jobs day preview: 'Bloomberg Surveillance Simulcast' Full Show 01/05/2023
Nothing has really changed between the end of 2022 and the first day of 2023. Inflation and interest rate shock that drove markets weaker in 2022, I think that sort of fever is breaking. We're seeing inflation normalize that should support some of the value stocks for equity markets in and of themselves. The lack of inflation was not a bad backdrop for them for the last decade.
Their case is actually kind of we avoid a recession, but not the slowdown. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz life from New York City for our audience worldwide. Good morning. Good morning to you all.
This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro features right now unchanged on the S&P. Confirmation from Amazon in the last 24 hours they will be eliminating 18000 jobs. T.K., deep in the ocean for a company that lasts. You go to the Bloomberg D screen, you do the math. Amazon Canning zero point zero 1 1 6 5 8 percent of employees.
That's one point one seven times turned to the minus two employees. How about scientific notation on a Thursday? You need that. But it is serious for the corporate side. They're taking it out. This is about people on Third Avenue on loading boxes. It's the corporate side. Their extended sales force extended. Who is not extended? I think you're right.
To make that distinction is serious for the individual who is in that job. When Andy Jassi, the CEO of Amazon, comes down and says it will help us achieve, quote, a stronger cost structure, you push back against that based on the scale of what you've seen day over expanded. I don't think, you know, CFO types should find anyone guilty of trying to game the pandemic. I think company to company, a company, they're going, hey, it's over. We're going to pare back.
But what I think you'll really see, John, is they're going to eliminate these jobs. And frankly, Lisa, they're going to hire other jobs, tech jobs, whatever. Well, actually, this is the actual distinction is that some of these jobs are tech jobs, but these are the corporate jobs that this isn't the warehouse workers. Yes, we have one and a half million employees at Amazon.
But we're talking about a significant proportion of human resources. Yes. Question around the IBEX devices, some real initiatives are trying to pare back. Is this the tip of the iceberg for some of the tech companies? They're trying to right size in a new area. Lisa, this is where the excesses we've talked about this repeatedly. And I have to say there was a line in that statement from Andy Jesse that sounded a lot like Marc Benioff yesterday from Salesforce when Andy Jassi said this year's review has been more difficult given the uncertain economy and that we've hired rapidly over the last several years.
Yesterday, Salesforce, the leader of that company, as our revenue accelerated through the pandemic, we had too many people leading into this economic downturn. I'll go back to a question that you and I asked at the end of last year as we closed out 2022. Are we talking about the excess of the last two years or the excess of the last 10 years? Now it's the last two. This is the adjustment. If it's the last 10 with a disciplined a 5 percent federal funds rates for this particular industry, then there might be a lot more to go, which is the reason why a lot of people think that perhaps tech hasn't seen all of the brunt of it that hasn't seen the full of it, even despite some of the underperformance last year.
There's more to go because it's not just a repricing of the assets as a result of high rates. It's a rethinking of the industry. We need to put things in perspective here. Amazon and the IBEX lying down the income statement makes 12, 13, 14 percent, maybe even 15 percent. Walmart makes 5 or 6 percent. Amazon is hugely profitable. They just overreached. And coming out of the pandemic, that's all futures right now.
Yeah, almost that changed. You really put a blunt full stop on that anyway. Futures up by a tenth of 1 percent on the S&P 500 tickets. We check out the market just briefly look at the bond market basis points, 20 basis points lower on a US 10 year over the last couple of days. Latanya, right now, 368 82 Tom Keene reset for 23. The markets you saw the VIX has barely moved. The Dow's barely movers picks up a
little bit. Aspects did better yesterday. But, you know, I go with the pundits. Matt Hanbok was talking about this. You know, it's a pretty resilient market. It was a resilient market in the face of some pretty punchy Fed yesterday.
The Fed speak in a new category is harsh. We'll pick up on that a little moment. We'll catch up with RUSCOE Strict in about two minutes time. Bravo tons. Coming up, tons of data going into payrolls Friday.
Joel Weber. Yeah, a lot of it has to do with the labor market. Today at 815, we get U.S. ADP employment change report. We can discuss whether it's relevant. Either way, it will be one of the tealeaves that are 830 am.
We get us initial jobless claims chart crime of the day. I'm going to look at initial jobless claims and there's no way for me to not make this a chart crime. John, I actually was looking at different ways to try to paint this, and I tried to do it for only the past two years. It still is a heart crime because of how high things work. That said, you could see it really
hasn't picked up in terms of how many people are filing for unemployment benefits today. The circus that we've seen down in D.C. does continue. The House of Representatives is adjourned until noon today. Basically, this is to avoid having. Public defeat of Kevin McCarthy. How much can they really get people to come to the table time? This is a big deal.
Lisa, what's important is somebody stop me on the street and ask me this question. I said no less. Can they do auctions of treasuries? If the House of Representatives is not in session, I believe that it just closes the potential deliberations in the House of Representatives, not the entirety of government. Today, we also get a host of Fed speak, including Atlanta Fed President Rafael Bostic at 920 and James, while our Jim Bullard of the St. Louis Fed coming in and 120 trying to follow on to on to what you were talking about yesterday with Neel Kashkari. Do they talk about a five point six
percent terminal Fed funds rate and then staying there for a long time? Do they talk about the balance of risks still firmly being with inflation, not necessarily torpedoing the economy? And how come the market hasn't responded more to the meeting minutes that were firmly hawkish to your trade? Perhaps waking up today a little bit more. Lisa, thank you. Thank you very much. Here's the line from Alexander over at Morgan Stanley. Financial conditions are too easy, reflecting a misperception among investors that the Fed's reaction function lets get rest constricts you on that day. Portfolio manager for the BlackRock Global Allocation Fund. Russ, would you agree with that line
from etc.? Morgan Stanley. Well, good morning, Jonathan. I think I'd agree with the fact that there's clearly this tension right now within the Federal Reserve. This is not a new thing. This is what derailed the market back in August. We're concerned about the market getting
ahead of itself, whether that's a function of the stock market go into high credit markets getting too tight. There is that concern that if financial conditions ease off too much. Is that going to hamper their fight against inflation? And I look, Russ, where we are and we have two pieces together, you have the responsibility to piece it together with portfolio allocation. How are you re allocating to. Honestly, you know, Tom, we're pretty much going into 23. The way we left 22. We're not making a major change right now.
