Recession Forecasts | Bloomberg Surveillance 12/22/2022
We are not forecasting deep and very long recession, but let's not let's not be too optimistic. This year has been historically difficult to state the obvious. I think central banks really need to be careful here. There is room, I think, for the Fed to step down. You look what the bond market is telling you. It's telling you the Fed is going to win
the battle against inflation. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It's. Good morning, everyone. Jonathan Ferro, Lisa Abramowicz and Tom Keene, we welcome all of you on a Thursday claims at a 30, but far more that getting to the holiday season, the body of a weekend, Christmas Eve, Christmas Day. It's a different season. I mean, certainly with Hanukkah, Liza is just a whole different feeling across America.
It's supposed to be over the longest year in the history of the world is supposed to be over, a one that's been incredibly tumultuous. And yet we've gotten a number of really big announcements that haven't necessarily fazed markets as much as I would expect. And that to me is the year end mystery. Is this just that people are asleep and
away or is this something bigger? That means that perhaps the terrorists are changing. I'm a big believer in the year and left, and we certainly saw that yesterday. We're going to look at economics, finance, investment today. Some Bitcoin talk as well off of Mr. Brinkman freed coming back from Basel and of course, all that Emery Hardin witnessed yesterday in Washington. But it's tough to stay focused into me, not the guilt of it, not to sound like I am, but there's a part of America celebrating a buoyant economy, participating in the economy. And there's another part that's just not not in the script, that seemingly economic data. Yeah.
And cutting back, although the sentiment is you see the sentiment data yesterday that came out much better than expected, a huge upside surprise. How much is this being driven by the fact that gasoline prices are the lowest, the U.S. going back to July of last year? How much of this is actually true momentum? The bigger story to me and I'm going to kind of rip up the script, but to me, the biggest story of the moment really is China's massive U-turn that has gone on, discussed in terms of the ramifications, the fact that suddenly they are open full force despite all the hospitalizations. Now this morning to see the announcement, they're not going to have, well, forced foreigners to quarantine. And, you know, I read it with family in China. And what's so important here, folks, and this is Bloomberg reporting this morning and Bloomberg reports that there's quarantine adjustments in China we think are Pacific Rim team for that.
To me, it's a little bit of gobbledygook. It's like eight days down to Q plus three and all that. I don't pretend to be expert on it, but this is a daily unfold, as you say, as we stagger to 2023 gobbledygook. Yes. In the sense that it's hard to understand exactly what's going on, except the economy is suddenly much more in the forefront and suddenly the Band-Aid is just been lifted off. I mean, it's been ripped off all of a sudden just out of the blue. There is no more Covid zero. It seems like the public testing, etc. The implications of that people had been
saying were vast and yet we're not necessarily seeing them in market act. We've got an important guest to start off with. We got really interesting, really quality guests for you today.
Through the 10:00 hour or less. We'll be in for John Nine farewell words Ferrell. I mean, we believe he's leaving on a jet plane, his elderly mother country. He's actually celebrating his Christmas tree because it is beautiful and while adorned and it has. And they could leave so they could leave it up while while he was gone across the Atlantic, because I don't think it needs to be watered. Oh, really? You're going to throw shade at his.
I'm through a massive Shery Ahn. Really? I think that there is something to be said for not having shedding pine. Actually, we should. I mean, we shoot Stephen the team out and they can film me watering the tree at 3:00 p.m. every day. I want that.
You want some comedy handful about this tree. Goodbye. The tree. The squirrel comes down and sits on my head.
Oh, water. Not really. A good day to check here before you get the yen's gnawed begin. Lisa, help me out here. I'm going to look at the one single statistic I care about. And this is also the one that Chairman Paul cares about. And that is any form of financial
conditions index we use. The Bloomberg Financial Conditions Index is a stunning negative point for for for that index in its summation, including a buoyant stock market, Liza moves in an accommodative way. And it has been pretty steadily with this lift that we've seen heading into year end. What I find most interesting is the status that we're seeing in the dollar yen cross this question of what are the ramifications. Yes. Of the Bank of Japan's move. We saw a little bit of a rebound yesterday after the biggest decline in the dollar versus the and going back to 1998. We're just kind of hanging in there
waiting for the next shoe to drop. I want to just give you a sense there isn't that much going on. But 830 AM, we do have initial jobless claims. And the third reading of the third quarter GDP read in the United States at 11:00 a.m., we get Kansas City Fed's manufacturing index for December. How much does that slowdown?
This follows on what we heard from Micron yesterday in terms of demand not picking back up in order for them to become profitable. And I do have to say, you know, we're on weather watch and that's what I'm watching is the. Yeah. The bomb cyclone that people are looking at and all of that. Well, it's actually a technical term. I did a lot of research in bomb cyclones, partly because I'm going to be among those trying to travel and I expect to be delayed and marooned in airports and possibly isn't a bomb cyclone called February in Detroit. I mean, I.
I asked what is a bomb cyclone? It's when the weather changes very quickly and very intensely and that's what people are talking about. And basically you're talking about sudden shifts in temperature. That's 50 or 60 degrees in terms of a delta. You're talking about snow and winds that rival Category 1 hurricane. We sit on the lawn in August at Jackson Hole.
It's really beautiful and it's usually very cold, like 45 degrees and it's not funny. This morning on that lawn, it is minus 26. See, it is minus 26 in Wyoming at some point this morning. Be careful out there.
And I know in New York City's very cold come Saturday as well. Yes, Norvig won't be stilled from the cold. He's lived it in Denmark. And Mr.
