'Bloomberg The Open' Full Show (01/23/2023)
A line from the city of London this afternoon. Good afternoon, equity futures just about positive on the S&P 500. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with Jonathan Ferro.
Live from New York. Coming up another day, another tech firm preparing to cut jobs as the Fed goes quiet. The dumps get the last word. And Morgan Stanley says stocks are pricing weak data. We begin with the big issue, soft versus hot. We have seen very mixed signals.
All of the weakness that we've seen within. Economic data has really been within soft data. Yes. There's been some weakness in the soft
data in the last survey. Data, sentiment, data. But while the hard data is looking good, really, it's a question of if we start to see hard data start to roll over in the U.S. in particular, I think that's the big question for the Fed. It's going to be the OPEC number four, core inflation dynamics I think is gonna be key. That's one of the key data points for the Fed and I think for the markets. And also watching OPM ISE every piece of
data come, then it's going to tell a good story. Joining us now to discuss that story is patients Robert Sapp and Christian Amani of Lafayette College. Christopher, first to you. How much weight should I put on the soft data vs. the hard right now? And the hardest saying things are okay, Ash, in the soft data, the survey data, the same things about.
Well, I think what matters right now is really the hard data. Far more than the soft data. We have been looking at the deterioration in soft data for quite some time.
But in reality, either in the labor market or in growth numbers, the softness really hasn't materialized. So I think there's a sentiment this time around, maybe a little different because of all the things that the Fed is doing and the pandemic. The hard data is still very, very positive at this point in the tightening cycle. Roberts said, which side of that you on? Things cannot have changed with the retail sales numbers. I mean, granted, surveys have been soft, but we've had an evolution. The hard down in the first series, hard
data was the negative retail sales and it wasn't all the drop in gas prices. Two months big drop in retail sales that on the heels of the ISI services, new orders granted that soft data. I think that signaled a change in consumption behavior. Now that I'm on the hard data side for consumption is soft. But it's absolutely true that on the income side, the job market has remained very firm.
So I think what could be happening here is really a change in the savings rate. We saw a big boost in savings with all of the stimulus and then savings have been draw down. Savings rates have come down. I don't think things are necessarily bad. I just think that consumers may be choking up a bit like me, choking up a bit on the consumption, boosting that savings rate back up. My Watson and Morgan Stanley weigh in on some of theirs.
This is what he had to say into what he said. While consensus shifts to a less negative stance amid a weaker dollar, China's reopening and the most stable but lacking hard data, we focus on the leading macro and earnings indicators, which are now overwhelmingly weak. A dynamic market is not price fall. That's Mike Wilson of Morgan Stanley. Chris Grant, love your view on that. CAC 7.
You think maybe the opposite on soft versus hard? Where are you on the market? What we price for? So we are certainly not pricing in an imminent recession, which is what Mike is talking about. But the reason we are not raising it because it's not unfolding just yet. So it would be very hard for the markets to start thinking about a real hard landing. And and in the context of where the labor market is and the fact that inflation is turning over. So, yeah, we will start pricing it when the more of that when the actual date does not materialize.
With respect to Robert's point, with respect to retail sales, I think retail sales, maybe a seasonal flu from from Michael Barr my perspective, if you look at those consumption data in other parts, in services and things like that, there's really not that much of softening at all. Christie, do you think then the freight train is still up and the equity markets, the pain, trade, equities higher or 100 percent? I think the markets are still not raised in or the a significant likelihood of a soft landing. I think the market levels, if we think that earnings are not going to be deteriorating rapidly, which would be the outcome in a soft landing. I think the pain traders, definitely. Forty five hundred and S&P. Krista, where are you on the bond market? With that in mind? Well, saw the bond market is very challenging at the moment, primarily because it has rallied as much. So I think, you know, what one can argue
about valuations in equity is a little bit. But in bonds, unless we have a hard landing, it's very difficult for me to see how the back end of the bond market rally is significantly from. 353 right now yields up five basis points on a 10 year on a 30 year high by five basis points also to 370. Do you agree with that assessment, Rob, when it comes to the bond market? Hard to make the case for them to rally here without a hard landing. I think that's true in the short term, and I think that over the next six to nine months, while the state is wrapping up the tightening cycle, the back end is attached.
No could be under some upward pressure here. I think that, you know, it is a very difficult market to evaluate the underlying economy valuations. And on that equity front and the risk appetite from Morgan Stanley that you brought up a very interesting piece of research highlighting the huge gap between changes in earnings expectations, where earnings are coming in, what typically happens and the bearish implications. I think the one thing that may be
missing from that analysis, which applies very well, that that relationship that they're looking at, it hasn't applied as well in the pre 1980 environment. And it just so happens in those periods, the market, the stock market came off in advance of the bad economic news like it has this time. And also, interestingly, that was a very high rising inflation kind of environment.
