Stocks Losing Streak | Bloomberg Surveillance Show 9/7/22
The simple thing that foreign exchange is signalling right now is that the U.S. economy is faring better than the rest of the world. Right now the U.S. is in somewhat better shape than Europe
is further away from Ukraine. It's less expensive. Inflation. The ECB obviously in the near term is going to tighten. But it's highly highly unlikely that the
eurozone can avoid a recession. Right now the dollar's strength is as much a good thing as it is a bad thing. I think the recession in Europe and the energy crisis that is brewing is something investors cannot ignore. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. T.K.
didn't turn up this morning. We sent out a search party line from New York City this morning. Good morning. Good morning front. Audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Lisa Abramowicz some Jonathan Ferro together with a brilliant Katie Lights. Equity futures are positive. Two tenths of 1 per cent on the S&P on
the NASDAQ lease are up a third of 1 per cent over the last seven days. What are we on on the Nasdaq composite. A seven day losing streak. Brutal Joel Weber. It's been brutal especially because of
the Y here and it is hawkish tell to the central bank discussions as well as a deteriorating macro backdrop. And one of the most interesting things that happened overnight was weaker than expected Chinese economic data really fuelling this feeling of deteriorating economic trajectory globally with the European energy crisis China and now potentially even in the US it takes us to the affects market dollar. China Lisa Abramowicz 699. This close to a seven handle. How important is that. Well I mean Leila Miller was saying it's not that important. It's a psychological level. But right now it doesn't seem like the Chinese authorities are pushing back that hard.
They're just trying to control how quickly they see the weakening in the Chinese yuan. It seems unavoidable. I mean honestly if you have a currency that reflects at all economic differentials and rate differentials how does this not make sense that the dollar should continue to strengthen versus the Chinese yuan NIKKEI. You've been covering it with a team all morning.
Dollar dominates the big story this morning in this market. Yeah. And it's against everything in Asia not just the Chinese yuan dollar. Yen is the one that catches my attention. Today we're at a 144 handle. That is not something we have seen going all the way back to August of 1998. A 24 year low on dollar yen. And yet the Bank of Japan overnight
instead boosted its bond buying program still dedicated to yield curve control trying to keep that 25 basis point cap on a 10 year GDP. As we talk about persistent dollar strength John at what point does the BMJ head are breaking. Right now it's not Lincoln. And that's the story isn't it. We've got rate hikes from the Federal Reserve delivering dollar dominance in the affects market. China lockdowns the second theme and then Brahma. We've got to talk about the response to the energy issues in Europe.
I'm still processing the potential of monster relief coming out of the UK and still asking the same question. We start the week with who's going to pay for it right. That's the question that a lot of people are wondering for Stephen Major coming out of HSBC and it's traditionally been a bond bull and he actually increased his forecast for the year and yields for the United Kingdom in particular because of this concern of the extraordinary fiscal support for energy prices and what that means for its deficit.
What that means for foreigners willingness to fund it. And that to me is really going to be one of the main breaking points not only for the United Kingdom but also to a lesser extent the entire European region transfer in massive respect to the self-regard role. Asking those questions Lisa. And the phrase I've heard repeatedly in the last 24 hours uncapped liability for the British government if they take this out and it's truly uncapped and is starting to express itself in some affects forecasts. Look at this one of six from Jordan
Rochester over Nomura a year and on Sterling Eurodollar at 90 cents a year rent on a euro. Are some major coal coming from some big shops. Jason Kelly. The amazing part about this is that he is so not alone. We have heard about possibly parody for the pound versus the dollar. That's sort of extraordinary to even think about. And then people are talking about 90 per day per dollar for the euro as a base case. I mean during this more and more of an
increasing number of cases from increasing number of sharp simply because of this incredible divergence and because of the deteriorating backdrop it just got to no t case line up for the new iPhone Tom Keene now. Is that true Cayley as he camping. Does he have a tan. How much more is this new iPhone going to cost him.
I've heard up to eleven hundred dollars. One hundred years is a question of when we're talking about inflation and an energy crisis and higher bills. Who is going to pay to upgrade their iPhone if there is is still working.
Does that mine mean my iPhone is going to magically stop working in the next couple of months. You know this works. Rameau the new one comes out and then all of a sudden it stops working. Don't go and get a new one. You're not suggesting anything nefarious is going on here. Not something magic happens with the iPhone around the time that the new thing comes out.
Is this a prediction. Are you basically saying that you want one or are you saying the link to Paris while ISE to this futures up a tenth of 1 per cent the S&P 500 and the NASDAQ 100 one sitting at home saying get it right. Happens to me too much to start on. The NASDAQ just magically slows down yields down by 4 basis points on a 10 year 330 73 and a 10 year Eurodollar unchanged just about hanging on to 99 on Eurodollar and crudely sir 87 29 up a half of 1 per Satya Nadella. Maybe it just feels slower simply because the others feel so fast when they come out of the sky throughout the morning or perhaps will save everybody.
And we weren't really interested to hear at the Bank of Canada has got to say they come out with a rate decision. The expectation is for a 53 75 basis point rate hike. The Bank of Canada has been out front. This is the fourth consecutive outsized rate hike at a time their. Two year yield is the highest going back to 2008 their policy is going to be the highest going back to 2008. How do they do with front loading policy. Because that has been very much a stated policy of theirs.
