Market Losses Pile Up | Bloomberg Surveillance 9/28/2022
The Fed is finally getting his arms around making monetary policy. I think the market clearly understands what's happening. We're probably getting closer to a bottom. Inflation is here to stay. Higher rates are here to stay. High rates still here in a bear market. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz.
Six days of losses on the S&P about to become 7 light from New York City from audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro futures are negative one point two percent on the S&P T.K. in the bond market a 10 year with the forehand. It's just as exciting today as it was crisis day.
What was a tour three days ago. Jar. My head is spinning. I've frankly been officers 130 watching Asia unfold in Europe as well. John I want to point out two things. The euro gives way. It's very subtle but a weaker euro.
And I'm sorry the U.S. 10 year yield has got to be on Jerome polls. Bloomberg this morning euro dollar 95 45 a 10 year in the Treasury market up to 6 basis points on a day three four per cent. So many equity mark on the S&P. We come back to November 2020. That is where we're at now in November 2020. Just think about that. That is all of the vaccination gains of the last almost two years.
Tom wiped out. Yeah I was going to call it a draw creator but maybe it's just a draw down. Standard and Poor's down 24 percent. Bear market Dow down 20 percent. And the Nasdaq you're really getting some tension John here down 32 percent. This is equities. Giving way is different stories. I know.
And Ron Ron is scheduled to be with us on Apple. Truly. You've got Dan ISE in the 9:00 right. On Apple. Yeah. Yeah. This will be great. But what's really interesting here is the global sense of this John.
I'm going to we're going to talk about this later that IMF statement and United. Get me. Don't get me started. I was in a school store open house last night. I was at a school open house last night. And that's what people were talking about. Okay. You got louder.
Lisa let's talk about. All right let's go. Of all the things going on in the world the White House juicing the economy in 2021. The Fed hiking 300 basis points in just six months.
This is therapy. Absolutely. Searching for war in Ukraine. The commodity market turned upside down and upside down again. And the IMF is calling out the U.K. on fiscal policy. Now we can have a conversation about
fiscal policy. I'm open to the debate from either side. But to make this the focal point of the policy area potentially that's happening in the world right now I just think is absolutely. It's bizarre. Joel Weber. Paul Allen. So I want to give you your chance to go crazy here because there is a lot of discussion about it. Let's just give you the statement. Given elevated inflation pressures
including in the U.K. we do not recommend large and UN targeted fiscal packages at this point. It's important that fiscal policy does not work across purposes to monetary policy is a shot across the bow to quasi qua tang to the whole less trust administration saying what are you guys doing. This is not working. You're right. Why now. Are they that concerned that this is a particularly pernicious policy or are they just wading into politics and potentially damaging their reputation as a less partial type of brand. Well you read wasn't even the worst bet.
The worst bet is telling them that the upcoming budget on November 20 third would be an early opportunity for the UK government to consider ways to provide support that is more targeted and re-evaluate the tax measures especially those that benefit high income earners. Again we can have this conversation but to make this the focal point of what is happening right now in the global economy is ridiculous especially because you could argue this is ultimately a dollar story. Ultimately yes there is a UK story with respect to fiscal policy but across the board you were talking about a euro chart item with an 85 handle. Talk about a Japanese yen that is
weakening so rapidly that you're talking about intervention that yeah it's just window dressing but still it's going to potentially lead to the sales of treasuries. This is a big move. John I'm going to go to a band called Devo. They were like The Clash what was style. And I think I'm turning Japanese. I really think so. So there's the banter. John Farrell starts talking in the Bank of England reacts here to carry out temporary borrowing of long dated U.S. bonds. I mean I think I'm turning Japanese. I really think a long dated U.K.
bonds to be specific with down 26 basis points now on a U.K. 30 year. We've seen a big surge in the last week or so 473 on a U.K. 30. Yes we've got bonds. Absolutely.
Search in the gilt market off the back of this headline sterling should be rally enough to back this headline to the Bank of England to carry out temporary purchases of long dated U.K. bonds. So this is intervention. And this is interesting because we were waiting for gilt sales gilt sales from the Bank of England. The Bank of England delays the start of Kutty Gilt. That was until October works. John pushing this back. This is brilliant.
After a thought as going as Liz Truss for Halloween it worked perfectly. How's that going to work. Haslinda Amin great headlines. If you just tune again. The Bank of England to carry out temporary purchases of long dated UK bonds. Gilt yields down on a 30 year by 22 basis points off the back of their bonds. A search in the pound. This rise in sort of sterling sort of doing okay relative to where it has been. But Lisa why were we talking about gilt
sales. They wanted to do some form acutely. They can't do balance sheet roll off because the average average maturity in the gilt market is 15 years. So they're talking about gilt sales. They're not absolutely abandoning that. They're delaying it until the end of
October. And Lisa I wonder what's next when this Bank of England right now just from a market response. The pound has given up any gains immediately after that announcement versus the dollar now 1 0 6. Just giving you a sense of the market response. Not going to do it.
Not necessarily support. And this actually go to this credibility issue that Paul Krugman outlined in The New York Times where he basically said that there is a question about whether the central bank has the conviction to go at this given the floating rate nature of all the mortgages and the fact that we're going to have to refinance. This has a shark element to the economy that perhaps this Bank of England will not be able to stomach. And that is we are seeing the loss of credibility. John have brought this up time and time again.