So I think things are very confusing. People are reticent to take a position, but big picture, it looks like, for for bonds, we're in some kind of a strategic fire zone and equities are probably not as as dangerous as some may be. High Flyers. Equities right now pretty boring.
This morning, at least a tenth of 1 percent on the S&P, on the Nasdaq, up a tenth of 1 percent. Also some breaking news moments ago. Let's get to that breaking news. We can do that without a hang up. Hey, John. Well, yes, we do have breaking news just moments ago. Microsoft is to boost its investment in chat GP team maker open a I. This isn't entirely a surprise. Some folks last week were talking about the idea that this could happen.
This will be the third investment in about three years. They also made investments in 20, 19, 20, 21. Right now, they are considering an investment of 10 billion dollars.
This, of course, is chat. GP T is a bit of talk of the town, if you will. It's very impressive in terms of this technology. It can write poetry, create content,
even help folks solve problems. So again, Microsoft boosting its investment in chat G.P.S. maker open at a I. What's so interesting about this, John, of course, it comes on the heels of Microsoft announcing layoffs. But they are boosting their investments
here in their technology. And interestingly, also opened by a non-profit. So Microsoft looking for a way to monetize this chat. P.T..
Abbi, thank you. The stock comp by about six tenths of one percent in early trading up and it down about twenty three minutes away. We'll talk about second about five or 10 minutes time. The U.S. getting another dose of economic sites and a final dose of data ahead of February's Fed rate decision. Monarchy on top of that. Hi, Mike.
Good morning, John. You are talking about soft data and hard data. How about some hard data wrapped in soft data to start the week? It's something we don't talk about a whole lot, but the index of leading economic indicators. Kind of interesting to look at because if you go back in history, you can see that it has turned down before every recession. And look what it's doing right now. We get that number a little bit later this morning. The rest of the week, it's really not
till Thursday till we get anything interesting. And that's GDP for the fourth quarter. The first read on that. We'll see how business investment and consumer spending are going. And then on Friday, income and spending for the month of December. We've got that disappointing retail sales report for December, but that's basically goods. What happened was services did people
spend more money? And of course, the Fed's favorite, the P C E inflation indicator. And this is what we're going to want to be watching, because Jay Powell and his colleagues have pointed to PCI E services minus housing. And if you look at the rent index in the PCG core, it is much higher. Growth has been growing at a much faster
pace than PCI e core. That's got to come down some before the Fed's got to be satisfied. But they also know that that's a lagging indicator and it's going to take a while. So we'll see how that turns out. And then, of course, next week we get the Fed meeting. And Jay Powell can explain it all to us.
A welcome, quiet period. And if that Fed decision a week or so away might NIKKEI. Thank you. Robert, say it from Christopher Armani. Back with us. Robert Temple, want to come to you on this. This phrase that we heard from the Fed and also from the ECB as well, sufficiently restrictive. We sufficiently restrictive at the Federal Reserve. And how on earth would you begin to
gauge that? I think we pretty clearly are. I mean, the inflation data has rolled over pretty convincingly at almost all levels, showing that they had that on the right track and the interest rate sensitive sectors of the economy, namely real estate, I mean, they they're really feeling the pain. So I think unless they 100 percent are axed to get a recession, they've done enough. And frankly, I'm surprised that they're going to be hiking at the next meeting or two. I think that they should be skipping meetings at this point to fully evaluate the impact of what they've done.
Granted, I think going overshooting 25, 50 basis points, I don't think will knock us into a recession. But I think you're right at that point. I think they are sufficiently restrictive. Kristen, do you agree? Well, I think we are getting there. But the real test and the fact of the matter is that even the Fed doesn't know them. They've been telling us that that is the the way we would know that the the policy has tightened enough is some downtrend in the labor markets. And so far, we haven't seen any. And I think that's really the core issue for the Fed.
And they are not going to conclude that we are fully restrictive until the lagging labor markets start softening, which is kind of unfortunate because it may be too late in terms of labor tightening. Roberts said we got to talk about that. Jobless claims, 190000. Unemployment at three point five percent. The quits rate. Out the quits rate just to look at is higher, not lower. People are confident.
They're confident about quitting their jobs and picking up another one. Roberts said. Which one is it? We seeing cracks here, or is this labor market still very resilient? You know, we'll have to see how these layoff announcements comes come through. But everything points towards a really solid, solid labor market.
