Bull or Bear? | Bloomberg Surveillance 09/30/2022

Bull or Bear? | Bloomberg Surveillance 09/30/2022

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I think it's very hard to make a bullish case right now and we really don't know what's going to happen. But we also obviously see that there's a lot more value in the markets. As long as the dollar and yields continue to move upward investors need to brace themselves for more pain.

Some of this volatility is really a reaction function to that problem. Central banks are having. It seems that central bankers are willing to push things as much as possible but not at the risk of financial stability. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Congratulations. You made it to the end of the third

quarter and you have another three months to go. Live from New York City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity futures positive seven tenths of one per cent. T.K. and Gage get your head up.

Let's go. Another messy quarter behind us. It's a messy quarter sort. Gideon Rose yesterday at lunch. John the axe of Foreign Affairs magazine. I said 2022 was his fault. And you know John I look where we are in this derivatives story in the United Kingdom is absolutely front and center for global Wall Street focus. The Bloomberg Financial Conditions Index for the United Kingdom has not reversed. It's moving down this morning to new

levels of restriction for the nation. Lisa we got a lot of problems to deal with not just for the U.K. but for the global economy is one of the global markets. Three straight quarters of negative

returns on the S&P 500. I didn't realize this. You have to go all the way back to 2009 to see a streak that bad. And you have to go back to forever to see a streak that bad when it comes to the bond losses. So the flip side is there's no place to hide right. So stocks are selling off and the nature of that selloff is continuing to change just overnight.

We've got a number of earnings. We have had downward revisions to some of the earnings expectations by Wall Street analysts. They have not gone far enough. That was the message from earnings last night. And going forward the earnings are going

to be front and focus. Mr. Hanna over at Bank of America almost on the edge of constructive about 2023. I'm going to come back to that note in just a moment. Got to wait through the price action. Alex is going to go through the day ahead in just a moment. Futures are positive by seven tenths of

one per cent on the S&P on the Nasdaq 100 up six or seven tenths of 1 percent cent also. So can we get a strong finish to a pretty rough messy volatile third quarter. He ought lower by nine basis points on a US 10 year 369. Lisa what a range we've seen in the global bond market this week. How much has been driven by the United Kingdom and what happened with the budget that was proposed and the violent reaction in markets today. Would you get perhaps some kind of fiscal response.

And we have seen the pound really ratchet back some of the law says and regain some territory versus the dollar in expectation for possibly some change of tone. Prime Minister less trust in chancellor quasi carting or holding emergency talks with the head of the Office for Budget Responsibility. They had postponed the report from oh are basically saying there are other aspects of the proposal they were not willing to release yet. Now are they going to backtrack on this

regardless. People are getting a little more optimistic that perhaps the worst case scenario will not pass with cable at one eleven. Meanwhile today August U.S. personal spending and income data is core P.C. either flatter all this U.S. data that is coming at 3 a.m.

and University of Michigan sentiment survey at 10:00 a.m. Core PISA deflator. This is the Fed's favorite metric to look at to get some sort of sense of the trajectory especially at a time when this is the area that probably maybe the stickiest going forward. Right now we are expecting a little bit of a status there but especially with the eurozone seeing 10 percent inflation for the first time. We just got those numbers this morning. It just sort of shows you how difficult

of a problem how intractable this is. At eleven thirty a.m. President Biden is delivering remarks on hurricane in recovery efforts. It's been just devastation John. And it's going to cause a huge recovery effort the likes of which will probably cost somewhere between 69 and 100 billion dollars. Lisa thank you. We're going to return to that in a moment.

A little bit later this morning we'll catch up with Annmarie Horden. Tom Keene wanted to start with a polo from the U.K. from from YouGov Labor with a 33 point lead over the ruling conservatives.

This has been described by YouGov Tom as the biggest lead enjoyed by any party with any polling company since at least the late nineteen nineties. That is big. John I took all the little itty bitty parties out and I took the Liberal Democrats over to Labor because I guess they're not conservative. And it's stunning the gap between Labor

plus LDA and the Tories. Unreal. Joining us now Andrew Griffith the UK Finance Financial Secretary to the Treasury and the city minister. Andrew fantastic to catch up with you sir. We understand the chancellor and the prime minister is meeting with the FBI today. The bank giving its gilt market operation ends in the middle of October.

Should those forecasts from the opium be published before then. Well the key thing to take away is that the government the RBA and the Bank of England are all working code in a coordinated fashion. Each doing their respective jobs. So the bank's doing its job on monetary

policy and market conduct the RBA its job on forecasts and bringing forward the forecasts when they're ready to be able to wrap in the recently announced government growth plan. And then of course the government growth plan which has features about energy protecting households and businesses. How we're going to go forward on energy security building clean energy going forward and also a lot of supply side measures in the UK.

It's a very growth orientated plan. So what you've seen over the last week is each of those players do their job. It's good that the chancellor and the prime minister are joined up with the car. I think that meeting finishes shortly. But you've seen a lot of coordinated

activity over the last two. I haven't seen coordinated action at all. I've seen a mass. I saw you come out last week with a mini budget. The bank having the follow up with unprecedented intervention in the gilt market. And the OPI are now you visit the open

bar and look for some forecasts after the fact. Why weren't these forecasts published alongside this mini budget last week. Because the group plans got lots of components to it.

There was an imperative to act this time last week. It's tomorrow. You know this is the quarter end. It's tomorrow that energy prices would have gone up across the United Kingdom. Real uncertainty for businesses and households. So it was right to do that then. There's a lot of detail in terms of how the UK government wants to see growth going forward.