Nord, Vic joins us some exciting data with wonderful knowledge, particularly of the trans-Atlantic dynamic. Well, this is a question, John fair to ask. And what is the European U.K. U.S. dynamic next year? How will that play out in the litmus paper of the foreign exchange system? Also, we've had a situation where we had an energy crisis in Europe. The euro was under very significant pressure. People doubted that the ECB was going to really lift interest rates almost at all. Right now we have a see a situation
where there's an energy crisis is still there, but that the tail risk is being removed. Prices are coming down. And the ECB is actually sending more hawkish signals than the Fed like ECB is saying. We're going to go 50 basis points for a longer time into 2023, whereas the Fed has kind of signaled that they may want to slow down. Right. So things have changed very dramatically.
All right. Well, let's go to your book, The Fall of the Euro, which changed the dialogue 10 years ago. I'm going to say yens and I don't need to know the gloom of the fall of the euro. I'll leave that to Lisa. But what I do want to know is, does Christine Legarde have a nominal GDP spirit like Chairman Powell has in the U.S.? I don't observe it. So.
I think that Christine Lagarde problem is that she is trying to convey a governing council opinion that is actually split, right. So when she stands up and delivers her remarks, she has to find a balance. And in one press conference, this sort of tilts a little bit to the dogs and other pros, cons and sells clearly to the to the hawks. So that becomes a bit confusing for the general public to understand.
The bottom line is that when inflation this high in Europe, the ECB doesn't really have much of a choice. And the ECB is operating like a Bundesbank type bank and focus entirely on inflation. And that's what we're gonna continue to see in the next six months, most likely. How much does the China reopening story really accelerate the need for the ECB to remain really tight, really hawkish with respect to their policy? Yes. I'm glad you bring that up. I think I can see you are tweeting about
China and I think it is. There is not sufficient focus on how quick the reopening in China is. Everybody was forecasting during some kind of period in 2023, there was going to be some gradual reopening. Right. And what we're actually seeing is that we have pretty much full reopening within a couple of weeks. Like the timetable is massively accelerated and that means we're going to get probably peak and Covid cases imminently.
Right. It's cold is actually pretty easy to forecast. If there is no government eventually runs a certain cycle and then we're going to have ability, behavior on the ground, change again within the next one, two months.
So China is going to have a pretty big bounce in consumption activity over the next few months. And that's going to be a big impact on commodity markets. It's going to be a big impact on certainly growth in the region. And that has implications for everything. Most important driver, global markets has always been a growth rate. Now we have competition from inflation, but growth certainly matters and China is super important in that regard still.
Aside from possibly giving a big pop to oil prices, what other implications are there for global markets? There are underpriced right now. Yes, so so. So I think it certainly makes the challenge for central banks harder, right? All the central banks that are looking for some kind of peak in inflation, some kind of anchoring of the turmoil, right? Right. If they have another inflation fall, an impulse that is coming from higher demand out of China, that has been incredibly depressed. And that's going to make it much harder for them to call when we actually have a turning point inflation. So it makes these central banks that want to get more stable on rates. They are facing a much bigger challenge
because of this news. Ends are John. E-mails in John. Thanks, John, for watching today. He's in a bus terminal at Heathrow trying to get to Cornwall. And, you know, I look into John's known as he needs to make some money fast. What is the opportunistic pair to speculate in out the next 90 days? Also, so think like when you have stimulus dynamics in China and the Corvette reopening this kind of working like a similar dynamic.
Crude oil is something that has consistently racked it over the last couple of decades. When that happens and in the currency market, right, you have you have certain currencies in Asia that really benefit from strong growth in China. That would be the Korean won the Australian dollar. And then at a place that really benefit from tourism would be Thai baht. So those be free.
I've mentioned that directly relate to what's going on in rail in China. Yes. Thank you so much for helping us this year. We'll look forward to the next visit. Hans Norvig with Santi day to today. You know what John's going through. I don't think it speaks for so many people on radio, on television this morning, east, west, north, south. I mean, everybody sort of making it up as we go. Gibbons strikes, given weather, given
capacity, given just a seat sold him. I'm sorry to be leaving here and dare to. I'm not going anywhere. Well, yeah, they're changing their plans. They're not necessarily going. How many people have I talked to who are supposed to go away or who would normally go away? Who don't want to this year? Yeara are driving and not flying simply because it is incredibly expensive and it is incredibly volatile considering the fact that a thousand flights, more than a thousand flights were cancelled because of this this cyclone as bomb cyclone.
And John told me, you know, he's gone out to Cornwall, which is tippy, tippy like palm trees or something. Hang Seng feeling, man. And you know, he goes from Heathrow through Exeter. And I have no idea. It's six hours to Cornwall on a bus. I have no idea. It's not that far.
I currently don't know. He told me he said he can't get a cart, the trains on strike. So he's taking a bus to Cornwall, which I think is, you know, it's a new TV. It's six hours, 57 minutes. It's extraordinary. John, safe travels. Futures negative six. Dow futures negative 66. We've got all sorts of great costs for you with your worries of the stock market. Jonathan Golub joins us that it's 7 a.m.
must watch, must listen. Good morning. Keeping you up today with news from around the world with the first word. I'm Lisa Mateo, UK. Household income fell for a fourth straight quarter, leaving Britain's on course for the worst period for living standards in memory. Adjusted for inflation, disposable
income per person declined half a percent in the third quarter, according to the Office of National Statistics. GROSS domestic product also fell. Economists say the cost of living squeeze has likely already pushed the UK into a lengthy, lengthy recession that may last until the end of next year. A new analysis shows China is likely experiencing one million Covid infections and 5000 virus deaths every day.