The jobless claims, which are high quality, very frequently released every week. The jobless rate is at one point one percent. That is an incredibly low level looking across history. That hundred ninety thousand claims
incredibly low number of people making new claims for for unemployment insurance. So incredibly strong there. I think the one thing, though, is that that is the Fed's job to seek maximum employment. And so while if they are clearly seeing signs of a wage price spiral, they aren't what they're seeing now. People are asking for wages to get made whole for the kind of inflation that they saw. And they have not been made whole.
So you have to expect people are going to ask for that. Last week we saw record low union membership. Right. So Labor is not picking up massive power
here in terms of wages. Their job is full employment. That inflation has really rolled over. And the X food, energy, shelter has been negative for three months in a row. So I think they you know, I think they're right there. I think they're going to get that soft landing. We'll keep talking about it,
particularly the labor market. We'll have that conversation in a moment Robert. Christopher Amani sticking with us in the labor market, in the tech sector, at least, things have been brutal. Let's go through the numbers earlier this morning.
Microsoft, 5 percent of the workforce set to go alphabet, 6 percent of the workforce. Salesforce, 10 percent of the workforce. Mazza, 13 percent of the workforce. Coming up, big tech continuing to make cuts right now. It's an excuse for these companies cut after spending like 1980s rock stars. Is Spotify up next? We still see another 5 to 10 percent. We get into the middle of the year and
there's more, more cuts. That's where it gets dark. But right now, it's an excuse for these companies to cut after spending like 1980s rock stars. Dan ISE of Whitefish could say something like that. Big tech layoffs rolling in Spotify, the
latest to tighten its belt with plans to cut 6 percent of its employees to see, I've had this to say, an effort to drive more efficiency, control costs and speed up decision making. The move follows Mets slashing 13 percent of the workforce, 10 percent of sales fell, 6 percent in alphabet, 5 percent at Microsoft, totalling more than forty four thousand jobs cuts among the five companies and county lines. You wonder how much work Amazon is gonna do even with its recent announcement. Yeah. That's a really good point, because remember, just over the last three years or so since 2019, Amazon has outed added more than seven hundred and forty thousand people to its workforce. This is really what it's all about for
these companies, John. They added headcount dramatically for Spotify. They have more than double the amount of employees today. They did in twenty nineteen. Their total workforce right now, about twenty eight hundred people. So with that 6 percent cut, that equates to roughly six hundred jobs.
And then you look at the other companies you mentioned that have cut twelve eleven ten thousand people on the case of Alphabet Med and Microsoft. They all also added tens of thousands of people to their workforce really over the course of the pandemic when it was boom time for these companies. We are no longer in a boom time kind of macro environment. And to put it into perspective, how much things are softening in the tech sector in particular. Just take a look at profit projections for the fourth quarter that they're getting ready to report.
The information technology sector is expected to see profits drop by 9 percent. That would be the most going all the way back to 2016. But of course, it's not just tech as an industry that is suffering. This really has the potential to widen
out beyond that sector. A new NABE survey of business economists just released today said nearly 20 percent of respondents expect employment at their company to fall in the coming months. That's actually the first time since 2020 that more expect falling rather than increased employment in the next three months. And about a third of companies say they are not facing any labor shortages.
So this is definitely something we will have to continue to keep our eyes on Spotify. Just the latest in a string of these announcements. John Candy lines. It goes on, it goes on, it goes on. Another day, another set of job cuts. The one statistic that jumps out to me and I think we gloss over it way too much. Twenty nineteen Amazon. A hundred thousand employees. Two years later, at one point six million, I enter thousand to one point six million.
It's something like two or three years. That is absolutely ridiculous how quickly that has happened, Robert said Christian Amani, back with us. Christina, this is where the access has been. This is where you'd expect there to be cuts.
I think we're trying to work out whether the cuts we've seen so far are sufficient or whether we going to see a whole lot more. What's so you know, we can talk about the tech sector, but in the overall GDP economic context, it's it doesn't really matter that much. It matters for the sector, but for the overall economy, that's not where the problem is. The problem isn't the bottom or the bottom quintile of the labor force. That's where we are missing the. The workers. That's where two and a half people two
and a half million people have just disappeared. And that's the that's the sector. That's a part of the economy that the Fed is focused on. And if you look at continuing claims, which I think indicates that more than anything else, there is really no softening in that part of the market. And that's a problem for the Fed.
I'm very hopeful they will solve it, but it doesn't look like it's working right now. Robert said you think there will be a soft landing? Can ask two things. If you can you ask can I ask, first of all, how you define that soft landing and then I'll follow up something. CAC what you mean by soft landing? What does that entail? Sure, I'm glad you asked that. I'm going to crack a little bit on that soft landing.
