would suggest it's a medical check. I hear you on some of this.
Christine Nelson, the chief investment officer over at Deutsche Bank. Private Bank. Wednesday morning, every day this week is Friday, isn't it? As we approach Christmas Day, some just you know, you like to leave an hour early with it Kevin Cirilli for 30 minutes early.
Shery Ahn up. And you see VB just showed Logan Airport in Boston. It's like, you know, the holidays started at this camp is a packed, amazing, you know. You know, listen, I can do this. You know, I'm confident you can.
I'm confident you can go solo. Like home. I gotta go. I got people on radio talking about my car. I wore this for you.
It's my festive, you know. So what's with that? Was the story behind that? It's a festive coat. I was with Christine Lagarde and she was doing the hounds tooth thing. And she said and she said, great idea. Oh, strobe on TV. Yeah. It already something works out.
One thing, Max ISE on my return monitor, not striving, but I'm sure there's someone at home that's just seen these girls waking Amanda Lang. I was gonna wear my Christmas sweater sweater. Liza has the ISIL. Um, aggregate demand. Aggregate supply. Jihye Lee. Shery Ahn. Yeah. Yeah, exactly. It's like you.
Have you actually got one of those. Yeah, I do. And then you know, after the fifth mince pie. A mince pie. No, there's a supply.
I'm sure you're about say so. It's a pleasure. I think it's the ISIL mince pie supplies. If everybody's gone, is everybody kind of scrambling to get back because the year didn't end? Because there are these random shocks now. Okay, it's over. When are we back altogether? 2023. Ali, January cut my equity futures right now. An S&P positive by half. The most disingenuous gain weight of
everything I say is genuine. All right. I mean, it is truthful from the bottom of my heart. Oh, dear lord, if I can find it on the NASDAQ of a third of one per cent in the bond market. T's tens and 30s slipped like this year to year. Just some fantastic calls from Mike Schumacher of Wells Fargo yesterday. He's got two year nominal yields.
He thinks in the next few months we can get back to the high force right now, the two year, 423 38. He thinks on a 10 year, 10 year can get back to 425. He thinks real yields are going higher as well as a big call from my macro. Hopefully right now, Singh could touch
on that a little bit. Likes it. Some lots of nuances as well. I mean, it's just no question about it. Christian halting with us with Deutsche Bank, along with Michael Schumacher. And so much of this is just the different views, particularly institutional quiet money views. Christine Naughton joins us right now. Christian, I just want to know what 60 40 is gonna do next year. I mean, the serious quiet money, John, ferals for one K has blown up to smithereens. I mean, how do we get back?
Well, I think a very good question, actually. And I think what we have seen today is that the so-called traditional asset class of 60 40 have been going the same direction. Are you down? And I could imagine it's staying the same direction for next year, but slightly up. So we call it the recovery of the 60 40 probably for next year.
Why we think there is a recession both in the U.S. and in Europe. From that point of view, we think years could go lower from our perspective. So that would be positive. GROSS If you look at the return and on equities, we are also cautiously optimistic, especially in the second half of the year. So let me from that perspective is not too bad as this year may be.
What do you see from the huge sell side analysis in your internal corporate analysis, not only Deutsche Bank, Europe, but Deutsche Bank Global? What is the tone of corporations this year after we saw Federal Express and Nike in the United States? Well, I think it probably the next year could be really split in two halves, right. If you're going for a recession, I think companies are also cautious. And from that perspective, you would see also the next earnings season from Q4 and then in January that there's a bit more cautious net that could weigh on markets from that perspective. But I think in the second half of the year, as I mentioned, if we are behind recession and we are not going for long dated many quarter recession, then the outlook should really improve and maybe a bit earlier. Even so, if the market is discounting that. So from that perspective, I talked of this to half of the next year. A lot of people are talking about the
two halves of next year and that kind of hinges on the weakness coming through in the first half of that of the year. What are you looking for to determine whether the thesis is accurate in terms of the earnings disappointments, in terms of the response in markets? Well, we look especially of earnings expectations, right. If you get the real numbers, you always have to check what's the market has been thinking. The good news in a way, a comparison to last quarter. Now earnings expectations have come down a bit. I think that's honestly a positive sign. But if you're right with the recession,
then probably we have to lower this a little bit as well, or the market has to lower earnings expectations from that perspective. And so I think that's important on the one hand. And then if you look at top down from the macro perspective, of course, you look where inflation is stabilizing or what is inflation really turning. And I think the Fed has said it. They will want to see not only one,
let's say, spot, they want to see two or three consecutive months of inflation coming down. I think that's from the macro perspective, very important to watch. Here's what's really for. Trading me. Christian, everyone's coming on and
saying this. So it seems like lower earnings expectations are pretty much baked in. People are saying they're expecting lower lows so that they can go in and buy so that they can enjoy the second half and see those gains and they're expecting some moment of panic.