That's according to Air Finnerty, a London based research firm that focuses on predictive health analytics. Now, meanwhile, Bloomberg has learned China plans to cut quarantine requirements for overseas travelers in January. Under the new rules, the requirement to spend time in a quarantine hotel or isolation facility would be scrapped and arrivals into the country would instead be subject to three days of monitoring. Overseas arrivals currently isolate for as many as eight days.
Tesla is offering a seventy five hundred dollar credit and ten thousand miles of free super charging to U.S. customers who order a new Model Three or Model Y by December 30 first. That's according to its website. A carmaker was previously offering a three thousand seven hundred fifty dollar credit with certain Tesla's were expected to be eligible for as part of changes to the federal tax credits for electric vehicles under the Inflation Reduction Act. 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.
This struggle will define in what world our children and grandchildren will live. And then the our children and grandchildren will define whether it will be a democracy of Ukrainians and for Americans for all. This battle cannot be frozen or postpone. Very interesting day yesterday, Annmarie Horden way out front on this story saying it was a stunning Washington to learn that Mr. Zelinsky of Ukraine would visit Lisa, what I noted here. And it was so important to allude to
Churchill, Roosevelt, August of 1941, floating off Newfoundland or the United States, had to simply say to Britain, will be there. Something like that happened yesterday. There was a pledge to help Ukraine and to continue helping Ukraine no matter why. As a result, not only do I help in the war against Russia, but for some of the the issues that he put out there for democracy.
Question is, the bill was actually delayed last night. The 45 billion dollars, the aid as part of this entire package that's getting caught up in Washington, D.C., end of the year drama. So we shall see how things unfold. Part of the drama and the leadership is Tony Apart shows our expert on weapons for Bloomberg and also alluded to in The Washington Post this morning is Who Wants What? Annmarie Horden briefed us on the path forward from Mr. Selenski. And for that matter, the president, the
United States is well, they're not going to get M1 Abrams tanks. They're too fancy, they're too complex. And Murray. But what are they going to get into? Does Europe have Mr. Biden's back? I think it's pretty clear Europe does have Mr. Biden's back.
The president's back, but this president is the one that is really at the center of keeping this alliance strong and steadfast. It's the reason why President Zelinsky was in Washington, D.C. yesterday. He was not in Berlin. He was not in Paris. He's not in London. He was not in Brussels. He was in Washington because Washington
is the only place that can really make sure that Ukraine is going to continue to get everything it needs. And what the right thing. Obviously, and the takeaway from yesterday is that Patriot missile system and obviously there was some tension in that press conference. You looking at the pictures there because he says, what do you ask for next? And Zelinsky joke.
Well, another Patriot missile. I mean, the biggest takeaway from Zelinsky, whether or not it was the press conference or his speech at the joint session of Congress is the fact that it was. Thank you so much. We are very gracious.
But we need more. I spoke to General Kimmitt yesterday of tangible military experience in Anne-Marie. He was he did don't prosecute a winter war with this success. Does Mr. Zelinsky want the weapons, including Patriot missiles, now to attack or defend in January and February? Or can he wait for the advise spring offensive? Zelinsky wants whatever he can get his hands on immediately.
And that was pretty obvious yesterday. I'm unclear on the timeline that that Patriot missile battery is going to be able to get into Ukraine and be operational. Remember, Ukrainians need to be trained on this, but it is that type of weapon he wants.
And the president said yesterday. This is a defensive weapon. And the president alluded to the fact that what Putin is doing and the president's words were a weaponization of the winter. They want to be able to shoot down these missiles and drones that are attacking their civilian infrastructure. And that is going to get worse in the winter because it's the wintertime when you're really desperate and need electricity and heat and clean water. Worry at the same time, even after the
warm welcome by Washington, D.C. of Vladimir Valle Zelinsky, they did not pass the one point seventy seven trillion dollar omnibus bill that included the forty five billion dollars of aid for Ukraine. What's the holdup? They didn't pass it yet. Let's see what happens today. But they were supposed to vote
yesterday. And what you have is Senator Mike Lee putting forward an amendment. This would be about Title 42. This. They want what they want is for Title 42 to continue. This was the pandemic error provision and restriction that if you were an asylum seeker crossing into the southern border, you can be expelled immediately to Mexico.
Republicans want this to come to a vote. The issue that Democrats have is even if some Democrats in the Senate could sign up for this or allow this amendment to come in, this would be, as one aide put it, toxic in the House and will not pass with the progressives. They need to get onboard to pass this bill. Because remember, House Republicans are lining up against this bill. So this is a big hurdle right now for this bill. But potentially we will see they have
been negotiating and I believe Senator Schumer, who's that they are getting closer at around 2:00 a.m., but this could potentially extend into next week. And then that would mean more likely you would get a stopgap funding measure. But they are going to be working on it today. There's a broader issue here at Murray, which is the question around immigration and whether it ought to open up immigration much more, especially in light of the labor market shortages that we've been talking about nonstop this year that have fueled some of the wage gains. Some people are concerned could become a wage spiral.
Is there bipartisan agreement on opening up how many people are allowed in? Well, Kirsten, Cinema is trying to work on this, along alongside Senator Thune to try to get a bipartisan immigration reform. Listen. It doesn't matter. Republicans, Democrats, many have spoken about the need for immigration reform, but it comes down to the details. This is something that has been very tricky and difficult for a bipartisan way to get passed forward. But, Lisa, you bring up a point, which is that we are very we are facing a very tight labor market and many have been calling for at least a readjustment in the great immigration system because the United States needs workers at this time. How does immigration policy change? January 50s. Well, I think it does become much more
difficult if the Democrats had were able to get an immigration policy through that needed some Republican support, because come January, this is now a divided Congress. You have a Democratically held, controlled Senate and a Republican House. What also changes is that we at this moment, Title 42 is about to be lapse and that's the Republicans are trying to change. Emery, thank you so much. Annmarie Horden.