I mean, we've seen booming growth. And the majority of forecasters, meantime, looking for a recession. And I've been skeptical about that, because the things that usually drive a recession or exacerbate a slowdown like a huge bubble in asset markets, overinvestment in certain sectors of the economy. Very aggressive lending. All of those things that once you have a slowdown, drag you into a recession.
They're not really there. So I think to say a soft landing would mean that you go down towards, you know, 0 to 1 percent growth for a quarter to then re accelerate. There's no recession. And I think that the economy right now feels better than it is. The growth rates are low, but people feel jobs and the job market is strong. So that would be a soft landing. I think with those retail sales numbers that I have, some services are dropping well below 50.
That opens up another linguistic possibility for people like my money, myself and Doug Krizner myself. We've done this for decades would be the touch and go. You know that maybe I'd like a quarter of negative GDP growth, but then the thing we accelerates and I mean at a real operational level, we saw some technical negatives in 2020. But that's how I would find a soft landing that zero to 1 briefly and then we accelerate it. Well, the follow up question then, Robert, is what is inflation in that world where growth drops down to zero to one and you've seen the labor market still resilient w inflation.
Yeah. I think the thing that people forget is that inflation requires real proximate causes. And in the 70s, you know, people want to blame it on Arthur Burns and the Fed. But there were oil price shocks and that went all the way through the economy.
And then we had a surfeit of oil in the 80s and inflation went away. Now the economies run themselves a lot more than the central bankers run the economy. And so we've had a war. We had Covid, we had supply chain disruptions.
Those things are passing. The supply is coming back. And we're seeing the inflation. The leading indicators of inflation have been pointing south for some time. And now we're seeing it come through in the data. So I think, you know, we're going to be a we're going to be somewhere on the P.C.
around that 2 percent. Looking in, I was six to 18 months out in the future as it is dragged down by commodity prices, but also your your underlying areas as well. All the way through the housing market. Can I just pick up on that line and Chris can ask you if you agree whether all of those things can take place if the Fed just gets out of the way? Well, that's a hypothetical.
That's not going to happen. Which is the Fed is not getting out of the way. Fortunately or unfortunately, that's they're doing what they do they need to do. That's their job. The key issue is I think from the Fed's
perspective, everything is slowing down. Everything is falling in place. The real question for them is how patient do they want to be when they get too close to 5 percent? Do they? Do they want to stay there for a very long period of time for P.C. to come down to 2 percent? If that's the case, we will probably have a hard landing because that's that'll take a long time and the economy cannot sustain it. I think at some point they may very kind of brush in the 3 percent go, no. David, brush it under the rug a little bit and accept it and move on because they don't want to total the economy.
The. That's what people worry about. Or some people are excited at the prospect of it happening. Depending on how you think about these things, Christmas monarch Robert cept that the two of you. Thank you as always. Equity futures right now in the S&P up around about a tenth of 1 percent on the S&P 500, 6 or seven minutes away from the opening bell. Coming up, the morning calls and later, rallies of Credit Suisse will be joining guests expecting a year of elevated volatility. That conversation just ahead. Happening now, just around the corner.
Equity futures just about positive here on the S&P 500, up about two tenths of 1 percent on the Nasdaq, up two tenths of 1 percent. Also in the bond market, we look a little something like this on his 10th and 30 your to yield on a two year treasury higher by four basis points, the 10 year up by about 5 basis points. Let's get some more. Of course. First up, J.P. Morgan upgrading Wayfair to overweight from underweight, citing a positive shift in market share trends and its newfound commitment to controlling expenses. That stock up big time in the free
market. The second call, Barclays upgrading AMC so overweight. Eighty five dollar price target recommending semiconductor companies offering exposure to data centers, pieces and handset markets that stocks up by about 2.5 percent. And your third and final call comes from Deutsche Bank downgrading work DAX. A whole expecting another volatile year for software stocks amid weakening fundamentals. That stock is negative here at one
point, one per. Coming up, Microsoft earnings on deck as Spotify announces the latest round of big tech layoffs. That conversation up next with Mandy Xu of Credit Suisse. With equity futures on the S&P 500 just about positive by two tenths of 1 percent, your opening bout is up next. Coming off the back of the first weekly loss of twenty twenty three equity features, trying to bounce back out by two tenths of one percent on the S&P after ended Friday with a decent day of gains. That's for sure. The Nasdaq up two tenths of 1 percent on
the Russell. Up a little more than a tenth of 1 percent. Government down in New York City, which sits on the board and gets to the bond market, yields look a little something like this on a 10 year, 10 year yield in the Treasury market, upside basis points three fifty three euro dollar had a little look at one of nine early one of the session off the back of more ECB hawkish talk dollar comes back down to work. Want to wait?
