Inflation Fears, Earning Season | Bloomberg Surveillance 11/15/2022

Inflation Fears, Earning Season | Bloomberg Surveillance 11/15/2022

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There is a sense that there is something out there that that hasn't worked itself out. The Fed still feels like they still have to go higher on rates to cool inflation. In reality, we going to see certain factors and elements of inflation remains stickier for longer. Inflation's going to be. It's less about the peak.

It's how quickly it's going to decline. I don't think the peak inflation peak fed narrative ever really went away. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz.

The rally resumes line from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Lisa Abramowicz Sam Jonathan Ferro T.K. back tomorrow. Equity futures up three quarters of one per cent.

Bravo starting Tuesday by talking about a bull market in Hong Kong and a bull market in Germany. That's not where I thought we'd be in November. Some of the worst case scenarios have been taken off the table. The idea of China, as for assisting with some of the 0 Covid and anti international kind of feel as well as Germany with German confidence coming out better than expected. As you see the build of inventory of natural gas really fueling this ability for companies, for factories remain online. It's another 1 percent move on euro dollar one for a turnaround on euro, dollar on cable. Sterling one of 350 at the end of

September, intraday low. You got to go back decades and decades and decades for these kind of lows. Cable this morning pushing 1 19 at 1 1872. Remember, we were talking about parity. You mentioned this yesterday. Like a month ago, conviction that there was going to be parity on the power, not the euro.

There also was gonna be parity and way below for the euro. I'm looking right now at the Bloomberg dollar index, which is actually the lowest going back to August. You're seeing that dramatic weakening. How much is that really what's fueling the optimism, Dani Burger, this feeling that the U.S. has passed peak inflation, that the Fed is going to start moving to a less restrictive stance, which is hard for me to square with reality. And then we're gonna get some sort of a recovery on the global scale. We've got some retail numbers just drop in Home Depot. Lisa's going to break that down for you.

The window we're talking about right now, cities discussing it. Morgan Stanley's discussing it. It's the window between inflation rolling gopher and growth getting smashed. And within that window, you can dream. And that's what Mike Wilson over at Morgan Stanley is talking about at the moment. And we are dreaming seemingly up another eight tenths of one percent on the S&P 500. Home Depot out now.

Wal-Mart a little bit later, Rameau. What if you go? So interestingly that the third quarter, Compaq comparative sales was up four point three percent, beating the estimate of three point two percent. But the estimate for the full year sales figure is up about 3 percent. That is below the estimate of three point two percent. Again, how do you square this idea of better than expected current and recent past? Worse than expected future expectations. That has been the story of so many companies whose shares are up about one point seven percent in premarket trading.

This is a particularly interesting area because it's hard to know how a home goods store is going to fare at a time when you get 7 percent mortgage rates and you have this feeling that people aren't going to be buying as much, which usually is bad for home investment. But people are going invest more in the homes that they actually have and are coming out a little bit later this morning, as Lisa mentioned. Right now, at one point nine percent call it 2 percent higher on Home Depot. As for the price action elsewhere for

you. Equity futures up eight tenths of one per cent on a S&P 500 into the bond market where we shape up as follows on treasuries. It was just a little bit lower than the 10 year by 5 basis points, the 380 on a two year down 50 basis points to three 34. Looking at a 30 year Rameau, just north of 4 percent yields in a couple of basis points that Su Keenan as you were saying, as far as the day ahead, we are expecting Wal-Mart earnings around 7:00 am Eastern. We did just get Home Depot earnings. What I'm looking for today ahead of retail sales tomorrow is how much are we seeing a consolidation among the biggest, the companies that do have earnings power, that you have negotiation power with supply chains and other types of workers and contractors at 830 AM PPA for the month of October.

The latest read on inflation in the US. How much do we get some sort of reality check on the CPI print that we got last week that was softer than expected? Do we get a sense of services inflation that perhaps shifts the narrative at all? That's where I'm looking right now. And today we get a host of Fed speak because it is another day in the calendar of 2022. It includes Philadelphia Fed President Patrick Harker and Fed Governor Lisa Cook, both speaking independently at different events at 9 a.m. and testimony from Fed Vice Chair for Supervision Michael Barr. He's speaking in front of the Senate Banking Committee at 10:00 a.m. Eastern, how much he talks about

bitcoin. But also just the fragility is right now in a market where so many people are waiting for the next shoe to drop. Joe Weisenthal a Fed spokesman pretty clear, hasn't it? Governor Wallace said, calm down, Vice Champ Brainard said we've got additional work to do. That seems to be the theme throughout the Fed speech yesterday. But a lot of people think that we've

already priced in. And this is what gets you. What gets me. We've already priced in what the Fed has to do. Right.

So if you look at a terminal rate, that's not much beyond 5 percent while you see that baked into the market. Again, though, what's the consequence for companies? What's the consequence of holding it there for month after month after month? People can Hang Seng or not refinance. For a couple months. But when you get to a year, two years, it starts to change. It's going to be painful when growth

starts to get here and the feds not move in because they're still waiting for inflation to come back down towards Target. It gets a lot more painful in a stagflation area environment, which is the overwhelming consensus that Bank of America is Michael Hartnett put out there today from his fund manager. I saw the same thing, but you know how many people are excited about trade and against that? If you've got a consensus that large that big gun into 2023, people start to wonder how well priced that story is. How do you how do you trade against a flash? I mean, basically, except they expect that perhaps you get inflation that comes down. Maybe growth remains resilient. Maybe it does. OK, how about this for the counter argument? How much are stocks already trading as the counter argument? The overwhelming consensus on paper, because our stocks truly pricing in right now is take place in every environment.