How do we know it's working and what does that mean for the rest of central banks around the world. We get so much Fed speak today. I mean for a second. For a minute we've got a little bit of a reprieve. And then all of a sudden here they all
line up. What are they going to tell us that we don't already know. Richard Fed President Tom Barkin out in the Financial Times overnight talking about how a 4 percent Fed funds rate actually seems plausible to him and that he could see holding it there for some time. We also hear 4 a.m. clever Fed President Lael Brainard around twelve thirty P erm she's the Federal Reserve vice chair and Michael Barr Federal Reserve vice chair for supervision. Also speaking around 2:00 p.m. At the same time that we get the Beige Book do we get any insight about some of the conflicting data that we're getting about whether we're slowing down or speeding up with consumer spending picking back up on the heels of lower gasoline prices. And today we do have a Barclay's chief
executive officer of energy conference in New York City or Alix Steel is there is going to be interviewing a number of executives including the executives of ConocoPhillips Chevron as well as Devon Energy. What do they say. And Don you talked about energy prices that gasoline prices have come down. Yes. But now we're seeing crude fall to some of its lowest levels in months. And this does not make sense if you look at some of the fundamental issues with respect to OPEC plus supply cut. This really speaks to the deteriorating
expectation for the global economy. Lisa thank you. Looking forward to the day ahead and looking forward to hearing what vice champ Brain is going to say as well on the economy specifically. I think it's the first time since Jackson Hole with that said he had to address some big things. So looking forward to that. Joining us now is Maggie Patel senior portfolio manager at Spring Global Investments Market. The Nasdaq composite is down almost 9 percent over the last seven days. The last seven trading days the S&P 500
over the same period is down about 7 percent. Are you ready to buy this equity market yet. Well no I think actually what we've had is about a reversal about 50 percent of the rise we've had in those indexes since their lows in June. But I think we're really in a trading range with a downward bias because of the backdrop. The Fed is very much committed to
raising rates globally. You can see economies all around the world are slowing down. And that's really not a market that says we're on the verge of a dynamic rebound in equities. So are you just moving more into cash. How do you manage in terms of some of this bearishness at a time when there still is uncertainty and still a potential investment case. I don't think cash is really all that attractive at this level because there is a chance the Fed might realize that they're being too aggressive in my opinion and that could change things.
So really we're just trying to find companies that are reasonably priced that have the possibility of continued earnings growth which I think would be pretty hard to find over the next year. We're thinking earnings are going to decelerate a lot. So P E are down. But with decelerating earnings that still says a lot of stocks could go down. So trying to to see where stocks still have a growth path and aren't too puffed up based on yester years idea of how fast the economy is going to grow. And how do you factor in the strength of the dollar into your thinking about these multinational companies.
You know I've never really found that a big help in making money in stocks because often the market will look through dollar strength. I think what it really tells you is it reflects the strength of the U.S. economy compared to Europe compared to emerging markets compared to China. So it says to me that we're still the best place to invest the dollars.
We're all a reflection of that. Even at our rates today we still see money coming in from foreigners because we're probably still the best economy in the world. By what does that become a headwind though market. And this is something people are
increasingly ask is that is they talk about coordinated intervention to some of the currency differentials. When does the dollar become a liability for U.S. companies that are trying to sell their goods overseas. I. Well I think that's really what you're seeing and a trend for slower growth and acknowledgements from any companies or where they saw rapid growth say in emerging market. They're now seeing that scaled back. So I think it's really part of the backdrop of earnings slowing down around the world growth slowing down around the world. So therefore it's going to be you won't have to be more choosy in finding companies that can get through a period of very low growth.
We haven't had that in quite a while. And here we have everything coming together and they're really all negative as far as future growth among the bulk of your portfolio is in equities. We used to talk to you almost exclusively about fixed income. I wanted to squeeze a little bit more in
on fixed income if we can. We're seeing signs that sovereigns in Europe are willing to take on uncapped liability and transfer massive risk away from the consumer to offset some of the pain spots by energy issues across the continent. What do you think the consequences of that are going to be. Well when you have that kind of massive
innovation the result is always the same which is those policies have a way of backfiring. For example I think in England they did have some price caps a few years ago under Theresa May. That hasn't worked out very well. So I think that it's really a negative for consumers and negative for those economies.
Again we are lucky enough that we don't have that here. Again coming back to the case our growth looks better than that and worldwide. Maggie but out of all spring global investments. Thank you. Lisa this is the issue I think for a lot of people. And when you look at things relative to
to Europe why we're going to hear more people at market town say that's why I like the United States relative to the mess taking place outside. Well the United Kingdom is in its own world of hurt. You know how we were talking about Goldman Sachs's call for 22 percent inflation in the United Kingdom. And what did we hear from some that this
was outrageous. This is a marketing. It was lady call was just some Southside marketing sell side. One guest Jihye Lee. Well Hugh Pil who is the chief economist of the Bank of England was testifying to parliament today.
And he says it's possible that 22 percent rate. There you go. Is he doing of South Side. He saying market share is silly. Exactly. Clearly someone just wrote in Detroit Tigers forever.
My iPhone already feels slower. Just listening to you talking about it. You see magic. Right. Now as soon as soon as it launches it's the day off. Just not slowing down. They just put a plug in there.
I'm not saying anyone did anything. Of course. Just say this is what every single time. And this is why this. All right. Up a tenth on the S&P.
From New York this is Bloomberg. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo. The Eurozone economy grew more than initially estimated in the second quarter. The revision revealed greater support from consumer and government spending. GDP rose eight tenths of 1 percent from the previous three months two tenths of a percentage point higher than the first report.