We'll continue this discussion, particularly on history made in Washington. Yesterday. We'll do that in the next hour as well. Lisa, look at the 10 year yields suddenly three point six, four percent. And, you know, I don't know. Are we sleepwalking into next year where we're going to revisit that tension above 4 percent? Remember, we're even modeling out 5 percent. No one's looking for that, especially the oddity here. And I feel like a broken record.
Just a month ago, there was analyst after analyst saying that the one bear case for bonds was if Japan abandoned their yield curve control and if China reopened, both things appear to be more likely than ever. And yet we have not seen a material move up in yields. It is a question that I think is the question heading into the first month of next year. You were quite taken by the pageantry
yesterday in Washington. Well, this idea this is his first visit outside of Ukraine since the war started. This is his plea for more aid, for more focus on trying to end the now as they head into a difficult winter. And it is notable to be the pageantry coming at a time of war for the rest of his people. I was thunderstruck yesterday. Maybe I missed this, folks.
I did not see a lot of the evening news work, but to me, it harkens back to Southeast Asia, an action by democracies over a domino effect. And this time, the domino effect, it's a little different, but it migrates from the south and on the Black Sea up to Estonia and maybe even across to Finland. I'm not going to go there, but from Kiev to Tallinn. And that's why we're doing this. And I just don't think that was discussed yesterday, the idea of the West and of President Biden. We got to get out front on this now for short money to protect that line going north to the trade lines. The question about the alliance lines, the strategic lines. This is all sides.
Well said. You know, what we're seeing is not only are some of the alliance lines shifting, but the trade lines. There was a story about how there's a new route being created between Iran and Russia through the mainland in order to avoid some of the sanctions the world has chief take. And that, I think was highlighted by some of the discussion yesterday. Right. This is going to be an ongoing conflict. I'm going to throw there's different roads on that to let you know. And our first announcement, our annual
visit with Ian Bremmer. Look for that. We'll do that early in January with his Eurasia Group. And I'm sure Dr. Bremmer will talk about the many roads out there and how they change. We will change by telling you that the
data today, red and green on the screen, futures negative 9, the VIX or the 19 point earlier. Stay with us. Good morning. Good morning, everyone, Lisa Abramowicz and Tom Keene John Farrell on assignment. We welcome all of you here sliding into the holiday season. But with that, some serious information for Bloomberg News reporting this morning the quarantine eases up in China. We'll have details on that through the
morning as well on the data front. I'm going to call it a turn in the market, but clearly an accommodative Bloomberg Financial Conditions Index, something Chairman Powell does not want to see. Dollar churning here as well. The yen, as Lisa mentioned, off that
history move of the few days before 132 13. Maybe it's status in a Brando kind of way. This is a joy. We welcome Peter Hooper. He is vice chair of research at Deutsche Bank. But far more than that, team leader for the greatest economic call of the year. Rarely do you put together a directional call with a timeline under Dr.
Hooper's guidance. Deutsche Bank made a mistake and did both. Nine months ago, an absolutely nailed that the recession would happen later than sooner. Peter Cooper, congratulations to you and Matt Rossetti on that call, which appears to be still in place. Review why the recession is delayed.
Time and the recession is delayed primarily because of the lags and the effects of monetary tightening on the economy. We've known for quite some time that monetary tightening operates with long and variable lags shortened a bit by forward looking financial markets. Accept the financial markets are not playing the role that you would normally expect here. Their financial conditions have
tightened some, but not enough are we? We still think we still see quite a bit of momentum in consumer sector and certainly in the labor market. Are we beyond pandemic shock? Are we beyond various and sundry supply shocks while we're still where we're living with the aftermath here and certainly seeing seeing a shift, a recovery in services spending that was depressed for substantially by and by the pandemic that's still coming back and that's still supporting consumer spending significantly. So the recovery is a factor that's working against the Fed right now, trying to deal with inflation. Servicing the supply side of the economy has improved enough that to to reduce inflation pressures on the goods sector. In fact, we're seeing goods prices declining now. It's the services side that the catch up
there that's really driving this momentum, that's keeping the expansion going quite a bit longer than than perhaps the Fed would like to see. Deutsche Bank predicts that U.S. equities could drop 25 percent from current levels in the next downturn, particularly in the first half of next year. Is this going to be entirely induced by Fed policy as people realize just how committed they are? Yes, I. Lisa, I think that's that is the primary factor underlying that that call, certainly as we go into recession multiples get down around 15. That that would imply an S&P 500 getting down to around 3000, that at the low. But we also expect the recession to be
relatively short, maybe several quarters, and you'll see a recovery before before you get out of the recession as the stock market should be back by the end of the year, close to current levels. If things work out, as is our call anticipates here. How do you push back, Peter, against people who say that we're already seeing a deceleration activity where RTS already seeing a deceleration in consumer appetite to spend four hours already seeing a disinflationary impulse that will give the fed breathing room that has created a shift in tone from Fed chair Jay Powell. How do you push back and say, no, that is not what you're going to be focusing on come next year? Well, I mean, I think that view is driven in part by this recession we're already seeing in the good sector good spending way above normal. That's come off now. But it is the recovery of services,
which is more than two thirds of the economy. Now that is going to end is going to keep things going. You push back because the labor market is still very, very tight. As Chair Paul keeps saying, we have a long ways to go to get bring pressure, get pressure out of the labor market. The Fed has been saying now that it thinks that the NAIRU, the natural rate of unemployment as has been moving up.