Why? Just to confuse everyone. Five minutes into the program, it's my job. Joining us now is Linda DAX, senior equity strategist at Federated Hermes. Linda, I make it simple for you. Johnny Chase, this rally. No, we have Federated Hermes did not want to chase this rally.

This was a predictable rally and we've been bouncing up and down all year long. Pretty much in two month increments, if you remember the June low and then bounced up for a couple of months later, then bounced right back down. And what we saw last week was that great day, I think was on Thursday we saw money flowing into tech stocks into an outsized degree.

So there's still a lot of money out there sloshing about, looking for where to invest. And, you know, I travel all the time in my job. The most common question the last three months was, what should I buy now? There is not the fear out there. So as much as 100 percent of people thought we're going to have a recession next year, maybe 100 percent. People thought you need to buy into this

rally. We've seen a lot of cuts from big tech Mazza, 11000 Twitter, potentially half the workforce is set to go. The reports from The New York Times on Amazon yesterday, the week before, it was the journal talking about a cost cutting review under Andy Jesse. Does that bring you confidence, Linda, about these tech companies making the required cuts, removing the access that they've built up? Well, yes, and of course, that's where the big increases were during the Covid shutdown or in the tech stocks, hundreds of thousands I think added on to Amazon's of course, they're going to cut. What we're watching is, is this the beginning of, you know, is this the tip of an iceberg in terms of layoffs? And of course, we think layoffs will increase next year. But what I expect will happen in 2023 is

really a slow motion realization that we are going into a recession and that earnings are going to come off. And as much as we're talking in these last couple of weeks about lots of issues, there's not a lot of talk in our view at Federated Hermes about what is likely to happen to earnings estimates coming down into next year. But it will be slow motion because of all the cash out there. Linda, which sector of the market right now do you think is most overpriced based on the expectation that you put out there of downgrades to earnings estimates next year? Well, you know, the most expensive sector out there right now, if you look at four PS versus like 30 years of history, is actually utilities because people just poured into utilities. And that's not because of people getting earnings rungs, because people math massively going into the defensive sector. Indeed, what happened in these last few months was that the tech sector, which was the most expensive sector all year long and pockets still are very expensive.

Other pockets, not as much was really brought down to earth a lot. So people feel comfortable getting back in. So it's really a motion moving all back and forth right now. It's that one sector utilities that was really overbought that's coming back down now. But in general, those high quality

dividend sectors are inexpensive versus history. And that's what we're focused at Federated Hermes. That's where your focus in order to buy or in order to sell.

Linda, do you look at that area as accurately pricing in stagflation and other areas of the market perhaps are not? Now we're looking to buy a plane, to buy lots of sectors, we're looking for income. Cash is king. That's sort of an idea. Remembering to remain defeat defensive. In fact, when you go into recession, if we really think you're going into recession, cyclicals historically underperform the defensive buy back 22 percent. So far, only 7 percent.

Earnings estimates only down 4 percent now from the peak in June for this entire market. And it's likely to go down, we think, 10 percent anyway. So we're we're staying defensive here and we're selling what's looks expensive into this rally. And that is some tact for sure. Subject, Linda. Wonderful to hear from you. It always is. Linda de Silva of Federated Hermes, not alone.

BlackRock on exactly the same page. John Avalon and Whaley leading the investment institute over that. They put out that weekly yesterday afternoon. It read as follows The consensus expects earnings growth of just over 4 percent in 2023, down from about 10 percent of a start at 22. We expect zero growth.

That's the call from BlackRock. Third quarter annual earnings growth would already be negative without the energy sector. They go on to say we need to see stocks fall more or more good news if easing inflation to turn positive on equities. And I guess the bottom line right now, Lisa, is they're not there yet. Over at BlackRock and at Morgan Stanley, they're not there either. They're basically talking about how, you know, yield is king and it's the year of yield and invest in high quality government bonds and corporate bonds, but not necessarily equities.

Under the surface is where I'm struggling with the story here, because there are some pockets that could do really well in the equity market and there could others that could potentially do really badly. Joe Weisenthal. Klaus BOVESPA. There are some pockets in the equity market that can do really, really well. Lisa Abramowicz that just happened. Can you run through the pockets of the

equity market that can do really, really well? Well, because Tom Keene right now is at home in shock, wondering where he should come back to work. Well, it would be ridiculous for me to say no that nothing is potentially going to go well next year, because if you think about it, if we get to some sort of equilibrium in an equity market where you have a complete rotation in terms of leadership, if people think that tack could continue to even lose value. Well, where's the leadership going to come from? It's going to come from other areas. If you believe in the beginning of a new cycle, you believe in, you know, some of the consumer discretionary, which is, again, I have a hard time seeing this right now, but I understand the story come the second half of next year.

I'm just saying that it's going to be a bifurcating market because so far this year it has you know, that semiconductor index is up 26 percent in the past month. Sure. We've talked about the Hang Seng CAC, the rally we've seen. The rally we've seen in Germany on the DAX Mark Gurman. I'm just telling you, like there. I mean, come on. That's just objectively true. In Europe, we've avoided the worst case for this winter. Without a doubt, this could have been

absolutely terrible. And it was colder, ran out of energy, would have industry shutdowns, rolling blackouts across the continent. And it looks like for now at least, we've avoided. That was amazing. I mean, happy this morning. I don't know what's going on. Futures up three quarters of one percent on the S&P in the next hour. Seem a sham, shall.

We'll be honest to have principal global investors. She joins us at about 7:00 a.m. Eastern Time. This is Glenn Beck. Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo.