U.S. officials say that Russia wants to buy millions of rockets and artillery shells from North Korea. Now it's the latest sign that Moscow is being pressured by international sanctions. There is no indication that any weapons
sales have been completed. Last month the CIA said Russia had approached Iran to buy armed drones. There is a report that one of the documents seized at Donald Trump's Florida residents describes a foreign governments nuclear weapons capabilities. That's according to The Washington Post. The newspaper also says that some of the documents discussed closely guarded top secret U.S. operations in China. Export growth slowed more than expected
last month. Global demand weakened while Colbert lockdowns disrupted manufacturing production. Meanwhile imports barely grew as domestic demand continued to struggle. New research says that about half of U.S. workers could be described as quiet quitters. That is they fulfilled their job description but are psychologically detached from their work. The polling firm Gallup surveyed more
than 15000 workers. Gallup says most quiet quitters are looking for another job. 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 one hundred and twenty countries. I'm Lisa Matteo. This is Bloomberg.
Live from New York City this morning. Good morning equity futures question just a little bit higher up two tenths of 1 percent on the S&P on the NASDAQ 100 firmer by a third of 1 percent. The NASDAQ composite over the last seven days down every single day a negative close to 9 percent over that time period. Is it time to buy. Makes CAC of HSBC remains Max underway this equity market looking at the bond market with a two year head start to build out just a little bit more over the last couple of trading days. Right now it comes back down by three
basis points to 346 81 yesterday. A new closing high for the year at the front end of the curve on the long game. That's what surprise me over the last week or so. The 10 year back to 332 64 not a million miles away from a year high either. And bravo the keeping the likes of Steve Mater of HSBC traditional bond bull has to reassess a lot of people as to reassess what's going to happen this year. Yeah he got more hawkish upgrading his your own forecast for 10 year Treasury yields from two and a half to three percent because of some of the comments out of Jackson Hole. But a lot of the action over the past
couple of trading sessions has also become because of the volume of corporate debt sales as well. So there are some tactical things under the table here for the long end as well reassessing what's happening in the affects market too. Let's take a look at two currency pairs. The dollar index or start their strongest since June 2002 at the close yesterday. Then you look at this. So so close on dollar China to a seven handle and Katie lines. Dollar yen 144. I think you've got to go back to what is it August 1998 to see the Japanese yen this week just over 24 years.
It's been that long since we've seen the Japanese yen this week. What is the BFG do John. Nothing about it. They're just boosting their bond buying still sticking with the yield curve control being the ultra doves in a world in which everyone else seems to be hawkish. And I just wonder how long Kuroda and CO are going to be able to hold onto that and not blinking yet. Lisa 144 46 now sort of wells on this program yesterday. What did he say. 150.
Yeah. Next up 150. And a lot of people have said that the Bank of Japan is not going to blink until there is a little bit more dollar weakness right now. That doesn't seem to be that much yen weakness today.
Why. See before they blink. I mean it's ridiculous isn't it. Well just because of the inflation that they're importing and what this does to them so much of the inflation story has been oil and gas. And a lot of people have been calling
for oil prices to surge to new record highs earlier this year when person pushed against them. He said you guys are all wrong. You underestimate the power of a lack of demand as the global economy slows. That one person was at Morris Citigroup head of commodities research a further for the world. And he came out and said no prices are going down. Ed Morris you were correct. We have seen that and we have seen it steadily going even with a potential supply cut from OPEC plus. How closely is this particular energy story tied to the slowdown that we're seeing in China.
Well it's got a lot to do with it but a lot less to do with it than people really think because Chinese demand was really peaking and we didn't expect it to go anywhere this year we had a very low number of modest hundred thousand barrel a day increase in Chinese demand that they came back to where they hadn't been through the recovery. And there was no place further to go. They had already cut back on diesel demand and gasoline demand. That one bright spot was petrochemical feedstock. And as we know a lot of that comes from the natural gas liquids rule rather than from the oil pool or the refinery. China has however really influence the
market. They are so concerned with energy security that they basically stopped exports and that has had reverberations around the planet. The one thing that we missed and the world as a whole business was that when we had natural gas prices getting as high as they'd done on a content to be content basis prices for gas nat gas are higher than prices for diesel at a time when the world was moving closer to diesel. We had demand up about a million barrels a day as a result of that switch. China cut off their exports of about 700000 barrels a day of diesel. They did that last September.
They haven't lifted it at all. So we're having you know some of what's happening on the planet is really result in China. But I say it's more China policy than it is Chinese man. Edit The fact that you say that there's less to do with China than people think is a pretty dire statement with respect to economic activity in the United Kingdom in the European Union as well as the United States at a time when all regions are looking to support households as they continue to maintain their demand. So can you explain a little bit more why
demand is falling off so much more that people seem to think from the data at hand. So we have we have the best data in the world from the United States. People's socks started seeing we started seeing at the end of March beginning of April that U.S. demand really had come off and then come off as we got out of winter. And as we got into the driving season and week after week.
And even if you do it on a four week moving average basis from March to today U.S. demand has gotten lower and lower than it was a year ago. Total demand in the month of August was close to 2 million barrels a day lower than it was in August 20 21 of 1 million barrels a day. That was in the transport fuel business 300000 and diesel which reflects what's happening volumetric in the retail market. The rest the remaining 700000 a day was
in the gasoline market. And that's because people simply decided to drive less. We have survey data that prove that vehicle miles traveled have gone down. So you don't get high prices and people react to that by not buying as much. And that's that's kind of a lesson potentially for Europe. We've seen effectively conservation
working as a result of consumer response to high prices across across the United States without a recession other than the technical recession. But you know we're seeing growth in a labor market that's pretty formidable. And even so with more money in people's pockets people are driving less. That is a lesson. If you let the market work to some
degree people are going to conserve. So one of the big experiments that the world. Europe in particular is confronting is how much will people be allowed to conserve.