Except we've seen all of the panic instruments at least that people were putting out this year from China reading to Bank of Japan, potentially changing their yield curve control. What will it take to surprise? What is a consensus right now of a lower first half and a better for second half? Well, I would say honestly, I'm not thinking we are going into a panic mode. We have been saying there is a recession quite early, actually. And if that's the case, yes. But we have also been saying that this
recession won't be long last for very long. I'm not sure we really see the lows we have been seeing already. So we I think we also agree is that we can see a lower market. But I think when then we have to be very disciplined and say if the outlook is correct that there is not a long recession, then we need to use it as an opportunity. And I'm sure if everyone sees the market
coming down, it will not happen. Right. We know that I'm a Christian. I've been reading a note here or Lisa's talking from Dana Telsey use claimed in retail. And it's a Nike intimate Christian. It looks like a repeat of the quarter
before and the quarter before that. We're and you've been great about this measuring. You know, it's just not going to be as gloomy as we see. Let's take one company in America.
Granted, it's a fancy brand. And is it? You know, I should ask him if it's Adidas or Adidas. I don't think we waste time on that. The Christian the basic idea here is, are we overdoing the gloom? Dana Telsey really pushes against that this morning with Nike. I look, I think people are surprised if
it's not that bad. As I said, we are not forecasting deep and very long recession, but let's not let's not be too optimistic. Right. I think the environment is going to be tough. And from that perspective, we should really be not too optimistic and say, let's forget about this. Everything will be fine. It will not be.
I think it will not be an easy year, but there will be opportunities. And to answer your first questions, Adidas from Adidas is learning every day. I like to adapt to my surroundings. I call it Adidas while I'm here, but I can't find a flex. I would also say in the UK we used to call Nike Night. Really? We called it Nike growing up. The interesting. Well, I've attempted here too, and I'll
call it Nike mainly because people don't understand me when I try and buy clothes and shoes and stuff like that. Questions like why am I doing this? What a Christian. Seriously, what's the value of cash with all this? I mean, you guys are pretty optimistic and you know, I'm there. But what do you do with cash that actually has yield? Well, actually, look for for a long time. I can tell you in your book, right, we had a lot of cash on the accounts because there were negative rates and we could avoid them for the claims if we have them on our discretionary counts.
Now we've moved the cash into a short dated bonds because now you earn something there, which is a massive difference. So a year and this year, clients will see much lower cash positions than their efforts in last year. Still, I think we can if we look at money market funds, we are still ready to deploy them probably in the first or second quarter of next year. Given the view we have given that a lot
of people are talking about this, you see another rise in rates, especially based on the latest moves, the hawkish move from the ECB or what happened with the BMJ. We do see a slight rise in rates because I think inflation will be sticky. So everyone is talking about inflation to come down, which we agree with. And probably we've seen the trend changing in the U.S. already.
Maybe in Europe, it's coming only maybe next month, maybe in February. But I think the market is then too optimistic that there's only a we to a very low level. We think inflation will be higher. And I think once the market is realizing this, we could see slightly higher rates. But again, as I said, it's probably
still interesting to go in the fixed income space because we don't see not by far the same move as we have been seeing this year, which I think is not a difficult forecast to make. Christian, this was fantastic, sir. Happy New Year to you and have a wonderful Christmas. Thanks for joining us, Christine. Noting this theme to you to watch a bank with a beautiful German backhand. They're just fantastic. Added Haslinda Amin, just like you just. Yeah, I loved that. You know, it's got a great outlook. Mark Purvis of TALKBACK and it's got a
fantastic word like three days ago. So you talked about that first half, second half story. Marcus having none of it. Year round, 23, 36, 50. He's looking at the structural disinflation of the last decade think tank think globalization replaced by the structural inflation perhaps at the next decade. Think reassuring, CAC, discipline, energy, mining, all of the above and tight labor markets, Tom. And that's the sticky inflation called Lariam was making with us just yesterday as well.
