Fed Preview | Bloomberg Surveillance 11/01/2022

Fed Preview | Bloomberg Surveillance 11/01/2022

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People are talking more bearish than they're actually investing in place and will prevail above that goal. I don't think that far above goal for our base case. We still think that the Fed might end somewhat below 5 percent policy rates. You don't want to break anything, but the Fed always wants us to see one of their actions done. The central banks have been wrong before.

This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. How was Halloween? How it was good. I wanted to swap line and survived. Well, welcome back. Yeah, I said it for IBEX. Yeah, they do. Well, I friendly York City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance, Tom Keene and Lisa Abramowicz.

Some Jonathan Ferro futures just about positive of nine tenths of one per cent on the S&P 500. Have you been war profiteering? But we're gonna start a band and you know this before my father drove a VW diesel where you go, oh, pick one, oh, pick two. Let's go after big oil. Nothing's changed in 50 years. That was a ramp that wasn't even a concrete policy proposal.

What was that? Yes. He was the resident microeconomics. It wasn't macro economics and it wasn't oil economics. And I think a huge body of people that support the president and do not support the president have common ground here. And Bramwell, I'm not sure many people in this market take it too seriously.

Nobody took seriously a windfall profit tax. Talking about that with less than two weeks to go for the election, basically can't do anything about it. People say, well, he had to come out with something after the biggest profits ever for the likes of Exxon. The question is, does it have any influence whatsoever? If it's toothless, if it's basically just simply a stump speech, and that's going to be to add more as two days ago before the rant got croaked, going along crude. This winter looks risky. Morris has been dead on about oil. One hundred dollars a barrel. He says he's still with that. Are not going to go into the details.

But the answer is, how do you get to a hundred? How do you turn 125? Can you imagine the rhetoric at 125? Can we get to the good news out of Europe? They're forecasting mild weather for the month of November. That's some good news out of Europe. So storage capacity was at a decent level coming into winter. The weather's turned out to be a little

bit milder than expected. So this winter. Okay. But Lisa, I think it does nothing to address next year. This energy crisis at the moment is going nowhere fast, especially because if you cannot build the stores and this really is the key, right? If you cannot build the stores, what's going to help you do that? If Nord Stream is not online and if you don't necessarily have the stockpile in the U.S. of the Strategic Petroleum Reserve to go back to that point, at what point we refill to create a buffer? Weather matters, John, this coming Saturday, according to Google. This is in Fahrenheit. John, I'm sorry I didn't have time to go to see Munich low of 36 degrees and Saturday. Is that what this debate is about or is

it about the businesses of Germany? Well, we thought we'd have rolling blackouts at this point. We thought we'd have industry shutting down across Europe and we'd escape that reality. Yeah, I don't think can escape the fact that Europe is turning lower. We still come back to the PMI, as we had last week, Lisa, which were in the 40s. So let's not pretend Europe's out of a tricky situation.

It's just not the worst case situation we feared maybe a couple of months ago. And if you dug underneath the CPI report yesterday out of the eurozone, it was not just energy underpinning some of those gains. And I think that that is also not lost on people that yes, that ten point seven percent headline number of people said it was stunning. Right. And it was this idea that perhaps this is being fuelled by energy, but it's not because underlying that is a six point nine percent or something like that with stripped out of energy core inflation. Do you think this is the new normal read headlines on the weather on the Bloomberg terminal? Is that the new normal? I don't think it used to forecast something going on.

And one of the summary articles I saw, John, here on the war is blackouts in Kiev, water shortages in Kiev, etc. There's a war going on. So you get those kind of banners, equities right now up eight tenths of 1 percent on the S&P to kick off the month of November. Can't believe it's November. Honestly, absolutely ridiculous how quickly this year is gonna sell, particularly the back half. October, just a massive month of gains in the month of October, making it big.

You know, I know you're on for the Dow, but the Dow there with all sorts of data back to an October. That is a record move, second highest since the 1930s, whatever. And remember the gloom that we saw in August and September about equities coming off the June rally.

Down we go. And it's not a Juliette Saly, I would suggest it's not a June equivalent, John. I just watch the VIX to start the day to twenty five point eighty three. We're a long way from that 30 level major squeeze. Yields in a lot, down nine basis points on year and year 395 30. And then the effects market euro dollar slightly players that upper half of 1 percent, 99 27. The weather, T.K., the weather, the

weather's better, the weather's better, but also the euro, some growth gloom out there. You think we're raising some of that a little bit away from the Fed? I think there's some growth gloom. Flatter, Bram. Okay, flatter. I can't give a narrative to any of these daily moves.

And I'm going to try sometimes unless it's really obvious, because right now it feels like we're just sort of dancing on the head of a pin with respect to where we are headed when sort of we reach the bottom or some sort of capitulation. Today, the earnings do continue. This week, we are going to get almost a third of all of the earnings of the companies in the S&P 500. Uber comes before market, very curious about the ride hailing service and trade.

Our salads that are delivered to you through the NBN be aftermarket. Curious about travel? How much can that really hold in, given some of the crimp that you're seeing on people's household? Also, we get from Pfizer, Simon Property Group, so far Technologies, how much are they extending some of that consumer lending, that consumer leverage right now ahead of a downturn? Devon Energy and Mondelez International. So a real nice swath of the economic outlook, particularly with respect to the consumer. We do get the Bank of England today becoming the first major central bank to actively sell some of its holdings on its balance sheet with 750 pounds, somebody hundred and fifty million pounds excuse me, of short dated gilts. How much does this really affect a market that's gotten whipsawed? I was shocked that gilts are one of the best performing asset classes of October, gaining three point nine percent after all of the turmoil because of some of the policy response by the Bank of England and because of what happened on the political sphere. But the gilts are still down 24 percent year to date.