And that wouldn't have been available to the FBI to factor into their forecasts. Indeed some of that. We're still waiting to announce over the coming weeks. Plans for infrastructure for the housing market for child care some of the deep seated challenges that probably all of our major economies have with growth. So you know look it's been a it's been a

busy week but each of those players are doing their job in a coordinated fashion. How concerned are you about the increase in borrowing costs with some people citing a 10 and a half percent mortgage cost at a time when the Bank of England is being tasked with offsetting a proposal that has not been put out there. But the market is responding. Yeah.

Look of course. Of course rising rates are a concern. We've seen that obviously you know going into last week. I think you'd seen more tightening in the US that's now happened in the UK as well. We've seen figures out of Europe as well today indicating that they've got exactly the same sorts of issues around inflation. What the energy package measures do is actually reduce the headline rates of inflation. And that's something that's going the other way to the trend where we'll see Emma Chandra. But Andrew there is this discussion

about not releasing the OBL report earlier than the November 20 deadline at a time when the market's moving it's having real term effects now. Why not just release it earlier to give people a sense of what's going on. Yeah. Well Lisa look I was a finance director

for 11 years. You know my board wanted me to release my figures as early as I could. But they also wanted them to be credible to take the time to reflect all the information in a very fast moving world that's available. So I want to have their own view on that. I think you just have to recognize there

is a balance between speed and velocity and being able to wrap in information. Some of that information as I say will be coming forward. The growth plan itself is a 40 page document.

Some of that detail will still be released over the coming weeks. Andrew is not for you to decide how long the IPR needs. Is it. Let's get real about this.

We're reporting now that you haven't sought to accelerate the watchdog's eco forecasts at all. That's our latest report according to officials familiar with the comments after the Open Treasury meeting. Why haven't you asked them to accelerate it. Well I've just talked about how these are lots of different detail how familiar you are with all of the growth plan. People have heard some of the headline measures. They've been widely reported perhaps less so about the plan for infrastructure. The plan for immigration housing these

elements really important elements of the growth plan. That is how we're going to finance the fiscal announcements that were made last Friday. So I think you just got to look at it as a package. When the chancellor asked the OMB arts

report on the 2013 November it was in contemplation of being able to take into account the hold of that package. Have you been I mean the Beyond the Bell. Meantime what else did he know to be ISE. Have you asked the FBR to bring forward those forecasts as soon as possible or have you told them that you want them at the end of November. Well that the John Tucker will read out

on on his meeting in due course but in the meantime don't don't lose sight of the fact that the fundamentals here were strong coming in. We started this with some of the lowest rates that lowest debt to GDP in the G7. The economy is still growing albeit we acknowledged and growing. Andrew Tom Keene in New York I'm sorry to barge into you as we speak. The Bloomberg Financial Conditions Index for the United Kingdom is a negative for standard deviations. You have seen seven standard deviation

move in the blended gilt price move. You have a derivative disaster. You are the city minister. What are the regulators going to do finally to amend the derivatives shell game that caused the Bank of England to bailout the marketing industry of LDA. Yeah and you'll be aware Tom about the independence of the regulators. One of the things that you learn as city minister is that the regulators have their job to do what Mike how did they feel like all that we have in the most competitive environment in which they do business. You have a competitive environment that

on a seven standard deviation move blew up. Fine. What does the United Kingdom do off of the scandals of of 2007 and 2008 to finally control the natural greed of the derivative business. You're at the heart of this is city

minister. How do we finally get our every eight year derivative blow up fixed. Well the Bank of England is taking the actions that they need to in the market right now in the long term of course we look at getting the right the right regulatory structure and that's a shared objective of ourselves and the bank and the prudential regulators say you know of course we'll always look wherever there are. There are other points in the regulatory structure that need to be looked at. But that's not but that's not the focus for today.

The banks made its each Joel Weber and it's into the markets. The thing the thing to your to your point earlier Tom in terms of the politics is that we need to communicate how this country is going to grow. That's what's going to give people the confidence to invest the confidence to hold the currency and the ability for us as governments to fund high quality in order you that we need to. Mr. Farrell's questions earlier why do you need to do on this Friday evening to give confidence Monday that the different experts are advising the truss government of the outcomes of their Reaganomics like policy. Well I wouldn't accept that characterization.

What. What you need to know and the markets need to understand is that we are working absolutely in lockstep. You've seen a number of coordinated announcements from both the government and the governor of the Bank of England over the course of this week.

I spend my time meeting investors talking to regulators talking to the factual markets. But these are volatile times. And we're seeing that in every market sometimes at different at different speeds and pace. But it's a macro trend that we're seeing. And some of the things that we are tasked to do is to bring forward supply side reforms to improve the UK's energy security situation because the aberrant here is the strengths of the US economy the strength of the US dollar as a function of your great Shery Ahn.

It's our record that would be benign. I just want to make this clear John. I believe the minister just told us it's our fault the UK is blown up. I think that's what I heard. Well we don't have time.