Lisa absolutely nails the importance of the crew. When I say folks this is Paul Krugman wheelhouse. This is how he won the Nobel Prize. And the answer John is they are beholden
to floating rate mortgages which will crush the middle class of the United Kingdom. And we're already seeing the mortgage market get ripped up in the last couple of days. A lot of people have had to remove mortgage products because rates are moving so quickly. But there are two ways that you can have this kind of crisis. One is if you have a load of foreign currency debt which the U.K. does not have.
They have debt issued in their own currency. They own the princess. That's not the issue here. The other issue is if you believe the Bank of England's not going to make the moment which is what Lisa is talking about can they really validate market pricing right now Lisa. Market pricing is so so aggressive not
just over the next 12 months but over the next month or so. And what you're seeing in the action at least in the pricing is conviction that maybe they will back off from selling some of their gilt holdings but not conviction. They'll be able to support the pound. And that really goes to this question of are they going to be able to tighten enough to offset the potential inflationary pressures and the deterioration of foreign investor confidence in the station's budget.
Yes. Norfolk has been following all of this. The CEO and founder of DAX Dates from police are set against Norfolk joins us right now. Yes I just love your response to what the Bank of India is up to here. Now this is an extraordinary situation right. So we have massive inflation problems around the world. Central banks have been gearing up in a hawkish way really for the last several months.
Yes surprising the market the market the hawkish direction. And now we've had this essentially EMI type price action noted kingdom that is forcing the Bank of England to backtrack and essentially say that the quantitative tightening that they're planned is not feasible because market conditions are disorderly. Just extraordinary situation. Watching the pound today is going to be just crucial right. Because right now take this announcement.
Maybe the Bank of England has to make another emergency announcement soon to deal with the pound. Right. So they're going to be jumping back and forth between those two. Tom Keene. Michael Barr. Qantas has two boxes with sterling giving way right now 1 0 6 52 on sterling folks. Jansen order of truly like one of five people in the world I want to talk to right now.
Yannis you wrote a definitive book on this The Fall of the Euro. Let's get out front with the fall of sterling as well. Would you suggest politically the trust government can survive.
So what is extraordinary about this is that they've made essentially an ideological fiscal policy step in a situation where the market is right on the edge. Right and potentially is tipped the market over the edge. So this could certainly have political repercussions. I think essentially what the pound is going to do in the next week could potentially determine the future of this government. Yet is what we're looking at right now
is very much a UK story. It's also a very much dollars story. If you look across the world how much are people in the U.K. but beyond also at the IMF for now pointing fingers at Liz Truss but at the World Bank at some of the other foreign central bankers is going to be pointing their finger at the Federal Reserve and saying look you guys are creating some serious issues and everyone's playing catch up and it is going to reverberate back on your economy. So the Fed is dealing with a major inflation problem in United States. We have inflation way way way above target rate. The Fed doesn't really have much choice. When the Bank of Japan intervenes the first time in the currency markets to support their currency in decades.
Last week there was a lot of talk. Discussion. Okay. Can we have some kind of coordinated action to make sure the dollar doesn't get too strong. The problem here is that from a monetary policy perspective in United States.
The US needs a strong dollar right. So how can you coordinate and get the dollar down when the US needs a strong dollar to fight inflation. We have here. So it's all tied to the inflation we
have in United States as long as that is not under control. Essentially the Fed has its hands tied against its backwards very very hard to step in and until CPI numbers turn. That's gonna be the problem we're dealing with not just in the US but globally. Just help me out with this statement from the Bank of England. They talk about dysfunction in the market the fact that it could affect UK financial stability that it would lead to an unwarranted tightening of financial conditions. It's a pretty difficult question to answer. I understand your.
But can you draw a distinction between what we've seen over the last couple of days that is disorderly. There isn't in line with fundamentals that is leading to an unwarranted tightening of financial conditions. How do you strip that out when the Bank of England is trying to make this both targeted and time limited but also saying they'll do whatever it takes to really correct the dysfunction. I mean this is pretty confusing stuff. Yes. How do they sit here and understand what
is out of kilter with fundamentals and what is it. So I think I think probably what they're looking at is that if the short end of the yield curve adjust hundred basis points 200 basis points that has to do with expectations from monetary policy. What we've seen over the last couple of days last week or so is that the long end of the U.K. bond market has been essentially trading like those impending default in the U.K.. Right.
And that is causing just immense losses in the portfolios that have those long duration assets like some of these bonds are down 50 percent. So if you think about insurance company that owns a lot of these bonds or pension fund that owns a lot of these bonds. Clearly those are the kind of contagion effects that the Bank of England.
Concern about now and the price action has just been absolutely stunning. Right. I was tweeting about last night literally the 30 chart. I'm not surprised that Bank of England put a concern about as well. So it's really the the long end was a short and I think is that distinction that they're looking at.
Right. And I've got to squeeze this in the OJ in the last week intervention the Bank of England in the last week. Intervention. Yes. Who's next. This is a new era. I think we might have had like a dramatic Chinese currency intervention like a couple of minutes before we went on screen here.
So markets are unstable. Inflation changes everything. And governments central banks try all kinds of things we've not seen for a long long time. So we really back to the 70s 80s in terms of the policy steps that are being considered here. So brush up something haven't seen for quite a while. We're braced against Nordic exact state data. T.K. what a couple of weeks.
What a couple of weeks. What a couple of hours is Mr. Norvig mentions there. China acting as well. All I can say John is we will treat this on a global basis. Our booking team is using every resource to make the sophisticates informed.
But also John as you mentioned the millions of people their heads are spinning in this original post pandemic crisis. Well that's an interesting start to this morning. Good morning to you. Equity futures are off. The lows were down about four tenths of a one per cent a year off the highs. Your 10 year three and 93 down from 4 per cent from New York.