Fifty three. Just about negative on the session now. And crude, 82 and about 10 cents. We're positive that by about five tenths of one percent. The opening bell in about 20 seconds in this Monday. Equities advancing by a little more than a tenth of 1 percent on the S&P 500, on the NASDAQ up by two tenths of 1 percent. One stock to watch at the open sales
force. Activist investor Elliott Management taking a multi billion dollar stake. The hedge fund writing in a statement, the following. We look forward to working constructively with Salesforce to realize the value benefitting a company befitting a company of its stature at Ludlow. Has more on the West Coast. Dan, good morning.
Jonathan Ferro up around 3 percent on sales force at the open. Not the same kind of fizzle and exuberance that we saw in premarket trading. But as you said, a Bloomberg source talks about this being a multi-billion dollar stake in the statement you just read out. Eliot did not confirm the investment
details or give us a number. The idea here is that Salesforce grew at phenomenally throughout the pandemic period. Right. We're at a point where when it reached
its November 20, 21 high, it had a market cap of 300 billion dollars. A lot of that growth was organic, but also in emanate. It's been a big feature of Marc Benioff focus over the last few years. And like many tech companies that you see now on winding, Salesforce became quite bloated. The reaction from the sell side is this is not a surprise. Right style board was the first activist to come in in October for Salesforce. They are not surprised Elliot's coming
in now. There's a consensus that the outcome could be good, right? That if you take at face value what Elliot is saying, it wants to achieve actually a focus on profits and shareholder returns could align with what Marc Benioff wants as well. And kind of unwinding some of that pioneer era is who brings this Tom Keene. It's really interesting. It's not just that drop in market cap. November 20, 21 to present day where it's basically half. But if you look at forward 12 month price to earnings, this is a cheap stock, right? Historically, at least for a 12 month PE near its record lows, it was set during the global financial crisis. So what I'm seeing in the notes I've
read this morning is opportunity and the stock obviously reacting positively. Jump at thank you to stock up this morning by two or three percent more broadly, about two minutes into this, equity is not dead flat on the S&P S&P 500 on the Nasdaq, where a positive buy, not even a tenth of 1 percent. Another stock to watch, Baker Hughes reporting results and selling to cost cutting measures. This is what they had to say in a statement. We remain focused on optimizing our corporate structure and drive improvements in our margins and returns profile. He has more happy. Hey, John. Well, yes, and investors at this point
seem to like the strategy. The shares are up more than 1 percent now on the surface, a little bit of a messy quarter. They missed both sales and revenue or excuse me, profit estimates. But what they did do is they beat new orders are they're expanding their to, let's see, eight billion dollars that represents 20 percent year over year growth. So some real strength there. As for revenues, there was also growth there 7 percent year over year, but they missed by about 3 percent earnings up 38 cents, two cents shy, but that's more than 50 percent year over year growth. So net net, the numbers are going in the right direction here. Margins are moving in the right
direction to net income of three point three percent last year to high single digits in the years ahead John. So, again, the companies cost cutting profile idea that is seeming to help the company move in the right direction. And they're targeting one hundred fifty million of cost cuts by the end of 2023 or 60 to 80 percent of free cash flow returned to shareholders. Overall, John, we do. Of course, we've had a couple earnings coming in place and of course, for the financials, some of the tax. But Baker Hughes kicking off what could be a very strong fourth quarter for energy, 58 percent year over year EPS growth.
Not so shabby at all, John. Stock up just a little bit by five or six tenths of one percent. I think we heard from Chevron later on in the week. We need to talk about Spotify as well, joining the growing list of tech firms cutting its workforce. The CEO had this to say. And it's going to sound a whole lot like
something you've heard before over the last month or so. I was too ambitious in investing ahead of our revenue growth. And for this reason, we're reducing our employee base by about 6 percent across the company. I take full accountability for the moves that got us here today. Candy lines, we've heard that from pretty much every CEO, I think over the last few months in this sector. Yeah. We have the deja vu is getting severe,
John, because it is the same. I take full responsibility. We hired too much too quickly. And now. Times have changed. Put it in perspective for Spotify.
Back in 2019, they had about four thousand four hundred employees as of the end of last year. They had nine thousand eight hundred, so their workforce has more than doubled. The 6 percent cut announced today will equate to about 600 jobs that are going to unwind here. And the company is going to take a charge of between 35 and 45 million euros in severance related charges. We'll see where these layoffs, though, are targeted within the company, John, because remember, Spotify had already laid off dozens of people from its podcast studios in October. And this comes back to the investment that the CEO was talking about.