Well, the U.S. and Indonesia have announced a climate finance deal providing 20 billion dollars to help Indonesia pivot away from coal power. The Biden administration calls it the largest single climate finance transaction ever. It will be outlined at the Group of 20 summit in Bali.

Former President Trump is set to announce he's running for the White House again. The announcement will come tonight at his Mar a Lago Club in Florida. Meanwhile, the billionaire founder of Citadel, Ken Griffin, called the former president a three time loser and said he should step aside for Florida Governor Ron de Santos. Griffin spoke at the Bloomberg News Economy Forum in Singapore. In Arizona, Democrat Katy Hobbs has turned back a prominent election denier to be elected governor. Hobbs defeated Republican Carrie Lake,

who embraced Donald Trump's baseless claims of fraud in the 2020 election. Associated Press called the race with about 98 percent of the ballots counted. Hobbs has more than twenty thousand vote. Lead bonus season is looking grim on Wall Street. According to a new report from compensation consultant Jim Johnson associates bankers advising on mergers and acquisitions. While they're likely to see their bonuses decline as much as 20 percent this year, those in underwriting are likely to suffer the largest drop, with bonuses falling as much as 45 percent. And Credit Suisse has agreed to sell a

significant part of its securitized products group to Apollo Global Management, and that will help reduce the size of a business known as SPG that soaks up capital. The sale was a key pillar of Credit Suisse's recently announced restructuring plan. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts. I'm Lisa Matteo. This is Bloomberg. There's no reason for the tensions over Taiwan to come to blows or to come to any kind of conflict. Nothing's changed about our policy. We're obviously going to continue to support Taiwan self-defense, but we still adhere to a one China policy. So there's no reason for this.

And we want to see the tensions across the street to be solved peacefully. John Kirby, they're the National Security Council spokesperson sitting down with Olympics Amari in Bali. We'll catch up with AMH in just a moment. Here's a flavor of the price action this Tuesday morning. Good morning to you all.

Equity futures shaping up as follows positive again, up seven tenths of one per cent on a S&P 500 yields a little bit lower, down 50 basis points. The 380 euro dollar Brahma euro dollar 421 positive by nine tenths of one per cent. What a turnaround in this affects market and it feels concrete. It's does not feel like just simply a

tactical move. There is a reason behind this. And this speaks to something you were talking about earlier, a greater degree of optimism around Europe and around the energy situation, especially with storage that at a much bigger pace than people had expected. And Deutsche Bank putting out a report talking about how it's actually could be better next year as well. China's a piece of that story when it

comes to China in the United States is no news. Good news, because let's face it, yesterday. No news. No news whatsoever apart from maybe secondly Blinken going to China, which to be honest with you. No news. Emma Chandra.

A lot of people took this to be positive in that it was a conciliatory meeting. It was not necessarily amplifying tensions and the lack of amplification of tensions as a victory, according to some people and as news in and of itself makes joins us right now. Amiri, our Washington correspondent in Bali. Amy, let's start. There is no news, good news. I think when it comes to China, the fact

that at least the path is looking warmer is good news, not just in financial markets, but also American allies around the world, whether it be Japan, South Korea or those in Europe. But Jonathan, something I would like to note about China, what we might see at the end of this communique, which we don't know yet. What we are hearing is that it will be a G 20 communique, meaning and not a 19 plus one in Russia dissent.

And that is because the language will talk about a war in Ukraine, not Russia's war on Ukraine. We'll also get how many members are taking aim at what Russia is doing. And Russia may sign on to this because they frankly may be embarrassed. The fact that China would not side with them, one massive take away from this G 20 summit is that China seems very unnerved about President Putin's invasion of Ukraine. I spoke to Admiral Kirby and he said China.

China has not come out and criticized it and condemned this war. But at the same time, it was a really big deal in the US readout that President Biden was able to say that him and Xi Jinping both discourage and do not want to see nuclear force use. And that has been a recurring theme of Xi Jinping bilateral is here at the G 20 and the rate the president left America left Washington feeling good. Does he come back to America feeling better? I think he does. He's not just retained control of the Senate, but was able to flip a seat.

Obviously you have to wait on what happens in the Georgia runoffs, but he's feeling a lot of this momentum. Really, what the pundits were talking about and there's a lot of margin in these polls for rather is going to be a red ripple wave or some NAMI. It clearly was just a ripple at the same time. His challenger, the bearer of the Republican Party, the former president Trump, is going to announce likely this evening. This has been teed up and he wants to make a comeback for this presidency. And yet, what do we have this morning at

the Bloomberg Economic Forum in Singapore? You have Ken Griffin saying that the former president is a three time election loser. They want him to get out of the way and make way for a new leader. So President Biden not only having a successful G 20 summit at the moment, a number of things were able to get done, not just the China meeting, but Bloomberg scoop that there's likely going to be an extension of that Russian grain deal. But also the fact that there is a lot of talk in the Republican Party that they want to do away with his former challenger. Do you the sense within the Democratic Party, who would be the secondary leader, who would emerge after Biden should Biden decide not to run? Should it be clear that perhaps the former president Trump isn't going to be allowed to run by his party? Well, let's just first say that the president has said to reporters last week and I was in the room with him that he has the intent, his intention is to run and he will make that announcement at some point in the coming months. So first, we should note that President Biden, especially after what Admiral Kirby says, he's came here with the wind in his sails. It wasn't a red wave.

He has the intent to run in 2024. Lisa, the question you're asking about who is up next? It's a wide bench. You know, many will point to the obvious individual, be the vice president Kamala Harris. But if not her, who could it be?