This is pulling back. Returning stability of prices is the mission of the ECB. This is our primary objective stated in the treaties. As I have just said and this is what we have to do returning inflation to 2 percent in the medium term and we will do what we have to do which is to continue hiking interest rates in the next several meetings. Christine Lagarde the ECB president that the global macro this is Bloomberg Surveillance equity futures down four tenths of 1 per cent on the S&P on the NASDAQ down about eight tenths of 1 per cent.
The main event is in the UK the Bank of England announcing a gilt market operation strictly time limited to come in and buy bonds at the long end yet to lower by 40 basis points on a 30 year to 4.5 8 per cent. A big big statement from this bank of rate some. And as a couple of things in here that I guess don't add up to some people.
Has two lines 50 K the purchases will be carried out on whatever scale is necessary to effect this outcome. Then in the final paragraph these purchases will be strictly time limited. Yeah. Sam can you reconcile those two. Time limit is a key question there. Know I don't want to walk into it. We don't own the time right now to walk
into this. But Jonathan Ferro this is the x axis again. And these bankers all of them worldwide are working blind right now. What I would point out John for our
American audience this morning is us yields come in as well. Why is it happening. This bank just blinked. John when will the Fed blink. And that's the question asked. Evans. Novak.
Yes months ago. Who's next. Was working with my old producer Tony Crook out of London. Some house. This no longer QE. OK I just know you guys are on speaking now. You see it's now QC quantitative confusion. That seems to be the take on behalf of these central banks.
I mean I'm utterly confused. First of all we were selling gilts and now all of a sudden we're buying gilts and also we're going to start selling them at the end of October. They're going to have to address all of this. We're going to get a budget in November. Maybe we hear from parliament before that. And from this government too. And we're going to get a bank giving them rate decision by early November. Tom does anyone think they can wait
until November to make that clear. We were data dependent as we are that they are trying to get to 9 a.m. again. I want to point this out. Dan ISE with Jon Favreau at 9 AM is
going to be an important conversation right now. The respected foreign policy magazine really really quite adept. I love the headline Liz Truss is Making Britain Look Like Argentina.
Joining us from Buenos Aries this morning Guy Johnson guy. How close is London to Buenos Aries this morning. Quite a long way away Tom. I think we do need to take a step back. But this as John says is a confusing picture.
I think the bank is only adding to the confusion this morning. And the market reaction I think speaks to that confusion as well. You look at what is happening at the long end of the gold market. You're getting a big move there. But I've got three years interest rate swaps up on the screen in front of me. I get an average.
You could pick 2s you can pick five. This is what mortgages are priced off. They're still incredibly elevated at have barely budged. The pound is not moving lower on this. In fact you could argue this could be
negative for sterling and therefore continues along the track of imported inflation which is ultimately what the bank needs to deal with here. It's talking about disorderly market conditions. It's concerned about a tightening of financial conditions. But that tightening of financial conditions in many ways still exists after this. The three year swap went down briefly and came up. But if you take a look at even over the last five days we've come up from four point two are up to five point seven.
But this is not fixing a problem that we are addressing right now. It's bailing out the government in the short term. The ball was firmly in the Treasury's course. We are taking short term remedial action to try and manage the situation.
But at best that's all they're doing. A guy we could spend all day talking about the UK's problems and we can have a conversation about them more broadly. But I think with Deutsche Bank this said the actions of the Treasury in this government last week was the trigger not the cause. The cause is we've just had 300 basis points of a tightening from the Federal Reserve in six months to dollars. Absolutely searching. And there's no sign of them back in a way. I think it would be a mistake to get bogged down in the Bank of England and everything going on that guy at some point.
The central banks don't just start screaming at the Federal Reserve to say you need to back off. Well you listen to the treasury secretary yesterday. We are we are not concerned about this situation. Brian Deese I think was talking about
there is no need for a plaza accord right now. We're not going back to 1985. The language at the moment coming out of Washington is not an indication that we are moving in that direction. But but John I hear what you're saying. But there are smart people in London.
There are smart people that work at the Treasury. There are smart people that work at the Bank of England. These are febrile markets. The dollar has been surging for a while. Do you want to take brave policy action in the words of Sir Humphrey. Yeah. Adam.
Moment where the market is as febrile as it is right now. That may have been the mistake the policy may be. I don't know. I'm not gonna cook sort of talk about the judgment of this but. But you are introducing a new policy into a febrile market environment. And I think that was maybe where the challenge really lay. Getting that bet right was the difficult
bets. So British chancellor quasi quitting is expected to meet with a number of Wall Street executives today. Bank of America Citigroup JP Morgan and Morgan Stanley. Sky News reporting that they're going to ask for them not to bet against the pound. Is that really true. Is that being borne out. What does that mean in terms of a bank's willingness to do that. And B the desperation in an
administration that has previously said the markets will do what they do. To be fair that has been denied but but test balloons often get floated Lisa. And and I wouldn't like to to necessarily suggest that that wasn't the case at this point. There have been a number of headlines over the last few days. A number of British papers have been running them. And they are being kind of pointing the finger at the city. Christine O'Day has come under
significant criticism for betting against the pound. The U.K. has a long memory of George Soros and and the chaos that was caused by the exit from the Roman and the kind of the history of fairly fresh given the recent anniversary of that event. If these are disorderly markets then then you you could point the finger and say we need to stabilize the by any means necessary. The moment I think we're struggling to figure out how you do that with as John says the backdrop of this incredibly strong dollar and this incredibly hawkish Federal Reserve a guy no doubt will catch up a few times this morning. Good to see you buddy. Guy Johnson and London.