The company made a big commitment to that podcast business beginning in 2019, spending over a billion dollars on acquiring podcast networks and the right to popular shows, and that spending for content has weighed on the bottom line. Spotify has really struggled with profitability, and in this market, profitability is increasingly important. Our analysts here at Bloomberg Intelligence, though, say that these headcount reductions announced today will boost margins as Spotify deals with slower subscriber growth, but cannot provide a substantial boost to the stock. John, it is this morning. The stock is up about 6 percent in the first few minutes of trading here. But remember, it fell 66 percent in
twenty twenty two so far. Twenty twenty three shaping up to be a better story. It was up 24 percent year to date. As of Friday's close, obviously adding to the gains this morning, it is another pattern in addition to CEOs taking responsibility that the market reacts really kindly to these kind of job cuts announcements John.
Seen this movie about 10 times. Yet today, three weeks into the year. Candy, thank you. Tough time for that sector, many say. Credit Suisse expecting a tough year ahead for stock. She runs the following. The outlook for equities remains fraught with economic growth set to decelerate sharply with diminishing market liquidity realized volatility is likely to stay elevated.
Mandy, I'm pleased to say, joins us right now. Mandy, great to catch up with you. I was going through your notes and this number jumped down. You've got the VIX averaging 25, averaging twenty five for the year ahead. Can you walk me through that? Yes. Sure. So, I mean, obviously, markets started
off very strongly for the euro. But one of the reasons we do expect the VIX to remain relatively elevated, at least for the rest of the year. Not not only because of the macro economic backdrop, which I think everyone is familiar with, but also on the back of diminishing market liquidity. I think that a framework emphasizing
that liquidity in the underlying equity market, particularly equities future and actually worse now than in 2020. Right. So if you look at copper, look for the E minutes, which is supposed to be the most liquid instrument for the equity market, it was on average about 26 percent lower last year compared to 2020 when VIX was obviously much higher. And it was one of the reasons that when we talk about equity, both know not doing much. Last year, everyone focuses on the VIX,
right? Implied volatility didn't do much last year, but realized volatility actually doubled last year compared to the year before. So we expect low liquidity as well as challenging macro fundamentals to provide a boost, continued to realign volatility and that is likely to put a floor. I thought implied volatility for the year. So Monday. That's three points that low liquidity, a real macro vulnerability. On top this high volatility, put that all together. Do we have to adjust our return
assumptions a whole lot? Lower the shift. So, you know, it's interesting. It's obviously a market start off strong this year, and it started off strongly on the back of falling inflation and inflation expectations, which is, you know, which is good.
But know, I do think it's going to take time for markets to figure out whether reach expectation that inflation is falling because we're going to a soft landing or B, or we're going into a recession. And what equity market, you know, those two very different things. So I think there's a misconception at least that, you know, that it is generally good for equities when we take a look at the data logically. It's actually not really come down to whether or not we go into a recession. So here is one that starts cutting rates and we ultimately go into recession.
We do actually return double digit negative returns in the month following. Right. So I think bonds, fully inflation, unambiguously foot equity. It's going to you know, it's going to take time to see. And so you're suggesting a jump in that
equity bond back. Any correlation that normalizes? Yes. So that was one of the higher inflation and persistent inflation with new reason why we found correlation broke down last year and we expect at least this year to start to normalize again because again, we're going from peak completion to now, folks, about growth in environments where markets more focus on downside risks to economic flows. That equity bound correlation goes back to negative. Mandy, with that in mind, can you tell me how investors have been using the first few weeks of this year, pretty strong price action.
Did you notice they were chasing returns or were they reloading shots? Yeah, sure. I was at the Equity Bowl Fund. Most consensus view is that this year we're going to very much for me receivers team as last year. Meaning, you know, equity bowl underperforming. You underperforming. So most of the structures that we've seen in equity bowl space is actually more looking at selling volatility and selling. You in particular really haven't seen convincingly no large upside call buying in the market to chase the upside return for media.
Really? For markets to potentially start to realize the downside. We really need people to investors to re risk and add leverage and with real volatility as elevated as currently. I think it's going to take a while. I want to get to one trade of yours and
talk about cyclicals with you. A lot of people are trying to price this cyclical recovery off the back of China reopening. Doing that through China or doing that through Europe.
