'Bloomberg The Open' Full Show (02/15/2023)
This hard data in America is looking a rock solid life from New York City this morning. Good morning. Good morning. Equity futures down about four tenths of one percent. 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. Life from New York. Coming up, U.S. retail sales data coming in hot as Fed officials push for higher interest rates. And vice champ Ryan, it heads for the exit. We begin with the big issue, the consumer stance strong. The U.S. consumer is very strong. The fact that the consumer has so much
still accumulated savings. But you have to look at what's been the trend over the past few months. The truth is that the amount of actual consumer spending is heading down in real terms. Overall, we're looking at a picture where consumer spending is losing momentum. But they're still spending the reach. Well, not the 1 percent is going to have an impact on the consumer. We've seen a consumer that's faced negative real incomes for 20 months.
But the labor market is strong. The jobs market is still very, very strong. The consumer will spend as long as labor markets are strong. The market's just reading for the data to fall back. It does seem as if this hotter economy is driving consumption. It just is going to take some time.
The inconsistency of the data to some degree is reflective of just what's forward looking and what's backward looking. And that's why we're moving from, you know, hard landing, soft landing, nor landing. We've heard so much about that. No landing tossed its luck for Paula. This morning, again, markets are pricing
again. The no landing scenario might. That conclusion encouraged by the data from 30 minutes ago. Yeah, just take a look at what happened. We've put up a chart that shows not just to what we got in January, but how December was revised or not revised. And you can see just how big the turnaround is.
Retail sales coming up 3 percent on the month. They were down one point one percent in the initial December print. And that's stayed the same. A take out autos and gas, which both had big increases in prices during January. And you still get a two point six percent move. The revised December number are a little different, but the control group that we follow because it goes into GDP was down seven tenths, still down seven tenths in December, but up one point seven percent in January. People were out there spending.
And I think we can see that reflected in what we saw in the jobs numbers a couple of weeks ago with the retail hiring still very strong. You can see there's no evidence that people are getting rid of retail employees, even though usually you see that happen in the month of January. And if the economy were slowing, it would be one of the first places where they'd be letting people go. So, as John, you said, we're looking at this soft landing scenario now where you put together the data that we have seen in recent months. And it really does look like we're kind of moving in that direction. Economists have started to push up the
idea of a soft landing or at least of a stronger first quarter. And you could see that in the white line. The blue line is where retail sales went today. So we're getting some strength underpinning that move up in the most recent month in what economists think is going to happen to the economy.
My concessional production 915. Is that the next step for you? That's it. Stop. I mean, it's also expected to come in strong. It was down in the month of December. Expected to be up in the month of January. And if that's the case, it's even more good news, I should mention, because we didn't get to it earlier.
And surveillance, the Empire Manufacturing Index, which had been down by ton. It was like a negative 27 is now at negative five point eight. It was negative thirty two point nine. So negative five point eight. So a little bit better there as well. Mark McKay, stay close. We'll get to that IP number in just a moment. Equity features down by half of 1 percent yield on the two year high by three basis points.
We came like this close to full 70, 80 right now on a two year for sixty five. With us to talk about all of this, Emily Chang Manley, Matt Miller J.P. Morgan investor goes My Hank been my first deal on the data from 34 minutes ago. Your take on this. Yeah. Look. Good morning, John. It's a very surprising number, right?
I think there has been lots of expectations around kind of a slowing down or slowing economy. That's not what we saw this morning. And if you kind of take the last 48 hours and put them together, if you were in the camp of a Fed pause, you're definitely disappointed. Right. So. And we're seeing that kind of in the probability of rate hikes moving forward. You know, this to me signals that we're not done yet. And the tightening cycle has a little bit more room to go, Jack. It was pyros blow out.