What a moment. At least I'm not here to say we shouldn't have a conversation about the U.K. We should set that at the top of the program. I just think for us all to sit here and make it just about the U.K. with what's happening worldwide and in global markets.
That's not where the systemic risk lies. And that's the reason. I mean and even if you take a look at the U.S. Treasury response to the United Kingdom and the fact that we've heard Fed officials point the finger at the U.K. for the trigger as relativity it's nuts. There is a bigger story here. It is dollar strengthening.
It is persistent. It is going to lead to more intervention as you pointed out. Where is the next node of intervention. Does that come in the form of buying. Or does that come in the form of selling treasuries. It comes under the umbrella of disorderly market moves not a Yellen. I wonder how long they're going to be in
this market to lower by five basis points on a 10 year. We had a little look at 4 percent and that was back to 389. In the US futures now unchanged. They were deeply negative. This bond market makes a turn. I guess the question we've got to ask is will it stick. From New York this is Bloomberg. Live from New York City this morning. What a morning already.
Equities were down and down hard. Now the negative just two tenths of one percent on the S&P on the Nasdaq down a half of 1 percent cannot keep up here at all. Check out the bond market 3 4 percent. We became back to highs we haven't seen on a 10 year yield before 2010. Back to 0 8 0 7 across the curve 388. Now he would slow it by five or six basis points. The turnaround comes from this market
right here off the back of a bank giving an announcement of a gilt market operation to come in and temporarily over a limited time buy long bonds. The 30 year dropping by 62 basis points on a U.K. 30 year to date home. The yield now at 437. Let's stay on this before we get to Lindsey. Pigs on impact here particularly in Washington.
But John I'm really going to go with what the Telegraph is saying. Run. This is just flat out intervention. And maybe as Norvig said in original intervention to what Krugman said in The New York Times John Ambrose Evans-Pritchard Publishing Lose Trust must choose between a fiscal U-turn and a housing crash. We just got the U-turn. Well I wonder if we have had the
complete U-turn. No I agree. So this is the intervention that that addresses some of the dysfunction or the disorderly nature of the market moves we've seen in the eyes of the Bank of England. I don't think it addresses the underlying problems. Lisa and for that we need to work out
whether the Bank of England is going to step up and validate market pricing for rates into the November meeting. Amity to understand how far the fiscal issues are going to go which is the reason why Guy Johnson has absolute correct when he says watch the pound and the pound is lower on the day the pound is at a new post 1985 low. And that is the reason why not in an intraday basis is at 1 0 6 67 as if it were to close there on a closing basis. How much are we looking at that being the pressure valve valve at a time where there isn't faith the Bank of England can follow through. And also there isn't faith that these policymakers are going to back away from certain policies that are being called out by the IMF which I'm sure you have things to say about is any surprise. And before we get into the IMF and I can
talk about that later I'm sure you will. Is it any surprise that we've had some sloppy issues this week auctions in a primary market et cetera. I think it is. Given the of the moves that we're seeing in the bond market it's not just about the fundamentals it's how big the move sell on. Things like a 30 year gilt should not be moving 60 basis points on any given day. So just for background there was a two year and a five year auction so far this week.
They both were terrible. The tier was less bad than the five year which was pretty bad. And today there is a seven year auction. There is a theory out there that the buyers the biggest buyers are stepping away. The Japanese government selling treasuries in order to support the yen. You've got the U.S. Treasury or the U.S. Federal Reserve which is actually letting its balance sheet roll off at an accelerated pace this week.
How much does that take away. Some of the conviction John that you had from investors who see value they see real yield but they're still not stepping in in big enough numbers to stave off these declines. I kind of match it some. That's tough. The seats are on the trading floors of the city of London.
Right. I saw a kid wizard. You talk about VAR and all the fancy analysis out the window. Here's a rule to doing. This is very important to go from London to the challenges say in Seoul Korea maybe the Philippines moving up your 60 pesos per dollar. How about Washington. Lindsey Pigs that joins us now chief economist at several. Dr. Pigs are wonderful to have you with us
today. And so timely. I want to talk about the central banker of the world Jerome Powell and the real yield we have come so far so fast. I measure a moving average of the real yield in normal times to point 0 5 percent. We're not almost there but we're getting there quickly. Have the cards changed as the dialogue changed. As the math changed for Jerome Powell. Because the real yield with London and
everything else has moved so far so fast. I don't think this storyline has changed quite yet as we heard from the chairman himself. We're only at the beginning of the tightening cycle. We're at the very low level of what he considers to be restrictive policy. And based on where we're seeing inflation in the economy there is still quite a ways to go now.
No doubt we are seeing dysfunction in the markets overseas. But at this point the Fed is primarily focused on those inflation figures. And on Friday it's likely that we do see an uptick in core P.C. which will keep pressure on policymakers to stay the course and write rate that message. Critic ISE said the dysfunction they will continue to raise rates could. Well sir do you look at their path.
Is all a Bullard a massive front load right now. Or do you see it as linear or curve a linear out into 2023. Well let's take the fight at their word and they were very clear that they did want to front load a lot of this tightening into the market in order to get catch up with the curve. Remember there was a lot of criticism
that the Fed was behind the curve. They maintain that transitory language for too long. And as a result they did need to accelerate that rate path that they would have otherwise been on had they initiated a remove of crisis crisis level policy earlier maybe as early as the end of 2021. So I do think there has been a very clear acknowledgment they were trying to front load. But again when we look out to the Fed's expectations the forecasts put out last week there's a good number of committee members that say we're going to stay at this accelerated rate path with some anticipating a fourth round 75 basis point increase when the Fed again. Right in November.