J.P. Morgan and Mr. Lafontaine could talk about Europe specifically when they say this. They said the recent cyclical rally is discounting the rebound of PMI ISE into expansion territory. But this might not be confirmed by
sustained activity improvement. This leaves earnings projections susceptible to further downgrades, with cyclicals in particular at risk. You've got to trade, Mandy, that is perhaps related to this somewhat. The euro stocks 50 versus euro dollar. Can you walk me through what you expect in. Yeah, sure.
We have a couple of trains all on this thing that, you know, the rotation of girls into value last year. This year I think this year is going to look increasingly vulnerable. And I think a lot of the sectors that are so-called value sectors are also cyclical sectors, and they're going to be vulnerable on the downside. Obviously, if we go into recession and
European equities, broadly speaking, fits in that category, obviously a valuation perspective, it did better last year given the focus on higher rates and higher inflation. I think this year, where can the genesis of the idea came from? Is you that key calibration is really a US story. We actually expect inflation to continue to rise in Europe on the back of sticky wages.
So here really this is the place for more hawkish ECB policy. I know there are some headlines recently suggesting a more dovish turn by the ECB. We don't think that's going to happen. So we'll hear more and more hawkish. You can be focused on cleaning
fornication and putting pressure on euro stocks. And while providing support for the euro. And in terms of entry levels, I would say obviously entry level to add protection for your stocks is good. But from a trade perspective, it also
takes advantage of being historically elevated for relation between European equities and Euro USD. So you know that provide a really good discount with the structure. Mandy, super smart, super, super smart. It has been too long, so let's catch up against so many slew of Credit Suisse with euro dollar breaking 3 1 0 9 a little bit early this morning, them rolling over equity futures were positive going into the up and up, our positive coming out of cash open about twelve minutes into the session. We're positive now by two tenths of 1 percent or so on the Nasdaq up by about a half of 1 percent. Coming up, investors weigh the odds of a US recession if you look at market indicators.
Recessions don't seem to be on the cards, but the way that we see 2023 playing out is that a recession is foretold. Up next on this program, my gay friend of thanks, America pushing back his recession call. That's next. This Bloomberg, the open I'm Mateo, live in the principal room.
Coming up, Apollo management chief economist Thorsten Slot. That conversation at 2:00 p.m. in New York, 7:00 p.m. in London. This is Bloomberg. The way to reconcile the two narratives is that markets are suddenly pricing out a recession. But if you look at market indicators, recessions don't seem to be on the cards.
But the way that we see 2023 playing out is that a recession is foretold because we're not out of the woods with inflation. Central banks, including the Fed, will have to power through and push on interest rate hikes. The recession debate, he thinks BlackRock laying out two conflicting narratives.
Banks. America's Mike Nathan wank him with his own outlook, writes in the following. We see enough momentum and consumer spending to push the start of a mild recession into two. Cue from one call you previously. Mike, I'm pleased to say, joining us right now. So to the second quarter for the first quarter. Mike, great to catch up with you.
Let's talk about that subtle shift. What's behind it? Well, as you said, as you noted, we we said that there's just enough of them and some in consumer spending. So certainly last week we had evidence, firm evidence that the slowdown is broadening outside of housing.
It's now squarely in the manufacturing sector. But a willingness to use excess saving, very strong labor market and maybe some easing in financial conditions has kept the consumer spending. And so we think this week we'll find out personal consumption grew at a two and a half percent annualized rate in the fourth quarter. So still very strong. So all of these factors are a tailwind
at the moment for spending. So we think that means the expansion goes on a little bit longer. We only moved it back at Ford. This is not a major change, but we do have to respond to what we're seeing. And right now, the there's enough momentum that suggests maybe Q1 is too early and something closer to the middle of the year seems more likely.
Mike, you pushed this back. Did you change? You said cold alongside it. Well, we did in the following sense, that seems clear they want to slow down the pace of hikes again so that that seems like the obvious change. So we're now looking for a 25 basis point hike in February instead of 50 that we had before.
We've cut the terminal the same. The message seems to be we want to slow down, but we are still considering a terminal rate around 5 percent or above. So we stayed at five to five and a quarter. I think risks around that are balanced. If the economy deteriorates more, more
quickly and inflation continues to slow, maybe they hike and pause in March. But the labor market has been strong and it's been hard to slow that down. So you could argue that the Fed may have to even do more than the five to five and a quarter where we're thinking. So it's pretty, pretty fluid right now. So we just have them slowing down, but still getting to the terminal just above 5 percent. Well, Mike, let's talk about that labor market. Three point five percent unemployment.