So, you know, it's a win some, lose some. And today at 10 a.m., we get a slew of US economic data, including the ISF manufacturing for the month of October. The granular data underpinning that is going to be interesting. Do we see any potential easing in some of the supply chain? Can I supply chain constrictions that you've been seeing? And we're also getting the JOLTS job up things, Tom, you were thinking about. But really it's going to be interesting from what the labor market and the manufacturing.

How much do we see some sort of softening or at least easing in the tensions to give the Fed a little bit of a breath of relief? And folks, I was sort of like PMI. So what Pharoah taught me to watch these numbers, John, what is it? Basically forty nine point nine is not 50 anything south of 50 countries, like a big deal above 50 expansion PMI ISE right now in Europe, in the 40s, in China in the 40s. We, of course, look to the ISE here in America. We'll look to that a little bit later. Did you see J.P. Morgan last month was breaking down the numbers with my producer Jamie this morning, up 21 percent in the month of October rally.

Yeah, we had the most important interview that the Fox, Julian Emmanuel is gonna be on with his thoughts with Eric Freedman. And I'm sorry, everybody's getting it wrong again and they're performing in the big quality companies led the way is symbolized by JP Morgan and Anaconda Copper in the Dow Jones Industrial Average. And that goes straight to where it Friedman, chief investment officer at US Bank Asset Management. Eric, what did you make of that monster move we've just seen in October? Some people say it feels like July faded. What do you say? Johnson We're more in the fated camp. We do think that the just where

volatility is right now, it certainly implies that you can have those sorts of moves. Clearly, it was a it was a huge move, obviously. And Tom's favorite, the Dow the best the best month since 76. And so, look, we think that there's this

this natural desire right now to own stocks that people want to say, hey, look, the bottom may be in. We still think that there's some pain in front of us. And so we think this is really more of a good time to reposition one's portfolio in a little offsides, good some days to rebalance back. But again, we think this is a move to

fade, not to what not to buy into. What do revenues do? I mean, how do you quiet, stodgy money, Eric? How do you handle nine point five percent revenues as Julian Emmanuel models did Evercore. That number is going to migrate in. How do you manage that with quality stocks? I think that's where you have to start. Tom is on quality. And again, there've been plenty of times when we've emphasized that there are times to be more small cap, mid-cap more or, you know, long duration growth, if you will. Now is not one of those times. So we do think that old economy is going to work. We think that if you have to be involved with you, then you should have some exposure, of course, to equities here. There's plenty of reasons to be excited

about areas like utilities as well as oil. The energy space, we think, is probably where the higher conviction ideas that we have. And so emphasizing those sorts of names we think makes sense. So again, the the key thing for us time

is we're thinking about maybe rotating back into tech will be when rates start to come back and there's no guarantee we'll be back to the 2020 playbook, which was, you know, duration comes in and tech works. We still think there's probably a little bit of evidence we have to see the earnings. That ex is still there. We're not quite at that at that conclusion. But again, old economy, utilities, energy, infrastructure, great places to be right now. If you like the energy companies, do you care or do you pay attention to what President Biden said last night about windfall profit taxes? We do, Lisa. I mean, there's almost been this Pavlovian response from the energy complex for the last 15, 20 years, which is oil prices go up.

You you send out rigs, you go out and find and then too much supply hits and wash, rinse, repeat. You see the cycle continue now for all the reasons. You did a great job covering this yesterday, Lisa. If you look at what ESG, if you look at activist shareholders who's been such restraints by ENP companies to go out and find, we still think that again, this tax, if it's viewed as a as a true tax on on return on invested capital, there is not going to be allowance from for from shareholders to let companies go out and find and start projects.

So we do think that this is probably going to have a reverse impact that the White House may want, which is the White House wants to lower prices if this is meant to, you know, again, provide another piece of evidence for activist shareholders to restrain ENP companies. There's probably some prices higher, not lower. Erik, thank you. Erik Freeman of U.S. Bank Asset Management. This president on the campaign trail, I think in late 2019 said I'm going to went fossil fuels just contributes to cultivating this environment where these fossil fuel companies are doing exactly what they're doing. Yeah, well, and this comes to this idea where you have politicians that want to see a transition to a green future at a time where physically that's not yet possible in the way that they want to see the transition is taking longer than they thought that it would. They've got to deal with the now. And the now is a very fossil fuels now. Remember when the former president wants

it to rebuild the SPRO, some when crude prices will rock bottom. And the Democrats said that it was tantamount to a bailout for big oil. But we got it taken out. We got to be careful here in the election season. But what I will say is we can stay. Where's the economic foundations of some of these statements, particularly on taxation? I don't hear economists saying this is gospel. I hear politicians saying that we talked

about it a number of months ago. Is this central planning? If this is not fair. Can you tell us what percentage of our profits these sectors? You have a number. The gentleman from West Virginia, I believe, is a Democrat.

This week would suggest. Yes. What you just stated is true. Equity futures up nine tenths of one percent. This is Bloomberg Quicktake down, up. Keeping you up today with news from around the world with the first word.

I'm Lisa Mateo. Federal Reserve policymakers are expected to raise interest rates another 75 basis points at the end of a two day meeting that begins today. It's the Fed's most aggressive tightening campaign in four decades. Still, some strategists believe that this stage of rate hikes is at an end. And the Fed will begin smaller increases

next month in the UK. Ricci soon next government says it's inevitable that all Britons will have to pay more taxes to restore stability to the public finances, especially the richest soon act met with Chancellor of the Exchequer Jeremy Hunt on Monday to discuss the budget. Now, according to the readout from the Treasury, they agreed that tough decisions are needed on tax hikes and spending cuts.