John what's it do to India. Wants it to suffer when asked. Yeah. Right now the global pain is phenomenal. Lisa that's why the UK comes into at least you know that mean of that individual in that burning room and the fire is playing get around them. They're saying everything is fine and they're having a cup of coffee or something. Yeah.
For the U.K. a cup of coffee. It's boiling hot. And they're like oh this is too hot a scolding. We got a problem. But the bigger problem is the flames all around them.
And the way we're talking about the U.K. this morning is yes the U.K. has massive problems. We've highlighted them. In fact we had a debate about them before. I had a time ahead of time about what could happen here in the gilt market and its sterling and its materialized. But the bigger issues the bigger picture issues is 300 basis points of tightening in just six months.
Throw in cutesy on top of that a dollar. Absolutely searching in a global economy that is whipsawed from having the White House absolutely juiced the economy in 2021 and the Federal Reserve in 2022 slamming on the brakes there. The flames in the global economy right now not a of hot tea or coffee whatever your choice says. And what's playing out in the U.K.. Well or a zero hedge just put out on Twitter. One of the most supposedly most stable instruments in the world is up 14 percent this morning. To give you a sense of just sort of the
penny stock nature of some of the most moving credit kinds of markets. The bigger issue for me at this moment there are the policy considerations where to point the fingers where to point the focus for right now from a market stability standpoint. What does it do John when you get suddenly a 14 percent move in what's known as a stable instrument. What happens when you get this kind of violent volatility in full faith and credit around the world. At what point does something break Lindsay do you think that the Federal Reserve looks at these issues and says well that's the UK's problem. It's the Treasury's problem.
The government can do something about that. Do they look at the future and say well you're doing yield curve control and a rising interest rate environment. This is your problem. You can do something about that. When does it become Lindsay the Fed's problem. Well I think right now when the Fed is
making policy they are primarily focused on what's happening in the domestic market. That being said they certainly can't make mount monetary policy in a vacuum. They are aware of what's happening. And it's not to say the Fed is entirely to blame for the market volatility that we've seen. Obviously the U.K. budget proposal was a big factor. But when we talk about the extreme policy accommodation removal that we've seen this has caused significant shockwaves in the markets. And as the bellwether for the global marketplace of course then we would expect shockwaves to fall out throughout the global marketplace. The Fed was aware and is aware of the
contagion effect of monetary policy. But again that won't be enough to deter this Federal Reserve from their current pathway as their focus is reigning in inflation and reinstating the bedrock of the economy which is price stability. What counsel Lindsay as market dysfunction right now.
I think the incredibly large moves that were seen on a day to day basis when you're talking about global markets moving 20 30 50 basis points off of one data point or one policy announcement. I think that in and of itself is an indication of dysfunction uncertainty extreme volatility. And I do think that the Fed is very aware of how quickly the tables can turn. So again when we talk about monetary policy and fiscal policy ill aligned overseas that can quickly become the case back here at home as we do have a very important November election coming up. I think the Fed again has more than enough reason to try and front load so that we don't find ourselves in a similar situation. If we do see policymakers move in a more supportive position given the fact that the U.S.
economy is far from robust at this point rock and a hard place right now that's for sure. Lindsay thank you. Lindsay president of Stifel. So we've got a sixty nine basis point move on a UK said yes with AXA 429 a contender.
That's where we were at the open on Tuesday morning. Lisa was yesterday. So when two trading desks start to blow up. When do we start to get some sort of systemic problem. At what point do these moves start to trigger some sort of systemic problem. I don't know the answer to this. None of us do. There has been some questions of why we
haven't gotten an event in credit markets why we haven't seen more forced selling. This is going to be an increasing a point of focus John. We know the White House is looking into market volatility looking get together. I think Tom was right. And Tom you are right to pick up on the potential of a housing issue in the United Kingdom. Given how much house prices have surged
over the last couple of years the fact that you're going to have rates move as quickly as they might have to move. Tell me if we do validate market pricing go for the Bank of England and the fact that so much of the mortgage market is priced off where bank rate actually is where the bank rate at the Bank of England turns out to be two things quickly. I did a mortgage calculation off of three point one zero percent spiking up to 7 percent. John. And basically you can buy 25 percent less house this morning in America from the joy of a number of months ago. John help me here as a guardian writes
about the 1922 committee. These are the conservatives that I guess if they get upset with trust in my right that they could throw her out the door of 10 Downing. They can put some real pressure on her yet somehow they can push her to maybe think about resigning. They can have that vote if they once he further down the line. I do wonder if the limited nature of the central bank intervention is left that way some to give the government the opportunity to back on their side. Well we need to clarify that John for people who don't know their heads are spinning folks. Our heads are spinning and we still to
know what we're talking about. John the bottom line is this is a central bank intervention today and it is not the government. It is limited. The auctions will take place from today
until the 14th of October. Would you call it. QC I think that that's part of that confusion. And I think that's probably and everything that once a mild producer Tony Crook and I'm going to run with it anyway because that's what teams do. So here it is. I take credit features unchanged on the S&P. What a turnaround this morning.