So what does the portfolio look like? We're underweight equities were underweight funds. We're emphasizing carry in the portfolio because in a market that's range bound, we want to be able to earn some income for our clients. We're focused on quality stocks. Now, I do think we're gonna get to a point later in the year, probably in the first half, were closer to a Fed pivot at that point.
Evaluations are where they are a bit lower. I think you get a very good tradable bottom. But this is not the point where I think you want to load up on risk. Are there other cost cutting is going to be efficacious? Is every corporation and every sector goes out and recalibrate here as we see from tech and all that? I don't mean to micro call it, but are they going to be efficacious in helping their margins? Are they actually going to have impact? Well, let's start with a couple of things. I mean, tell me, I think you raise a very important point. You know, a few minutes ago, you know,
big tech is ridiculously profitable. You know, if you look at most of the companies in the Nasdaq 100, particularly the mega cap tech names, their cash flow, their profitability is enormous. Margins are still close to a record high. So, yes, companies are going to trying to manage costs that arguably climbed up a little too much during the euphoria post pandemic.
But the reality is these are still very profitable companies. We're not talking about 2000 when you had the Nasdaq 100 and barely any profitability rose. I can't let you get away with saying the word pivot without really precedent to what that means.
You think that with all of this backdrop and the potential pain that we're seeing in terms of layoffs, there will be a pivot. What is pivot mean? Does it mean rate cuts? Does it mean a pause? I think it's more of a pause. I think the Fed has been very clear and again, conditions can change.
They reserve the right to change their minds. But it's not necessarily practical to expect cuts this year. The question is where's the turmoil Fed funds rate? Is it five, five and a quarter market right now is, you know, forecasting somewhere in the zip code of 5 percent or 2 conditions forced them to go much higher than that to five and a half, five and three quarters.
I think that's the question the market right now is trying to resolve. You see signs of deceleration and deflation as you see some salt in the labor market and you get clarity around that. That, I think, is when you get a more tradeable bottom in financial markets, can we get to a pivot, Russ? If we don't get a significant sell off in equities, if we don't get the tightening in financial conditions that the Fed has been looking for? Yes, I think you can. I think the Fed is clearly financial conditions are front and center. But at the end of the day, they've told us what they're focused on.
And if I to focus on one factor, it's going to be the labor market, because we know that headline inflation is coming down. Goods inflation is coming down. What has been remarkably resilient has been the labor market. And that's where I think the Fed is
going to focus, not necessarily on whether the S&P 500 is at thirty seven hundred and thirty nine hundred. Russ, can you help me understand what's gone on with the labor market? So I looked at the quits rate yesterday because the jobs report job openings quits are up quits, picked up for the first time since February. That screams confidence in the labor market. Job openings still about one point seven openings for every single unemployed American. Again, that screams a tight labor market. Then, Russ, I see this news from Salesforce, from Amazon, from others as well. Russ, we're trying to work out what
should I believe here? Well, the corporations in one industry autonomy, what the official DAX is telling me month on month, we come week. Well, I think I think you've hit it. It's what it's industry by industry. And that is why this is such a difficult labor market. Absolutely. We're seeing layoffs in tech.
We're seeing softening it in parts of the professional class. But if you look at other parts of the labor market, hospitality, restaurants, health care, these segments of the economy lost hundreds of thousands of workers during the pandemic. Let it never come back. There's still missing workers, which is why the quit rate is still high.
And it's why the labor market may remain somewhat resilient, at least in those parts of the market that are playing catch up with all of these dislocations that happened during the pandemic. Russ, this was great. We appreciate it. Happy New Year to you in the team. Thank you, sir. Roscoe strict tapping of black drum take. Can you make sense of that? I think is a number of themes here. I think Ben has nailed it along with
James Bullard, who rightly so we hear from today. I'm fascinated how bullet recalibrate your Emmons says it's simple. The job market is so strong you need a 7 percent rate. Well, to begin to adjust it. That's an intellectual reach for me. I can't get I'll go back to what's the batteries app set of such? Just a couple of days ago, she said to me, Lisa, ultimately the distance from three and a half to four and a half. A lot of hard work.
She thinks the Fed needs to do a fair bit more through the rest of this year, especially because of this structural tightness in the labor market. We were talking yesterday about how a lot of the older and younger workers haven't come back, may not come back. How do you get to an unemployment level when we need workers? And we still do. Even with certain companies laying people off jobless claims coming up at 830 Eastern Time, more economic data. And then on to payrolls tomorrow. I always find the first week of the year kind of jarring because we have payrolls. Pretty clumsy on that Friday. I don't remember it 20, 30 years. You're not a me.
You want to start off slow build up. I took Katrina. You played no way to treat of, did you? Yeah, that's true. Did you make a mess, Secretary Baker? You've got to. I'm sitting there holding up the kids like this.