That's not that's not that is not what you heard. What you heard is that we've got a job to do to try and improve our energy security. And if anyone thinks that this isn't ultimately a macro issue that flows in part from Putin's invasion of Ukraine and after seconds on the clock if you can just wait there we'll come back here. This is Bloomberg. Navigating the economy toward a more sustainable path necessitates higher interest rates and a downshift in the pace of economic activity and the labor market. But for now inducing a deep recession

the kind we have back in the 1980s or some would even think of the Great Recession that is not warranted. That was Mary Daley the San Francisco Fed president speaking just yesterday. Live from New York City. This is Bloomberg Matt Miller. We caught up with Andrew Griffith the UK

financial secretary to the Treasury and city minister. We bumped up against what is called in the TV business a heartbreaker commercial break. It was set to begin. Seconds away. And unfortunately he can complete his thoughts. The city minister had to go on that and back soon. Hopefully we can get him back so that we can wrap up his thoughts on this. John we're absolutely timely.

And when I got there John was a complete lack of urgency of the moment when I still see I know pounds recovered. But there seems to be a complete understanding by the British government of the urgency here within global Wall Street they're first trying to address. And what was clear from that interview is they're trying to address the optics here come across as a united front coordinated between them. The independent body that provides the forecast and the Bank of England that's not how it played out over the last week. Typically if you had a budget announcement alongside that budget announcement would be some independent forecasts from the Office of Budget Responsibility.

That didn't happen this time around. Then what would happen obviously is that the Bank of India would meet November 3rd and they'd provide you with some new projections and monetary policy. Of course that's not what happened either. There's nothing co-ordinated about this. It was messy. So what's happened is you've got the budget. Then you had the massive market fallout an unprecedented gilt market intervention from the Bank of England.

It only now as the chancellor and the prime minister meet him at the RBA today. And it's still not clear to me when we actually get those forecasts. The NBER confirming just now they're preparing the forecast for November 2013 to go along with a fiscal statement. So Lisa here's the timeline now. October 14th the gilt market operation ends November 3rd. We have a bank giving them rate decision. Then all the way out onto November 2013

we have a fiscal statement. That's a long runway given how quickly this market's been moving especially because the Bank of England has to respond. And that's what the market has told them. That's clear from their intervention

this week. If they raise rates in the meantime they cause real pain. They cause real changes in the spending habits of households at a time when all the details aren't out. Is that the policy that they've had intended.

Futures right now up eight tenths of 1 per cent on the S&P. Can we get a strong finish time to a messy third quarter a messy third quarter. And we'll continue this discussion on that shocking interview with the finance minister and the Saudi minister of London Chris Maher and he joins us right now.

He's observing Britain. He's observing these crises from a prism of value equity investment. How's your study of the British economy going Chris Barangay. How do you pull this global Wall Street to market. Clearly what is a massive derivatives failure. How do you pull it over to conventional Gabelli investing. Well it's just not work certainly

learning a lot more about LTI and how this all works. It's another micro input into another macro input into our micro forecasts for companies. We're overlaying currency moves and what that impact might be on revenue and costs for all of our companies.

Do equities in the United Kingdom enjoy the repricing in value that we see in gilts. There are certainly some bargains throughout Europe. It's probably too early for us to do much there but we're looking for companies that in some cases that the UK companies that are selling abroad and are benefiting from their price competitiveness. Given the movement in the pound one of those would be for example Diageo which sells a product that is not going to go out of style any time soon. You probably drank it last night. We'll drink it certainly tonight. And that looks like it's increasingly interesting as you watch the fast moving picture internationally in the UK and in Europe as well as China. How much do you think has actually been

factored into U.S. multinational companies in their earnings not only from the strong dollar but from the deterioration in the backdrop in some of these other regions where they export to. Yeah I don't think it's. Obviously this is not the first time we've seen these kind of movements and they never seem to be fully priced in. You know we saw it. We thought we'd see a lot more earnings weakness in the second quarter that turned out not to be the case.

The U.S. consumer in particular was more resilient than we thought. We're bracing for some preannouncements and earnings cuts as we begin to report the third quarter in the next couple of weeks. So we'll see obviously that that's an

important factor along with the overall multiple which we're still trying to determine for the market. So everyone's pretty bearish right now. Are you a bull. I would say I am. I am a chastened bull. We think that we've been through this before 07 away. I don't want to echo Larry Summers view

that this feels like 0 7 although there are some similarities. But I think if you if you held on through that period we did quite well in the equity markets. We did well relative to other strategies. It's about finding the right business

models the right balance sheets and the right managements to make it through to the other side. And that's what we try to continue to do every day. Chris great catch up as always. Sorry it's on the short side. Chris Marandi the Afghan Valley funds on the equity market. The moment Mr.

Hunched over at Bank of America bearish all year put out a note this morning that said the following the piccolo was not until Q1 when the recession credit shocks equaled peak fat and peak year at some peak U.S. dollar. The Trader 23. How's this for constructive for next year.

Sure. That dollar monkey and small cap and cyclicals which you make of that Lisa. This morning from Bank of America in the team it makes sense to be completely honest.

It makes sense because if you believe that things are moving as quickly as some of the earnings seem suggests some of the peripheral data that more sort of granular data seem to suggest then if we get a pause if we get some sort of downturn next year you can start to expect and price forward the recovery which might be what they're looking for. And I think other people are looking for this too right. White Mike Wilson was talking about where we are in the different economic cycle as the stock market as a forward looking instrument. So we're looking forward to 2024 which

potentially could be better than 2010. It's a precursor of Christmas. And he just brought up he mentioned Diageo the huge liquor complex of the United Kingdom in Sterling from a high is down 6 percent in dollars from a high it's down 23 percent. That shows the distortions we've got upcoming starting October. It's been a crazy time. Yeah. Before we even get to next month it got

to reflect on the amount of intervention we had in the last couple of months. I would argue we start with the ECB. Lisa earlier in the summer when we were facing down the prospect of hiking interest rates and at the same time had to do something about containing bond yields we've seen that play out in the UK and a much bigger way this week. The PIIGS had to come in and intervene in the affects market. China is threatening to do the same. And I think we've got to almost restart and think about what this tightening cycle is going to look like. Does it involve Kutty will actually involve Kuti or perversely would involve quantitative easing.