There's potentially a number of people who want to put their name in that hat. But the Democrats have not honed in on a name like they have on the Republican side when it comes to Florida Governor Ron DeSantis. It seems like President Biden came into this G. 20 with a bit more power, a bit more wind under his sails in terms of representing the nation. How is he using that? What they can use then is meeting with Xi Jinping in terms of getting that line in about nuclear force and the use of nuclear force.

I would also say you do see a tip of a balance and maybe it's China that's putting its thumb on that balance. But President Biden is looking stronger at this international meeting when his other main adversary, Moscow, powers Russia's Vladimir Putin, is looking much weaker in terms of just sending Sergei Lavrov. The fact that the Russians had to withdraw on her son you are seeking is seeing a more diminished Russia on the global stage and a more emboldened Biden administration. This is certainly help. The president makes great work, as always, tremendous over in Bali, Annmarie Horden, the G 20 kicks off the G 20 leaders summit in Bali kicks off AMH. At least we're talking about those comments from Sit Ken Griffin on the former president, Donald Trump. Here's the quote.

I'd like to think that the Republican Party is ready to move on from somebody who has been for this party. A three time loser. Those three defeats came Griffin Thing 2020. The Georgia runoff back in 2021. And these kind of midterms. He goes on to stamp out dissenters who Griffin has backed financially. He's going to run on a record of just unbelievable accomplishment.

Could hear it more and more, Candy, from Republican backers who they want to be that guy going into the next race. This isn't subtle. Let's be very clear. It's not it's not like. People are basically coming out and saying, remember, we didn't like President Trump, former President Trump before he came after us. Well, we still don't like him. And now he doesn't have that popularity. That has been the change in the tone. At what point do they grapple with the fact that the former president still has a lot of support among a key constituency of the Republican Party? So how did they bring them into a new fault? What does that look like? We're going to see that with some of the leadership races, because it does seem like the Republicans are going to get the House.

And who do they elect? Right. Is going to be Covid McCarthy. Is it going to be Mitch McConnell who is going to be the Republican leadership representing what they'd like their course to be? Once this address, 9:00 p.m.? Yes, I believe so. Later on the same day, Mar a Lago.

That's going to be must watch for many people, I'm sure. Live from New York City coming up very shortly. Jill, my work on a better Europe. I never thought to say that, but yeah, a better Europe over the last couple of months. Equity futures up seven tenths of one percent on the S&P. Heard on radio, seen on TV for our audience worldwide.

This is Bloomberg. One downside surprise on inflation in America and everyone's view of the world completely changes overnight. Equity futures this morning. Good morning. Shaping up as follows only S&P 500 positive seven tenths of one per cent on the Nasdaq, up about 1 percent Friday and Thursday. The biggest two day game on the Nasdaq 100 going back to 2000 and 8. We broke that yesterday, down by about 1 percent on the Nasdaq. We bounced back straight away.

In today's session, the bond market does as well. Two stands in Thursday's lower a gain by five basis points on a 10 year to 380 on a two year, 334 briefly back through for 40. So 434, 66, to be precise, on a two year. A couple of Fridays ago pushing for 80 postpaid rolls. But here we are at 4 34. The affects market big turnaround of

foreign exchange as well. Eurodollar, the lows at a year. Ninety five. Thirty six. Right now, one of 427. Is basically a 9 per cent move on Eurodollar, a 9 per cent move from the end of September to today.

Lisa, it's a massive turnaround in foreign exchange and really hints at the lack of liquidity or the lack of conviction, at least you could say in markets for the share such massive moves in benchmark currencies that people use. I do wonder how much has shifted. You know, you say it's one CPI print and people are throwing in change. People are throwing in Europe. Everything is better. At what point does that really get

challenged? And at a certain point, can we just ride this for a while? Is that what people are going to try to do? The boat was stacked to one side. And when the boat is stacked at one side and someone starts to walk the other way, doesn't take much to rock the boat, so to speak. You know, it is really highlights to me how little people understand inflation at this moment. People don't understand how quickly it

will come down. They cannot rely on and previous beliefs because they have been upended again and again. And that lack of conviction is what we continue to see. Stagflation, consensus. It's so hot right now. Wasn't that the title of Bank of America's farm manager said 92 percent inflation is so hot right now. It's like everyone thinks that we're gonna get persistently high inflation and that's gonna lead to low growth were there. How long can that last?

And I guess that that's really the question. Can I just say how much I love Michael Barr over a Bank of America? And I say that because he never comes on TV and I'm hoping one day he'll just come on the TV set phrases never listens anyway. Jihye Lee joins us now. He does come on TV. The chief economist, AXA investment managers, he comes to New York to show us. Great to catch up, sir.

As always, there is a huge yell that things are better in Europe. And I'd love a reality check from you. How much better are they relative to what we feared late in the summer? Not much better. I don't think things have changed materially. I mean, what we what we need on the energy side, for instance, was the US Germany, which is the biggest potential victim of the end of Russian gas supply, that Germany had managed to get its consumption of gas significantly down actually in the summer, which means that their inventory position is is better than what we could have feared maybe six months ago. But again, we knew that already at the end of the summer, nothing has changed from from that side on the data flow in general on the fact that we are sliding into recession. All the data flow with had still goes in

the same direction. I mean, if you look at the European Commission surveys, if you look at the messages we get from the bank, that instability, for instance, is consistent with a slide into into recession in the next three to two to six months. So there's not really changed what ISE changes announced. And you alluded to this. There was this one lower than expected print for inflation in the US. Markets crumbled. So do pricing what it expects on the on the Fed. The expected is a rate differential for