The other experiment is what's going to happen politically as people get more concerned about inflation than their pocketbook and jobs that they do about Russia and Ukraine. We have some elections coming up in a couple of weeks. We have an election in Italy and we'll see what the consumer rebellion might be against where these high consumer prices are. Just as you're speaking we're hearing from the EU Commission president Ursula von der Leyen talking about how the EU is going to propose a mandatory target for reducing peak electricity.
Clearly the worst kind of response from government you're alluding to here. Yet as Europe faces this winter there is a sense that this isn't just going to be a this winter problem. We could see years of restricted supply in Europe. So when you're trying to model out natural gas prices and what they could look like how persistently higher could they be. And is that something ultimately that the consumer is just going to have to tolerate. Yes. The question is not whether they're
going to stay. These prices will stay higher but how much higher will they stay. Europe is moving back to their of two fossil fuels both to natural gas and coal. They've had a double hit this summer because a lot of nuclear reactors particularly in France had to be shut because of a lack of water for cooling the nuclear plants. Those will almost certainly be coming back. But as we look at Europe's move back to
natural gas and the world's response it will be somewhere between 2025 and 2027 that we'll see the crisis in Europe coming back to where they were at the beginning of 2021. And one of the major difficulties that Europe is confronting is that it's not only seeing consumers hit in the pocketbook but it's seeing job losses in energy intensive business. And we're seeing those energy intensive industries migrating and where are they migrating to places in the world where energy costs are lower namely the United States. We've seen a migration of fertilizers into the U.S. from Europe.
And we're seeing other energy intensive industries like zinc in aluminum smelting slowing down and closing altogether. Well but to that point at about migrating to the United States what is the risk that these higher energy prices in Europe the crisis there is going to bleed through in a material way to prices here in the United States. Well the risk is that on the nat gas line directly it's actually through thermal coal. And what's happening thermal coal prices. When we got to nine dollar and closer to ten dollar natural gas prices again it wasn't because of our production.
It wasn't because of our imports from Canada. It was because the price of coal had shot up as Europe bought more coal as tradable more coal. And the nine dollar price of natural gas now eight dollars. But that was equivalent to where thermal
coal prices were. Now we're seeing thermal coal prices coming off again for a variety of reasons some with that U.S. nat gas. So U.S.
nat gas is going to be seeing a significant increase in supply. We're going to see some boost in our LNG exports. But those are CAC which you can only produce as much LNG as you have liquefaction capacity and it doesn't grow overnight. And that's the reason why Europe's going to have to wait till mid or later in the decade to get to the point where it will be enough nat gas particularly from the U.S. and Qatar.
That's going to be able to replace that Russian natural gas. We also have to remember that the Russian game plan is not completely over. It's but that second guess what Mr. Putin will do. He said specifically said what they're doing on oil and gas but particularly gas at the moment is a reflection of price caps being discussed. Russia's going to be running out of places to sell gas. Pretty soon European destination of gas
from Russia. Other than a bit of liquefied natural gas can't go anywhere else in the world. There's only a certain modest level of switching they can do to sell gas by pipeline to other countries. Those are mostly former Soviet Union countries and their their demand is limited. So the 30 PCM of of nat gas that Europe is being provided for by by Russia is not going to be replaced by another market. So at some point Russia might say hey we want to maximize the revenue we're getting from natural gas.
It would not be surprising if they turned back. The flows are natural gas as we got to the end of the injection season and Europe got to the point when Europe is going to be growing storage when prices will be high for the winter and Russia will make a lot of money on that. So that's one thing right. Just fascinating stuff. That is we'll try and work out whether we have to do this again next winter.
Ed Moss Citigroup at. Thank you sir as always. And just to recap those comments from the EU Commission President Ursula onto land. Speaking to reporters just moments ago Kailey Leinz propose a mandatory target for reducing peak electricity. What you make of that. They're trying to reduce demand. To your point earlier John about yes we can take all of this action on the supply side on trying to cap it. Does that just continue to feed into
people demanding electricity. How do you bring that down. The other interesting headline for me to use to facilitate liquidity support for energy companies. Does that just mean you know give them more money more money. Lisa it's all coming together very
slowly isn't it. It's coming together but it's an imperfect picture as Ed Morris was saying because it just feeds into even more demand. Talk about some of this with the man himself. Richard Haass president of the Council
on Foreign Relations on a difficult moment for foreign relations from New York. This is pulling back. Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. Vladimir Putin predicted Russia will emerge stronger from the invasion of Ukraine. He told a forum in blood his BOVESPA quote We've lost nothing and won't lose anything. Who also lashed out at what he called
U.S. and European sanctions fever and response to the war. Deutsche Bank CEO Christian Saving says that Germany is headed toward a recession. Saving told a conference in Frankfurt that energy prices will stay high for some time creating the threat to the economy. And the EU is trying to come up with ideas to keep the energy crisis from turning into an economic meltdown. California narrowly avoided blackouts for a second day in a row for several hours late Tuesday.
The state imposed its highest level of energy emergency. Consumers were urged to turn off their lights and curb air conditioners. Triple digit temperatures pushed demand for electricity to a record.