Looking ahead to next year and beyond. I disperse it down to where Stuart Kaiser is. I think it's the smartest note I've seen in 72, our diversity group. It's real simple. What you just said is a narrower group of successful companies. No, it's not my job to pick those names, but fewer will win is where I am. And it's not gonna be big tech, which ultimately is the call it RTX is making over Kathleen Hays some. By definition somebody is going to win,
but Marshall will lose most if I don't like the name. Yeah. Is making a point, Tom. That is about outsourcing. It's not about indexing. It's not about sitting there at the passive level in a market. Can't wait S&P 500 because she just doesn't believe that techs can repeat the Guy Johnson the previous decade. It's not our job to give opinion on
this. But is this finally the year or the era where active begins to compete? That's the real question, Rameau. How many times have we had that? I know it's it's still I struggle with the idea of what does active mean. You're talking about just factor based really on your talking about specific security selections.
There is an issue with that. There's also an issue, though, right now with the idea that everything is getting rerated where suddenly this idea that money isn't free and that that's a complete stock re-evaluation if you see that stickier inflation that has not been priced into the market right now. Equities are expecting some sort of return to a low rate environment and a lot of fixed income gains as well. And that is one of the biggest question
marks of next year. Mohammed said yesterday on the program will not come back to it. We're just not going back to it. And the greatest message I got yesterday was that it's the end of free money and it started with Japan and ends with Japan. And that's why that move yesterday was so important. We're working our way out of 20 years of this, and we've seen that happen in a big way in the last year. You know, there was a there was an
article that I read this morning that when the Bank of Japan came in there to buy bonds, usually people here they go again with this. It was welcome this time because they were wondering when a buyer would actually step in because everyone wanted to sell at a time when there's a question about the need for yields to go higher, be quicker, because they're not doing math today. But I want to be careful about active in R squared analysis. I mean, the idea is an index funds at one. And if you're on point nine to your fake index fund, I'm looking at it ARC investments. This has worked out as they can. The R squared is a seventy seven point
seventy seven. It's down 66 percent, 12 months trailing. So you've got to be kidding me. Got to be careful about treating all act the same. I just tell you, my favorite moment, the morning was when you said, you know what, Lisa was talking. I was reading.
I was listening. I was listening. This. No, but where the research is coming in, in real time. Yes, people are working. Everybody makes you some. I love my job.
So let's just say this is never this is never work. This is reaching. You get. You get the matching luggage and the people signing the check in, listening to. What I cut expenses thirty eight thirty
Eastern Time. This is a conversation you do not want to miss. The German finance minister, Christine Linder, sitting down with Bloomberg's Maria today. I take to your point. Yes. Not over for the Europeans. There's a lot of work still to be done. It is an important conversation. Keeping you up to date with news from
around the world with the first word news. I'm Leon Guarantees. A US House committee has voted to publicly release Donald Trump's personal and business tax returns from 2015 to 2020. It caps a three year legal saga initiated by Democrats to obtain and release the former president's closely held financial documents. The vote comes in the waning days of the
House Democratic majority and follows Trump's referral for criminal prosecution by another House panel. Now, federal authorities will whisk embankment free to the US to face a range of criminal charges related to the collapse of the FTSE crypto exchange. Bloomberg has learned the FTSE co-founder will sign a set of extradition papers today and a Bahamas court and take a noncommercial aircraft back to the US. Escort her to fly. FBI agents global news 24 hours a day on
air and on Bloomberg Quicktake ISE million gallons. This is Bloomberg. It's clear that Bank of Japan is a hike next year.