We've been saying for some time, we think it's in the five and a half percent range. So we're going to have to get at least of that level to begin to relieve the pressure in the labor market to bring wage inflation down from levels that is supporting inflation, at least double the Fed's target at this point. So that's a that's that's a struggle. I mean, the pushback is not too difficult when you look at the labor market and you look at consumer spending on services. At this point, I feel like this has been a story for a couple of months now. And I'm really struck by the lack of attention given to the fact that there has been two big sea changes that people were looking at as potential terrorists for next year, the potential abandonment of yield curve control by the Bank of Japan, which hasn't happened yet. But there has been signs that perhaps that could happen and a reopening of China, which seems have already been done in full force. How has that shifted your view,
considering that both of these things seem to be happening faster and more rapidly, more suddenly than people had expected? Well, it was really interesting to watch the back. Japan's move this week, that was a surprise, surprise that they would take a risk and breaking it down a bit at a time when the labor market in Japan is really very tight. We think and wage inflation there is going to be driving a price inflation perhaps above above levels in the lakes. Something very unusual for Japan at this point. But no question that is a factor. Down the road, we don't expect why S.C. to be abandoned until until the new new leadership comes in around April next year. The bank Japan
on the opening in China. Certainly that's going to that's going to be disruptive for a while. No question. The pandemic is going to it is going to be a factor that holds back activity for for the near term. We're expecting growth in China to remain relatively subdued well into the year ahead.
But then, as they say, hopefully get get improvements on the vaccination side, on vaccines things. I think we've been able to open up more more normally. Peter, I went back and actually looked and we spoke to David Focus Lando on March 2nd last year and the shock of the Putin invasion. And he was he did that down the road. There would be a great rebuild in the shock of fiscal stimulus. Now, obviously, it's not there right now.
Some would say there's even elements of austerity. But is the great unseen out there that can give us optimism is almost spending on a post-World War Two level? Well, when you when you're talking about packages of 40 billion and support for Ukraine, certainly from the Ukrainian standpoint, there is a major rebuild coming, although obviously we have some some. The end of this war is not in sight at this point and it's going to be destructive for some time to come.
I would say. But but looking beyond yes, from a Ukrainian standpoint, there is a major push coming down the road. You mentioned Japan earlier with Lisa and there's still the shock of the other three major central banks. What should we look for? Not so much. The next meeting in the parlor game that
you've forced Alizadeh to look at every day. But in a broader sense, what is the central bank's strategy to get to the summer or the autumn of next year? Well, I mean, I think both the Fed and the ECB are dealing with. They have some headwinds in dealing with the inflation problem. Headwinds, winds, financial conditions are not yet getting to the point that we're going to see the amount of slowdown, the amount of pressure coming off labor markets that needs to occur. Same same for the ECB. I think Christine Lagarde gave hints that the ECB could see another 2 to 3 50 basis point rate hikes, pushing, pushing the terminal rate in Europe above 3 percent potentially. Our call has been 3 percent, but we certainly see the risk to the upside there.
Likewise for the Fed. I mean, Max, call for some time has been 5.1 on turmoil for the Fed, but with with upside there. Certainly if financial conditions are not moving in the direction we need, need to see them moving. And if the labor market remains firm, the Fed could well be pushing into the five and a half percent plus range as we get into late spring summer. Dr.
Cooper, thank you for visiting today. Peter Hooper is vice chair research for Deutsche Bank as well, working with David Focus Lando on a world class team, I should point out. Lisa, let's drop on oil here right now. I think it's one of the biggest shocks of the year. I was trained never, ever forecast oil. It is the toughest thing to call on. And yet people have it. Deutsche Bank and other firms have the
legendary items Minsky decades ago, but others Paul Sweeney he was there and carry, you know, you know the names and victims. What a stunning year for oil. 120, 130. Whoops, down to eight. I know it's a sort of shocking, especially considering that people were talking about hundred and twenty two hundred twenty five dollars a barrel oil by the end of this year.
Also kind of piggybacking on that story, especially ahead of the travel weekend. Gasoline prices now three dollars and eleven cents on average around the United States, which means it is the lowest going back to the summer of last year. Just giving you a sense of the shift and the sort of unexpectedness of this and why the car rentals cost so much. Oh, that's a hard one. Yeah, to me. Supply and demand. They come in with a number and you're
like, well, that's OK. And then you give them back the key. So, yes, they really should have you under. But part of this is also just because they have the same shipments of cars during the pandemic when nobody was traveling anywhere there Alina. So we have a shortage of cars. Well, they stop buying as many. And the resale values of the cars that they did buy were very high.
So they continue to replenish their fleets. Now, there just are a certain number of cars and everybody wants to have experiences. If somebody asked me on the day to get rid of the Nash Rambler when used cars went up in the answers, they didn't. You know, it's still in the garage. It's got the chains on and I'm ready for
the snow. OK, good. But you know, you know, a used car. Weinberg, the great Carl Weinberg. I'll get the next shot and go up the Taconic there. And it's like, what was the last time that McCain's on your on your tires? Oh, it was you know, I probably folks, you really want to know we're going there right now. Yes, please.
In the parking lot of the wobbly barn. And yes, I was putting the chains on. I was a little wobbly as well. I have shock set. And that was the last time, I'm sure that there was I was.
The last time of the chain did the arrangement. You know, I think John Pugh said dirt was playing. I can't remember. Exactly. Yeah, well, you know, chains, I'm going to be probably using some of those this weekend. All right.
I'm in snow in stolen rebels, say. Oh, yes. Please, everybody be. So, all of you travel safe. I'm seeing some images out of Logan and others on Twitter. I guess it is a hectic airline season. We'll talk about that.