No. Now rates have says looking pretty good. Yeah. The consumer is doing very well, John. I mean, there's no way to beat around that bush, but I do think there is a lot more to the story, particularly when it comes to this idea. Right. That that retail therapy is a real thing
for it for Americans and ISE people feel bad about conditions they may be inclined to spend. We also know, of course, that employment is still rock solid. A lot of people are still getting paid because they are still employed. But we have to figure out what is fueling this this this consumption. And what we've noticed and have been noticing for several months now is that people are dipping into their savings at a much greater rate and we see credit utilization increasing. This is not necessarily a sustainable increase in consumption, although it certainly is a surprise relative to what we were expecting and perhaps does change the Fed's view on what needs to happen with rates over the first half of this year. Well, let's discuss the implications for
Fed policy. NIKKEI says forget high for longer. We still need to get higher. Deutsche Bank's Matt Miller that he has a peak right now, five, six day, no doubt to set this off the 475 basis points of hikes in the federal funds rate. Oh, the Fed has to show for it is the S&P 500 15 percent off the lows, the unemployment rate at three point four percent and underlying inflation still running CAC. You can throw in retail sales as well. The conclusion is to get high for longer.
We still need to get higher. Might have been how much higher? Yeah, exactly. John, to my earlier point, right? I mean, I think we were all kind of expecting that we were getting close to that terminal rate. I think it's now very probable that we get two more hikes in the first half of the year.
I also think it's kind of unusual that the market is pricing in some cuts on the back half. Right. I I think we have some work to do and these numbers validate and frustrate. I think the Fed in terms of financial front, financial conditions, being tight sellers that he's with you, he's looking for 560, the effort, Deutsche Bank. He had rates the terminal rate at five point one percent.
He gave three reasons for the change. He said, first, the labor market is so fine, remarkably resilient to Fed time. He said, second, less progress has been made towards disinflation. And third, financial conditions have failed to tighten enough. Now, Jack, I sense a more nuanced take from you something a little bit more different than that. Jack, can you tell me why maybe that take is the wrong one? Yeah, I mean, it's it's difficult to have a very firm view on rates right now because it does kind of feel like the Fed itself is is moving the goalposts.
But when it comes down to what we should expect out of interest rates this year, I think it has a lot to do with how committed the Fed is to that that 2 percent target. You know, right now when we are looking at CPI, the wine share is being driven by shelter inflation. And we are already starting to see pretty significant evidence of disinflation, if not outright deflation from that metric. We're going to see those numbers move lower.
The component that is a little bit more challenging, it is a little bit more sticky is what's going on with services outside of shelter, particularly because those service prices continue to increase on the back of higher wages. We have seen evidence in the most recent employment reports that wage inflation does continue to moderate, perhaps not moderating as much as we would like or as the Fed would like. And I think that's what they're going to be paying attention to. Can they see through this short sort of short term move higher in service prices? Can they look at the trend that has developed over the last six, seven months and see that as encouraging? Can they be a little bit patient if they can? Maybe that means one or two more hikes if they cannot. I can't see this environment where we see more hikes in the back half of this year. Well, the consensus is certainly shifting.
The consensus has shifted pretty quickly to this idea. The economy can handle these kind of interest rates. We're now pushing extending the expansion.
We're now pricing, again, a higher interest rate from the Federal Reserve. Now, might have been for someone that when more overweight risk in the last few months coming into twenty three, that was, you know, for someone like you took that position, a roll of those things, supportive of your view. Yeah, look, I mean, I think I was on the show a few months ago and we you know, we took a little bit of a contrarian view back in November, December, and on a tactical basis, we added risk to the portfolio. So we were thinking, you know, slight overweight to equities in a balanced portfolio. We were thinking the more pro cyclical factors. We've come a long way, though, John.
Right. So if you kind of think about what markets have done since then, you have the U.S. equity market up about 10 percent. You have emerging markets, you know, from November to now up about 20 percent in that. That, to me is a little bit too fast. So at this point, we would say be cautious. Right.
We've we've always had a pretty optimistic view going into the first quarter. This has been a pretty strong rally in our view. And given some of the things that we're seeing over the last couple of weeks, it's only normal to kind of think a little bit more cautiously about adding rest of the portfolio somehow. Let's discuss what you had, an overweight, risky credit, high yield spreads, 170 basis points tied to the Y to last year.