Authorities are preparing for more pressure on the power system today. The price of oil is now at the lowest level since January. Concern about global demand escalated. Plus the dollar surged to a record that makes oil more expensive outside the U.S.. West Texas Intermediate fell toward an eighty five dollars a barrel.
The Spanish oil and gas giant Repsol is making a dramatic shift away from fossil fuels. It's selling a quarter of its exploration and production division to U.S. private equity firm AIG Global Energy Partners. The price three point four billion dollars. Repsol is raising funds to help pay for low emission projects while reducing its cost of capital. 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 one hundred and twenty countries. I'm Lisa Mateo. This is Bloomberg. I won't feel hands on where the energy crisis caused by Putin's war. I will take action this week to deal with energy bills and to secure our future energy supply. Imagine what her inbox looks like on the
first day Bremmer welcomes her work. Welcome to the UK Prime Minister with a lot of work to do alongside caddy lines and Lisa Abramowicz some Jonathan Ferro futures firm about a tenth of 1 percent on the S&P on the Nasdaq up two tenths of 1 percent a year or two lower by a couple of basis points. Your tenure this morning 332 64. We get lucky this morning. Joining us now is Richard Haass the president of the Council on Foreign Relations and author of the book The Bill of Obligations coming out early next year. Richard always great to catch up with you sir. I've seen the latest article in Foreign
Affairs magazine the title The Dangerous Decade. I think we need to start there Richard. Why is this decade going to be so much more dangerous than what we saw in the previous decade.
It's fair question. The short answer is that it's an imperfect storm. You've got three things taking place simultaneously. One you've got the reemergence of large
scale storage scale geopolitical tensions between Europe and the United States on one hand then with Russia China also with Iran. Secondly you've got all sorts of global challenges such as climate change infectious disease where there's a large gap between the threat and the willingness of the world to come together. And then thirdly all of this is taking place against the backdrop of a United States that's divided distracted both figuratively and literally at war with itself. And there's a real question about whether the United States will be willing and able to play the significant role that it's played for the last three quarters of a century. She add those string three things up. And I would say anyone watching this
show has to assume that going forward there is going to be far more turbulence far more instability in the world than looking backwards from a business case. What does this mean in terms of doing business in China of the increasingly tight relationship between China and Russia. And what kind of international presence is to be expected given some of these backdrops. For Russia so long as Mr. Putin's in charge you've got to assume this draconian sanctions. I think with China you've got to assume at a minimum that this more restrictive sanctions and anything dealing with technology in either direction. Plus I also think there's going to be a major policy conversation in the West also not just in Europe but in places like Japan Taiwan South Korea the United States about whether it's wise to remain so dependent on the ability to export to China and import from China. You would have thought that one of the
lessons of the current conflict with Russia is that any form of economic dependence not just energy and energy dependence confers leverage on the other side. We're now providing China with enormous potential leverage. Should for example over the next three years there would be a conflict over Taiwan. So I think you've also got to expect the slightly more downsized overall economic relationship with China and the sort of thing you're seeing in the United States the chips that are bringing home certain types of productive activity I think is there is reaction both to the turbulence of supply chains plus again growing uncertainty about relations with countries like China. Is this a government option or is it something that each business has to decide for themselves. And I ask this because a lot of people have been surprised that there hasn't been more exodus from China from manufacturing there by U.S. businesses given some of the fragilities
exposed by the pandemic and by some of the increasing tensions. Could push. I think some businesses are living in la la land. They're essentially hoping against hope.
They don't face a much more disturbed environment politically with China that China doesn't face all sorts of internal issues. But I would think that any business now needs the right size which I'd downsize its relationship with China. It can't assume that there's going to be business as usual there. Again anyone in the technology space for sure. But even those beyond sensitive
technologies have to assume that if there's geopolitical friction with China. You'd have to bet there's a decent chance there will be sanctions will be introduced that will be broader than technology. So I think any business that doesn't have a Plan B and hasn't begun to move towards it.
FTSE China is putting itself into a position of distinct vulnerability. Obviously Richard and it's Caylee in New York from the perspective of the United States. They are looking outward at China and the geopolitical tensions that you are highlighting at the same time that there is some sense that there's a very real democratic crisis inward internally in the United States. And I'm just wondering if kind of threats to democracy domestically hamper the United States's ability to tackle those geopolitical challenges moving forward especially when midway through the decade you say is going to be so dangerous. We could have a new president inaugurated.
You're absolutely right Kelly. We're going to have a new president at some point. What we don't know any longer is what the president's going to do when it comes to the U.S. relationship with the world. I say that because in the old days no
matter who is elected president you had a pretty good sense of the parameters of what this individual do. That's not true anymore. We now have the potential to lurch dramatically. That means our allies are much more guarded about being so reliant or dependent on us. It means our foes may she may see
opportunities. What we did in Afghanistan I expect did influence Mr. Putin to do what he did in Ukraine. I think it could be harder to drum up resources for sustained American involvement in the world because so much of our attention is going to be turned inward. I expect in certain areas that partisanship will infect foreign policy as it has.
You're going to see for example a very rough debate over Iran potentially if the United States tries to re-enter the agreement with it. So going forward it's going to be harder to conduct a consistent foreign policy against this backdrop much less promote democracy in the world. How are we going to say be like us given what's happening with our politics given the fact that life expectancy is going down in the United States. We've had all the problems with lost academic time because of how we manage Covid. So the American model shall we say it's not quite the shining city on a hill that we would like it to be.