the next six months between the ECB and the Senate shrinks. What you've got a euro? Well, rebounding. I would not rate much more than that actually into the rebound of the euro with. For me, it's an interest rate differential. That's it. So she'll walk us through your assessment of the inflation backdrop right now and how you think it bleeds into 2023. Well, I know it sufficiently to. Three months ago, it was very popular to

still use the word transitory because it was a very persistent form of transitory bias. It's what we were expecting that we would see some dissertation and inflation towards the end of 3 2 into 2023. The question is how quickly we will get closer to the kind of target as central banks are pursuing. And that's a different question from the fact that it is probably already starting to disintegrate. So in the U.S., it's definitely a labor markets issue. And for now, let's say that the data is ambiguous. Our contention is that we will see a

slowdown in wages and that will help take core inflation down by the second half of 2023, even if the first month of next year are going to be to be tough. But it's a sort of no traditional usual macroeconomic behavior. You've had a very, very tense labor market. Labor market is soft on wages. Could that go down? Inflation is low in Europe. It's much more complicated because you still have a very, very significant share of our inflation, which is completely income generous, which is completely driven by external factors as the depreciation in the euro that we've had until very, very recently and gas prices which remain extraordinarily volatile.

We also expect the slowdown in inflation next year in euro based on mechanical behaviors. The fact that these effects should play in the wrong in the right direction and in 2023. But it's much harder to assess simply because it is not the usual traditional behaviour of macroeconomic patterns. We are completely dependent on where gas

prices are going to be in six months time and we've been disappointed before. But on the basis of what we know right now, on the basis of forward gas prices, for instance, we should see deceleration inflation. Twenty three as well in Europe. So, look, just to sort of put that all together, are you basically saying you're willing to push against the stagflation case, the United States, but that Europe looks much more likely to be mired in stagflation, three types of environments for a longer period of time? Yeah, for me.

So a key difference between the US and Europe is that to some extent the the US, especially the Fed, is to large extent in control the situation. If the economy tanks in 2023 and normally then inflation goes down more harshly than what the market was expecting, then the Fed can actually slow down its face of tightening, can even cut rates. So there is a measure of control, if you want, on the on the state's economy in the US. In Europe, we don't have that level of control because it is it is not in our hands.

And for all the activism of of of the ECB, the fact that it's talking about a lot of these, it's acting it is normalizing its monetary policy. Truth is and they've acknowledged it themselves, they have very, very little impact and they know it. On on inflation in twenty three in Europe. So, yes, on the basis of the balance of

risks, we have more downside risks in Europe than in the US. I think, or to be more precise, we have less capacity in Europe to get us out. A recession in 23. And that, I think, should remain reflected in our exchange rate. And for now, we have this sort of knee jerk reaction to this.

You know, in October, inflation print in the U.S., I hope it continues. But we've had accidents before. Well, fundamentally, the problem is that, you know, Europe doesn't look as as as a control. It just makes me wonder when you're doing your year ahead outlook, if you basically have meteorologists there, several of them showing you satellite pictures of what the weather is going to be like and what the trends are of El Nino or a La Nina into, and just in general, they get a better sense.

Jill, you're saying that there isn't much that Europe can do. Is there anything that you are looking for, maybe not this year, but next year to determine whether they've gotten that gotten a little bit more control over the energy situation so that they're not just susceptible to the next LNG import? There's one one. Well, LNG imports is still the key in the sense that's what we need to see in 23 is the emergence of LNG importing capacity in Germany. As you know at the moment, your hands LNG importing capacity in Italy, France and Belgium, et cetera, et cetera, you don't has it. Germany is our project. Have a terminal coming out in 2023. That needs to come out.

We need to have this LNG capacity in Germany to make sure that 23 24 is not going to be a replication of what we're going through through right now. So that would be Justin Trudeau to another point, which is probably the less discussed is the capacity of the French nuclear power generation to really reach its potential in 2030. That adds actually to the difficulties we have right now. As you know, you've got lots of nuclear power stations in France which have not restarted. There's a plan to restart them gradually over the next over the next few months.

We need to see that plan complete by the end of this winter. Again, to give us a measure of comfort in terms of electricity generation 444 23. So that is less discussed, but I think it's almost as important. Joe, wonderful to hear from you, sir. A bit of a reality check around the European story from humor like that of AXA investment managers. Remember having the conversation several months ago with Maria Tadeo, I think was on this program.

We both said it's going to come down to the weather. I never thought I would see read headlines across the Bloomberg on the weather. Milder winters. Happy the European story. And in some places, the market moving on. And that's what we've seen over the last month or so. OK.

Contrarian viewpoint, please. There might be redheads for the U.S. winter as well, particularly with diesel prices, because diesel prices are still regular, very focused on this one. I think this is going to be one of the biggest stories of the winter. Absolutely. Because the diesel stockpiles are at the lowest levels going back to the early 1980s. You're seeing prices rise much quickly,

more quickly than crude. And this is one of the main inputs for heating. So you have shipping rate, you've got trucks and you have heating. And it's going to be a major issue

getting colder in New York. Did you feel that shell for a week? OK, I'm not going to say you're going to do that New York thing, which is like this is nothing when you're going to do the big words like ISE will tell you, is it going to be a massive winter? Oh, my God, it's freezing. You know, when it gets cold, it gets cold. Tom, does this New York as well? Not when I was a kid and all that stuff. I mean, I like it backwards. Exactly. If it's cold is cold, just say it's cold.

It's getting colder. People are turning on the heat. How about that? So it's hard to matter a little bit if you turn the heat. I did. It's not good for climate change. That's bad for you. Coming up in the next hour, Colin Martin filling Covid-19 that up. Since I put on it, I put on backwards. I just want a sweater with no shoes.