It's the end of an era. And investors have to get used to higher interest rates across the curve. Eventually this is going to bite. And inevitably when the recession comes, spreads are going to widen further from here. The global economy is likely to be heading into a recessionary path. I think we're in a rolling recession or
we're going to get one. That's a door cycle. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. What a year it's been. Live from New York City this morning. Good morning. Good morning for our audience worldwide with Tom Keene and Lisa Abramowicz some Jonathan Ferro. This is Bloomberg Surveillance. Equity futures up six tenths of one per cent, recapping a phenomenal 2022. And T.K. ready.
In many ways, it is the end of an era. The Federal Reserve delivering more than 400 basis points of rate hikes. The ECB going to places I never imagined they'd go to this year and the BMJ to close out the FTSE. Join again. I haven't looked exactly at risk free rate, but the bottom line is the end of the era for everybody in economics, finance and investment, it's all the same story.
Finally, there's a value to cash. There's a value to money. It is a return to where we were. I'm going to guess 13, even 15 years ago. ISE the return of discipline. Yes, absolutely. Debate into capital allocation takes
discipline. Exactly. All of the above. And that's why the debate for 2023 is going to be over whether we can return to that pre pandemic regime or not, or whether this, Lisa, is the new normal or as some people often tell me. It's just the old normal. Well, this is to me the consensus that we are going to return to what we are used to in the past, that there won't be some massive rerating in equities. This is, to me, the biggest question in 2023, because there are all of these issues, particularly with the deep globalisation or the sort of re globalisation that's going on.
I don't know what this world looks like and if stocks can really come out of a slump without some sort of sense of going back to a low rate environment. This speaks to the Fed pivot. If they do come next year, what are they coming down to? What's the new level? Because what we got used to push rates up a little bit, back down to zero. That's how people start to think about the world and fed tightening cycles. They can only go up to one, maybe two. They've got to stop at three.
Tom Keene. We're talking about this yesterday. Look how quickly things have changed in twelve months. We thought this year, 12 months ago, they were looking at a year.
They had 90 basis points as they're making up for 2022 race 3 4. And you and I were saying, Kim, we were having this conversation with everyone in fixed income. Can we get to 2 without causing tons of pain? Can we get to 3? Can we get to 4? Now we're talking about five.
And some people are suggesting maybe it's more than that. What will be the distinguishing feature? Probably will be wages. How much wages come down? How much you do see a weakening in the market. To your point, though, John, there are all of these inflationary impulses that come to the fore next year that are not there now, including the commodity sector, including with the reopening of China equities right now in S&P 500 up five or six tenths of one per cent of which for the price action drama is going to go through the day ahead. The week ahead, if there's anything left to get through in the equity market, we had to yield sunshine 367 68. Are you upset that I'm finishing this early? You're using magic.
Eight year lows. Come with you. Aren't you off after this week as well? I am. I'm off. Okay. What are the plans? The plans are to move children around.
A guy of some joy in the house. And we're celebrating. One of the kids is making a movie. Are you telling me? Very cool. Congratulations.
Very. It's years and years of work. I'm not going to go into the details and all that, but we're celebrating. We've got somebody singing James. We celebrate.
But you can share that. It is a Christmas movie. And I believe that the way you do this in Hollywood is to make a Christmas movie, because it's a really tough business right now. Other than the big Alix Steel. But we're going to do a whole red carpet premiere and I've hardly got back tux for the Oscars.
Okay, great. I'm looking for a year from now. Well, congratulations. Yeah, we're lucky. So it's a grouping. It's a Christmas awesome kind of thing.
Unlike you, we're regroup and take your place. You've got as a moat around it wrote. It's a nice place. Go to movies, not a castle with a moat. It's a nice place. OK. Well, most freezes over space to escape the space for if you want to make it over and the cubes around you do that.
Rameau increased by six tenths of one percent. John, I just want to clarify. You're actually inviting Tom to come with you on your own voluntarily. You will remember the Thanksgiving meal you spent together. Yeah.
That was 2018. Promote me, you know. All right. Let's get the video day and get us. Existing home sales are coming out as well as December conduct conference board, consumer confidence data. Very curious to see what the deceleration is like in the housing market when we look at what the Fed is going to do, how much that hinge on how much we do see a softening and runs a softening in prices today. Sam Bank, when freed, is expected to be
extradited to the U. As with the FBI escorting him back to the states, this then ensues the question around where his culpability is given all of the ISE around the billions of dollars that he lost or that he perhaps misappropriated according to the allegations of fraud from the U.S. government. And at 2:00 p.m., this really to me is the key event of the day. President Biden is greeting Vladimir Juliette Saly, the president of Ukraine, on the South Lawn of the White House to 30 p.m. press conference.