He thinks a linebacker for a briefing on airlines depressing Lincoln's time as well. Yes, it is going to get worse. It's going to be more expensive. It's a why even try? Why is this why is it like this is a good question. Negative. Dow futures are negative. Seventy nine. This is Bloomberg. Good morning. Keeping you up to date with news from
around the world with the first word. I'm Lisa Matteo. Hospitals in Shanghai are struggling to cope with a number of Covid patients, with many pharmacies turning away customers. Months after the city of 25 million endured a brutal lockdown to stop the virus from spreading. Covid is making its way virtually unchecked through its population. Most of Shanghai schools are now closed and public transport usage is plummeting.
BHP has made a binding offer to acquire Australian copper producer Oz Minerals for six point four billion US dollars. Now the deal is set to consolidate BHP ISE position as one of the world's largest producers of copper, a core metal in the clean energy transition. And BHP says the bid will now go to shareholders for approval by early April. In London, pubs and restaurants say last week's rail strikes cut their sales to almost half pre pandemic levels. Trade group UK Hospitality says revenue was down 46 percent compared to the same week in 2019.
Industrial action in sweeping the UK with walkouts by the workers and Royal Mail. Health sector airports and various parts of the civil service, as well as those by rail and bus staff. More transport disruption is expected over Christmas and into the new year.
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. No intention, no intention of stopping this cool war in the United States is committed to ensuring that the brave Ukrainian people can continue, continue to defend their country against Russian aggression.
As long as it takes the president of the United States, really history made yesterday. Thank you. Thank you, Annmarie Horden, for getting out front on that story yesterday morning. I think we did a great job, including General Kimmitt on short notice to give us perspective as well. Lisa Abramowicz and Tom Keene, John Farrell on sabbatical this morning. Well-deserved. I would say he's lost in an airport somewhere. You know, somebody said to me, they said
the hardest part about getting to Cornwall on bus is, is you get DAX and you think you're almost there. And it's just that far like it's almost to France, really, the way it goes down anyway. Merry Christmas. We wish them the best. We'll surveillance helicopters tied up. So he's on a bus to Cornwall. We'll see how that goes. The pride and heritage of Bloomberg
Surveillance is to find experts for you on issues at hand. Leona fixes one of those. A fellow at the Council on Foreign Relations barely describes her knowledge of the odd relationship of Germany with the rest of Europe. That's an important brief right now, particularly after hearing from Mr Zelinsky on Capitol Hill yesterday. This year for you in international relations wasn't in the textbooks at the London School of Economics. There's no international theory that can
explain this. What will be the new theory for the German people after 2022? That's a very good question, and I think, first of all, Germans have to say goodbye to an old theory, because this old theory that dominated German politics throughout the end of the Cold War and after the end of the Cold War was changed through a tweet that it is possible to change Russia and also to change China by forging closer economic and trade ties. And for the United States, for example, the lesson from the end of the Cold War was peace through strength. And the formula, that was one that Reagan used.
So I think for Germans in 2023, perhaps they should look more towards one of the wagons and towards peace through strength rather than change changed or tweaked the moment. Yesterday in Washington, almost like Churchill, Roosevelt floating on a boat in Newfoundland in 1941. I don't want to make an equivalent, but it's there. What is the equivalent visit that we're going to see of Germany and France? How do the two of them stagger forward in year two of this war? Germany and funds, they do have to catch up. It's not without reason. That's the lens.
You went to the United States first because the United States is just the indispensable nation in this war. And this visit has demonstrated that the United States is back as leader of the free world. But this means also that other European countries like Germany and France have not been able to step up to the historic occasion of a war in Europe.
At the moment, Europe is very much leaderless. Europe is leaning in to U.S. leadership. And, of course, President Biden is playing a big role. But it would be it would be good for Europe and also good for Ukraine if both France, Germany, but also was there, would play a prominent role as a team as united to Europe in helping Ukraine. Yesterday, Ukrainian journalist asked
President Biden, why aren't you providing more? Why haven't you basically thrown as much as you can at this effort to help Ukraine? And President Biden said because he didn't want to anger or create visions with some of the allies, with NATO in particular, and put NATO in a difficult spot. Does that ring true with you? It drinks, too, but I think it's only one reason because the escalation concerns in Washington when it comes to relations with Russia, too. So it's not only leaders in Europe that are concerned that, for instance, wide range are too we might to Russian territory and that other weapons might lead Russia to escalate further in this war. This is a serious concern in Washington, too, as is the concern about nuclear escalation, which becomes particularly relevant when it comes to the question how much of its territory should Ukraine we take? So I would say it is an odd topic for the alliance, but it's also a concern that is heard in Washington. And the nuclear escalation is also a concern of President Biden, who certainly doesn't want to see a nuclear escalation on his watch.
In the meantime, we are hearing about a mass migration out of Ukraine. We're hearing about power outages, a very difficult winter ahead. How much has the population shrunk? How much are we looking at? A very different Ukraine coming out of this thing coming in. So we had Europe, we had four point seven million registered refugees from Ukraine, but many of those have returned to Ukraine over the summer, which has will leave the burden for Europeans. Now, when we're looking towards this winter, it's exactly the strategy that Moscow that Moscow pursues to put Europe under pressure by making Ukraine very much uninhabitable and by forcing Ukrainians to seek refuge once again in Europe. And that's a strategy that Europeans tried to counter by air defense, which is important. But at the same time, Ukraine needs
offensive capabilities to continue current events to fix. One more question on Germany. Is there a new Angela Merkel out there? Is there someone within domestic German pop politics that can, can, can fill the shoes, the emotion of the heritage of Angela Merkel? Well, actually shows the chancellor now in Germany was compared to Ireland back at the beginning of his term. But let me remind us that Angela Merkel also got this very special appeal, this admiration from the outside world only towards the end of her chancellorship. That was not the case at the beginning. So elections looming, 16 years perhaps to get to this island.