I'd come and throw. I'm taking out antiques with your. Next year, I will get a tree like Faro. She's a wise woman from New York. This is pulling back. Keeping you up today with news from around the world with the first word. I'm Lisa Matteo. Well, it's another sign that a tech industry slump is getting worse. Amazon cutting more than 18000 jobs in a round of layoffs aimed at the corporate ranks. Most of the jobs being cut are in
Amazon's retail division and human resource areas like recruiting. The company has more than one point five million workers worldwide. On Capitol Hill, Kevin McCarthy and Republican dissidents still haven't reached a deal to make him the speaker of the House. McCarthy has been defeated in six rounds of voting over two days. 20 hard line conservatives are blocking his bid. McCarthy says there has been a lot of progress in negotiations.
Still, there's no resolution just yet. Federal Reserve officials have reaffirmed their resolve to bring down inflation. They also warned investors not to underestimate their will to keep interest rates high for some time. Those points came from minutes of last month's policymakers meeting. The US is edging closer to send armored vehicles to Ukraine on Wednesday. President Biden acknowledged that
Bradley fighting vehicles may be part of another U.S. military aid package. The Bradley is a troop carrier that is equipped with anti-tank missiles and a 25 millimeter cannon.
Meanwhile, France says it will provide Ukraine with light combat tanks. 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.
They want us divided. They want us to fight each other. That much has been made clear by the popcorn and blankets and alcohol that is coming over there. We are making history in this process and we are showing the American people that this process works.
And just a couple of quotes from Chinese state media. The events are chaotic phenomena of spread and aggravation of the disease of the U.S. political system. Faced with the political chaos in the U.S., there is a sharp question whether the political class of the country is able to govern. Six rounds of voting over two days and still no House speaker, 20 Republicans voted against supporting Kevin McCarthy. The question now, if not him, then who? A few names being floated. Some included Steve Scalise of
Louisiana, Patrick McHenry of North Carolina, and the debate tea cake. D.C. continues floating this morning. And the distinction, John, to me is in Greg values note this morning where, you know, is least a certain news flow. McCarthy's got the up and up and up and that baloney. He is so desperate, it's rumored that he is giving it up where one representative can push the speaker of the House of Representatives out. That to me was unimaginable, just to be
clear here. This is a feature of democracy. I want to be clear about that. We included some sound. There are some commentary by Chinese state media and what was taking place in the United States of America. I think that should make us feel deeply
uncomfortable about what's taking place. What would you prefer? Yes, this is chaotic. What would you prefer this or what happened on the Politburo Standing Committee just a couple of months ago? It's a great point. The feature of a mess in the muddle, the muddle through to something that is a consensus that isn't necessarily going to be a straight line. It's less efficient, but it might be more representative of the people's wishes.
That said, there is a question of getting actual work done without it daring the debt during this week, during this year. And there is a question about whether there is a desire to bring things to a halt because of how disorderly some members think that the overall process is, which raises some serious existential questions. As you've indicated, incredibly rare for this to happen some first time in a hundred years, 1923 to see it go on this long.
Yeah. Yeah. And there's been other times back in the 19th century, but it's highly unusual. It's her fault. Let's go to Annmarie Horden Bloomberg
Washington correspondent Nina Emery. Let me just go to the daily agenda today. I know this afternoon, I guess Shery Ahn vote 7 vote whatever. What was Speaker McCarthy? Speaker to be McCarthy speaker designate. McCarthy What is his to do list this morning before the session starts? Count the votes. Does he have a right can he line up those 20 dissidents in his party and at least try to get 16 of them to vote for him? He can also try to get individuals likely not going to come from the Democratic side, but individuals to at least vote present to bring down the number needed so he can win that majority. Because if it's not every single member
on the floor voting, potentially he doesn't need 218. He needs much less. That happened in the past with Pelosi. Newt Gingrich. Boehner. But anyway, he needs to get the math sorted. And at this moment, it remains to be seen if he was able to move the needle last night. The Internet APM talks went late into
the evening. What we are hearing, though, Tom, is that potentially some of these concessions really, which is giving away the kitchen sink, are now fully on the table like a motion to vacate by one person meeting. One individual could call for a vote of confidence and oust him if he's speaker. So what you're seeing now potentially foreshadow another fight for the speakership even this year. With that in mind, why does Kevin McCarthy want this job? It is a great question. I think that when you're throwing out other names of John, of individuals that potentially could be named like Scully's, like Patrick McHenry, who I think has the same stylist as Tom.
You think why would any of these people want these jobs? No one is talking about the fact that they want this job, but it's really about who can actually win the numbers more so than who wants this job. Kevin McCarthy has a long history of wanting this job. He thought he was gonna get it in 2015. He did it. And now he feels like. And, you know, the reporting is and he's made very clear behind closed doors that he has waited in line and it his time and he deserves this. And Marie, on a larger scale. What do McCarthy's opponents really want? It depends who you ask. Within this 20 group of dissenters,
right? The majority of these individuals are ultra mega. Many of them are election deniers. And the whole majority think besides, two of them are election deniers. Most of them were backed by the former president in the latest mid-term election campaign. So some of them are just never Kevins. They do not trust him. They think he flip flops and they do not want to see him win the gavel. If he is not able to at least assuage a
few of those, never Kevins, maybe even just to vote present, not for him. He could be in trouble. The others, like Chip Roy, ultraconservative from Texas, was saying, you know, a deal can always be cut. So for some of them, it's making sure you have more conservatives on really important committees, making sure potentially there is this one individual of a motion to vacate. Only one person to call that up. For some, it is about changing some of
the rules of the game on the floor. Well, this is where it gets really interesting to be, Marie, because he started talking about some component that really supported the former president and our election deniers. And very much for the former president. Trump, a president Trump former
President Trump came out and actually said, come on, vote for McCarthy, get behind him. And that did not sway anything that didn't move the needle. What does that say about the so-called Trump movement moving beyond Trump? I'm so happy you brought this up, Lisa, because after we talk about obviously having a House of Representatives having a speaker, the conversation with 2023 and 2024 is obviously going to be the presidential election. And the former president has announced
he is running, right. He is running a campaign that all but seems evaporated. But what you do see is they are absolutely just shrugging off his urge over truth social. Apparently, he was making calls, according to Representative BOVESPA, who went on the floor and said, you know, we're getting calls from what she called her favorite president. But she said, actually, he needs to call
McCarthy and tell him not to vote. He doesn't have the votes. They are ignoring his pleas, which just shows that they don't actually have the confidence in him, do they? In terms of leading this party into 2024, if they won't even take his advice on who should be speaker. Well, just briefly, can we finish that? What is happening with the former president's campaign? Where is it? What is it? What does it look like? It's a great question. I mean, he's not really doing rallies.