North Korea is threatening the U.S. with what it calls powerful measures if the American military doesn't end exercises with South Korea and others. The rhetoric may be an effort by Kim Jong un, Kim Jong un, to lay down the groundwork for his first nuclear test in five years. Now, this week, the U.S. and South Korea started joint air drills after exercises on land, sea and air in recent weeks under new owner Elon Musk.

Twitter is limiting content enforcement work just before U.S. congressional elections. The social network has frozen some employee access to internal tools used for content, moderation and other policy enforcement. That's affecting the stamps ability to clamp down on misinformation. 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.

Rather than increasing our investments in America or get worried, give me an American who is a break for excess profits are going back to their shareholders and buying back their stocks and executive pay is going to skyrocket. Give me a break. Enough is enough. If they don't, they're gonna pay a higher tax on their excess profits, increased other restrictions.

The president of the United States going after big oil yesterday evening from New York City this morning. Good morning. Equity futures up by about eight or nine cents of one per cent on the S&P 500. Picking up on that story, we can head over to our good friend, Manus Cranny Morning Madness. John, thank you very much. Yeah. Joining me now is Hoxie in the special presidential coordinator. And it's good to see you in Abu Dhabi.

We were just playing some of the president's on. They're talking about, you know, continuing buybacks and dividends would perhaps bring the wrath of the White House upon them in terms of taxes. But his speech last night. Let's talk about last night. The president warned, I'm paraphrasing, that there's a risk of a windfall tax if he don't reinvest. Is this just political kite flying ahead of midterms? Is there any real possibility of windfall taxes? Well, Mass, first of all, it's great to be here with you in Abu Dhabi and I'm Bloomberg Markets is great.

Look, the president is this has been a consistent message from the president, from the administration. Asking companies to take their profits and invest them back in America, back in production and refining. We have. Been experiencing elevated prices as a

result of geopolitical dynamics, not because of markets, but because we have a war, a devastating war in Europe where the perpetrator of the war is one of the largest oil producers in the world. One of the largest gas exporters in the world and is using energy as a weapon. This has seen a massive increase in prices, while, of course, we're still have a huge economic growth from postcodes. That is also creating demand growth.

So we're telling companies make a profit. Here's Harold. But there is a level and a limit to how much profit you can tell you without investing.

You won't say not to oil companies when oil was at 20 bucks in the United States of America, I think. I think the point that is 20 dollars is when naturally companies don't invest 100 dollars. Ninety dollars is naturally historically when companies do invest. The problem now is that they're not doing what they always used to do.

I'm not here to represent peak oil and ISE. I'm here, Meredith. But the proposition, which is people have said to me, you look at this administration's guidance to big oil. Day one. Keystone was bend. We have no discussion about a new taxation format.

And we have a host of sort of no drilling on on federal land. We have various messages which are respectfully. Schizophrenic Hi, can you plan for five years, 10 years, cap, ex anus with schizophrenic policy changes like this? This is how it's been described to me. What's your response to that? I don't think it's been schizophrenic.

I think we've been very clear to craft. Look, we're in a.. We have to deal with a short term, medium term and long term. We're in a time when we have to increase production because we need to make sure to ensure global economic growth. Yes, we have to have reasonably priced

affordable energy resources, oil and gas to meet our goals of where we want the world to go by 2035 and 2050. We have to accelerate our investments in renewable energy. Those are consistent with each other. They're not competing with each other. So investing right now, here's a certainty we're giving oil companies. We've said that we are going now that we have released one hundred and eighty million barrels of oil onto the market and the SPRO for our national security interest.

We need to buy back. We need to buy another 200 million barrels back over the next several years. We have said the president himself has told companies, I will get.

I will tell you what price I will buy it back at 70 dollars or so. I will start buying back at large amounts. So I will provide you with certainty of price.

To some degree. So to enable to answer the questions you've asked. Well, there's one way to push a market against you, and that's to tell them what price you want to be planning the SPRO. But I know it's a lengthy document. I know it has detail. We can move on, which is about the price cap from the United States of America. And I think the language is an effective and a strong level. 40 to 60 dollars is what I understand

the numbers that's in the Bloomberg stories. Do you really believe 60 bucks is gonna keep Russian oil flowing onto the market? Because the conversation I've had with everybody here. Everybody's worried about the sanctions coming to bear here in our home in Europe to 60 bucks. Keep Russia oil flowing in your mind. So outside of a Bloomberg article, which

I would never want to argue with Bloomberg, I think it is outrageous. And yet we know what, he's 60. But no, I don't think so. We are going to set the price when we do that and we'll announce it.

I think all these numbers out there that are just rumors and leaks that I can tell you are not substantiated by reality and people should just ignore those. I really would hope people would get those numbers. We are. We've always said that our goal was to keep the Russian barrels on the market while we restrict the revenues to Russia at a point when they're using those revenues to finance the war. There is a balance here. We have to figure that out.

There's a difference in the balance between when we were at 120 dollars a barrel versus where we were at seventy six dollars an hour. So we are going to have to figure out we're doing that now of what the right price is going to be in order to make sure that Russia is still incentivized to sell on the market. While we make sure that they're not over profiting beyond that level, will it be materially higher than 60? I can't tell you what the reason, because if I say anything now, you're going to they're going to have rumors again on that. But we reckon, look, we get it. We understand how the market works and

we want to make sure that our goals are achieved. Just clarify. I did, in fact, not rumor. And with that in mind, I to understand the potency of the price cap when it comes to this. I caught up with the Indian oil minister yesterday. It's very unlikely. The speculation is it's very unlikely. India and China, two of the biggest customers either for Russian oil will sign up.