Richard just to finish something. What's the solution. Do you think we need new institutions to come to some kind of collective agreement in the West on how to deal with these issues. What is the solution. First thing that I never ever ever used
the word solution. These are not problems that are going to be solved or fixed. If we're lucky we'll be able to manage them more than unless. And yes to some extent the Miami new
solutions might mean different power under new institutions new policies new behaviors. But there's no solution. History doesn't doesn't work for those frequently. And we're not going to get solutions now. That's a worrying conclusion to this conversation Richard. But a bit of a reality check for everyone too.
Richard Haass thank you. And the Council on Foreign Relations. Lisa on the day that we're talking about Apple launching a new iPhone I don't think it's lost on anyone that they probably fit in quite neatly into the conversation we've just had. Joel Weber there is a Wall Street Journal article in the past couple of days talking about how Apple first tried to moves for the supply chain out of China and then realized how difficult it was to double down on increasing the presence in that nation. The nation has done a very good job of creating becoming the factory to the world and how companies really move away and whether they build they invest in the infrastructure. To do so has yet to be seen in any kind of real meaningful way at least according to a lot of people.
The warnings you hear from people like Richard Haass there on China make me think back to the warnings I used to hear about companies in Russia maybe 8 9 10 years ago. And you just wonder whether we end up in the same place. In Foreign Affairs magazine The Dangerous Decade the author Richard Haass. Take a look. Coming up Emily Roland CAC chief investment strategist at John Hancock Investment Management. With futures up a little more than a tenth of 1 percent on the S&P from New York City. This is Bloomberg.
The simple thing that foreign exchange is signalling right now is that the U.S. economy is faring better than the rest of the world. Right now the U.S. is in somewhat better shape than Europe is further away from Ukraine. It's less expensive. Inflation. The ECB obviously in the near term is
going to tighten. But it's highly highly unlikely that the eurozone can avoid a recession. Right now the dollar's strength is as much a good thing as it is a bad thing. I think the recession in Europe and the
energy crisis that is brewing is something investors cannot ignore. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Candy nice cruises there are rules to appearing on this show. No one likes cruises. So that was the agreement. Grandma you're not allowed to come on
any revealing. She likes cruises. Katie lives in the sea. Case away. Bramwell alongside as some Jonathan Ferro futures up a tenth of one per cent. Good morning. Good morning. Just in case you missed the tank line
Rameau A.D. turning around a little bit. But over the last seven days this hasn't been pretty for this NASDAQ Castle. It has been on the heels of a lot of hawkish discussion not only from the Federal Reserve but also the ECB tomorrow expected to possibly raise rates by 75 basis points. This was unheard of just a few months ago just a few weeks ago. And now it's a base case for an increasing number of people followed on by to 50 basis point rate hikes for the remainder of the year. Kind of shocking considering the negative rates have not so long ago. What you make is scheduling.
I think it's kind of ridiculous that the ECB has pushed back its news conference to try and accommodate the U.S. data that comes out of 830 Eastern Time. And then Chairman Powell has just dropped an address to a speech in the middle of the ECB press. I wonder if that gets changed over the next 24 hours. Jason Kelly.
Well do you think it's deliberate. He's trying to mask himself and basically try to deemphasize any kind of discussion Covid to look at it. Yeah. Or is it he's trying to like overshadow
Christine Lagarde and give her a point for something that's very difficult. I think that the bottom line is that it's unclear to me what's going to be more important for markets tomorrow's ECB meeting or Friday's confab with all of the energy ministers from Europe in terms of how they're going to deal with some of the energy crises. To me that might be a bigger market mover at this point would not agree to a 75 increase in agree more. If you can tell me what's going to happen with gas prices candy lines I've got a much much better picture of what next year looks like for this economy and for that matter for this ECB. The question is whether or not that clear picture is actually going to materialize when they face such a great challenge on the gas side with the unknown on supply.
And then also questions about how they might be able to rein in demand if they also are capping prices that people have to pay thereby allowing them potentially to afford more electricity. It's a problem in the UK as well and one that less trust is going to have to probably speak to as she's speaking in her first p.m. Qs as prime minister in parliament right now. What is Keir Starmer going to have to ask her. Good luck to her and good luck. I think it's one of those occasions where Sir Keir Starmer leaks.
He just has to let the new prime minister do the talking because they're in a very very tough spot right now. Can you believe that someone wanted this job. I mean honestly would you want to be prime minister right now of the United Kingdom. I used to think that Theresa May had a tough hand when she became the prime minister of the UK. Perhaps this is even tougher at the moment. Lisa going back to the pandemic I think we often used to say how brave these policymakers were to do these massive things. The bond market was wide open to do
massive things. And I don't think you have to be brave to go. Max Davies should a central bank when inflation is low it's much more complicated to calibrate the right policy response when monetary policy and fiscal policy is almost in conflict with each other. And the decision.
Now you've got to make is not the optimal policy decision something Mohamed El-Erian said a month or so ago. Lisa you've got to come up with the least worst decision and that's pretty tough to be a policymaker and that's the decision you've got to make. And perhaps this explains why a conservative leader is coming up with some of the biggest spending plans that they've ever seen as well as a whole host of other financial support for households around the country. Everything that it could turn on its head yields climbing in the UK over the last week or so. I can tell you that back in a way this morning just a little bit lovey.