That's what you should do. Just put on your Montclair jacket and get on with it, Brad. I suck it up. Actually, Phish has six habits of Santas. That's probably what's he case down right now. Wearing a modest green Montclair cigar Jonathan Ferro breathing.

We'd like you to complain about the cost of energy throwing. Cue some ten thousand dollar glass of scotch anyway. Yields up, then back down again by five basis points on a 10 year 380. 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. Well, a majority of G 20 nations are set to condemn Russia's war in Ukraine. That's according to a joint statement drafted for the summit that was seen by Bloomberg. Now, the statement refers to the war in Ukraine, but not Russia's war in Ukraine. A compromise designed to get as many G

20 leaders to sign on as possible. British Prime Minister Ritchie soon at gave his strongest hint yet that he will protect pensioners from high inflation. Soon, CAC told reporters on the way to Indonesia. He has a track record of caring about pensioners dating to his time back as chancellor of the Exchequer. He's facing pressure to stick to the so-called triple lock on pensions, meaning payments rise every year.

Oil stockpiles in developed nations have sunk to the lowest levels since 2004. Sanctions on Russian exports take effect. That's according to the International Energy Agency's monthly report.

Supplies of diesel fuel are, quote, exceptionally tight and prices may need to climb even further to rein in demand. International oil prices remain above 90 dollars a barrel. Senate Majority Leader Chuck Schumer has teed up a vote to start debate on a bill to protect same sex marriage. The bill sponsored agreed on changes designed to attract enough Republican votes to win passage. The legislation drew out of concern that the Supreme Court could overturn an earlier ruling that established the right of same sex couples to marry. And there's a sign that Warren Buffett

thinks the world's leading chip maker has bottomed out after a sell off of more than 250 billion dollars. Buffett's Berkshire Hathaway has taken a stake of about 5 billion in Taiwan. Semiconductor shares of TSMC had fallen 28 percent this year. Taiwan through Monday's close global news, 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts. I'm Lisa Mateo.

This is Bloomberg. President Biden make clear that the United States will continue to vigorously compete with China, including by making investments at home. You've seen the Inflation Reduction Act play, in fact, and by aligning with allies and partners where we have shared interests and challenges.

That was Catherine Tie, the US trade representative of the Bloomberg New Economy Forum in Singapore. In the last 24 hours from New York City this morning. Good morning. More on that conversation in just a moment. Here's a flavor of the price action this Tuesday morning. Equity futures on the S&P 500 pushing higher up by six or seven tenths of 1 percent. Yield lower by four basis points 381. And at dollar weakness returns, euro dollar positive, eight tenths of one per cent back to one of four on euro dollar, which twelve months ago was super bearish, I guess, for Europe and maybe three months ago.

Super bullish on a euro. So it gives you an idea of where we've been this year, euro dollar one to 412. I want a return to those comments from Catherine Tie because the more interesting quote for me was actually this one. The body language was very powerful from

the photos of the two leaders greeting each other and standing together. She went on to say that's a powerful signal to the rest of the world in terms of two leaders who are capable of managing a tremendously complex relationship. It's interesting to me that this administration sees power coming from the ability to manage this relationship when others might see power coming from your ability to confront China, almost taking a combative stance with them. Just the optics and the way they view the optics from this administration, slightly different fact, very differently to the former leadership in a White House.

It's completely polar opposite. Rather than trying to just come out, look strong and look like you're going to fight, it's coming out and looking collegiate, looking like we can accept that there are some really strong differences, but that everybody agrees that it want a war. They don't want it to become something that harms everybody. And so there is some discussion that is more Amelia will be more, more, more kind in some ways for anyone interested in the inner workings of the G 20 in Bali. And Amara is going to break this down for some. Sure. The president to skip the dinner at the G 20 today.

That sounds like the kind of thing I I skip the dinner to 100 percent. Why do you think people wouldn't notice if I'd left there? Obviously, people are going to notice this, but I would remove I've got a really good friend and they've got a great, great skill. They say to me that what they do is they turn out for the drinks and then they go into the hall. And you know what they do?

They remove their name, nametag from the table and then they go home. Kathleen Hays tips like Ghost go to go. I think it's funny. I think that is going. Do you turn up for the drinks? And if you don't want to go to the dinner, you have to go in early and remove your name tag and no one knows you're missing. You know, their names have been crossed off all these.

I think that's that's gold G 20. How did you get invited to any of this started for SAG. And we're just like, you know, and the current Jonathan Ferro just right now, the blimp chief Asia economics correspondent. Isn't it great?

It's such a great idea to walk us through how this has played out in China, in Hong Kong. Following that meeting yesterday. A big turn in sentiment, John. By all accounts, the reaction to today was that meeting went much better than expected. Of course, expectations were pretty low. But listening to the conversations at

the New Economy Forum and elsewhere, everybody was saying there's a guardrails are put in place now. It seems like there's a floor under all of this. You heard Henry Kissinger remarks talking about building bridges. People like Kevin Rudd, the former Australian PM, saying it has ratcheted down tensions, etc.

So that reaction has permeated through much of the day here and that is flowing through to markets. At the same time that we've had something of a pivot, I know we can argue this, but we've had somebody of a pivot or swear of on Covid 0 and on real estate by the Chinese leadership. Now, these three things coming together in the past few days do seem to be turning sentiment towards China. But again, I would say we're talking

here about the headlines, because if you want to look under the bonnet, all these structural things, I mean, catch time made it clear today that they're not yet ready to roll back on tariffs against China, for example, or the structural issues against China's housing real estate market. Those haven't gone away either. So a better sentiment. But all of these problems we keep talking about haven't gone away. And do you remember the outrage? Trust but verify.