We don't know. But given the price cap, it's a fairly impotent proposition. If two of the biggest customers of Russia won't sign up, I disagree, because the country where we're telling people you don't have to sign up. It's not a membership. You as long as you are purchasing Russian oil at a lower price. That's what we want to achieve. You have a marketplace of brands. Everybody negotiates.

You know that. Nobody buys strictly brands. There's all kinds of negotiations. Do you really believe that India and China are not going to be negotiating? Not already. We know that Russian oil is not selling in Britain right now.

No, it's only selling at a discount. So it's just about how much of a discount. OK, well, let's see what you produce at your here in added pack. How would you describe Saudi U.S. relations at the moment? Are they broken? Are they fractured? What is the word that describes it at the moment? I think people attach too much to the drama of things and the soap opera of things. Saudi Arabia and United States have had an eight year relationship. We've had some ups. We've had some downs.

We usually come back from the up. We have a broad range of interest from security to economic. We had a significant disagreement that we're you know, I don't shy away from that. We had a disagreement about the OPEC decision. We think it was a mistake to announce a cut of 2 million barrels.

But we. We continue to talk to them and we're going to continue to have a relationship that serves our interests. We're just gonna have to evaluate how that is, how that best works in all ways. The last time you were in the region. You left here. Did you leave here? Did you leave Saudi Arabia with a conviction and a solid belief that you were going to get more oil on the market from the Saudis? Were you Miss Guided? Did you walk away with that belief? Clarify for us today. So one of the things that I never do is talk about what we talk about, what I my conversations with government officials.

I understand. And so I will say that we were very good thing about my conversation with folks. I'm always very straightforward and I appreciate that they can be with me. They knew that. We believe that a cut right now in this environment under these conditions was not good for the global economy. It was not good for their consumers.

It's not good for our economy. Consumers, we thought, is a mistake. I also think we have a trip to two. Saudi Arabia was to buy oil all along. No, it was never about oil. Think about the things that we've done. Look, we are the United States. Our interest are are varied and deep. And look at what we achieved on our trip that I think was really important.

There were overflights from Israel, security arrangements, security integration, security, economic integration of Iraq vis a vis Iran. Yes. Extending this cease fire with Yemen. I mean, these are really important things. We announce all kinds of other achievements at the wall on that trip that I'm going to do with oil at the same time. When we announced the trip, we also saw after the trip a increase in production in July, an increase in production in August.

An increase in production in September. But come on, Saudi in August had its highest production level. Amos going to have a shock and it provoked immediate press releases in the news conference I was in in Vienna that night. The question the market wants to know is how serious is the White House about retaliation? You know, is retaliation the right word? What are you going to do? Is it. Is it going to be arms sales? Is it going to be no PAC? Is it going to be, let's say, more additional NPR releases? What is this retaliation that's been so much made off in the media? So, again, I have to deal with the relationship less with what it's made up in the media. And we are looking at what the interest the United States are, how we see for our own interests and for our interests here in the region.

We have very strong interests here in the Gulf, across the board with UAE, with Saudi, with the rest of the region. And we are going to continue to look at what other actions are we need to take. That best serve the American interests and what we think are the best security interests for this region and the economic interests around the world. That's what we'll guide every decision that we make. And I thank you for taking the time. And I got a busy schedule and it's been

good to catch up and I'll make sure I'll go on fact check my 40 to 60 dollar oil price in terms of where the cap comes and it's hosting a special presidential coordinator in outback 2022. My final gasp. It's a wrap from the hallowed halls of our oil deals are done. Jonathan Manus Cranny. As always, we explain your links to Manus Cranny is one of the best. Just he's just I heard him on Ransley best, always on that voice. It's like it's like, you know,

Shakespearean, that Irish accent, whatever it is. He's just great. He's just for you to talk about the content of that conversation. Yeah, I would.

I've never heard it. I have never, ever, ever heard this. And I want to hear from Curry, Morse, Blanch. You had them read a sentence maybe yesterday and you said yes.

Sabbatical. Yeah. I want to hear from adults about what I'm hearing, which is politicians talking price theory of oil. You have to enjoy losing money and oil as I have enjoyed. To understand how bad and on capital return programs as well, it's on the difference between rhetoric and policy. If you're gonna sit there and say there's a limit, what's the level? What's the limit? What's the percentage that you think is right to distribute a capital returns back to shareholders and what is wrong. And that's the difference between rhetoric and real policy features right now. Positive from New York.

This is Bloomberg. Well, it starts in November. This market running away to the upside and the S&P 500 up nine tenths of one percent. Adding to the gains through October, big monthly gain on the S&P up 8 at 8 percent on the equal way, S&P up 10 percent. Best month of the year on the equal weight on the NASDAQ front now at one point two percent on NASDAQ futures. The other performance on the Nasdaq 100.

Pretty clear for all to see for the month of October. Into the bond market, teens, tens in 30 shaping up as follows. Yields heading south down 6 basis points.

Call it 7 on a two year 441 41 on a two year yield on a 10 year year 394 27 down by about 10 or 11 basis points. Who would've thought the weather moves the affects market? First it was the U.K. to a mild time and mild weather forecasting Europe in the month and a family euro dollar positive six tenths of one per cent, some ninety nine thirty eight for actual as well. I want to go back German for a global Wall Street. This is old news at CFA Level 1. But John, you mentioned equal weight S&P.