You see that in treasuries as well as whipped through the price action for your futures up a tenth of 1 per cent on the S&P on the Nasdaq up around about a tenth of 1 per cent as well. Yields lower in the US to we're down 2 basis points on a 10 year 332 83. I can tell you the dollar strong strong strong growth on a 98 92 negative a tenth of 1 per cent on that currency. Pat. Lisa we're coming really close to 145 on
dollar yen high this session right now 144 18 Joel Weber and it keeps climbing. Where is the breaking point. And this has been a discussion point for a long time as we got to 130 135 140. And now yet again even as the Bank of
Japan double down doubles down on its position with monetary policy. What I'm watching today 10:00 a.m. the Bank of Canada rate decision the Bank of Canada has been out front and this is important to say they have been the first mover among the developed market economy.
They're expected to raise rates by 50 or 75 basis points. The likelihood of a 75 basis point hike is probably even more. And this comes at a time where rates are at the highest levels and heading toward the higher levels seen since 2008. What is the road path ahead.
We're not gonna get much guidance from them but perhaps we'll get some sort of indication of how Bank of Canada is leading. With a slew of Fed speak we get Fed speakers. Richmond Fed President Thomas Barkin at 9am AM Cleveland Fed President Loretta Master at 10:00 a.m. Vice Chair Lael Brainard around 12 thirty PM and Vice Chair of Supervision Michael Barr speaking at 2:00 p.m. the same time the Beige Book is released.
How much pain are they willing to see. And are they willing to go further because people have actually been going out and spending more. And again this goes to the theme of the entire morning John. And I feel like we have to keep harping on this when you. For gas prices when you get them lower. People can spend more and all of a
sudden monetary policy workers have to worry about inflation all the more so and come out and double down. And to me that's a huge concern a massive concern for me. I mean that is a concern. You have to try to set policy for the next twelve months. This why called this out. This is what Ed Morse was talking about.
Today we've got the Barclays CEO energy conference taking place in New York City on Alix Steel interviewing Ryan Lance. Conoco Phillips. Mike Worth of Chevron. David Hager of Devon Energy. How do these executives see the path of oil and gas going forward given some of the support given some of the calls for windfall taxes and given the fact that it's very unclear how much demand is falling off a cliff in response to some of the slowdowns engineered by monetary policy makers. Sam I thank you. Liz Truss right on cue. I'm against a windfall tax. Kailey Leinz.
That headline just dropping moments ago saying a windfall tax will put companies off from investing. So you don't want to have a windfall tax. John how else do you plan plan to pay for potentially 200 billion pounds in support for energy companies and consumers. I'd go a step further. Let's think about what that price cap is actually doing. You're capping the prices for consumers and then paying the energy companies.
The difference at the same time you're not containing demand. So prices against that kind of natural Kailey Leinz matching which Diana stated. So essentially they're just giving money to the energy suppliers on site and then at the same time saying we're not going to tax them more. This is going to be difficult to detail if this effort in the U.K. I think is going to be really really
hard to put together. Well and she says she's going to make a parliament statement tomorrow Thursday on the energy plan. So we'll get some more clarity. But everything you just said John. Yes totally true. Very valid questions. There's also the question of does this then just fuel inflation further and where is that going to leave. Andrew Bailey in the Bank of England as Hugh Pell today says you have 22 percent inflation.
It's plausible. You know when this trust to do that announcement just around like a hidden gem somewhere in between. Just because no one asks looking at the sketch a little antique.
It's ridiculous primo. Time will tell. Do these things is ridiculous. Somebody run and joins us now. CAC chief investment strategist at John Hancock Investment Management. Emily let's start with Europe and think about the contagion the channels of contagion from Europe to the United States.
What you think the the main channel is. Is it financial. Is it economic. Would you think it is. Well I think currency is a big you know element here. Clearly we've seen the dollar continuing to strengthen here and that is tightening financial conditions. It's creating ripple effects across
assets. You know I think what's going on right now in Europe frankly is confusing. You've laid it out well over the last couple of days. There's this massive conflict now between tighter monetary policy and now a bazooka of fiscal stimulus potentially coming on to the tune of 5 percent of GDP in Europe.
And those two things just really don't go together. I don't know if you've noticed the guests that you've had on the last few days and you guys there's kind of this wide eyed you know sort of you know chuckle when it comes to the idea that the ECB is going to raise rates by 75 basis points tomorrow. At the same time to ease the tension gas caps are going to come online. How do we pay for that given the fact
that supply of oil is so limited. Does it come in the form of a weaker currency and higher sovereign bond yields in Europe. You know what are the impacts of that. This is pretty meaningful move here.
And one of the big reassessments in markets has been the resolve of central banks to raise rates into weakness into these concerns about funding costs which has led a real division on Wall Street. Of those who believe Fed officials who believe ECB officials when they say we're not going to blank whether to keep raising rates or to keep them there and then others who say we don't buy it you are going to cut rates in the very near future once again. Emily where do you stand in line. Yeah we saw we're in a late cycle environment right now where we've see this position all happening. We're go from inflation concerns to growth concerns. There's sort of a macro battle going on in the background right now.
And eventually the Fed usually does win out in the form of slower growth and eventually a recession. So we do think that central banks need to move aggressively over the course of this year. We agree with the bond markets assessment of that and the stock market. You know everybody's sort of ignoring this.
The fact that inflationary pressures in the U.S. are clearly coming off the boil and pricing in a very very aggressive fed from here. We think ultimately growth is slowing. We're seeing it in some of the leading indicators areas like housing.
The Fed is looking at backward looking economic data. We're all friends on this show and we've talked about friends. Don't let friends use backward looking economic data. And as we look forward here you know we see that we're just beginning to see this slowdown. We're just beginning to see the impact of Fed tightening actually transmitted into the economy.