Dr. Fix, thank you so much. Greatly, greatly appreciate it. Right now, we're going to digress here, folks, with the Council on Foreign Relations. And they're particularly in Germany. We're gonna look at the data here.
There's lots to talk about as well, the accommodative tone of the Bloomberg Financial Conditions Index. John Gallup will be with us here on the equity markets. But Lisa, I have to stop and I'm going to go back to my yurt, where long ago someone very young without a bow tie on had to deal with Sudden Infant Death Syndrome.
And it was done out of the best university for this in America, which was the University of Washington in Seattle. They've gone on from 50 years from their ownership of the immunology, the virology, the microbiology of that era to owning Covid data, the work there of the AMH E in the last two days. And this is a lot of this is funded by Bill and Melinda Gates and all that. You know, the the Washington state
funding their numbers on China are just so Joel Weber. There's folks there's no measurement. There's nothing we can grasp here. All of us watching in the western world of what's to come in China, basically based on the smartest people on the block. The people at the University of Washington. So there are a number of estimates that people are trying to put out there because they're real data that they sort of state back to data.
I'm not going to call it real. He's been basically rejected based on empirical data. I'm with hospitals full and with some of the crematoria in full operation. China is likely experiencing a million Covid infections and 5000 virus deaths every day.
This according to Air Affinity, which is a London based research firm. The bigger question here is how long is it going to rip through a population, fill hospitals, lead to deaths, lead to pain, lead to the emotional turmoil that Raji Xi Jinping tries to offset with stimulus? This is sort of the push pull the right seeing right now that is completely changing the scenario in the dialogue for China and to put a compare and contrast on his folks as what we do. Ajami of Washington made headlines and got a lot of grief from the White House, I might point out, except suffered Dr.
Funky when they said 80 some thousand U.S. Covid deaths and 90 or 120 days back in 2020. So take a number like 80 or 100 thousand. And compared to the mathematics of a million infected and what their death sizes in China were, just literally folks into this holiday weekend beginning to gauge the scope and scale of what we see in China and the psychology of it. We've gone from lockdowns.
We've gone from state testing. We've gone from not being able to go into a public place without having some sort of official documents saying you've been cleared on a regular basis. We've gone from quarantining to nothing to not being able to get tests in stores to having to have state run well, manufacturing of Tylenol to combat the mass infection that's ripping through the population. How does that affect the psyche? Xi Jinping has been quiet. We have not heard from him. What is the response maybe on the slowness of the holiday season? May I state that the place that test me early and often through all of Covid in literally 12 months ago I think I had Covid is now a wedding dress or in Madison Avenue. That's over. Go ahead. Have you seen the new tests where you
have four quadrants where it's Covid RSV flu? No, but that's a serious issue. I know I would there is a heavy inflection of that in western Indiana right now, West Lafayette with a triple infection. This is terrible. It's probably a visit to Harris Chocolate Shop. We'll get it done. Futures in negative seven.
Stay with us. This is Bloomberg. We are not forecasting a deep and very long recession, but let's not let's not be too optimistic. This year has been historically difficult to state the obvious. I think central banks really need to be careful here. There is room, I think, for the Fed to
step down. You look with the bond markets are telling you, it's telling you the Fed is going to win the battle against inflation. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz.
Good morning, everyone. Jonathan Ferro, Lisa Abramowicz and Tom Keene, we welcome you on a Thursday claims you're coming up an hour and a half. We'll get to that here over the hour and into the next hour as well. John Farrell on assignment at Heathrow,
trying to get Southwest on assignment, on assignment to relax. Well, you can't relax if you're taking a bus to Cornwall there point. I mean, you know, the helicopter won't go in the London cold as well. We spent a real long hour in international relations.
We're gonna go stock market for a year. This is gonna be must watch, must listen. At least a part of this is the recovery in the markets. June up, down we go again, September up. Now we go. I'm sorry, I got to VIX nineteen print
twenty point one six. Things aren't all that bad out there. Here's the big debate heading. It's twenty twenty three, one of them there are many of them. But one big debate is will resilience in the economy be good for stock markets are bad for stock markets. Is that it. That's the line for your questions right now. You know, I really feel that hot, wet
weather. Basically, if you get a resilient economy, all of a sudden people are looking for an earnings downturn, say great, we buy stocks, but then others say, well, then the Fed has to jack up rates by a whole host of percentage points. So suddenly we're looking at a sudden halt to the economy. Which is it? The gospel of St. Martin Adams and Gina Martin Adams stating forcefully economic analysis linked to a stock market analysis fraught with risk.
They don't move together. They move different ways. And some would say the equity market is OUTFRONT on that as well. Well, I would suggest as profit is at hand and that's when you hear this word quality. And then people are looking mostly
there. Are they making money is just, you know, are they making money? It's the haves and the have nots. I mean, it's the having the have nots, not just with individual households, but also with companies. You have on one hand the companies that
are Canaanite. Kind of an ideal metaphor. Yes. And then Micron yesterday after the bell came out with disappointing earnings, thinking they were going to cut thousands of jobs and have to really retrench in Nazi profitability next year because of the glut of semiconductors. It is just a very bifurcated kind of world with wealth and stop start recoveries. Let's buy four key to this in the view that you have this morning here, because we're going to get John go in here. What are you sorry, eight thirty a.m. you mentioned this. We get the third reading of the U.S.,
third quarter GDP, plus initial jobless claims. That'll be interesting just to see whether we see another unexpected decline. Downside surprise in the number of people filing for unemployment benefits. Eleven am I get the Kansas City Fed's manufacturing index for December. Do we see the optimism we saw for consumer sentiment yesterday bleed into manufacturing activity? And I am looking at the weather today just because, first of all, the line by line, this is the first day. Yes. I mean, honestly, this is going to affect heating costs.