Yields much lower to say we're down five or six basis points. We were at 4 percent when we started this program on a 10 year with DAX 388 in America. Alan Ruskin at Deutsche Bank is coming up shortly. Looking forward to that. This is Glenn Beck. Have today with news from around the
world with the first word. I'm Lisa Mateo. Hurricane Ian has now become a dangerous Category 4 storm as it roars towards southwestern Florida. It has maximum winds of 140 miles an hour and is expected to bring heavy rains and potentially deadly storm surge when it comes ashore late today. More than 2 million people have been urged to evacuate according to one estimate. Ian can cause forty five billion dollars in damage and economic losses.
That would make it one of the costliest storms ever in the U.S. in the U.K. inflation in shops at a record of this month. The British retail consortium said shop price inflation accelerated to five point seven percent in September. That group says that retailers are battling the weak pound. Rising energy bills and commodity prices and a tight labor market.
Wall Street has been hit with more than two billion dollars of fines in what's become called the What's App investigation. Regulators reached settlements with a dozen banks for failing to monitor employees communications on an unauthorized messaging apps. Goldman Sachs Bank of America Citigroup. They were all among those that were penalized. Elon Musk has asked a federal appeals court to throw out his so-called Twitter sitter deal.
Now that's the 2018 agreement with the S.E.C. that requires a Tesla lawyer to screen all of his company related tweets in a court filing. Must lawyers call it a government imposed muzzle on mass speech. 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. We have to balance that off with our dual mandate with full employment and trying to navigate that to bring inflation down while we do so as gently as possible not to tip unnecessarily the economy into a downturn that actually influences the full employment part of our mandate is a struggle. Mary Daly there the San Francisco Fed president live from New York. This is Bloomberg. Here's the price action.
Equities lower by just two tenths of 1 percent on the S&P on the NASDAQ 100 down six tenths of 1 percent. It was worse a little bit earlier. Yields were 3 4 per cent on a 10 year. They're now down 4 basis points to 3 ninety off the back of this mess in the UK year or two lower on a 30 year by 65 basis points. Potentially history in the making here because we finish this slow have a move this large.
It's the biggest move lower in history of the back of a bank giving that that came out just an hour ago and announced gilt market operations. Tell him to bring yields lower and to buy the long bond in a limited manner. Excuse me. I don't mean to cut you off. We're here on radio and television of course a most historic week and day. And we'll continue our coverage here of the international economics in turmoil is not just a question about that. Anywhere to go.
We have the slide in here a story that broke last night. Edward Ludlow is here from San Francisco in New York and briefs us now on the true drills of Cupertino. How serious is this is that there is an Apple iPhone. It's not selling all that. I mean you look at the premarket Apple trading in that diplomacy. Yeah. And the puking futures last night which carried over to this morning is serious. We look to the smartphone market as
almost a leading indicator for what's to come in the economy. Right. Rich people buy iPhones. Enterprise fares better in a recession the consumer. But we're starting to see signs now that actually Apple's hopes of growth in those expensive products aren't what they brief supply as they would be the before. We've been under Stern on Fifth Avenue with Larry however to the giant of this years ago. And we were laughing about how every four years Apple's going to die.
Is that where we are again. It's not going to die because all they are doing is you turning on updated expectations right. Ninety million smartphone units this year is what they've instructed their suppliers. According to sources they briefly hope to boost that by six million units. Ninety million is the same as we did last year. It's just not the mega double digits
growth of what we've become accustomed to particularly over the pandemic era. We're looking at 2 percent sales growth on flat unit growth for Apple. All things considered in this environment.
That's not a bad thing. And you look at the sell side reaction there saying hey we saw this coming. And how much is this an international story. We've been talking all morning about some of the international pain about what's happening in Europe what's happening in Asia and how it's being affected by the US on our grant Bloomberg intelligence said because if you believe that weak demand from Europe and China could hurt overall iPhone sales in fiscal 2023 as they account for 43 percent of total sales how much is the beginning of a growing swath of downgrades to estimates and production because of global weakness.
Yeah. I mean China is really key to that story because Apple has 20 percent sales exposure in the region. Right. And that is a key region where there is evidence that the smartphone consumer electronics market is slowing down. You know we've we've kind of gone off the rails of of talking about how China is are all crystal ball into the health of high growth companies like Apple. But it's key in Europe as well. You know the problem with the iPhone 14
launch is that they launch models that ranged in price and according to source says the consumer is expecting or is showing evidence that they're favoring the more expensive model. But it means that those lower priced models which kind of have historically been larger in volume in markets like China and Europe where pain is being felt for different reasons. Right. The inflation story in Europe China the economy's kind of all over the place. That is worrying to analysts because
they want to see that actually there is enough volume on the higher end to offset the weakness in the lower end of the market. And it's awesome to have you here in New York City with us. DAX mother sent little over wanking on the Apple story. That stock is down by about three and a half per cent in the premarket. Lisa how many times we have this conversation about Apple and they come out with quarterly earnings and just not think out of the park. Right. Is this time different.
And the interesting thing here and the reason why this is different is because they had previously said recently that they were going to increase production. This is an about face. Is there some sort of rapid deterioration akin to what we've seen in FedEx that's affecting other companies. And how much is it really stemming from what we're talking about in Europe. Well we're talking about the United Kingdom. We go back to the U.K. I think we have to get plane story.
I mean. Well I don't mean that. I meant just get the story going back to it. I don't think that it's more than one of six FTSE.
You've taken it back. You want to go back. Think cable's now negative seven tenths of one percent this week. And Lisa was so quick to pick up on this. Yes we're seeing a big move in the bond market. Love. By 60 basis points on a 30 year in the
UK but Sterling hasn't appreciated some pop tire. You had a decent pop on cable just briefly and then snap back lower again. I think it's very very complex John and I'm sorry.