Exactly. Will it perversely actually lead to central banks buying bonds of certain denominations or trying to hike rates. The difference and this I think has become the distinction over the past few weeks we have shifted from tightening into pain tightening until a weaker economic cycle to trying to spend to do fiscal spending in order to support households while also tightening to combat inflation. We see this in Germany with that 200 billion pound Dow Jones billion euro plan that they put out there for energy prices. This is the tension merging into the fourth quarter. It is a tough line and policies in conflict all over the place.

That's been a theme of this program that's for sure. So far. This month features bouncing back up eight tenths of one per cent on the S&P to lower by almost 10 basis points.

We were 3 4 per cent earlier this week at 369. This is Bloomberg. What a quarter is Spain life from New York City good morning to you. Equity futures bouncing back by nine tenths of one percent on S&P coming into Friday we were poised for a third straight quarterly loss for a streak that bad. You can go all the way back to 2009.

Yes it has been that long in the bond market yields all over the place. We've talked about the range this week from 4 per cent briefly back down to 368 yield to lower today by 10 basis points 368 42 on a US 10 year. And talk about ranges cable in the last week or so we can put up a monthly chart but I can tell you where we've been on the last week when ISE 350. Monday morning all time low in the Asia session right now 110 95 and a half a session today 112 34. That's a major currency against the dollar. Tell me if you ever seen a range that wide in a single week one of 350. That's a 112 in years of my word for the

weekend is febrile and that's what I see her. John what amazes me is how all the other data does not correlate with the quote unquote pound sterling rebound is being reported by the financial media just in the last 10 minutes. Granted it's ruled over a little bit. I get that. But I'm looking at all the other data

out there. And the Bloomberg going does not correlate with crisis over for the minister that we just spoke to for his prime minister. We've got a Band-Aid on things right now. That's well said Lisa Amanda Lang. And Lisa by the time we get to the middle of October. People are describing that moment as a cliff edge.

We have a bank having to come out early this week and that's a guilt mark operation that is targeted and limited is limited in time to October the 14th the middle of October. Then their next move on the monetary policy side is early November. And I just wonder what happens to happen between now and then and what does the threat to financial stability look like.

Yes we saw the issue with some of the long dated investment plans for pensions and what happened there. But on a bigger scale we haven't seen a buyers strike. Does a buyer strike strike rates right now start to reassert itself particularly in the debt markets as big nations tried to finance fiscal spending through debt markets that are changed. This is a new dynamic and I think a Germany with a massive package in the last 24 hours Tom. Double digit inflation in the U.S.. Yeah. You know got buried. Just a double digit Brad Stone of the kid was at 8:00 yesterday John that got buried. And I mean culturally that's just

unimaginable. It's happening. It's the reality of things in Germany. Christian Schulz joins us his deputy chief European economist at Citigroup. Christian completely out of your remit. But I got to ask and particularly I have to ask before you when I read the financial stability volume from the International Monetary Fund which will be published here in a matter of weeks. Does Citigroup feel that Europe has the financial derivatives risks of the United Kingdom and even what's being alluded to in the United States when you've got Dutch schemes doing derivatives strategies and even German schemes.

Is this a risk to Madam Legarde that we will see a derivatives blow up on the continent. Well the European Systemic Risk Board yesterday issued for the first time in its existence which admittedly isn't very long. It was created after the 2008 2009 crisis bedded for the first time. It issued a general warning. It is really general if you read it. But it's pretty clear that we are worried that there is pockets like just been identified in the UK and the ISE in various parts of financial markets and beyond in Europe. Right. Especially princes in energy derivatives

markets. We know that there is issues but also bond markets equity markets everywhere. It clearly is a big risk. Volatility poses a major risk. And central banks have to be aware of that. How does that change the prism for the ECB launching to their meeting the end of October.

I think the October meeting is fairly safe. I think the risk because the ECB is going to hike interest rates. The question is whether they're going to go 50 or 75. Gradualism I think is back in fashion now. If you want to prevent major volatility you better act gradually.

So going back 100 basis points or talking about Kutty already I think that becomes less likely. Reliability or steady hand is more more more needed. But also big shift in the dovish direction I think. Don't make much sense if governments come out and support the economy in a massive massive way.

So I think 75 basis points of good call for the October meeting. Perhaps that's the short term question but how much are you ratcheting up your longer term inflation forecasts for Europe in general based on some of the spending that they're doing to support households now which are going to kind of counteract potentially some of the inflation combating of the central banks. Well the funny thing is in the short run they will lower the headline inflation rate. These price caps are going to reduce inflation perhaps by two percentage points and Germany will half percentage points in the euro area as a whole. And in the UK they're lobbing off you know five or six percentage points off inflation with these price caps. But this is an illusion right. Because what these things do is they increase the demand for energy and therefore increase wholesale prices. And somebody is eventually going to have

to pay for that. You can't securitize. All of this is going to lead to higher inflation down the line. So what we're heading for I think is lower peaks in inflation perhaps or somewhat lower inflation next year but higher inflation for longer above target deflation for longer. And that indeed as you rightly say poses a challenge to two central banks that credibility challenge to two central banks. Well just to put some numbers on it to

give a sense of the scope here are you talking about for example two and a half percent inflation in the euro region until 2025. Are we talking about 4 percent inflation through 2030. Right. There is a difference of magnitude if we talk about a stickiness here for a longer period of time. Well we're still heading for some kind of recession in Europe. That recession may now be somewhat milder.