He just seems to be in Mar a Lago making some of these calls, deciding whether or not on some issues he wants to get involved in. People I talked to say it's pretty much not happening. It's disappeared. So DAX, let's see what it looks like at the back end of 2003. Yeah, I am.
I still got a few more questions. Do you let that go, Lila? And that day I just your style escape. You're not gonna stick up for yourself. She does that, you know, most. Well, first of all, I fired my stylist a year ago. No, no. I fired my style a year ago. Many years ago. Was that just a year ago? A year ago in Chino.
You know, the. It was emotional. Could you tell us about how things you know, to Lisa's point, how things developed after you parted ways with your stylist? Like we did a job search, the new channel. You know, we did a job search. You overhaul different IBEX, a massive change here. Did you know of my oldest bow ties today? This is like 40 years old. This is old Burberry from way, way. Nice.
Very British. It's sort of it's got a bigger statement. That was before Chris Bailey. Yeah. Yeah. This was like four styles ago. Also three waffle studies. Okay. That was. Yeah. You said that and I did.
And the Bush folks have a small thing like a 38 home jobless claims coming out a little bit later. I'll be Jihye Lee. Just to give you might just reflect on the labor market data we've had so far. Can you construct an argument that this labor market is weak when we're expecting numbers, Lisa like to injure case something in and around 225 on jobless claims later today, 200000 payrolls tomorrow.
Unemployment in at around three and a half percent and wages of about 5 percent. That's the argument of more constructive people in the market right now saying that I just don't see it. Yeah, I see it in big tech. I just don't see in the numbers. And this is what the Fed is looking at. You ask gross cost roach about what we saw yesterday with the JOLTS data and job openings coming out incredibly strong. Where are you looking for this labor market weakness? If you can see the openings actually revised upward for October and then coming in stronger than expected, more than expected, still at about one point seven per each.
Unemployed Americans come out of surveillance now yesterday. First thing you did is look at Bloomberg Financial Conditions Index. It's stunning. Words move from October. It's gone the wrong way for Paul. Russ mentioned this. We've gone from a negative one. Standard deviation, restrictive to
stunning accommodation this morning. Negative point 2 9 6 standard deviations. That's what they're watching in Washington. We'll build on that in just a moment. Features right now up a tenth of 1 percent.
Live from New York. Good morning to you. Twenty six hours away from the payrolls report. We're counting down equity futures up by a tenth of 1 percent on S&P 500 NIKKEI ISE. Those clocks two hours away from jobless claims as well. Good morning to you. Equity futures on the Nasdaq up two tenths of one per cent, the S&P 500 yesterday. The broader equity market faced down
some pretty tough hawkish Fed speak traded higher yesterday. But guess where the underperformance has been over the last couple of days? Energy. Equities. Crude. Over the last two days, home is down by nine per cent plus to kick off 2023. Good morning. All the memories of Al Goldman, A.G. Edwards in Saint Lewis and the team of
Mark CAC. They did some academic survey once that the correlation of nat gas prices to the temperature of the subway station by Trinity Church is about a point seven, four. And the answer is it's warm in Europe. Record warm. Warm here. Here.
Could you come here today? Yeah. It was bizarre. It was spring like, wasn't it? Yeah. Beyond that, it was just like the air Jamaica. I got to say, it's a bit of a head fake.
You know, it's going to happen. We're gonna get absolutely pulverized by the entire family. You know, they hate that it does my head in that you sort of like get comfortable, get ready for spring. Feeling good about yourself? Fourth of January. Covid nothing. Yes. And then winters like get a grip. But Cole hasn't come down.
You know, this hot call switching thing is what savvy to say yesterday. I think the cold story is really interesting to see the reports that we're putting out here at Bloomberg that China is thinking about importing Australian coal again. There's been a big dispute over that for the last couple of years. As for Savita yesterday, just in terms of sentiment, she thinks sentiment in the equity market is far too depressed. She's thinking about buying or at least advocating that people should buy in January, but not the S&P 500 sort. To be really clear about that. When you look at Savita Shery Ahn price target on the S&P, which isn't for much of a gain of the S&P 500. If there is a gain in it at all, she's
advocating buy stocks, but thinking more along the lines of the small caps at the moment, the small caps in sooner. Likewise with the energy story, stand on board with that. But just hate in big tech. You just see that a lot of a lot of people, which is why they don't like the S&P 500, the index level story, CNN that right now.