I think this is a really important time to talk about. S&P is good math. The Dow is a heritage index with bad mouth. No question about that. But the idea then you adjust for equal weight where Apple has the same weight as Colgate-Palmolive. You or even more. And I'm going to go into the math now. It's the day after Halloween, but a

geometric series which is even more laden than equal weight in all of these bear study by adults, by pros. Given the gyrations. Basically, what you're doing is stripping out the most sort of big attack, the S&P 500 and the average stock within it and the average stock performance. And a fact of the matter is, even though big tech in some places, Mohammed, it didn't bleed. I go one step further, the small caps through the month of October, some 11 percent on the Russell Jason Kelly. Yes.

Or 2000. Really impressive. You can call it a squeeze, maybe a bear market rally, but it's there for all to see. Lord Kelvin seen RBC lead the way on Jonah is a headline. It's roll up 2023 JNJ to buy Abbey on

mode for three hundred eighty dollars. I don't know anything about it. We'll learn about it and give you the news on that. Right now we are going to learn from Freer Beamish, chief economist at T.S. Lombard Free. I'm going to notice that the Bloomberg Financial Conditions Index for the United States comes in.

It moves some restrictive to a more accommodative study. Now, is this Fed going into a Fed meeting with the more accommodative tone that they have to adjust to? I think that there's a clear case to make that the outside of the Fed that we're getting this sort of stage one of the of the pivot. I'm not sure we're quite there yet in terms of the of the of the Fed. And I think we just come back to the argument that the actual demand supply mismatch at base in the US economy is still there to be to be worked out. I think there's this sort of we're getting to that stage in the in the hiking cycle where people are sort of thinking about all we. Are we going to get an overshoot in the Fed? And I think it's a complete it's a it's a false dichotomy, because for one thing for one thing, there needs to be a recession for the Fed to actually hit its inflation target.

And I don't think we'll actually have a comeback sustainably to that 2 percent. I think the end game here is that we'll have a higher inflation target. But to to kind of be moving in the right direction. We have to get on the unemployment rate above 4.5 percent.

So that's that's one thing that kind of the euphemism of the thumb of that has to be below trend growth. What that actually means is there has to be a recession. Let's call Phillips Curve here. Ben Ammons is a smart note this morning, folks saying we haven't met the conditions for a pivot yet free of Beamish. With that said, you stated they have to move the unemployment rate up. Do they have the capability to move the unemployment rate up? This is this is why it's taking so, so long, because we're in a very different cycle here with regards to the to the balance sheet. In previous cycles, the Fed was able to slow the economy down through the liability side of the private sector balance sheet because there was that leverage that there hasn't been the credit cycle in the in the 2010s.

The credit cycle has been in China, the assets cycle has been in the US as a result of, if you like, the lack of the wage growth driver in developed markets, the lack of the credit driver. The result of that is that monetary policy has been very loose. The result of that has been that there's been an asset cycle. It's been very good for the price of assets. But how do you then move from a situation where there isn't leverage to slowing the economy down? The ways in which the Fed policy affects the economy as is is sort of is muted. And then on top of that, you still have the overhang of the massive fiscal stimulus and the accumulation of price gains over the.

Over the course of the pandemic. That is still kind of sitting there in the in the in the real economy. And that sort of desensitised is the real economy to the tightening that the Fed is trying to to embark upon. So they need to get unemployment above that 4.5 percent level. And the idea that they're just going to hit that 4.5 percent and then sort of move, move sideways is very unlikely, partly because it needs to go above the 4.5 percent actually to bring the inflation target back down again.

But also because they they they they don't know how far they have to go. So it's easy for us all to say, looking back at the 70s or looking back at previous hiking cycles that the Fed has, has has overshot in hindsight, but particularly in this cycle where there's so much uncertainty, they're feeling that way. They don't know how far and they want to are on the side of dealing with inflation. So the likelihood of an overshoot, if you want to call it that, is is quite, quite strong. What you're saying is incredibly important for you, which is this idea that the economy is less sensitive to rate hikes to monetary policy. So they have to go further than

naturally would be perhaps the levels that people would expect. What about the other side where inflation is coming from? And I point to the ten point seven percent CPI figure in Europe. How much is due to a weaker euro? How much is due to imported inflation driven in part by the Federal Reserve? I think a great deal.

It's almost like a a role reversal from what happened in the in the 70s where it was the Bundesbank that was was exporting the inflation and it was the the she was very much on the other foot. This time around, it's the US that has the imbalance in demand and supply, both in the goods market and in the in the labor market and in Europe. We see some evidence of that. We can't dismiss it and say it's all imported inflation. The IMF had a good chart recently looking at the sort of the residuals of various regressions of inflation and trying to see whether that could be explained by kind of shortages in inputs and labour costs.

And there is a relationship there. So we're not dismissing any kind of building heat within within Europe. And I think globally there is a key change which relates back to the value of Chinese labor and that allows wage growth to move faster. But the bulk of it has been imported

inflation and the impact of this energy shock and food price shock. And we could have said at the time when when these shocks were coming through, it's going to take 12 to 18 months for this to pass through the system. And in that period, we're just not going to know what what the actual drivers are. Good luck. Decomp decomposing. Well, yeah, I want to pick up, though, on the point that you mentioned about Chinese labor.