Even within the equity market, the interest rate sensitive parts of this equity market site, the homebuilders, they bought some last summer. They've rallied more than 50 percent since May. Can you just tell us with a little bit more specificity what you'd be citing here? Yes. So, look, I think it it really depends on if you're looking inside of announce asset class or you're thinking about a balanced portfolio. So when we think about where to take risk, you know, if I'm comparing credit to equities, I actually favor credit at this moment.
Right. Because you're getting equity like returns with a little bit less volatility. And remember, the duration is a good diversified to your equity position. So credit over equities. But then when you kind of think within fixed income, it gets a little bit more challenging to kind of position there because you have short term rates and cash actually delivering a pretty significant yield and you're not getting compensated to the same extent to go out on the risk curve. So thinking about a balanced portfolio, adding risk from the equity side to credit makes a lot of sense, but then also being conscious that getting too short duration will create a little bit less diversification on the equity sleeve going forward.
And if you believe markets are going to be volatile, you want that protection in the portfolio. Don't get a moment. Stand the earlier this week, he said you get paid of white. We came very close to 4 7, say, on a two year jet Matt Miller. Do you get paid to wait and should you just wait? Well, you know, you get paid to wait, John.
If you time it perfectly. But as we know, that's very, very difficult for most investors out there. Even the professionals have a tough time timing things very well. The issue here, I think, does fundamentally come back to the interest rate environment. And as I said earlier, I do think the Fed continues to move the goalposts maybe for good reasons. Right. Because economic data seems to be more resilient than we would have otherwise expected. But when it comes to looking at the
market right now, at least from my perspective, particularly in equities, it is not about the absolute level of interest rates as much as it's about the rate of change and the direction of travel. Once we start to see rate volatility diminish, that's when I think we start to see a meaningful uptick in equities that it's a little bit more sustainable. We're getting at least one more hike. I don't know if it's two more hikes on an open, three more hikes. I think it's going to be very hard to time that until we are actually there. You're going to blink. You're going to miss it. I would much rather be dollar cost
averaging into this market, lagging in, dropping money into the equity market, realizing that over the short term there may be some chop. But over the long run, those disconnects are still going to pay off in terms of performance such and come with this. Right now, we're close to 465 on a two year. Last time we were here was November 8th. On November 8th, the equity market was at thirty eight hundred. This equity markets well north of that. Isn't that a disconnect that we need to reconcile? Oh, I think so.
I mean, I do think the equity market has perhaps gotten over its skis at this point, particularly because those earnings numbers really need to move lower still and multiples have reflected. I am not particularly confident in this particular rally that we've seen over the last several months. But John, that doesn't really change my view over the next 12 to 18 months. And that kind of gets back to this idea
of of market timing. You know, you can say that, hey, maybe this isn't the real thing because of X, Y, Z, we're gonna get three more hikes instead of two more hikes. You know, whatever that that that that narrative may be. But for me, because this target just does just keep on moving and because the economic data can sometimes be contradictory, I'd rather lag in and sort of get some exposure right now. Recognize that short term again, some chop, but long term, still a lot of payoff potential. Mike, what do you make of that spread between what's happened with the two year? It's reprice time. We saw it yesterday.
The equity market just stayed resilient. We're really close to levels we haven't seen since November 8th. And on November 8th, we were at 38, 28 on the S&P. We closed yesterday at 41, 36. Does that make sense? Yeah, that kind of goes back to my earlier comment. Right. We've been positioned a bit more aggressively in the portfolio and we favored equities. We were overweight equities for the last
three months. But I agree with Jack. You know, a little bit of this is too far, too fast. And when you kind of think about the repricing of rate hikes, the parts of the equity market that are going to be more sensitive to that are the growth here in parts of the market. Right. So when you think about how to own equities, I would say focus on the value factor in some of the valuation attractiveness that you could possibly find across the sectors. Growth could potentially be sensitive if if the pause is not coming anytime soon. I'm going to stick with us.
My husband, Jim Manley, sticking with us, going into the open about 16, 17 minutes away. Equity futures slightly negative coming up. The Federal Reserve is hiring. Lael Brainard is a huge win for the White House. She has experience to know that there's no steep learning curve and she knows all the people around her. Vice Chef Ryan is heading to the White House. That conversation up next.