If all this fiscal support comes in but it may also be harder because of all the financial tightening that central banks are driving at the moment. I still think there is a prospect whereby underlying inflation say core inflation gets in 2024 2025. Back to back to Target and where the central bank can in a controlled way sit this out.

They have to hike but they don't have to hike massively beyond neutral. The risk is that inflation expectations. The anchor that risk is protect a little bit reduced by the by these price caps because they do spot inflation. And therefore you know that the risk that households adjust their inflation expectations to that and raise rates wage growth for example.

But that risky you cannot dismiss. And people people will see of course that if they use more gas because of these caps their wholesale prices will go up and sooner or later they have to to pay for that. So the question is what is driving inflation expectations. Is it spot inflation or is it a general sort of trickiness about institutional credibility which I think is increasingly Christian.

You go to the heart of the matter brilliantly and this is the difference between not going to call a continental or Germanic economics time line in the United States. You're suggesting banks central banks can man out and wait three or four years with patience and with stable policy. We're in a technocratic United States are trying to fix it in two meetings.

Is the x axis of the United States central bank flawed for you. Is Germany ECB. Are they doing it more correct. I think the US has a more straightforward problem to resolve. I think there is excess demand. The economy is overheating and the Fed has to regulate it down. Of course the government could could

help them. But the Fed knows what it's what it has to do. Even without the government. I think the ECB has the problem that they can't fix this problem on their own or if they tried to fix it on their own they're gonna make the problem worse.

They need the support of governments. Governments are the ones that can raise supply or can help raise supply of energy and therefore lift supply overall and bring inflation down. Governments need some support for that. Governments need stable finance because they don't need law.

Finally cuts in cost but predictably stable funding cuts in costs. In an ideal world the central bank and the government would talk to each other. The governments would do things that support supply not that boost demand into supply crises. And the central bank would move in a gradual in a controlled fashion. I think neither Europe nor the Fed can

solve the inflation problem in two meetings. But I think my perspective. The US have a somewhat more straightforward trade off to do. A question I just wanted your thoughts. Finally on a call I heard from BNP Paribas in the last 24 hours on the ECB. They think that they can go another hundred basis points beyond what a lot of people are thinking about. They think the ECB can go to 3 per cent

on the deposit rate. Do you think that's achievable. I think it is. I mean what they would do of course would put the ECB in actual tightening mode in an economy which is postal three percentage points smaller than its pre pandemic trend and which is heading for a recession significant recession that feels like taking a bit too far. But the more governments are now doing to prevent that recession shelling out money to households helping corporates the more likely it is that the central bank will have to go that way in order to get medium term inflation down. So I think the risks of that the chances of something like this are growing.

But I still expect a recession. I fully expect the recession to stop the ECB before they get to three where they're not forecasting one other just yet Kristie. Shots that city. It's kind of ridiculous. Tom I think a lot of people are laughing at the ECB forecasts right now. When you've got the Deutsche Bank CEO and Lisa said this a few times already in the last few months the Deutsche Bank CEOs go around talking about the depths of a recession not the F.

Yeah when but the depths of it. I'm going to cut and cut some major slack John to any page. The Economist is quote unquote forecasting right now. I mean we're moving in real time.

You see the headlines here coming out from your United Kingdom. John my question is what does Prime Minister Truss do to get to Friday afternoon. I mean I just I'm baffled. There's some sterling weakness. It's not through resistance but. Well let's talk about this meeting some so we can go for those headlines.

You've mentioned them. The UK government said it will work closely with the budget watchdog. Lisa this is about optics right now. But I can tell you this is a pretty unusual meeting a week after a bunch many budget fiscal event whatever you want to call it. Typically you'd come out with those things and you'd get the PR to come out with some forecasts alongside it. And it wasn't sequence that way. So no and it even wasn't seaQuest for them to have all of the information in hand to come up with this projection at a time when the markets are pretty uneasy about this proposal. Stupid question is oh are the same as the Congressional Budget Office. I wouldn't know Tom.

I can tell you what it is. It's the Office of Budget Responsibility. It's an independent body that provides forecasts for the government to go alongside their forecast. Is that the same thing. Yeah I think so. That we got it. That's pretty much the same thing. Yes. We're matching you can us knowledge

together to size just the means. I know that's what the show's about. Sterling features up eight tenths of one percent 368 3 3 6 8 350 on S&P 500 futures. This is Bloomberg Quicktake. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo. Hurricane Ian's winds have picked up speed and the storms on a path to hit South Carolina. The forecast calls for Ian to come ashore north of Charleston today with heavy rain and a potentially deadly storm surge.

Florida is struggling to recover after Ian made landfall as one of the strongest hurricanes ever in the US. Entire communities were wiped out and homes were flooded on both coasts of the state. An exact death toll has not been confirmed in the UK. Prime Minister Liz Truss is under pressure to cut spending to win back the confidence of investors. Bloomberg Economics projects the cuts

may even need to exceed George Osborne's infamous austerity drive of 2010 to stabilise public finances. Markets have tumbled since the trust government unveiled unfunded tax cuts last week. Well now there's more pressure on the European Central Bank to keep raising interest rates aggressively. The eurozone has just recorded its first ever reading of double digit inflation. Consumer prices rose 10 percent in

September from a year ago and that's a fifth straight month. The inflation figure has exceeded the consensus estimate. Shares of Nike. They're lower today.