Right. The bigger context that leaves some people, including, I believe yourself saying that perhaps we'll have to have a higher inflation target for a bit longer simply because of some of the sort of inflationary forces, including D globalization or regional globalization, a move away from Chinese labour that's cheap. How much is that underpinning it and what is appropriate inflation target over the next five to 10 years in the developed world as a result of some of these macro forces? Well, I think that the appropriate target is somewhere higher than 2 percent, whether it's 3 percent or whether it's whether it's higher than that. It remains to be to be seen. And I think probably before we get that,

we'll have this sort of mirage of disinflation that will allow people to have a little bit of a tactical play in the bond space, again, on the route to that higher, higher inflation rate. But the main kind of tectonic plate drivers here for me in terms of the global interactions are that are the fact that China now appears to be exhibiting the flattening of the Phillips curve that the US was exhibiting in the in the 2010. So cutting a long story short, it takes more labor market tightness within China to generate that wage inflation. And that sort of tells me that this was

pre Covid as well. This this sort of tells me that China has now reached that lead and that lifts the lid on wage growth in developed markets across across the world, making making developed market wage growth more responsive to the labor supply mismatches of which we know there is a massive one in the US and the UK. So that's that's one of the drivers. And I think the flip side of that, two sides of the same coin is that the debt cycle now moves back to the developed markets with the with the banking sector balance sheet being relatively clean and the household sector balance sheet being relatively clean. That leaves space for the inflation driver of credit to return to developed markets.

So you've got both wage inflation and credit inflation. And we don't have to say which one is most important because we've got them both coming back at the same at the same time for a blemish there. FTSE Lumber, Fred. Thank you as always. Let's pick up on the China story. Massive rally overnight in Chinese equity markets on a rumor on social media that the government in China has formed a committee to assess ways to exit Covid 0 CAC Sandy relief.

An official in the foreign ministry about that. And they said, quote, He is not aware of what you mentioned. So, Tom, quote, not aware of what you mentioned. When asked a question about whether that committee has been formed by the government to assess waste to exit Covid Syria, zero. But that's part of the discussion and part of the reason we saw markets in China absolutely. Fly it. Yes. And get out the calendar is X number of

weeks after a Congress where we saw Mr. G codified again for a third appears and last term. And right. Also for the China watchers we talked to, John, this is right on cue, right as the Hang Seng lease are up more than 5 per cent in today's trading.

I mean, I wonder how many of these rumors are being spread after what happened with the Foxconn factory and some of the stories of historic Juliette Saly, the brutal people who are basically being held in a closed circuit kind of encapsulation, not provided the food that they need if they do get sick with Covid and escaping, walking 25 miles to escape. I mean, the stories are really horrific. How much are these types of stories really fueling this shift in terms of social opinion and then also by officials and what they're willing to tolerate? You'd have to think that raises questions for Apple as well.

Well, and a future country, I would agree. And they've said it's going to be very hard to move out of there. But there was a story this morning about Tesla standing Shanghai workers to California to boost production because they can do better in California.

This sort of speaks to Freya's point that all of a sudden that lift the cap on potential salaries elsewhere. Tesla are also sending some workers over to Twitter. I'm not going to get that right. So a little bit like futures up on the S&P by about 1 per cent as we kick off the month in November. Do it in the right way for the equity for student Emanuelle. Coming up in about 20 minutes time from Evercore. Looking forward to that.

From New York, this is Bloomberg. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo. President Biden's promise to impose higher taxes on oil companies that boast windfall profits will be all but impossible to deliver. His proposal comes as gasoline prices are still high. A week before midterm elections, many Democrats have unsuccessfully sought a so-called windfall profit tax from more than a decade now. No such proposal is likely to pass the current Senate.

Russia's warning that the security of ships sailing Ukraine's grain export corridor can not be guaranteed. That comes after Moscow halted its involvement in a grain agreement. Russia has repeated unsubstantiated claims that Ukraine has used a corridor for military purposes. In Brazil, protests by supporters of President Jaya Bolsa Nardo have intensified. Also, Nardo has remained silent over his loss in Sunday's election, refusing to concede defeat to Luisa Nassios, Lula da Silva. Truckers backing Bozo Nardo blocked the

main highway linking Sao Paulo and Rio de Janeiro. Now, they said they don't agree with the results of the voting. Bargain hunters may be looking at Credit Suisse and think the bank could be the target of a hostile takeover. Chairman Axel Lehman says they'll end up

disappointed. We are going to go to sleep again so we don't have any takeover discussions. And at that point, we truly believe you want to stay independent. Lehman spoke to Bloomberg in Hong Kong. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than 20, 700 journalists and analysts and more than 120 countries. I'm Lisa Matteo. This is Bloomberg.

Here's a certainty we're giving oil companies a have released 180 million barrels of oil onto the market in the SPRO for our national security interests. We need the buyback. We need to buy another 200 million barrels back over the next several years. We have said the president himself has told companies, I will get. I will tell you what price I will buy back at seventy dollars or so. I will start buying back large amounts and a silk stain to have a special presidential cohort from New York City this morning. Good morning. Equity futures up by almost 1 per cent on the S&P 500.

Quite a tidy rally to kick off November off the back of some big gains in October. Futures higher on the S&P. Yeah, it's a whole lot lower than almost 10 basis points on a 10 year. Three ninety four. Sixty eight at best. Watch and effects market. Euro dollar. Ninety nine thirty four. Up a half of one per cent.

And it's a story the moment isn't it T.K. 87 94 on crude up by one point six per cent. I will go Brent crude because of the war ninety four point three seven.