Tom Ford is scheduled to be with us on Amazon here. And that's good. He's really, really smart on Amazon right now. Smart on the American economy with high
frequency economics for real. Farooqi joins us with an update. Robbie Lowe, let's dive into tomorrow's jobs report. We've really been remiss on actually looking at a job shocked me with the 200000 non-farm payroll statistic yesterday. Can we really keep above 200000 job formation of NFP? I mean, right now. Good morning, happy new year. Right now what we're seeing is a very strong job.
What job market demand is still there. You know, 400 basis points of tightening more than that. And we still haven't seen demand really come down in a substantial way. Payrolls have slowed, right.
We do know. But really. Well above break even levels. And it's really not clear that without the supply and without the risk from households and businesses yet, that we're actually going to see an adjustment. IBEX cases is that yes, we're going to see payrolls slow. We're going to see the unemployment rate go up maybe to four and a half percentage point. You know, that's a that's our base case, but really we're not seeing right right now in terms of a moderation.
What is the wage dynamic? Is it wage gains for the bottom quintile? Is it? Is it? What's the nuance of wages? You will study tomorrow. Did 30. I mean, wages are still rising at a pace that is just not consistent with the 2 percent target. That's what the Fed has already told us. That's what we know. We are seeing wage gains. You know, if you look at visa and hospitality, they're still rising at a very rapid pace. If you look at the rear near changes that they have moderated, we've also seen the year on year change and average hourly earnings come down. But you really, you know, without the supply coming back, this is going to be a sticky problem.
We're just not seeing the type of improvement we would expect to see with this much tightening. So all this does is that, you know, if this is the what the Fed is looking at and, you know, if there is no response, that the risk is that they go even more than what are estimating. Ruby, let the market doesn't believe what you're saying. The market is pushing back against this. The market is saying, look, if you look at the disinflation, the Fed's going to blank.
They're going to pause. Certainly in the next couple of months, despite the fact that there still is very apparent strength in the labor market. What do you make of this dissonance? Who is right? I think with the Fed and the market on a collision course and the Fed is not going to step back. So I think there's going to be a lot of volatility. The Fed's message has been very clear. The focus is primarily on inflation, even at the cost of a slowdown or a recession.
So I think, you know, the faster markets adjust to that message, the better it would be. But it doesn't seem that it's going to happen. I don't think the Fed is going to blink. I think the Fed is very focused on one job.
And the job is to bring inflation back down to 2 to the 2 percent target. The issue now is, you know, as we move closer to that terminal rate, how are the you know, how are markets going to respond? And once we get to that terminal rate and the Fed says we're going to stay here for a while, I think that's where the adjustment is going to happen. But, you know, let's not be confused about this. The Fed is very clear about what they what their intentions are. Perhaps the market is also looking at some of the disinflation that we're seeing or the slowdown that we're seeing over in France, over in Germany, over in Spain, seeing a potential potential for a softer than expected CPI come next week. Is that enough or really does this
entirely lie with the labor market? Can the Fed continue to justify going faster and higher than many people think, just based on the strength that we see in the labor market? Well, they've been very clear, right? I mean, they're talking about the component of CPI, which is directly related to wages, which, you know, they want to avoid a wage price spiral and they're not seeing it yet. But that is what they want to avoid inflation. If we look at our numbers, we'll be expecting all year on year inflation in the first quarter to sort of sort of slow down from a five handle to a four and then end the year around three and a half ish. So that's still well above. You know, unless we are predicting a recession that just results in a collapse in prices that might give the Fed room to ease. But that is not what we are seeing in the numbers. That's not what we're seeing in the economy.
Bill, I've been I've been reading Paul Martin's iconic study, academic study of inflation in champagne and the profound effects it's had on Bollinger. Forget about the fancy talk on a social basis. How is this inflation affecting us day to day in America? How strapped are we as we go into this jobs report? Inflation has been, you know, a very huge factor in how households have fared over the 20 22. But household balance sheets are still very strong. You know, a 40 year high in prices and
we still did not see contraction in spending. We still have excess savings. We still have, you know, wages rising at a pace are not keeping up with inflation, but they're still rising at a pace that is above the pandemic trend. Now, in 2023, what we expect is as prices start to ease real disposable incomes. We're already seeing that right in the quarter that declining on a year on year basis.
But we are seeing the quarterly changes turn positive. So I think there is there are a lot of stresses across income groups. Food prices are still very high. Energy prices year on year are still very high. It's just that we expect to see some
relief this year as prices continue to come down. I look for below what we see tomorrow and I just find it to be an original jobs report. How far is this jobs report from your chairman? Powell wants it to be like in timeline.
Is he looking at a jobs report this autumn? Is he looking at a jobs report, dare I say, in 2024? I mean, from their perspective, they expect to see the cumulative effects of what they've done so far and what would probably be 500 basis points of date me to start showing up pretty quickly, probably in the first quarter of this year and then going forward. The issue is that, you know, we're just not seeing that demand rebalance. If you look at the jobs. If you look at jobless claims and it's just not happening. So I you know, I think the Fed has just gotten a very tough spot in that they have delivered a lot and they're probably going to deliver maybe another 75 basis points, but it's not clear that that's going to be enough.
But, you know, from their perspective, they have to wait and see what the larger cumulative effects are on the labor market and inflation. Joel Weber. Peter, thank you. Rebecca, for that of high frequency economics reporter going through some of the issues. Forgive me because I'm about to quote
Fed minutes. So if you want to go away, make a cup coffee or a cup of tea, do whatever, you've got to take me some time. I'm going to go through these minutes right now. So this is how the rest are set up for the Fed. And they articulated to rest that they've got to manage. Now, here's the first one quote. One risk was that an insufficiently
restrictive monetary policy could cause inflation to remain above the committee's target for longer than anticipated. Here's the second risk quote. The other risk was that the lack cumulative effect of policy tightening could end up being more restricted than is necessary. Now, how do you manage those two risk?