It's obvious that there's going to be a huge gap at the Fed as a result of this change. You have to think of the whole legislative agenda items right now. There's really nothing until the debt ceiling, the farm bill and the continuing resolution. So you really have this Federal Reserve opening that's going to create the opportunity for hearings for members to put holds on. I imagine it's going to be pretty complicated, highly controversial.
It's official. President Biden naming Lael Brainard, his top economic adviser, creating a new vacancy at the Fed and a new director of the Economic Council at the White House. The president running in a statement. Brainard brings an extraordinary depth of domestic and international economic expertise. She's a trusted veteran across our economic institutions and understands how the economy affects everyday people. Down in D.C., is Emily Wilkins moaning Emily? Well, with this move, Rainer is going to be moving into a position where she will be with Biden as he negotiates with Republicans over the debt limit.
Really starts to put some of those both laws that were passed last year into effect, starting to implement them and really being with Biden as he gears up for his 2024 run. We, of course, also saw moves from Jared Bernstein. He's going to become the chair for the Council of Economic Advisers, of course, a group that he currently sits on. And again, going to be someone who's going to be out there for Biden talking about the economy. And, of course, his big thing has been labor unions. That will also be something that he can continue to talk about in the run up to 2024.
Emily, what does it leave the Federal Reserve and that spot, that seat? How difficult is that going to be to sell? It could potentially be very difficult. I mean, we've already seen Biden struggle with some of his nominees to the Fed because certain Democrats think Joe Manchin had some concerns with them this time, that it's going to be a little bit easier. He's got 51 Democrats to work with instead of 50. But the same point. It doesn't mean that it's going to be an easy all the way through. Certainly what Lael Brainard brought was that she was very dovish. She was advocating for those lower interest rates.
Be interesting to see if Biden tries to pick someone within that mold or someone who's sort of more in the mold of Powell with really being aggressive with the interest rates. Of course, the big question here is trying to hit that smooth landing, make sure that the country isn't going into recession. Emily, thank you. Right now, no recession on the horizon. Based on what we saw from payrolls a few
Fridays ago, what we saw from retail sales this morning, sprinkler data moments ago, zero percent, industrial DAX a month on month. That's a slight downside surprise, zero point five percent was the estimate. Manufacturing production comes in at 1 percent. Slight upside surprise against an estimate of zero point eight percent.
That's the latest data features still softer on the S&P by half of one percent on the NASDAQ by a half of 1 percent. Also, and in the bond market, I know many if you look at that move at the front end. So let's focus on that. The two year higher by about a basis
point just short of full 7c off the back of retail sounds. Iran. We got very close to it. About four sixty nine right now for sixty three champ Miami Mohammed then back with us. Jack, can I have Floyd afford to avoid the Fed speak and all these Fed speakers that go rants and different things at different times. It's it's a challenge. John, and you know, it's become, I think, particularly frustrating for me as a Fed watcher over the last 13 months. You know, we have kind of created almost a cult of celebrity as it relates to some of these some of these Fed officials.
And I mean, look, I sympathize with this idea that I could open my mouth, you know, say something about interest rates. And by the time I send is over, I have created or destroyed a few trillion dollars worth worth of value. I mean, that's a lot of power. It's a lot of influence. Now, we certainly cannot discount what these governors are saying, but I think it is also important to recognize that very often they're out actually adding a whole lot of color or a whole lot of new information to the story. You know, this idea of talking about perhaps higher rates for longer. Well, yeah, sure. The dot plot is already telling us that perhaps rates going higher than expected. Well, yeah, sure.
There are certainly some people out there that may despite all of the economic evidence, it's out there right now be looking for some cuts. These are low hanging fruit comments. I think, John. And so, you know, what I'd rather do is focus in on the actual economic data. And I'd be listening for Fed officials providing content and commentary that is contradictory or at least firm relative to what we already know per the dot plot. One Fed official you won't hear from
anymore is said nice chap writing it now. Haglund she's gone to the White House. So you hear from her in that capacity. But do you think that's a big hole that's going to be difficult to fill? How do you think that's going to shift the composition of this Fed? Yeah. Look, I don't have a whole lot of view on that other than maybe, John, you should put your name in the hat.