There is going to be a discussion. The expectation of two billion dollars of aid to Ukraine from the U.S., as well as the Patriot missile system, which is a defense system. But, John, where are the main tension points, where the red lines, where it goes from defense to offense, where is the room to negotiate into a harsh winter where everybody wants this conflict to end at a time of death and destruction and ongoing concern also economically for Europe. Lisa, thank you.
Big story for Amari down in Washington today. AMH is going to join us again, I think, in about 10 minutes time. Big story in the last 24 hours at its market that the IJA. This was Eric Nelson of Wells Fargo. He had this to say. Dollar yen uptrend is likely over. More downside ahead.
The yen's days as a no brainer. Funding currency unlikely numbered. Asset managers are likely to unwind short positions further over the next few weeks. Driving dollar yen back to 125 this morning in the low, 130 said. Rick Nelson of Wells Fargo joins us
right now. Eric, can we start there? How do you think we have to rebalance as we shift away from this old regime? Oh, yeah. You've talked a lot this morning, John, and even the team talked about the end of an era in various products and various paradigm shifts here. One big thing that I noted there, a
funding currency side, we've had a huge shift from the ECB, the Swiss National Bank and the BMJ. Now this year to think about those are the three big funding currencies for carry traders and the ethics market. And they've all just completely shifted on earth.
So this is really a warning shot here for Kerry traders. I want to focus on it's sort of an arcane topic maybe for some years, but put a cross between the Mexican peso and the Japanese yen provided carry trade returns of 50 percent up until about two or three weeks ago, lost about a quarter to a third. And that in a matter of two weeks. So really, I think for it for 2023, the E.M. carry trade is really at risk here. And frankly, the G10 carry trade as
well. Peso yen. I'm looking at how quickly folks peso yen has gone for standard deviations minus two to plus two in a cup of coffee. Is a dollar going to do the same? Well, not Tom, I think you'll see some unwind and any yen crisis and that's going to spill over to the dollar yen exchange rate. Certainly if you look at the the asset management positions in yen, they have been stickier and probably up until now.
We'll find out from the data next week. But to me, the question for dollar yen is getting back to 120 to 125 will be, I'll say easy in quotes in the sense that that's sort of like getting from, say, 7 percent higher on inflation. Well, what about from getting from 5 percent to 3 percent inflation or from 120 to 100 on dollar yen? And that's going to be the challenge. The non-linear authorities here on real. Lisa, I just want to stop and say this
is what the Bloomberg terminals about. We have a guest who talks yen peso and I can bring it up in a cup of coffee. That's what the Bloomberg Markets. That's why there's a gazillion of these Bloomberg terminals out there.
A lot of people are doing that and looking at some pretty phenomenal moves over the past 48 hours in response to this action from the Bank of Japan. You noted, Eric, that the action that they took does not necessarily show that the willing is that the bank is going to ease just simply that they are willing to act in some sort of shift, but not necessarily a breakup of yield curve control, given that's the case. What would it take for the end to appreciate that much more? Why is there so much enthusiasm around the strength of the yen, the confidence of getting inflation under control if this is just taken up the target by 25 bits? Well, Lisa, like I mentioned, there's there's the unwind of the carry trade and that certainly can can take yen to some extent. The bigger question here is, are we going to see a longer shift in capital flows from Japan? Japan for 20, 30 years has been a huge buyer of foreign assets, probably the biggest in the world.
Question now is if we have some real positive wage price dynamic taking hold in Japan and we have some real increase in nominal rates, here is a substantial amount of money going to come back from abroad. Back to Japan. That can drive that move from one 25 or so down to 100. But crucially, this relies on inflation in Japan, continuing growth remaining quite strong and to be OJ at least providing a little bit more upward lift in those nominal yields. So, Eric, what are you looking for that? What are you looking for? Japanese demand to support it. European bond markets for sure. Over the last few years and the Treasury market, where are you looking for.