The fact of the matter is you either believe the balance or you think is one bigger risk in one direction. Now, I thought in November that the risk were asymmetric, that they thought the biggest risk was under tight neck. And now. Bram, I've got no idea. But clearly that was put in because there's one group that thinks one. And another group that thinks the other. This is where we get into game theory.
And this is where forgive me, you could turn off the TV. This is kind of complicated to me. There is a question. I want that premise. But we want the rating John Micklethwait just to walk away from this. This is the game theory aspect where peace basically people on the streets of my boat, I started twirling. The question that I have is how many people on the Fed believe in a balanced risk, but want to signal that they don't want to signal that the risks are asymmetric so that people don't buy equities, because if they don't get a tightening in financial condition, worried about people.
But that's how they transmit their financial part, their monetary policy, if they transmit it to the market and the market isn't believing them. They're trying to talk about a balanced risk. This becomes a real problem and the market has called their bluff. I do not agree. This is ex ante.
The answer is they are exposed, exposed, exposed source a Bank of England. So as the ECB, they have to their slaves to the data. They have to wait for the data and they're going to finally see if the job market cracks. They're going to wait for the data. They're going to look at GDP. And, you know, they're all this recession gloom that's out there who's a broad enough recession gloom. And unless we can get some more, I think that sitting in the Middle East both.
I think both. Right. I think the country has deficits where you do what they want to signal what they do best. And ultimately what they'll do will depend on whether data comes in. And I think this goes to the financial
conditions point when it comes to those two risk and how you manage them. I think overwhelmingly they're still concerned about upside risk to inflation from policy, make its policy makeup on the financial conditions point. That was the standout thing in the Fed minutes yesterday. Participants noted that because monetary policy worked.
Importantly, through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee's reaction function, would complicate the committee's effort to restore price stability. That you don't want us to be talking about rate cuts, even if there's someone on that committee thinking that perhaps the data will need require them to respond with rate cuts later this year. And that's why they're going to carry on sand the same thing until they're convinced that inflation is going back to 2 percent. The problem is how many people believe what Bill Dudley does, that the Fed is going to engineer a recession and quickly take it away by cutting rates? This is a more complicated economy. Much easier to say what Bill Dudley says when you're no longer the Federal Reserve.
That's very true. And that's the big difference. 730 Eastern Time. Deborah Cunningham, absolutely fantastic on all of this. Much better than us. The global equity markets CIO of Federated Hermes will catch up with her in about 50 minutes time. Looking forward to it. From New York, this is Glenn Beck. Keeping you up to date with news from
around the world with the first word. I'm Lisa Matteo. It's another round of votes on the speakership. Today, lawmakers will meet again after Kevin McCarthy failed for a sixth time in his bid to be elected to lead the House. The California Republican said a lot of progress was made, but still hard line conservatives didn't make it easy and there was no resolution to the standoff. IMF first deputy managing director Gaeta open Athens, urging the Federal Reserve to press ahead with interest rate hikes. Goldman Sachs tells the Financial Times
that inflation in the U.S. has not turned the corner yet. She also expects monetary tightening in Europe to be more prolonged than the Fed's. China's new foreign minister says that relations between his country and the U.S. should not be a zero sum game. Jim Chin. John has Oprah has an op ed in today's Washington Post. Now, Chin writes that the world is wide enough for both countries to prosper.
Strikes on the British Rail network reach a critical peak today. Some of London's biggest rail stations will be closed, while some airports will also be deprived of train service. Train drivers represented by the asleep union are walking out following a long dispute over pay. And Dell reportedly wants to phase out semiconductors made in China by 2024. According to Japan's NIKKEI, the computer maker has also told suppliers to significantly reduce the amount of other components produced in China.
Dell is said to want to diversify its supply chain because of concerns about U.S. China. Tensions. 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 Mateo. This is Bloomberg. It concerns me about tech companies on news that they are not good prospects traditional right there. Their growth companies, they tend to
want to invest into these downturns if they want to invest aggressively through all periods of time. They're just not good at getting into they're going to be late on that. They're probably not going to do enough. It'll take longer than you think. Into the margin degradation can be more severe in those areas. Just putting into catch up with Mike Wilson and Morgan Stanley and chief U.S. equity strategist, you can find that interview in full on Bloomberg Telecom. And of course, on the Olympic terminal,
you're equity markets set up as follows. This morning, futures drift in just a little bit higher on S&P 500 up a ran about a tenth of 1 per cent leaves his country the day to a couple of times 830 Eastern Time. You get jobless claims and it's on to payrolls tomorrow. Looking forward to all of that. So far, we're seeing more tech companies deliver more cuts with sales force. Yesterday was Amazon announcing the
following. In the last 24 hours, 18000 jobs to go the most in company history. The company's CEO, Andy Jassi, saying, quote, Amazon has weathered uncertain and difficult and cost economies in the past. And we will continue to do so.
These changes will help us pursue our long term opportunities with a stronger cost structure. That last line, some just 18000, how we deliver a stronger cost structure. Lisa Montgomery, very, very focused, is focused in on corporate Asia and the rest of it. I think Mike Wilson's done on that. This is whole new territory for the
Silicon Valley crew. They've never really been through this before, I'll say, with some certitude. And my guess is I'm going to be optimistic. They're going to learn fast and they're
going to find out how easy it is addictive. It's like the financial Wall Street business. They know they can do it every February. You think they keep tweaking quarter to
quarter, though? I think it's used to the efficacious ease of cost cutting. They're going to learn like banking and learn like Wall Street. They're going to learn like ball bearing companies in the Rosalind Chin. This may be a little bit different just because they're cutting some of the tech staff, they're cutting some of the white collar workers. And as we've talked about, a lot of them will get jobs elsewhere. It's not like they're not in demand.