This is going to affect travel plans that more than 1000 flights have been canceled ahead of the holiday weekend. A bomb cyclone is coming. And I knew you were going to make fun of me for saying that. But I've got to be honest, it's a technical thing and it's a sudden shift to the Grand Funk Railroad like no one cyclone close yet.
So you let you get a Jonathan Ferro for sale on your hand and bombs would start in. So for all of you who have garage bands, Bomb Cyclone is a fantastic name, which apparently is available. I do think, though, this is relevant because it is going to affect people's view also in heating at a time when gas prices have gone down so much. But diesel still remains. We busted chops. John Farrell, who can't take the cold of America, but really this week, a 19 degrees in New York City. It is going to be bitter cold coming in
from Fargo in the way. OK, look, Fargo weather, let me just tell you, it is a whole other degree of quality. Now, you can't breathe. Your car dies. You can't use PEDs because the ink freezes. You can't be outside with exposure Shery Ahn because you get frostbitten.
It's a different reality. But if the witness, the player, OK, what's important here is just you mentioned bomb cyclone and what they did with Grand Funk Hero. That takes us back to 74, 75 in the equity gloom back then, someone who's studied that, he's way too young to remember a. Jonathan Gallop joins us. Chief, U.S. Equity optimistic Credit Suisse.
We're thrilled you could join swanning. I'm going to get your revisions, your markdown and earnings in that. But the answers after 74, I believe it was, we went up 38 percent the next year and critically then a year after that, we went up another 18 percent. Is that the great surprise out there is an equity lift off out there somewhere? Well, I think it gets to something that that Lisa was saying is what's good news. I mean, right now, the backdoor. Is just becoming much more positive with
respect to this idea that there is no recession coming in the next two or three quarters and the market getting their head around that, which is why the VIX has fallen and why stocks are racing ahead. Now, the problem is eventually this does bite us in terms of two things. First of all, companies are as inflation is falling. Companies are losing pricing power. And that's not good for margins. So a resilient consumer is actually a little bit of a headwind for profit margins, which is strange. And ultimately disinflation doesn't magically go away, which is also a problem.
You marked down earnings. You doing tweaks here in the outlook. You got a 50 per page outlook. I didn't read it all. I read part of it. Do you know that, you know, the
watermark that they have for us so that we don't steal their risk? Do you know what this watermark said? If this research gets out, we take away my eggnog. I couldn't believe credits. We stood. The compliance department of Credit Suisse did that. I want to know if profits a place to hide. You were way out front in the bull call of selecting certain sectors, certain stocks. Does profits save me if I have to own stocks? I don't think this way should be looking at an end.
You're talking about, you know, Gina's comment that what happens in the economy doesn't necessarily happen in the stock market. What happened last year? Corporate profits. The outlook improved throughout the year. And the stock market had a terrible year because interest rates rose and other factors like that. I think this year is going to be a little bit different. I think you actually have margins. I'm sorry. Margins are going to get squeezed and I
think it's tougher on profits. But I think the stock market is going to be a little bit better on it. How much better? Double digit or weak? I know I did a slow. I need to make some news. Let's go. No. I think it's going to be a more modest returning year, because I think that you're looking at something like down 4 or 5 percent profit growth. Even if you don't have a recession
because of a margin squeeze, it's coming. Have the companies that have already done the layoffs and I'm thinking of tech, I'm thinking of certain industries, even the banking industry, starting to do some bigger rounds of layoffs and of course, the semiconductor industry. Are they going to be in a better position or are they just a tea leaf for what's to come first? When you look at a lot of guys on Wall Street talk about all these layoffs because they're looking at tech and financial financials.
But in reality, the job market is just swimming in unfilled jobs and demand is incredibly high. But what the story is, is on tech in particular is that, you know, Thomas, talk about profits. It's not one profit picture. The tech universe, if you include the Amazons, the Googles and the Facebook and the like, it's been a horrific environment. They've substantially lagged the market there. Their estimates are being revised lower and lower and they're missing the lowered estimates.
As a group and their outlook for growth, you know, it was weak. This is since the iPhone came out in 2008. This is the worst year for tech related companies that we've seen.
The expectation is that next year we're going to get this big bounce in tech earnings as we get for, you know, we had this big pull forward. We're all staying at home. We're buying into stuff that a lull afterwards is going to last longer than we thought. Are you telling me to so Apple. I mean, I don't only I'm in the triple
oversaw cash flow and we know that. But are you telling people to sell Apple along with all the other challenges? Kathy, what is what I'm saying is I think that this problem that we've had in tech is not a sentiment problem. It's an earnings problem. And it doesn't last for three or four quarters. It lasts for six or eight quarters.
And a lot of these big tech companies that two or three years ago we said they have moats, they're impenetrable. And we talked in those terms. A lot of these companies are getting closer to total addressable market, whether that's in handsets or advertising or other things like that. So how do we get to 40, 50 by the end of next year? Given that you're expecting perhaps a bit more softness and tech not leading? Well, there's other areas. So I think that energy where there's this expectation that you're going to have a weakness in energy profits, I think is going to be totally wrong. I mean, we're seeing this right now that
in the last six months, the earnings estimates for the energy sector are keep getting revised higher and higher, even though oil prices are falling. So like, where's the magic there? And it's a lack of refining capacity. And if we do end up with oil prices rising a bit because economy is a little bit stronger and China reopens, then these companies source. I think that's an area of strength that's probably underestimated