The sports giant reported that inventory. While that surge in inventory a surge and it's also a push through discounts that have hurt profitability. Now higher freight costs markdowns and foreign exchange effects hurt Nike's gross margin in the latest quarter. 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 Lisa Matteo. This is Bloomberg.

What we're focusing on is delivering the growth plan and making sure with things like high energy intervention that people right across this country are protected without growth. You're not going to get the public services. We're not going to generate the income and the tax revenue to pay for the public services that we want to see. And that's why the mini budget was absolutely essential. Because you can't hang there. The U.K.

chancellor of the Exchequer Life from New York this morning. Good morning. Equities shaping up as follows up six tenths of one per cent on the S&P on the NASDAQ 100 up by a half of 1 percent.

Little bounce after a pretty rough ride through much of the third quarter. Yields coming back him by 10 basis points 368 22. Khatami we were pause for another weekly advance in tenure yields in America some somewhere safe. We trimmed some of that advance through the rest of the session. John I would suggest and this goes to your the real yield this afternoon this Friday is going to be hugely eventful based on some of the dynamics I see right now. Ramos guest hosting. I'm going home early.

She didn't know that. I didn't know. How do I know. Oh you don't know that. I really like bugging me. Fine. It's like I'm not listening now. Oh I've got it. I got a guy.

I got it. Got a little frozen. Betty doing a victory lap into the weekend to victory lap just you know the best face on board. John. John I want to say thank you everybody. Everybody listening and watching worldwide who heard John Farrell's questions to the minister here 20 minutes ago. John the basic idea is global. Wall Street's saying that was a public service.

I mean this is it John. This goes back to a Rudy Giuliani interview. I'm going to say two years ago that was outrageous. I think what we need to sort of sort out is there is a difference between policy and approach.

You can have a debate about the policy that's come out of the United Kingdom in the last. Yes. And it may or may not turn out the right way. It's the approach to this. Many to have a bigger conversation. There is a reason why these institutions are shaped the way they are shaped.

There is a reason why there is a sequence of events that is meant to take place is to avoid stuff like this. So yes the U.K. governments come out this morning and try and reshape the optics of all on the same page by constructing that meeting with the are already saying we respect the independence of the Bank of England all of those things. That wasn't how the conversation went in the lead up to that mini budget.

And that's certainly not how things have played out in the last week. Well it is flawed to say the least. And what we do know is from the moment it was known that James Foley or Rob a bank would speak with us Pound has weakened from one 12 to a 110 handle as well. Jane Foley I rarely do this but I've got to get exceptionally narrow here right down to the GOP function and some of the technicals on Sterling. Give us your key support and key resistance levels for cable.

Well we're seeing huge ranges right now. So that's really difficult to do. What we are targeting 1 0 4 certainly cable remains really very vulnerable because you got to ask the question well what happens when the Bank of England takes away this extraordinary support of the gilt market. You know the crux of the problem is still there which is what is this government going to do in terms of its its fiscal policies now. It's one thing during the pandemic to to issue more debt when you have the Bank of England hoovering up some of that debt through quantitative easing.

But to try and do that when the central bank has reversed course it's clearly very difficult to do. Now the central bank again is going through its quantitative easing program. That is a credibility issue. Is it simply that the government's fiscal stance.

Jane explain to us the efficacy of foreign exchange analysis right now. When I look at fancy ratios financial conditions indexes and fixed income spreads that are grim just foreign exchange really. Tell me what's going on. I think it does. I think Sterling has been saying all year that U.K. fundamentals are grim. Sterling has been a poor performer all

year. The Bank of England has been failing to turn sterling around with interest rate hikes. And that's certainly been the cases the spring. And that tells you that investors don't like what they see and they don't like what they see even more because of it because of the budget last week. And you know even if even if you know some of those measures were to be at reverse there's no sign at all that the government wants to do that. There is still been a dirty stain now only credibility perhaps with the bank being bailout but certainly the credibility of of this government.

And you know the government's talking about the necessity of this budget because it wanted to improve growth. Well actually you know for many many people a lot of those subsidies on the energy price is going to be taken away in the form of higher mortgage payments anyway. People are going to be poorer as a consequence of this. And also maybe because of the way gilts look in their pension portfolios. So no wonder we've got the latest opinion polls saying that Labour has got a 33 point lead over the Tories at this point.

The United Kingdom has unique circumstances some ways but in others not so much. And we are seeing fiscal spending of around the euro region to try to grapple with what is going to be a difficult winter. How much does this just accelerate. The dollar's dominance at a time when the US faces a different picture isn't necessarily engaged the same kind of fiscal Band-Aid for a problem that has a longer lasting kind of timeframe. I think it does accelerate to the outlook for the dollar. Like you said the market was already

worried about global growth. It was already worried about U.K. fundamentals which of course is why the timing of this budget was so particularly so bad. The charts of failing to read those market conditions. But it does accelerate the movement into safe haven for the dollar. But you know I would really like just to state that I don't think the U.S. fundamentals operate on the dollar in the same way that fundamentals of the UK operate on.