This is one of the most in demand industries. So if they're putting talented individuals, you can imagine the banking industry, the car industry, a lot of others are going to suck them up. So this is the question, right? How much do you start to get this kind of paring back of some of the talent that removes some of the upward dynamism for some of these companies? I think gone are the days where you have that special floor, you know, that floor where all the cool kids get together and they throw things against the wall. You see what sticks. We call them. And it's just you just throw money at them. I think you're talking about the massage room. And I know it's not sort of IBEX here
where but it was there like all these services and perks, yoga studio and magic. Much. I saw the headlines recently about the coffee going at Goldman Sachs and not going in that direction, talking more along the lines of the likes of Alphabet Tom Keene and the story of Rick Google that there is this department. There is just like other. Right? Well, I'm not sure if you want to read the right days and moon shots right now with Fed funds at exactly ISE percent strong direction. This is directly from David Rubenstein, analysts yesterday and Mike Worth all of a sudden gravity is back, as Taleb says, and the gravity is back at him. And of course, that's the big change. No question about it.
We're going to take a different take on this right now. Alex Webb is really quite good at Bloomberg critique of looking away from the financials of the broader social aspect of these jobs. Announcement Alix Steel. Let's start there. What's the social ramifications? It's salesforce, it Amazon to the shock of layoffs and firings. Well, I think it's you guys have been
alluding to this sort of perennial growth story that you go to these companies and yeah, you can rake it in for a few years and find a job elsewhere that these companies have not really done big layoffs before. You have to wonder whether there is an effect culturally on the inside. But I do think ultimately these are very core financial stories that you look at Salesforce. They've been enjoying 25, 30 percent growth for the best part of a decade. That is going to come right down. Analysts expecting a 10, 15 percent growth in the next two years. So all of a sudden, far from being growth stocks, they have to focus on that bottom line. I think the number that's super
interesting when you compare Amazon and Salesforce.com to slightly different stories is looking at revenue per employee. And revenue per employee has come down over the past three years because Amazon massively over expanded, added to many warehouses, added too many employees. Salesforce is revenue per employee has continued to climb. It's just that the revenue number itself is not growing as quickly. So what they are doing is, you know, Mike Wilson is saying Salesforce, it seems, is getting a little bit earlier than some of its rivals in ensuring that it has those healthy margins, even perhaps, you know, be considered more in the value category than than growth as a consequence of his efforts.
Alex, it's a very difficult story to get your hands around it for me anyway, because you have on one hand the retail segment of Amazon, all of the boxes that people get delivered, the fact that. There may be fewer of them. But then you have this tech spending side of things that the cloud computing. And this comes after Microsoft had a warning flag put on it from UBS about the potential for a reduction in cloud computing spending. How much is that underpinning? A significant portion of these moves and indicates a broader reluctance by businesses to really spend on the capital infrastructure. So I think you're right. I'm not sure necessarily that there's going to be a reduction in cloud spending, but there might be a reduction in the pace of growth of cloud spending.
And of course, these are growth stocks. That's therefore very important. I think when you look at Amazon, the narrative that had over time, over the past sort of 20 years come to be accepted by the market was that, yes, Amazon might not be terribly profitable, but if they wanted to be profitable, they could be they could flick a switch. And all of a sudden, you know, the faucet gushes forth, profit when they want to.
The consequence that a lot of that is to do with AWB w of course, it has huge gross margins of 80 percent plus the consequence of the lockdowns where they added all this extra headcount. They added a million people between 2019 and 2022 more than the whole U.S. Army. All of a sudden they have a far greater cost base, a little bit harder to flip that switch and turns profitability. So what they're doing here is perhaps
rightsizing a little bit 18000 as a percentage of one million. Clearly not that considerable, but it gives them a little bit more flexibility if they wanted to return to that old numbers. Alex, where does Jeff Bezos fit into this? Was he the entrepreneur, the tycoon who said, build, build, build, girls, girls, girls, and the guy from the cloud business has to come in and mop up Mr. Businesses mistakes? Is there any validity to that? That is certainly a thesis that a lot of people have been flocking to. Andy Garcia's background is very much in a W assets in that that cash cow.
And, you know, business is the pioneer certainly in terms of Amazon, but it's something that a lot of other companies have followed of late, investing in growth, just throwing all your money at your surplus capital if you have it into driving that growth story, because in the end it will pay off. What the lockdowns showed is that if you grow too quickly, you're left with sort of redundant capacity that you can't use anytime in the near future. Maybe that capacity does come through in a couple of years time. But they don't want to have, you know, what they would see as extraneous capacity in the near term. Now, clearly, that's hard for Amazon employees. And as you say, these are not necessarily the employees in the warehouses that are being cut, many of whom are in short, on short term contracts.
These are people administering it from the headquarters. They hate H.R. teams and so on. We haven't seen big cuts to the tax staff, the people at Amazon at least going on these big new bats. They seem to be still in play.
Alex, just briefly, can you describe the culture at Amazon and of the people from Adobe West, feel about the other side of the business? Well, I mean, look, I think they all recognize that without the e-commerce business, AWB wouldn't exist. It was basically built to support that business. The culture, broadly speaking, at Amazon is very thrifty. You know, you think about people flying
to to Seattle to from London, perhaps to go to meetings, the headquarters. They fly coach. They don't get the sort of cushy business class seats that you might expect from big tech companies out there. They tend to think that we are going to
reward you by giving you generous paychecks, by giving you good stock options as a whole. It's a pretty legally run organization, which is why you see so much automation in the warehouses. You know, there is a lot of tech going into that stuff and it does feed into some of the stuff that Amazon that AWB does because they've improved the tack in one place. That's something that you might be ISE a product ISE from a software as a service perspective for your AWOL clients.