Where is that mistrust still in this administration, in the United States when it comes to China? All right, well, again, if you look at the three things going on at the moment, clearly there is a lot of uncertainty over China's ambitions toward some of the hot button topics in the region. Obviously, the obvious the most obvious one being Taiwan. How will that play out? No one's quite sure yet. The fact that languages where it's ask around concerns, concerns over conflicts shows you where to trust factor is there. So that remains very much uncertain. How well do China deliver on this promise of onboard engagement with the U.S., but is also a question marks over

Covid 0? I mean, again, the headlines have gone around reducing the international quarantine, changing up testing procedures on the ground. These are changes, no doubt about it. But, you know, they still have a very aggressive system in place in China with deep infrastructure built in place to contain Covid. It's going to take even if they are on a trajectory to reopen, it's going to take many, many months for that to happen. And on the real estate side of the

story, well, high on the SEC, all of the mantra in recent years has been punishing property developers who speculated and went borrowed excessively. Does anyone really think that much is going to change overnight? It's about stabilizing things as by putting a floor under things. As I said you earlier, none of these broader problems have been resolved or neither have they gone away yet. But there is a shift in emphasis, and I want to understand how significant the shift is about more of a decision toward the economy rather than just simply not just national security, but also with respect to Covid. Is there any credence to this idea that China truly has shifted back toward supporting its economy, especially as they get yet another slew of disappointing economic data overnight? I mean, I think you are rightly so. You know, the officials come out every other day and make the point that they will do whatever it takes to support the economy.

And like you mentioned, we had bad data today. We did retail sales contracting in China in the month of October. And remember, only wasn't so long ago we saw rave about the potential of China's emerging consumer class. So the consumer is in a total funk. The industrial sector is under pressure because shipments are coming off and of course, the investment side of things. Well, that's a lot of it's mostly government spending. It isn't being led by the private sector. So there is no doubt the officials are

showing a degree of urgency now and trying to turn things around and put a floor under things. But this is where we keep starting to go around in circles. It's open to interpretation. How broad reaching a how series are they about these measures? We don't know yet, but we do know it's going to take a long time to fully unwind this code with zero operators. And by the way, how to do that without a public health disaster is a huge concern for them underworld. And of course, you've got the housing issues there. How did they resolve the debt problem there and how will the geopolitics play out? I mean, it's a better mood music because a long way to go in all of this yet. And you kind of got to skips a dinner.

I just need tonight. I like your tip about lifting the main bags. John, I'll have to remember that in future, I think. There you go. And the currency punted. People love this.

People that no one likes the DNA fact. No one does well because of the food, because of the service, because you have to make smarter people the company keep than like you don't sit next to. So they mix people up. Hate that hate. You think that Biden has been Joel Weber? If he's like maybe Amanda Lang cry? No idea. I have mixed people who hated DAX. All right. Well, maybe President Biden will take your advice. He's skipping it anyway.

I think I need to take my advice. In the next night, we'll catch up with Sima Shah of Principal Asset Management. Looking forward to that and dimension the date. And we can discuss the data in just a moment. Policy will also always, always take

priority primacy in markets over realized data. Backward looking economic data, because you want to dream about the data in our future off the back of the policy changes now. And that's what's happening in China at the moment. When things get so bad, though, that you start to get some rare public pushback, that there is a shift in tone with respect to supporting the real estate sector, with respect to opening up in an international sense. After really years of not doing that gives you a sense that they're a little bit concerned about some of the economic.

And so anyway, so many messages on this. People like to avoid dinners. Yes. They're talking about 16. Yeah. Just, you know, just how to skip the dinner. If you want to go somewhere, reach out. Xi Jinping. Oh, yeah.

I push that too far. Equity futures up 7 cents on the S&P. From New York, this is Bloomberg. There is a sense that there is something out there that that hasn't worked itself out. The Fed still feels like they still have to go higher on rates to cool inflation. In reality, we going to see certain factors and elements of inflation remain stickier for longer. Inflation's going to be it. It's less about the peak.

It's how quickly it's going to decline. I don't think the peak inflation peak fed narrative ever really went away. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Live from New York City for our audience worldwide.

Good morning. Good morning. This is Bloomberg Surveillance Sun TV and Radio alongside Lisa Abramowicz some Jonathan Ferro case back tomorrow. Equity futures right now on the S&P 500 bouncing back by three quarters of one per cent, bouncing back and going into numbers from Wal-Mart out any moment now. Yeah, after we got Home Depot that were better than expected, at least in terms of the prior experience. But perhaps the forward look a little bit more pessimistic. I am curious about how much we see

consolidation in some of the biggest real retail names simply because they can negotiate better and they can get better contracts perhaps with employees. Are we going to start to see the middle and high end consumer shift down towards Wal-Mart? We already have. We have in the last couple of quarters where we see more of that, be more interested. The retail numbers this morning than we

have maybe with other sets of earnings over the last couple of weeks. So that this could be really interesting. It's a great point. How many people are going from Whole Foods or Whole Paycheck, as Tom Keene likes to call it, going to Walmart instead, because they see the visceral response to how much inflation has gone up, how much inflation has pushed up the grocery bill and are shifting as a result. If Wal-Mart does well, is that a good

sign or a bad sign for the rest of the retail company? I don't think it's a good sign. The amount of cuts we're seeing going into the holidays at all for two reasons. One, lose new job going into the holidays is brutal. Seen those headlines. It's just absolutely brutal and always struggle. When we read these headlines were like 10000 here, 20000. They're real people making up those

numbers. That is bad, bad news going into the holiday. And then the overall overall signal you get from there, the fact that you've got to right size the business going into a very, very busy period for consumer spending in America and worldwide. That's a problem, especially because a lot of people thought that the low hiring numbers that some of these retailers are putting out in terms of seasonal employees were just simply a result of them having so many employees already that they want to keep on a regular basis.