I think that I like you. I don't. I don't see I don't see that being a major topic or anything in terms of policy change here. You know, back to Jack's point. You know, there is a little bit of how
can we influence or set expectations with the market without actually having to do certain things right. So when they're when they're out there kind of speaking about these topics. One of the reasons I think it's important is by, you know, if there is a miss, you know, if there's a little bit of a misunderstanding between what the markets are thinking and what they're thinking. That's one way of addressing that without having to get more aggressive on the policy side. That said, I don't really see anything changing to my earlier points. You know, we have now priced in a few additional hikes.
That's different than where we were just a short few months ago. And I don't see that changing. My one phrase they throw around a lot is long example DAX. What does that mean?
What does that actually mean in practice? It means that, you know, you have 400, 500 basis points of move that haven't been priced in the markets yet and haven't really made their way into the economic data, right. So I think it's really hard to kind of imagine I mean, we went from zero interest rates to, you know, a terminal rate close to 5 percent. Has economic data caught up to that? Has the economy really seen the impact of that? The answer is no. And I think we are going to still see some of the impact of that policy decision, still trickle in to the health of the economy and what we see, for example, on the employment side. Well, I guess what I'm asking is to what extent is it true? How long can those lags? Given the financialization of this economy over the last few decades that we price it in almost instantly? I mean, markets tried to price it in, but, you know, again, I don't think we've seen that in the economic data. Right. So and, you know, just like we saw today, there are surprises.
Right. You know, we were expecting retail sales around 2 percent. It came in 3 percent. That's extremely, extremely surprising. So I don't think everything is priced
right. We are aren't we aren't really dealing with a fully efficient market. And I do think some of those lags will make their way into the economic data. Three handle on retail sales, 570000 on
payrolls and a lot of head scratching going on might happen. Gentlemen, me to the both of you. Thank you. I keep going back to that line from Julian Emmanuel of Evercore. You're not confused. You're not paying attention. Retail sales coming in by the most in nearly two years.
What a gain that was a little bit earlier. Up next, the Monaco's and later Nadia level of UBS. Want to give more running cuts leaving the S&P 4000 year rent. More on that with Nadia in about seven minutes time. 23 seconds away from the opening bell this morning.
Good morning to you. Equity futures right now down six tenths of 1 percent on the S&P and the Nasdaq down seven tenths of one percent. Do you remember all the recession? Talk to close out 20, 22 and then January happened. Five hundred and seventeen thousand on payrolls. Unemployment at three point four percent
and retail sales climbing the most in nearly two years. That was 40 minutes ago. An hour ago. Just stellar stuff. Equity futures soft again into the open because of this in the bond market. Switch at the board and get to the bond market. Yields look a little something like this higher by 4 basis points, 378 18 year to year.
Very close to 470. A little bit earlier. Backing away from those levels year to year. Right now, it's plus two to 463. Your dollar is stronger against a weaker euro. Euro dollar 1 0 6. Seventy five were negative six tenths of one per cent and crude negative eight tenths of one per cent at seventy eight dollars. And let's call it 40 cents. Thirty seconds into the session.
Equities look like this, negative six tenths on the S&P, on the Nasdaq, down a half of 1 percent, just a bit softer off the back of better data, pushing yields even higher, sparking that conversation. We'll feel for it that this cycle gets extended and yields are going to go higher because the Fed has got more work today. One stock to watch the open air and B, issuing a better than expected forecast with its high number of active books on a record. That stock is up by more than 8 percent. The company saying, quote, It demonstrates, I guess, excitement to travel on and B, despite evolving macroeconomic uncertainties and love that corporate speak, evolving macroeconomic uncertainties. Mandy, think let's make it simple. They got it done, didn't they? They did. And look, I think when you look at the
execution in terms of coming out of the pandemic, they were strong during the pandemic, but coming out, they look even stronger. So the top line growth as well as operating leverage actually stands out from all the marketplace peers. I mean, we talked about Uber and Lyft last week, how they're looking to shore up operating leverage in the case of Urban Bee. I mean, this company has 25 percent plus EBITDA margins at the scale that they're operating.