That's a wine. Well, yes, John, you mentioned U.S. and European bonds and look at the hedge yield on that when you when you swap these these return back into yen. It's really a brutal picture for Japanese investors buying U.S. Treasuries, buying French bonds. And so this this really accelerates that trend of probably net selling of treasuries and French bonds. You certainly have to also watch for some some asset backed products in the United States where Japan has historically been a pretty big presence. So that's really where I'm focusing my attention. Just to wrap things up, big picture,
Eric, I was speaking to Jim character Morgan Stanley just yesterday over the Bloomberg and I'll catch up with them a little bit later this morning. He's asking the following question. The second order effects of markets leveraged to low and stable year. What's Mohamed El-Erian brought that up
yesterday as well on the program. Eric, can you tell me what you think those effects will be as we shift away from this regime leverage to low and stable yields for much of the last 10 years? Well, John, I think central banks really need to be careful here, and this comes back to why the BMJ sort of couched this move is not a tightening of policy and there's not more to come. They've increased their buying of JCB because they noticed how fragile the DOJ or the Japanese system is and how leveraged it to low yields. So you certainly have to watch some of the Japanese banks and their exposure in duration risk. And the bigger point here, though, John, is central banks. We talk about the end of the central bank put in the equity context.
What about the bond context? Usually every central bank is doing quantitative time next year hiking pretty aggressively. We've really never seen this environment before, especially given our starting point. So got to really watch out for for long term bond yields in 2023. Eric, this is wonderful. Thank you, sir. Nason That Wells Fargo really nuanced, deep conversation, some about what we might experience over the next twelve months. Yeah, that part's series.
Everybody focuses on interest rate relative analysis in maybe next year is a time to look at flows, flows, flows, the huge money sloshing around. And of course, the bet is a lot of that money returns to Tokyo and Japan. The S&P 500 futures right now up almost a half of 1 percent.
Life in New York, this is pulling back. Keeping you up to date with news from around the world with the first word news. I'm Leon Guarantees. A prominent research group says Brexit
has left the UK economy 5.5 per cent smaller and added to the squeeze on public services. The Centre for Economic Reform says slower growth is also weighing on the Treasury's revenue and that the tax increases announced in the Autumn Statement wouldn't be necessary if the UK were still in the EU single market. The findings are the latest to highlight
the costs of Brexit, which is limiting Prime Minister really soon x effort to pull the economy out of a recession that may last until the next election. Ukrainian President Vladimir Zelinsky is expected to travel to Washington today to meet with President Joe Biden and also address Congress. The speech will follow unexpected move by the Biden administration to announce the delivery of Patriot antiaircraft missiles to keep ratcheting up US support. Chinese President Xi Jinping has told former Russian President Dmitri Medvedev that his nation would like to see talks on Ukraine. The remarks come as Beijing tries to improve ties with Europe. State broadcaster China Central
Television is reporting she told Medvedev that his administration has been actively promoting peace and talks. China has avoided criticizing Russia over the war in Ukraine. And France is bracing for another Christmas of travel disruption after the state owned railway operator S and C F was forced to cancel one in three high speed trains because of strikes. Air France also faces possible strikes in the coming two weeks, although the airline has pledged to take all its claims to their destination.
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. I'm Liane Guarantees. This is Bloomberg. After a long process that this was not about being punitive, it was not about being malicious. After nearly half a century, the political enemies list is back in Washington, D.C., and we worry this will
unleash a cycle of political retribution in Congress. More tension in D.C.. How many times have we said that over the last 10 years or so? In fact, some over the last 50 might be plus. Yes. Representative Richard near the Massachusetts and Representative Kevin Brady of Texas, their life from New York. Your market looks like this. The equity market with the left on the S&P 500 equity futures advance in just a little bit here on the S&P, up by four tenths of one percent. Yet it's unchanged on a 10 year note
drama. I have to say, no real drama yesterday in couple markets off the back of what Japan did, which was a story in and of itself, Tom. Euro dollar right now, one of 6 0 7. Euro on a negative. About a tenth of 1 percent. Somebody said that was a discreet. And why is it separate?
And I said it's big macro international economics. It'll have ramifications over months and ye
2022-12-25 09:14