Jobless claims in the last week come again at one hundred and ninety thousand. I mentioned to a little bit early this morning, we're looking a quits rate. The quits rate still animated. Job openings still suggesting something close to two openings for every unemployed American. Mike, when we get to the second quarter,
what do you think those data points look like? Well, I think I mean, we have the unemployment rate rising a little bit above 5 percent at its peak, and so you're likely going to have some job losses to get that. So we do have employment growth slowing and kind of continuing at the pace at which it's slowing and then turning negative for a while starting in the second quarter. So I think maybe three to six months of softness in hiring and maybe some some negative payroll growth. So we do that. We have that happening now in the second quarter.
The labor market slowing in that direction. But as you note, unbalanced things are still pretty tight. And therefore, it suggests the Fed has more work to do. And it's just gonna take longer to kind of remove those imbalances in the labor market. Much think a growing risk that it gets pushed further out perhaps towards the end of the year and maybe not at all this year. Given how strong some of those data points out. That's right.
We we've always said the main risk to our outlook is, is that the economy just keeps going and that it's always pretty difficult to slow down the U.S. economy and the Fed's if the Fed's really cautious about trying to soft land this and not overdo it, then I think the risk is in the direction of there's enough saving on balance sheets and there's enough employment growth that just keeps the recovery going. So, yes, I think the risk is that we have to push things out as the year progresses. That's true. So the risk for them, they're trying to balance these two risks of doing too much versus doing too little. A few months ago, overwhelmingly, we were told by them, by Fed officials, including Chairman Power, they believed that the risk of doing too little outweigh the risk of doing too much. Clearly, they now believe those two
risks of come into balance. Mike, the way you look at things, do you think the greater risk now is they slow down to 25, is that they have to pick things up again in the second half of the year? I don't think so, I think from here they would just kind of the funds rate would leak higher 25 basis points at a time. I would be really surprised, for example, if they if they kept hiking and say the funds rate in some for some reason was approaching 6 percent, would the economy power through that? Probably not. I'd be really surprised if we weren't slowing down with a real policy rate that that high.
So I think from here they can go in 25 basis point increments and still have plenty of time to kind of let this play out. And if they have to go more, I think they can do that. I don't I think the risk of acceleration would be low. So I would say that they just maybe keep
going at twenty five. If that's what the data suggests. Might just final question for me, sitting here in London, I think at the Financial Times this morning, the headline on the front page, as you might expect, the eurozone set to escape recession. We look to China and we talk about the, I think, ISE in China as. Wow. Got any thoughts on the kind of growth in post the United States could import from a better Europe, relatively speaking, and a China that could see 5 6 percent GDP growth depending on how this reopening, guys? Yeah, I mean, the trade battle in the US is pretty small. So I wouldn't overplay that. I mean, we've been kind of arguing actually the weaker the rest of the world is, the more that helps the US because gas prices come back down.
So I think it's about neutral. If Europe is doing better and China surges in the second half of the year, maybe commodity prices move higher. We don't get relief on gasoline prices anymore, but we would get a modest boost, boost from trade. So I think that actually kind of washes out when it comes to the US. You know, we're just not driven by
global growth as other economies. Mike, this was great. Hopefully we can catch up again next week around the set decision. Mike, open. Thanks. America pushing out is cool for a recession in the United States from the first quarter to the second quarter. But the real risk that gets pushed even further out through the rest of this year and the likes of Neil DAX Renmark might be not this year. So given how things are materializing at
the moment, equities right now decent to have gains on the May pick up a half of 1 percent on the S&P and the Nasdaq up one full percentage point. AP has more. Hey, John. Yeah. We do have the S&P 500 up about half a
percent at session highs on basically a volume that's equal to what it's been over the last 20 days. Not surprisingly, with the gain, we have three of the big heavyweight tech sectors, higher tech communication services and discretionary on bottom. We have real estate, utilities, materials and healthcare flipping right around. So utilities and bottom, one of the defensive sectors, one sector that's really outperforming, helping our technology, John, is the chip sector. The Sox is up two point seven percent, helped out by Qualcomm and Advanced Micro. Barclays is very bullish on chips
raising price targets and reiterating overweight ratings on this sector, up 36 percent since the October low. Abbi, thank you. Up next, you're trading diary. About 26 minutes into the session, equities up six tenths of one percent less gave the trading diary US PMI ISE. Coming up on Tuesday. Plus, big tech earnings kicking into full gear with Microsoft after the close. Tesla, IBM.
On Wednesday, U.S. fourth quarter GDP and another round of claims coming up on Thursday. Finally seeing numbers and a you match sentiment survey rounds out the week on Friday from London. That is it for me. Thank you for choosing Glenn Beck TV. This was the countdown to the Open. I'll be with you tomorrow morning. This is Glenn Beck.