I think this is probably the best looking marketplace business out there right now. What is going on with travel, the airlines before today's session? The airlines up, up, aggressively. United up 33 percent. American up 32.
Dancer up more than 17 percent. At BNP, 2 in well over 2 in. Well, what you make of all of this? Yeah, look. And even the hotel. So I think Marriott and TripAdvisor, they reported all of them are benefiting from this pent up travel demand.
And look, this isn't a one or two quarter thing. I think it's going to probably remain at least for the first half. The only concern I see is maybe there could be an uptick with cancellations if people decide, you know, they don't have enough money to spend. And we haven't seen that so far. But that was the only kind of metric in
the European vs print where they talked about cancellations going up and room night growth is sort of decelerating. But right now, we see no signs of travel actually coming down. Mandy, post pandemic. If it was twelve months ago, someone would have said to you and I, this is revenge spend. It won't last. The Fed's going to be hike in interest rates. Here we are, 400 basis points plus later.
Do you see any sign, any evidence whatsoever that things are slowing down, actually. So you have to go by geography. I think U.S. domestic travel was very strong over the last one a year and it probably will continue for the next few quarters. Internationally, it wasn't such a big lift for all these companies.
And that's where if China outbound travel really rebound sharply, that could be a big tailwind for all the travel companies. And you want to move happy and be more than 10 percent. Appreciate your time, as always, from Bloomberg Intelligence Mandate Singh of ten point three percent on APM. Be close. Their biggest study can come back to May 20 22. Keeping an eye also on the semi's, chip stocks falling after purchase. Thirteen f filing shows the firm slashed its TSMC holding by 86 percent last quarter. IBM small happy.
Hey, John. Everybody loves to watch what the Oracle of Omaha, Warren Buffett and Berkshire Hathaway are doing and what Warren Buffett did in the third quarter of last year. Hedge funds piled in for the fourth quarter.
But what Warren Buffett also did in the fourth quarter was to sell a big part of that TSM position that was acquired in the third quarter, really creating the idea that their early, fast money. I've never thought of Berkshire Hathaway that way. But in the third quarter, they did buy 60 million shares for 68, 33. They sold the bulk of that position in the fourth quarter for a roughly half billion dollar profit. Meanwhile, some 68 hedge funds piled into Tijuana.
I'm a conductor in the fourth quarter at Renaissance Technologies. I included buying roughly seven point six million shares. Now, this, of course, ahead of this year's big rally of up twenty three percent, leading some of those other technology stocks.
Somewhat baffling in some ways. John, given the fact that we've also had yields back up. But it does support. Idea that you'd been talking about all morning in recent days. This idea of a no landing. But when we take a look at chips and Taiwan Semiconductor going back to last year. Well, it's interesting because this rally really has been building Taiwan's I mean, conductor added the November low up 53 percent.
We have the chips up out of the October low, up more than 44 percent. Big, big buying power here for the chip, which could be a good sign again for the idea of no landing, given the fact that they are an early tail for technology. It seems like a lot of the supply chain kinks have worked out and demand is decent. Abbi, thank you. On the latest, we keep hearing that phrase, don't we know landing? Been talking about that for weeks and credit to nail down to a friend, Max, that being on top of that story as we closed out last year. Equities right now on the S&P down a half of one percent, about five minutes since this on the NASDAQ down a third of one percent. Your scores yet today. And bear in mind, running half way
through February was still up 7 percent on the S&P. And the Nasdaq here today were up about 14 percent. Remember the consensus view on Wall Street coming into 2023? It was first half dip and second half rip. Well, now as first half rip and maybe even a second half dip.
The consensus on Wall Street falling apart. Investors taking sides. Chris Harvey of Wells Fargo calling time on the bear market. Morgan Stanley's Mike Wilson saying We haven't seen the bottom yet. And Bank of America defeatist.
Subramanian said this. S&P 500. We could remain in this bear market for a while because we're in the process of right sizing, tax rates and everything else kind of getting bigger and the benchmarks. And that's not going to be a great environment for the S&P 500. Nadia lovely.