I'm going to call that two dollars down from the latest uproar and twenty four dollars or so down from where we were, what seems long ago and far away, short term, one week out. And we will be in Washington. Annmarie Horden joins us, of course, our Bloomberg Washington correspondent. Murray, I just went out and looked in Pennsylvania manufacturers. Thirteen thousand barrels of oil per day. How did the president's comments not play in Texas or Oklahoma there forever and gone Republican. How did his comments play from Scranton

to Pittsburgh? Well, Tom, you can really make the argument that he came out and made these comments because we're a week out from the midterm elections and The Wall Street Journal this weekend really made a valid point, which is the fact that gasoline prices have dictated the president's approval rating. So gasoline prices go up. The president's approval rating goes down. So he. This was really a political speech. It was short sighted when it comes to the policy, because we all know that Congress is not going to be able to enact a windfall tax. They actually flirted with this idea months ago, wasn't able to get through this Congress, wasn't able to carry the carry loophole when the Democrats were able to pass legislation. And they have control of the Senate and

the House. There's no way they're gonna be able to pass a windfall tax. The president was trying to do, though, was off of these mega high earnings. I mean, just look at Exxon alone.

Seven million dollars an hour is what their profit ended up being. He's using this as a point to scapegoat the oil companies and point blame for the fact that Americans for the past few months were dealing with higher energy costs. So what are the policy options for the administration? What are the viable, realistic policy options available? Well, the president said yesterday he's calling on this tax, as I mentioned, that's likely not going to be possible. Another issue that policy has been floated was to basically ban have an export ban of fossil fuel products, not crude, but actual products like gasoline, diesel, etc.. And, you know, the timing of this speech

is not just so interesting because of the midterm election. It's interesting because we're going into the winter and something that's not really making the front page news. The way your local gasoline prices going up or down is, is the fact that this nation right now is incredibly low on diesel stockpiles. And there are some places that are even dealing with emergency measures when it comes to diesel. So, Jonathan, I mentioned this because another policy they might be doing is something to do with stockpiles and asking private companies to increase their stockpiles, especially on the East Coast.

Lisa, Steve. Steve Schork absolutely nailed this call. Yeah, sure. I don't like. You know, people have a dogma diesel for a while. And the concern especially having to do with heating homes heading into a winter where we still haven't heard the meteorologists come out and prognosticate quite yet about the U.S. winter and how much it's going to be colder or warmer than people expected.

How much the Republicans proposing on the other side, I mean, how much is the main linchpin of the Republican talking point? We're better than them because we're not in power, but also really a restriction in terms of exports. That being front and foremost, perhaps a bid to remove some of the aid to Ukraine, remove some of the presence with respect to sanctions. Why, thank you, when it comes to the Republicans, something that they really hammer the administration on is the fact that and Jonathan mentioned this earlier, the president ran on a campaign that he wanted to put an end to fossil fuels. And Republicans are saying is, OK, you can tax them or you can make an incentive for these companies to boost more production when it comes to aid for Ukraine. Lisa, you know, right now, at the moment, there is still a majority of bipartisan support of supporting Ukraine. But, you know, we've been talking about for weeks that there are a little bit of questions coming from the likes of Kevin McCarthy saying there's not going to be a, quote, blank check for Ukraine.

Then, of course, we had that progressive Democrat letter that was then retracted. But that was really outlining the fact that if tens of billions of dollars are going over, maybe it should also mirror a concern down the road. And this even means with Russia that at some point there where it will be a diplomatic path forward. MH I want to go back to a letter that

was written by Democratic senators to the former president in March 2020. And I want to bring you a quote from it as well. Here's one quote from it. You can find that letter is available online from Senator Markey and others as well.

This is how it reads. I read it as follows. And it truly is to go back over. This is just shocking. The increasing affordability and prevalence of renewable energy technology provides a cleaner, cheaper alternative to oil. It is straight in the recklessness of investing taxpayer money. And what will likely become stranded assets? Can we just go over that again? Illustrating the recklessness of investing taxpayer money? And what will likely become stranded assets at the time? The former administration wants to refill the SPDR Armory at the time. You had Democrats tell me, the former

administration, that any investment of taxpayer money into the oil patch was reckless because they would become stranded assets. Now, why is it not right to hand that money back over to shareholders? Because aren't they basically agreeing with the Democratic senators of two years ago? Well, they are, and this is the big debate and the pushback and the criticism you'll get from the industry you are running and you verbally talk about and socialize and running campaigns and the fact that you want to get rid of our industry and now you are asking us to produce more. And what oiling industry will say is that you can not just overnight have more refineries or overnight produce more oil. This takes years, months, sometimes decades long of planning. And what the administration's entire

communications towards the industry has been, at some point we want to transition and we don't want your assets anymore. And actually, Jonathan, even there are some who say that, well, if there's a higher oil prices and there's market demand, maybe then more people buy these. Isn't that what the administration wants? The big problem the administration has is they went into their entire four years, the administration going into their leadership, not really realizing, and no one could predict the type of energy crisis they were about to have. And their rhetoric did not match the

moment. MH Thank you. Down in Washington, D.C., I don't think we've heard the end of this. If we take it as soon as the headlines come through The Daily Show, as soon as we get Exxon, as soon as we get Chevron, we both said the same thing. As soon as that dropped, we were waiting to see what the president would have to say about it. It was basically. And you? What's yours? Yes. It's basically saying.

Exactly. And now no one believes the threat of the policy initiative to the president was dangling over the oil companies yesterday. Yeah. My only comment is, is a war, which is a huge variable. Everybody I talked to says if you get demand, click and read an opening of China. Up we go. Maybe that works. Maybe it doesn't. I want to see a cogent walkthrough by Curry, Blanche, Morse and Reed, said the rest of them on the micro economics around what we're hearing the politicians state. Jillian Emmanuelle of Ethical is going

to join us around the table in about five minutes time. Looking forward to that. Futures up by a run about 1 percent on the S&P from New York on TV and radio. This is pulling back. People are talking more bearish than they're actually investing in place and will prevail above that goal. I don't think that far above goal for

our base case. We still think that the Fed might end somewhat below 5 percent policy rates. You don't want to break anything, but the Fed always wants us to see one of their actions done. The central banks have been wrong before. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. You know, we've gone the whole hour without saying step down. Not once.