On sterling. And this is because the dollar has his own set of fundamentals. It is a huge invoicing currency. It is a massive reserve currency because it's a huge invoicing currency. And the short of it the simplicity of it is that when there is crisis when there is uncertainty people just need dollars. They need it to cover their liabilities

to it to pay their invoices perhaps to cover their dollar debt liabilities depending on where you are. So the dollar operates to his own set of fundamentals which are quite distinct from the fundamentals of the of the US. Jane Foley Jane just wanted to catch up with you in London and then back here in New York as well. Jane Foley thank you for Rabobank. It's a difficult moment for global markets and I think it will be a massive struggle to normalise and not just normalize pushing interest rates higher but also normalize the balance sheets as well. This week for me. For you Lisa for you Tom I think it's been a big big week to rethink what is achievable with these balance sheets at the Federal Reserve at the ECB at the Bank of England the ECB.

They started this. They told you almost immediately yes we're going to hike interest rates Tom but we're going to have to do something if yields spike too much on the periphery. Seen this play out in the U.K. unique circumstances. I know. And I just wondered Tom how long before the Fed has to reconsider its balance sheet unwind as well. A hundred percent agree with you John. I've been watching this and I see it off

real yield which granted has given back a little bit this week. But but John what I would say for certain on this Friday is every single general counsel of every defined benefit program on the continent and across the United States is reviewing their liability driven strategy. If they have one and people like Simon Woods Lawson Lord Lawson next is taken a massive victory lap because they had the courage to say no we're not going to do that. It's exposed a real vulnerability this week that's for sure. And the mandate the Bank of England has produced expires in the middle of October.

Let's see if it does expire in the middle of October. And let's see if they move to get sales and how quickly reaches right now upper half of 1 percent on the S&P binky chart. Becky where have you been. He's going to join us in just a moment from Deutsche Bank. Looking forward to that.

Live from New York. With futures up a half of 1 percent a year or two lower by 9 or 10 basis points 368 62 euro dollar negative six tenths of 1 percent 97 59 and crude 81 44. What was it the Russell Crowe said Bram over. You not entertained joking about the market. That famous line from Gladiator. Are you not entertained.

What a third quarter in reality market. Yes just absolutely. Missing Gladiator Thompson. Okay we're gonna fix that. This is Bloomberg. I think it's very hard to make a bullish case right now. And we really don't know what's going to happen.

But we also obviously see that there's a lot more volume in the markets. As long as the dollar and yields continue to move upward investors need to brace themselves for more pain. Some of this volatility is really a reaction function to that problem. The central banks are having it seems like central banks are willing to push things as much as possible but not at the risk of financial stability. This is Bloomberg Surveillance with Tom

Keene Jonathan Ferro and Lisa Abramowicz. I'm proposing a four day trading week with all the volatility should go down to four from five and then if the volatility comes late so that you get to you know go back to five. That's how it should work. I how much people work it's gonna always be a little volatile just so. You can always just take a four day workweek.

Life from New York City this morning. Good morning. Good morning Premier. Looking for a four day week futures positive a half of 1 percent on the S&P. I'm on board.

Just doing your work. NASDAQ up by a half of 1 percent. Count the quarter. Brutal. Just brutal. Up and down. Up and down. Up and down and heading for another quarterly loss. The immediate now is so tangible John including our conversation with the minister early.

I'm hardly focused on end of quarter. And you're absolutely right. It does matter with the VIX thirty one point to nine. John I just looked at Sterling once in the last hours given away. Full disclosure wasn't Jane. Is for John. And I got a resistance of one point. One for each one were nowhere near that.

And there's no support. Technically once in 69 there is. It's a break down. And I don't know how quickly we'll get the forecast from the Office for Budget Responsibility. Tom. I mean if I had to go to Becky Jordan I'm like 25 years old and I'm shaking going in front of China. I'm like the charts told me I don't know where I am. I think he's going to join us right now

very very shortly. And Lisa with Ben came in to talk about some of these big tech names yesterday. PFA downgraded Apple. Apple got really hammered slapped around just on this idea that consumer spending is going to be tough story worldwide. Facebook Mark Zuckerberg out with freezes freezes to hiring not layoffs but a hiring freeze. And I guess you can't freeze. What. You can't. You can't sack what you can't hire.

And he basically is saying that Metta or Facebook is going to be a smaller company in 2023 than it is today. All of these cuts etc. come as you get the semiconductor space flat on its back coming out Micron yesterday coming out downgrading its expectation even further than people had expected. Taking a step back at what point to the biggest names see this kind of loss and then that trigger something that triggers some financial risks some financial stability issue that we saw. Yes. In the United Kingdom.

But as Larry Summers said these are the preconditions for just that type of event here. It's been very messy this week. That's for sure. It could be a stronger finish. Let's go through it. Futures positive a half of 1 percent on the S&P and the Nasdaq 100 up four tenths of 1 percent a year or two lower by 9 basis points on a 10 year. Three sixty nine euro dollar ninety seven sixty five. We're negative a half of 1 per cent on

euro dollar at the moment. Some talked about sterling weaker dollar stronger through all the G10. Basically the least with the exception may be if the Japanese yen. Yes because possibly the intervention that we've been hearing about in terms of how they are trying to support that currency. Jane Foley just moments ago saying that she doesn't really see what could stop the dollar rally.

A lot of people are in agreement today. We did get some sense of how long that meeting was. The prime minister in this trust has are quasi car tag and the head of the Office for Budget Responsibility. We're hearing reports that as Tom said it was 48 minutes long. We now are waiting to hear what emerged from that. Are they bringing forward the timeline. This matters.