Yes. Echoing that view, saying the following. There's more cuts to come to forward earnings estimates. The risk reward is not compelling. And we expect the market to correct
natural, I'm pleased to say, joins us right now. Now, you've said the year to date gains and thanks for being with us. Up 7 percent on the S&P and the NASDAQ up 14 percent. And all of a sudden a month and a half into 2023, the equity market sits on top of your yearend price target. What are you advocating for now? We think that is on the higher end of that scenario.
You think that this tug of war between hard landing, soft landing and no is probably going to continue for most of the first half of the year. Right now, the market is choosing to look through the inflation data and we'll focus on the current economic growth data, which has been fairly resilient, just given the strength of the consumer. But we think that this market is going to pull back. I mean, some of the factors is really driven this market.
He had a data starting to show exhaustion. You know, systematic position is a little bit more balanced now. The short covering peak is behind us. And we think that the earnings picture
still remains in a deteriorating downward revision cycle. And when you look at valuation, you know, valuation is now extended. And so we think that that's going to be the resistance. The bond yields are moving higher. They're reflecting that higher inflation risk and the Fed reaction function. So it's becomes more difficult and challenging for all to argue for further multiple expansions.
And so this is why we could tease or maintain our price target of around 4000 for the S&P 500. And that is on those high yields, also reflecting better hot data, retail sales and payrolls. What does that mean for the equity cold? Yeah, you know, I think their term like it can help support the mark in their term, but we do expect that data to start a.. Yes, the consumer extent, excessive spending and excess savings are lasting a bit longer.
But we think that as you start to feel that drag of monetary policy, I mean, right now in the market, it's prices today. A Fed funds rate, that's about 5 percent. And it could go even much higher than that, depending on if the labor market remains excessively strong and we see upward pressure on rates rose.
We know that Chairman Powell has said that and we know that in the December gods, like most of the members, skewed very hawkish Lee. So we think that ultimately what's happened is that you have to pull forward of the returns that we expected in the back half of the year in the first half of the year. But we think that that will correct itself as the year progresses. Not enough for me to say that you'll be wrong, but I'm just wondering what would make you change your mind? How many more payrolls, Prince? How many more retail sales numbers like the one we got this morning would it take for you to change your view? I think what we need to see is that we need to see wage growth continuing. We need to see that the Fed always is right. We still don't know when exactly the Fed is going to pause.
We need to also see a bottoming of the earnings downward revision cycle. If you look at some of the flawed indicators, like the forward indicators are really pointing to more risks ahead, whether that is the ISE of manufacturing, the senior loan officer survey and the new orders are all pointing in that direction. So we just think that is a matter of time before all this correction happens. You're already seen in the downward revision cycle that's happening in the market. The market is just choosing to ignore what is actually happening under the hood in terms of earnings growth. Earnings weren't great. These bond moves go against what we've seen in tech.
I'll go through it piece by piece. I think we bottomed on the two year in early February, just north of 4 percent. Since then, we've had a move of more than 60 basis points in this equity market as hardly parched.
I'm looking at some tech names. Nadia matter up by close to 50 percent year to date before today. Tests are up 70 percent, Apple up 18 percent. Is everyone just crazy or is this
something in this? Is there something to learn from what we've seen so far yet today? No, I would never say that everyone in the market is just crazy. I think what you're seeing is some some companies are rewarded for improving efficiency. You know, that's going to have a better potentially free cash flow going forward. But it is perplexing to see the rally
that we've seen in tech so far. Just given the move up in bond yields and the outlook remains deteriorating, that normalization process is happening in tech. When you look at some of the selling names that really rally, you are seeing the continued weakness in pieces. You're also seeing this weakness also in high end smartphone.
You're actually now starting to see price cuts as well, particularly in P.C. chips as well as networking chips. And that has implications for margins going forward. And that it could mean that's for some semiconductor companies. You could see margins that come down
below the pre pandemic levels as well. And then when you look at software like the cloud, that's decelerated massively. I think you'll also see some excitement more recently around A.I. and machine learning. And, of course. Yes, that's exciting. Just given the implications of going forward for the technology.