Alex, thank you, buddy. We appreciate it. Thanks for the clarity. Alex Webb there out of London from Bloomberg NASDAQ Alex mentioned a couple of minutes ago. Can we stay on that for a moment, please? One million rolls from 2019 to 2022. Have we ever seen anything like that in history? No. Ever. At any point, a million wrote in three
years is about distribution. Unreal. If you do an MBA program, there's like this. There's there's this. There's nobody talks about distribution. You have to distribute the product. And that was the pandemic challenge. And that's what we're talking about, access. You know, a lot of people talking a short and shallow.
A potential downturn will be short, shallow because we can build up enough access in the last couple of years. Well, it depends where you look, because there is a company that had a million people in three years that just sort of blows my mind. This goes to the question that are asking. Are we talking about the excesses of the past two or three years or are we talking about the excesses of the past decade? And you think about tech as the growth industry and how much it's subsumed by other industries, whether it's retail or whether it's just what happens in the corporate back offices? How much of this is paring back and tweaking as the tech world enters a new phase? It's no longer road growth.
It's more the establishment, of course, say 18000 for a company that takes feels like a tweak, doesn't it? Yeah. So I'm just wondering, there's more to come from Amazon on the cost side. Where does it come from given. Alex Webber's talked about how the company's already ran and perhaps are not going to publicize it quite as much. Precisely features on a S&P 500 up two tenths of one percent.
David Leibovitz of J.P. Morgan Asset Management coming up next. Nothing was really changed between the end of 2022 and the first day of 2023. Inflation and interest rate shock, but talk markets weaker in 2022. Think sort of fever is breaking. We're seeing inflation normalize.
That should support some of the value of stocks for equity markets in and of themselves. The lack of inflation was not a bad backdrop for them for the last decade or bear case. It's actually kind of we avoid a recession, but not the slowdown. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. How many more rate hikes do we need from New York City this morning? Good morning.
Good morning. This is Bloomberg Surveillance Life on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro T.K. equity markets not too much. A little bit more data coming out this morning than onto payrolls tomorrow.
Thorsten Slop moments ago over at Apollo. The title of that piece, Tom No More Fed Hikes needed a question mark. Right on from Dominant Constant and a few others looking at where are we on a restrictive basis. Ben Emmons has been out front, too, and
Slack just says he hears the word is cumulative. You have to go to Vice Chairman Brennan of how do these rate hikes add up and then how do you handle that? In what I would call academically original territory. And there is slack weighing in. Neel Kashkari, if the Minneapolis Fed was pretty punchy yesterday in that piece, it and if you had the opportunity to read it. But basically, he wants to take rates through 5 percent. He's conditioned by the experience of the 1970s and does not think this it back away any time soon. Yeah, he basically was saying that it shouldn't even be a consideration until the Fed is confident that inflation is peaked. He said I have as posing a five point
four percent, but wherever that end point is, we won't immediately know if it is high enough to bring inflation back down to 2 percent. Then you've got towards this last citing San Francisco Fed saying that it's clear that the demand side of inflation has come down dramatically. Sophie Kamaruddin came off as the 1970s weighs on these guys heavily, really heavily. You see every time they speak in a speech. I mean, this was from Kashkari yesterday. Given the experience of the 70s, the mistake the FOMC made and must avoid is to cut rates prematurely and then have inflation flat back up again. Remember Al Shery Ahn writing about the
risk of a 70s flip flop last year and T.K. clearly weighs on them. Yeah, it weighs on him too, because the Bank of Japan had the same flip flop happened different terms, different moment. But I strongly take your point that at
least you mentioned this before we went on air this morning. This is wildly his metric and they are scared stiff of the first rate cut that permeates monetary economics. I think vice chairman clarity would would agree. Because once you start cutting, what's this market going to be? It's not gonna cut him. It's not good pricing. Well, yes, we just got a price in a
cycle of cuts, and that's the issue. Did you enjoy the Fed minutes yesterday? I read. It was good. It's certainly going to be better surveillance. That's the nap start at 2:00 p.m. Eastern time. Let's wait for this price action for you and get you all up to speed. I'll give you a comprehensive market check in just a moment.
Let's start with a brief one. Equity futures right now unchanged on the S&P 500. Yields coming up, not even a basis point on a 10 year, three sixty nine. Any affects market 1 0 6 eleven, some crude 74 22, up by one point nine per cent over the previous two days, down 9 per cent plus to kick off 2023. Big deal. I think the crude is a big, big deal and pushing against it as a China opening and some of that enthusiasm and the feeling I get from the the hundred dollar a barrel crew is when it goes, it's going to go.
We just don't know when that is waiting for this mountains to click back in particular from China. You heard on Rita set of energy aspects like the triple digit crude brammer again later this year, that circle. Honestly, I was thinking about that when you were talking about where the Fed is gaming out at rates. And I have to wonder how much the narrative is going to change in its head if we get another pop in oil prices, in energy prices, especially in the face of really volatile weather today, what we're looking at is jobs data ahead of the jobs report tomorrow. ADP employment change comes out of eight fifteen a.m. U.S. national jobless claims claims comes at
830. I keep going back to this. I keep thinking, John, about what you said yesterday. It was a chart cry when I took a look at a longer term view of jobless claims because of how distorted things were during the pandemic.
That is true. However, it has flatlined on any scale that you look at in terms of the number of people filing to
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