It matters for what we're looking at in the pound. It matters for how much the Bank of England is going to have to raise rates. And it matters for people who are having to refinance their mortgages at rates or even just deal with raising rates at a time when according to one report they're hearing reports of 10 and a half percent mortgage rates being cited. Today we get August U.S. personal spending income data corpus

deflator all at eight thirty a.m. followed by the University of Michigan Sentiment Survey at 10:00 a.m. I remember for a fleeting second that Friday is for University of Michigan sentiment Fridays that lasted all of a week. And now we are looking at the core PISA

deflator. We take a look at how quickly some of that base effect is really taking effect and how much the Fed can look at this for a bit of reprieve. This is their favorite metric. Do we see some sort of roll off in how high inflation is. At eleven thirty a.m. President Biden is delivering remarks on Hurricane Ian and the potential recovery there. John I was reading one estimate that said that the recovery costs in Florida will be an estimated 69 to 100 billion dollars.

It will change the coastline forever. This is the third most populous state in the United States. It is an area that has seen a huge amount of people migrating there during the pandemic post pandemic.

It is actually a disaster zone in many areas right now. It's deeply upsetting for a lot of people. And Lisa thank you so much for staying on top of this story. We'll continue to bring you updates for the next couple of hours all day in fact on Bloomberg TV and on Olympic radio. Turning back to the marquee Speaker China joins us chief global strategist head of asset allocation at Deutsche Bank Binky Houston at 47 50. Your rant on the S&P if I'm not still at

47 50. But yes that is what I'm looking for a year. And he said. So how do we get there. I think in three months. I mean the basic thesis is you know I would completely agree given where we are basically in the cycle. There's really no case for equities based on either earnings or the valuation of those earnings.

But I think you know what one should keep in mind is what we've seen basically over the course. The year is the Fed you know providing guidance basically to a full rate hiking cycle which is basically in my view given that four out of five of them ended in recessions. It's really you know forward guidance to a recession. So what we have is a situation where basically growth has been slowing.

But with the Fed's guidance you know equity positioning has been falling much faster basically than growth has been slowing. I would say if you look and break up our positioning measures into sort of two parts you know one that's basically tied and based on what's happening from an economic fundamental point of view and earnings you know what you see is discretionary equity investors are positioned right now for 46 47 in the ISI. I'm manufacturing. Well we've got the last three months is basically 53. So you know there's potential for a squeeze. But I would argue you know the much bigger potential for a pretty big squeeze really would come from the systematic strategies. I would say if you look at Su Keenan step in and off we go.

It's it's a question of basically you know a systematic strategy is positioning at the end of the day is best explained by equity vol and equity balls just like elevated. Two ways to go here Binky off of John's question. And I've got to go to the one that matters. Leslie came out of Deutsche Bank and said recession before anyone else. I know you respect folks. It's land and La-Z-Boy. They're getting it done. They've been phenomenal. But are you suggesting at the heart of

your bullish call is this Fed blinks. No I wouldn't say that. I would just say you know yes we are looking for a recession. You know was sometime next year. The question is you know exactly when is

it going to happen here and now given where you know the equity market positioning is what you know I'm calling for is you know bear market rally number five and it's likely to be bigger. That number four is all I'm saying. Bear markets have plenty of rallies on average three off of new lows you know going 10 percent or more. The two recessions prior to the pandemic we saw you know on average basically five bear market rallies of 15 percent. I would argue at this stage in the cycle you just have to be tactical you know because we have this cloud of basically recession.

So Binky I remember a couple months back. You put out a forecast for you said if we get a recession and a hard landing you could say I forget whether it was a three thousand thirty to a hundred. I hand out the SPF the S&P or the high end closer to this 47 50 or even to the to the five thousands. It seems like the worst case scenario is kind of unfolding according to a lot of people and many more people are pricing in a hard landing. What makes you stick with the higher end

range. So what is really the higher end range is sort of an if then else. And what happens when basically I would argue you know coming through basically the middle of the summer you know it seemed to us actually that recession was probably more imminent than happening next year. I mean if you look at you know you

should also depends on what you sort of think or believe a recession is. I think a recession is really basically about corporate risk aversion. And if you look at you know simple measures of CEO confidence you would see that in the middle of the summer we would basically you know some of them were actually below the lows at the time with the pandemic which is you know all the way down there. And so you know really primed for

corporate risk aversion. When we got basically the commentary on Q2 earnings though I would say you know corporates are pretty clear that you know they're not cutting anything preemptively. So that argues and simply suggests that you know the recession is likely to happen later rather than now. And that leaves us with the issue of basically what's going to happen over the next you know sort of three to four months. And what I would also point out is that if you look at those measures of CEO confidence you know they are a couple there as well as one that's available on a monthly basis.

And what you see is that CEO confidence actually went up in August and then went up again in September. It's actually doing exactly what consumer confidence has been doing. So you know yes I mean the Fed hiking cycle will end in recession. I think the question is timing are you know working thesis house view is you know around the middle of next year. So that still leaves plenty of time in between. Is the way putting kids into a recession.

Yes. Three thousand. If we go to 3000. I'm right. If we go to 47 50 I'm right. I think it's just a question of when construction or when job. Well I think I just want to give you the chance then because it's not for me to say your forecast is going to be wrong. You're saying that we can rally back. Basically towards all time highs before

year end. That is correct. If you look at basically you know a big corrections in the S&P 500 and you know generally I mean the kind of levels that we are talking about right now where we are you know you only see basically in recessions. But in the few cases whe

2022-10-08 06:24

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