I'm going to go with what I read from others that the fixed rate mortgage the floating rate mortgage rather is the key social issue here. Huge problem confronting right now. I just want to point out the reason that Ludlow is moving to New York is he enjoys the traffic. Is he moving you over in Europe. I didn't know there was a traffic but
Johnson said I don't think he is moving to New York. It's not the worst thing on a lunch today. I'm going to try to figure it out. I'm taking down a McDonald's on Thursday. You know Raj John I'm looking at where
we are. Can I just state something. The VIX is a thirty three point four three. We've seen equity deterioration really begin to catch up with a song and dance we've been talking about for three days. We were down by about one per cent when the show started on the S&P but now down just a tenth of one per cent on the Nasdaq with down a half off because the central bankers are going to blank. That's the theory. Are they going to really blink ISE.
This is the answer. I'm just going to get a change in policy. And what does that change in policy look like. Intervention can only do so much for so long. We saw that with dollar yen and the Piaget step again ultimately to get something sustainable.
Lisa. You need to have a decent picture about how the fundamental policy shift is going to take place in the UK right now. That remains to be seen. To put another way there is a distinction between blinking and having stability right now. The lack of stability is giving people real pause about whether to go into risk assets. We saw this from Bank of America
yesterday coming out their previous. He liked investment grade credit. They no longer had that conviction because of the rate volatility. It is very difficult to go in in force with any conviction if you don't have conviction about full faith and credit John. If you just turn again the Bank of England announcing was it 54 minutes ago 53 minutes ago a gilt market operation to carry out temporary purchases of long dated UK bonds limited in nature. This will go from today until the middle
of next month I believe. And then two weeks after that basically we're going to hear from the Bank of England with a rate decision now. I keep saying the scheduled meeting is early November. Lisa I say the scheduled meeting because I wonder if they have to have a meeting before that. The best thing that I've heard RTX QC quantitative confusion. This is just all very confusing.
The Bank of England trying to come out. Throw it the Liz Truss administration of Bowen saying you know there's some good aspects trying to basically play politics this good way that UK Treasury Department coming out saying we give them their independence. You go crazy you do it. You need to do the Bank of England coming out with this confusing statement. How does this give the market stability. We're going to buy and them are going to sell bonds and maybe we won't Saudi bonds and we've got to hike rates maybe in early November perhaps before I'm with you. It's all over the place. But the biggest story here is beyond the UK. We need to think about why that the okay to step in and why the Federal Reserve is doing what it's doing 20 basis points six months and still talking about doing more than doing it. They say to get inflation low.
We get that. But the problem's evolving worldwide are just bubbling to the surface in a much more profound way. Over the last couple of weeks ought to lower by 2 basis points.
Your 10 year 392 Guy Johnson from London is going to join us shortly to break this down. This is Bloomberg. The Fed is finally getting his arms around making monetary policy. I think the market clearly understands what's happening. We're probably getting closer to a bottom. Inflation's here to stay. Higher rates are here to stay.
High rates don't mean a bear market. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Here comes a central bank intervention line from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz.
Some Jonathan Ferro futures down a third of one per cent on the S&P T.K.. This move in the long bond in the UK we're down 53 basis points on a U.K. 10 year. Let's go back 30 years right now. You're talking about a 30 year bond John. This goes back to 1992 a John Major first with a fractured United Kingdom but it is global as well. I love love love with the Greg Cameron
Crowe's just published moments ago at Bloomberg. Mr. Crowe says this was necessary but probably not sufficient. John that out of the textbooks about fits the moment of the Bank of England announcing a gilt market operation coming in and buying long bonds time in a limited manner for a limited time. It begs the question what the next policy shift is said C.K..
Obviously big rate hikes expected from the bank and the central banks blinked. Does the government I'm going to call it Wimbledon. They thought that tennis ball over the net to the government and we'll have to see what the trust government does. John you're way more familiar with this than than any of us are. But but this is the independence of a central bank. And now what for a government that
affected what many call Reaganomics to bonds are surging. Sterling isn't lazy. It picked up on this quickly. One of 653 had the initial pop. Then we snap back lower. We're negative three quarters of one percent. A lack of conviction that the Bank of England will actually follow through on a tighter policy to counter act looser fiscal policy.
This really raises an issue though because if you end up with let's say 100 basis point rate hike by the Bank of England right. Then basically they're pushing and pulling. At the same time they're going to be trying to lower rates on the long end while still hiking rates in the short end and basically tying themselves into knots which raises the question what happens when market pricing is inconvenient. Do you just squelch it. Has that become the new policy Mark Gurman policies in conflict domestically in the UK. It's in conflict globally globally around the world between the Federal Reserve the Bank of India the ECB and the P OJ. Lisa in a big big way.
And that's a reason why you have these pressure points that are coming out in unpredictable and volatile ways like the Treasury sell off that we saw accelerate yesterday hitting that 4 percent level for the first time going back two decades almost. The idea here in the US of what happens when Japan tries to control its currency then that's to sell treasuries in order to do that. I mean it just this is a confusing and very volatile terming that down 1 per cent 1 0 6 27 Guy Johnson is going to be joining us. Surely looking forward to that right now. He should wrap it up. Markets were down a third of 1 per cent on the S&P were off the lows of the session. We run chase briefly and snap lower
again on the Nasdaq. We're down eight tenths of one per cent yields turning around in a monster way in the UK. In the US as well. Briefly we were 3 4 per cent. Now we're back down to 3 to 92 90 year to lower by couple of basis points there. Euro dollar is still 95 66 still some weakness. That's a Lisa Euro dollar negative a
third of one per cent and we haven't even talked about Nord Stream 1 and the potential sabotage that we heard accused of yesterday. We will get to that eventually. So with all of this we have the room with flames and we have the Bank of England sipping on its tears.