And then Amazon coming out of whatever The New York Times said that they're going to cut 10000 workers highlights what you're just talking about, that perhaps even in the key selling season, it's not going to be that good. We saw that from Apple to actually we saw Apple coming out and giving a discount to small businesses and certain products, as you see there. When do you see that from Apple? Exactly. Because even their MAC sales are IMAX sales, which did really well.

They're starting to get a little bit concerned. Again, this speaks to exactly the story of Stephen Engle when we get the numbers from Wal-Mart. Lisa's gonna break them down for you just ahead of that. Here's a sense of a price action this Tuesday. Equity futures are higher, yields are lower. And I have to say, the Fed pushback didn't last long in this bond market yet to lower again by five basis points on a 10 year at 380 on a two year. Yields are lower there as well.

After having a look at 440 in yesterday's session, we're back to 4 35. Yields down there, Rameau, by 4 basis points. You can see the move. Any affects market dollar weakness back on a screen, euro dollar 1 to 4. It's a reverse of everything that we had been seeing, even the real yields on 10 year treasuries.

We're also seeing come down in around the lowest levels that we've seen going back to October. We won't break down those Wal-Mart numbers when we get them. We're still waiting, though. As we got Home Depot, they did bid on third quarter sales comp. Comparative sales, four point three percent of a gain there versus an estimate of 3 percent. But their forward look wasn't perhaps as positive. 830 AM PPA for October, Amparo manufacturing for November. How much do we get a sense that it was a

one off or not that we saw the CPI come in softer than expected? A good downside surprise last week. Do we get a confirmation of that, particularly even with the idea that services inflation continues to be very robust? It is expected to today. We are going to get a host of Fed speak, including Philadelphia Fed President Patrick Harker and Fed Governor Lisa Cook, both independently speaking at 9:00 AM, also Fed vice chair for supervision Michael Barr will be testifying in front of the Senate Banking Committee at 10:00 AM.

A lot of people are looking for some sort of discussion on crypto assets. I want to know what he sees in terms of the banks ability to withstand losses from some of their investments and still extend credit to both consumers and businesses, because that might be the biggest risk with respect to what some of the banks are dealing with, with some of the hung hung bridge loans and other assets on the books. Well, let's face that accountability efforts, really looking forward to that. Thanks, Brammer. Censure, chief global strategist, the principal asset management joins us right now. Seema, I was just going through your

nose quickly. Europe likely already in recession. The US will enter recession in Q2 2023. How much work have we got to do to discount that when it comes to earnings? I think you just hit the nail on the head, and that is the most important thing when we're looking across the market. I think we're starting to see a bit of consensus forming. There's a general view that, yes, the Fed is going to dump 50/50, but there's a little bit further to go. The difference now is where the market is thinking is what is the implication? Those Fed hikes to date and maybe even a bit more next year.

Is there going to be a recession? How bad of a recession and how bad is the earnings recession going to be? And that's where you're getting a bit of a disparity in views. You know, this is time to be risk on this time to be, you know, maybe a little bit farther to go from a technical side. But how much further can be fall from this point? I think from our perspective, we are expecting the recession to come through in Q2. We do think that there will be a fairly significant drop in earnings. I think the timing is it's very difficult to call at this stage.

But what the implication is, is that we may get a little bit run through the markets through to year end, but then you do get these renewed falls, which I think could still retest those September lows. Time is tough. Let's talk about size. This is what BlackRock thinks for consensus earnings next year. They're seeing growth of just over 4 percent in 2003. They say we expect zero. We've come down a lot from the start of

the year to just 4 percent earnings growth expectations for 2003. They expect zero earnings growth next year. Seems to you share that kind of level of skepticism about what earnings can do next year. Yeah, I think we're in a similar level now. You know, as soon as you expect it seems you're expecting a hard landing. But I think the recession was has to follow through in this situation. The difficulty at the moment is just

that actually the date has been really resilient. You kind of came into Q3 earnings season. A lot of concerns are made. We start to see some really bad numbers. It wasn't that bad. I mean, you know, energy certainly did hold up the space, but overall, you didn't get a picture of companies which are really, really struggling. So we're still expecting that to come

through. But I think that's where some sparks is coming through. So some people saying, look, earnings, a lot of it is priced in from our perspective.

We don't think it's fully priced in yet. And that's where you get that additional lock down. There is a consensus right now that we were talking about earlier about stagflation. And another consensus on the heels of that, which is go long treasuries. And we're seeing that increasingly baked into what a lot of people are saying.

Do you think that is the one reliable trade to go into long duration and develop market government bonds, particularly the U.S. at hold into a really massive 2023? Absolutely. You know, we had good photo discussions yesterday. We have to revisit after the kind of moves that we saw last week. If there's any changes that we want to make, then the one thing that we can all, I think, clearly agree on that it's time for duration.

You know, we are expecting recession. That should put further downward pressure on Treasury yields and anything a long duration. So this is a time to maybe continue think about quality. But as you said, long duration Treasury bonds, investment grade, high quality is the place to be sticking in for the time being. As we move toward 2023. When you talk about duration in bonds, I

think about duration in terms of the downturn. And you're saying seems that we're almost certainly heading into some sort of downturn and there is a huge dispersion

2022-11-23 15:55

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