We think the economic gets data gets worse before it gets better. Not a great time here to be loading up on risk. And we think bonds are actually attractive. Yeah I know you love bonds. Emily I'm wondering if you've gotten your T-shirt yet but when it comes to the equity market given everything you just said is the bottom not in yet. I just don't think that the risk reward looks very attractive in this market right now.
You know stocks are still trading at fairly elevated levels and frankly we have not seen the impact of Fed tightening on earnings estimates yet. I just looked this morning at next twelve month earnings growth and they're just sort of flattening out. We haven't seen earnings growth estimates roll over yet. I think that that's something that happens into 2023. Again we want to own some parts of the
equity market. You know we like higher quality companies more defensive equities areas that are going to benefit from this change in consumer behavior away from the things that we want and towards the things that we need. But we just don't think this is a great time to load up on cyclical companies ones that need to tap the capital markets in order to grow. And that's exactly what a lot of investors have been doing. Emily does your iPhone magically slow down when the new one comes in. I just want to know does it.
I don't know. It's going to slow. I don't know. That's what it's just like. Why are you eating the fish. And if other people express the same thing leading the way iPhone comes out you are leading the witness. My son slows down. Why should I answer this. Me run. Thank you.
Hi I'm John Hancock Investment Management. She might be long. Oh so you were desperate. No no I'm just saying yes. Oh my stitches up. And look at those markets from New York is. I think Jonathan's up to something yes. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo.
U.S. officials say that Russia wants to buy millions of rockets and artillery shells from North Korea. It's the latest sign that Moscow is being pressured by international sanctions. There is no indication that any weapons sales have been completed. Last month the CIA said Russia had
approached Iran to buy armed drones. Russia's Vladimir Putin and China's Xi Jinping will meet next week in respect Astana. That's according to a Russian official. The trip would be his first foreign journey in two and a half years. Putin and G met in Beijing in February. Weeks before the Kremlin sent troops into Ukraine they signed an agreement saying that relations between the two countries would have no limits.
There was a report that one of the documents seized at Donald Trump's Florida residents describes a foreign governments nuclear weapons capabilities. Now that's according to The Washington Post. The newspaper also says that some of the documents discussed closely guarded top secret U.S. operations. A warning from JP Morgan Chase.
The cost of living crisis in the UK has only just begun. Retail analysts at the bank say consumer spending on discretionary items may shrink by mid single digit percentage next year. That's even if the UK energy price cap is frozen. And new research says that about half of U.S. workers could be described as quiet quitters.
That is they fulfill their job description but are psychologically detached from their work. The polling firm Gallup surveyed more than 15000 workers. Gallup says most quiet quitters are looking for another job. Global news 24 hours a day on air and on
Bloomberg Quicktake. I'm Lisa Mateo. This is Bloomberg. Ultimately the president's going to do everything that we can to make sure that gas prices keep heading in the right direction which include a number of things like the price cap which is ultimately set up in a way that reduces Russia's revenues but allows oil to flow in order to make sure that we don't have a spike in prices. Well he and Emma that the U.S. deputy treasury secretary speaking to Bloomberg in the last 24 hours from I just as soon as that was announced at the end of the week last week all of a sudden no extreme ones not reopening but output cut. So for OPEC plus coincidentally or not thing was part of the conversation over the weekend for sure. And I'm not going away and necessarily
sure there was a coincidence or not. The bottom line is there is a confluence of issues pressuring the energy story that does not seem to be going away and seems to only be getting worse. Lisa Abramowicz alongside candy line. Some Jonathan Ferro futures right now up a tenth of 1 percent on the S&P on the Nasdaq up a tenth of 1 percent. Also yields down two or three basis points 330 to 26. Euro dollar basically unchanged in just about holding on to ninety nine. We've been looking at Dollar General
morning 144 73 had a session 144 80 CAC. We're getting closer and closer to 145. It is remarkable John. We haven't seen these kind of levels on dollar yen going all the way back to 1998. And we know at that time intervention was involved and we've gotten some verbal intervention from Japanese policymakers.
Clearly they are worried about the weak levels we are seeing on the Japanese yen. And yet Kuroda doesn't really seem to think it is enough of a problem at this point for him to change course hike rates or abandon yield curve and pick up on policy and h as well. 698 93 Honda sessions six ninety nine seventy one came really really close to a seven handle less trust the new Prime Minister. The UK is facing down her first PM queues in parliament right now. She will make a statement in parliament Thursday on an energy plan.
Just yesterday I believe she had a call with the president of the United States. Let's get to AMH down in D.C. as that call taking place Emery. And what do they talk about. Yeah the calls taking place. They talked about the obvious issues like China Iran. To your point Jonathan they also talked about make sure they can collaborate in terms of securing energy especially as the U.K. right now is dealing with these sky high prices.
And then another point that is of interest is of course the fact that they talked about the Good Friday agreement and making sure that that stays in place. This is something really near and dear to President Joe Biden an individual that really likes to talk about his roots and his background as an Irish American of course. The worry is of course this as any UK government policy that can upend that. And it could be a little bit awkward given the fact that Liz trusts the new prime minister just over a year ago. She said that this special relationship
is special but not exclusive and kind of talked about the fact that it shouldn't be like a beauty pageant. Who's going to cozy up like a teenage girl to the United States. Could be a bit of an awkward moment if the two were to meet at the U.N. General Assembly later this September. But obv
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