Tom put out there as John put out there I should say. And so today perhaps it's the fire. The Fed speakers continue to come out and give us some conversation about where they're thinking and perhaps how they view the overseas turmoil. Atlanta Fed President Rafael Bostic. St. Louis Fed President James Bullard.
Fed Chair Jay Powell. Fed Governor Michele Bowman. Rich. Richard Richmond. Fed President Thomas Bach. And I even get it out there. Just so many of them. It's just like Chicago Fred. President Charlie Evans who has an ax right. I mean the parade of people coming out what can they say at a time when they have to fight inflation and their policies are exacerbating turmoil that is erupting around the world. We also get today potentially a meeting
between British Chancellor Kweisi Qua Tang and Wall Street executives who talked about what potentially could be rumored to be discussed. But this meeting will occur reportedly with Bank of America Citigroup J.P. Morgan and Morgan Stanley. What's the message. How do you involve people in a market that is doing its own thing when they say the market will do what they do and then they come out on the other side and they're trying to engage with some sort of policy that relies on market pricing that relies on inflationary inputs like the value of a currency. And at 1:00 p.m. really important to watch. John the U.S. is selling seven year debt and these
auctions have been messy. There was one messy auction after another debt. Is this enough yield to get people involved. Is there enough conviction a time when you get whip saying yields at levels that we have not seen before.
Volatility. Is there enough conviction to come in and buy with yields north of 4 percent on a 7 year. You get slapped around by bond market volatility the moment you touch the stuff which has contributed to the nervousness around these issues I'm sure. Lisa thank you. Guy Johnson in the city of London wasn't expected to start its day this early.
Joins us right now. Guy usually on TV and radio a little bit later guy let's start here in a moment where we expected the Bank of England to step up and rate hikes. Debt buying bonds guy makes sense of it all for us. I'm struggling to see what this affects John other than sorting out the pension funds. This is a real struggle to see what has actually been achieved here. So as you've been pointing out Lisa's been pointing out the pound is down.
We're now trading on the cable rate a one I 591. If you take a look at two three five year swaps which is what mortgages are priced off they've barely budged. So so the impact into the mortgage market is not changing here. The pension funds which carry long duration debts are the ones that are going to benefit from this. But even there we're only back to where we were at the beginning of yesterday John. So yes we are getting a monster move but it comes on the on the other side of a symmetrical move that we've seen so that that that job says it all. Look at what it looked what is happening
here. That's just the two year. But what we're what we're seeing here is just a reversal from yesterday's position. And it's incredible to watch. The currency is down. John this is. So let's just run through the mechanics of this briefly if we can. This is an FTSE decision not an NPC decision effectively as a recommendation. So this is this is stability financial
stability that they're doing that they're effectively trying to deal with here. So it's not it's not a monetary decision which comes later. That's all we needs to get in terms of the rate hikes. Tom they're doing it to try and stabilize the market but they're having very little effect. They're creating reserves that they're doing this out of reserves where they're creating reserves. So this is different to try and get.
This is different to QE. But it's so nuanced Tom that I'm really struggling to see what the different in the headline. Ten minutes ago on reserves. It's a complete mystery to me folks critically here. And we just showed that on radio. It is a spike down. Sterling going back to new weakness 1 0 5 is back to a one off four would be unimaginable.
Guy I just framed out the Bloomberg Financial Conditions Index which is acclaimed worldwide. Thank you to the great Michael Rosenberg for that. In the U.K. BFC II has moved positive five and then swung negative five standard deviations. It is a ten standard deviation move. Guy that is absolutely original in financial history. What is the next step for the prime minister. The next step for the prime minister the
chancellor I think is a really difficult one. Do they take the IMF sort of advice and recalibrate. I doubt it. Do we get further announcements that will stabilize the situation in terms of maybe tweaking a few things that is possible. I don't know exactly what they are but
but maybe there are there are tweaks that can be made here that maybe make the situation a little bit more stable. Maybe they talk about cost cuts that could potentially come in government departments. I don't know. But there is there is definitely the necessity for that. The Bank of England has basically as you
say hit the tennis ball to the other side of the court and said it's back in your court. But ultimately Tom we are still finding us. We still find ourselves in a situation where the market wants more. The market wants rate hikes here. They want a monetary decision not a financial policy stability decision.
That's what this is. This is a holding action. This is nothing more than a holding action. Rates are going to have to go higher. That is the message loud and clear from this market. The Bank of England is still on the hook
for that. When that comes remains to be seen. Can they wait for November. Guy is an open question. What was the reaction among policymakers to the IMF statement yesterday. The UK has a mixed relationship with the IMF in terms of its forecasts and its statements. I think the we've obviously had bailouts in the long distant past. So so there is obviously that there was
there was a very long period where the IMF was issuing forecasts about the UK economy that were way off base. So the credibility went down a little bit. I think it was unwelcome. I think probably is the way that I would put it. We have we have a problem to resolve here. The IMF intervention the IMF making these kinds of these kinds of comments at such a such a difficult moment I think is probably unwelcome.
But but clearly the market message is the one that everybody is listening to here. The IMF is just duplicating the message that is coming through from the market. Something needs