I don't even think that the phone rings outside. Ben, I'm so fed once I stepped down in the wreck on the record. You're the one who first brought it up. So if you're just tuning in on Glenn Beck right here, you missed it. From New York City this morning. Good morning. Good morning.

From audience worldwide on TV and radio with Tom Keene and Lisa Abramowicz, some Jonathan Ferro counting you down to a Fed decision and all that step down chat features up nine tenths on the S&P. Take a water rally we saw in October. It spills over to November this morning, confounded the gloom crew, the equity markets up. I think there's too much made of the Dow, you know, a big month and all that quality may.

Hold on a second. Let's make him what? No, I think everybody does. You know, I'm Dow first, but everybody in the zone goes just way, overemphasizing an historic month for the Dow. And the real news is the underperformers

lifted as well. It wasn't just the Dow. You mentioned small cap up. Even the NASDAQ were the lift. The Dow off to thirty three thousand seven on futures this morning. Julian Emanuel knows all that matters is the Dow get into alongside a student. Just quickly, you even have a Dow forecast year end. We're not down. But I'll tell you, my father in law

worships private forecasts just for him. Any features right now in the S&P up eight or nine tenths of one percent. Let's rip free. The price action yields lower by nine or 10 basis points on a 10 year, three ninety five, ten on a 10 year yield. We'll talk about the weather in Europe. And I tell you, it's the price for the

weather forecast for November, a milder, milder November for the Europeans. Euro dollar ninety nine thirty four, up a half of one per cent. And the controversy, T.K., in the oil patch right now. Eighty seven ninety on crude up by one point six per cent and a precedent that sounded fiery yesterday evening. It becomes the domestic politics and

there's different oil discussions right now. Right now in Kiev and Ukraine. It's survival of being dark, being without water, being cold, even in the 40 degree weather here. It's a different story. And I go back to what I mentioned to Annmarie Horden. I didn't know this. Pennsylvania's still, you know, Pennsylvania was oil Rockefeller and show over in Ohio, John Hay in Cleveland.

And the answer is they still do 13000 barrels a day. How does his rhetoric play in the Pennsylvania's of the world, frankly, in Nevada? Just bring up fracking. In that debate. Yes. From Pennsylvania, very, very different conversation. Brent crude with a nasty forehand, though, Lisa, the old patch.

A big discussion for us later. Very much so. And we are getting a slew of earnings today and throughout the week from the oil patch. So a pass through those to see just what the earnings are, what the blowback is, and honestly what the investment is at a time where people are saying we really need that to be sustainable over the short term, even medium term before we get to some sort of a greener future. Today, the earnings that have been dropping over just came out and actually beat expectations, although it did put out a projection for the fourth quarter that was disappointing. Those shares surging more than 9

percent. And if you dig into some of the release, it's interesting, the scare about how the actual driver base increased dramatically and they went back up to volume. Going back to shift 2019 is highlights that people still have money to spend, whether it's ride sharing, whether it's on food delivery airport and B will be reporting after the bell, as well as a slew of other earnings we're to be hearing from so far. Technology is how much consumer lending

is happening as the economy is so good. Simon Property Group, Devon Energy talking about the shale patch, Mondelez International, a whole swath, about a third of the S&P 500 reporting this week. Today, the Bank of England to become the first major central bank to actively sell sovereign bonds held on its balance sheet about 750 million pounds of short dated gilts. What an effect will that actually have

on two year gilts that have been completely hinged to whatever fiscal projection they have from Ritchie soon as well as with the Bank of England does on Thursday and at 10:00 a.m. USA Asset manufacturing for October. Construction spending and jolts, job openings, data, John, all coming out. Manufacturing, it's expected to come in around that 50 level, right? Which does it mean a contraction or an expansion if it comes in below that? What does that mean? And if it comes in above that, how do people grapple with the potential for supply chain disruptions starting to ease a little bit? Manufacturing actually seeing a bit of recovery at a time when perhaps that's not what people want to see with respect to the Fed and their policy. Lisa, thank you.

Looking forward to the data a little bit later this morning. To Stephanie Energy whisper their earnings this morning on the call, Tom. Just say it really, really quietly. These are all capital cities, some of that. You know, Mr.

Dudley, a BP was with Madison and Dubai, as we heard from the administration's arms. HARTSTEIN And there's there is top to bottom from Toto on down. There is a reticence to talk about it yet in a manual with us around a table from adequate. Wonderful to have you with us. Proper introduction, sir, which you deserve. What Randy, we've just seen in October

spills over to November this morning. We asked the guests a little bit earlier, Eric Freedom, what he thought of it, and he said he'd fight this. Do you agree with that? No. From our point of view. Look, the next week or two could be very choppy. Obviously, the Fed tomorrow, you've got

the elections next Tuesday and there's likely going to be back and forth, as we've seen the last couple days. But from our point of view, look, we know the Fed is about to downshift. I don't want to call it pause. I don't want to eat whatever. But we know the trajectory is going to change and the market is getting comfortable with that. At the same time, just like the July earnings season, we know the numbers are coming down. OK.

And it didn't matter. Stocks in in July and it doesn't matter now because frankly, people have been, for the most part under invested. And the last thing, the stock bond correlation, you can't get away from that. The UK set the line in the sand when we resolve the political issues that at least stop the parabolic move up in yields. And that's supported for stocks. We've got you for the who

2022-11-09 14:30

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