But it also likely means that increase intense investment cycle ahead and that's going to have implications for margins as well as cash flow. And you know, even though with the rally, when you look at where consensus is for tech on terms of earnings is in line with the market, but tech is trading at a 30 percent premium to the market. So we think eventually that valuation premium is going to correct and come back. So tours that longer term averages
around 10 percent premium and that there are things you like. If memory serves me well from the last time we spoke, E.M. China, German equities, they three flavors of the same think. They are related, of course. You know, some of this has to do with China reopening much faster and stronger than expected. That has implications for Europe. We're also seeing that, of course,
Europe has gained some reprieve from the lower energy prices given the warmer winter in Europe. We think that the Chinese consumer is going to be traveling extensively, as you noted earlier in the segment. There is a pickup in travel and we think that that's going to intensify as the Chinese consumer travels, which starts this summer into Europe. And that should be a positive. Also, Germany. Germany is an export driven economy. And so any sort of incremental pickup in demand from China is going to be beneficial to German equities.
Is that enough to offset the deceleration you expect in the U.S.? You're right. Now we do before, as you noted, in terms of a light lineup, we do prefer X U.S. vs. U.S.. We don't think that we. We do think X U.S., of course, like China, will be enough to offset some of the drop from the U.S. But we still continue to think that the
U.S. economy will enter a recession either later this year or early next year. Just given the the I hate to use the term that you've been using all morning terms of the variable and long lags of monetary policy. We think that ultimately that is going to come to fruition as we head into 2024 and we'll see how long those laxer. Nadia, thank you as always. Just pretty not enough of a UBS, but two
ways to looking at this. Not for me to tell you how to look at it one way. You can just sit here and say there are long confab blacks. The work the Fed has done over the last 12 months will hit the economy eventually in a more material way.
Or you can draw the conclusion that this Fed has not done enough and no touch of red. Mark has been pushing that story alongside Paulson's flock of Apollo and others. Equity futures were negative going into the open and found coming out of it. About 30 minutes into the session. We're down by third of 1 percent on the S&P, on the Nasdaq were down two tenths of 1 percent.
Maybe not the drama you expected after retail sales yields a little bit higher throughout this morning. We are now dead, unchanged on a two year after coming very close to 470 right now, year to year for sixty one. Coming up, the outlook for crude just got a little bit more constructive. Who would be worried more about where the supply is coming down rather than the demand? I'm not worried about the demand. That conversation next. This is Bloomberg's The Open. I'm Lisa Mateo, live in the principal
room. Coming up, Airbnb CEO Brian Chesky. That conversation at 430 p.m. Eastern. Nine thirty p.m. in London. This is Bloomberg. Hopefully by the end of this year, we're going to come out of war and the we. Trust me, we will be worried more about where the supply is coming down rather than the demand. I'm not worried about the demand.
I think. I think what worries us is are we going to have enough supply in the future? The market sounds clever enough for crude. Now it's about supply. The IEA boosting its global demand forecast rates in the following. China's reopening will give a welcome boost to the listless world economy. The country is set to resume its established role as the primary engine of world oil demand growth and place to sound this story.
Alex Longley joins us now. Morning, Alex. Good morning. It's. It's been quite, quite the catch up from the IAEA. The market has really been talking about this China boost for a little while and a 500000 barrel barrel a day revision to the global demand forecast for this year. That's a pretty chunky move. And it tells you something about the second half of the year.
Traders for a long time have been pretty optimistic about how things are going to look and PR under. And one of the market's top hedge fund players saying basically the second half, we can look for prices whipping up towards a hundred and forty dollars a barrel. Goldman Sachs have been saying that for a little while as well.
And against that, what you need to remember is for the moment, prices aren't doing a whole lot. We've been trading in a 10 dollar range for much of this year. And this is something that's really carrying forwards into the second half. The traders are looking for and analysts are looking for. Is the demand recovery in China going to
be enough to pull the crude price with it? Certainly having just come back from Hong Kong myself, it seems as though the reopening is real. And I think what traders are looking for now is to see a sloppy first quarter crude market be tightened up by that China pull as we come into the second half John. Alex, how conservative do you think OPEC's going to be in the meantime? I think everything that we hear from from the member states and my colleagues on the on the OPEC team, it doesn't sound like there's any plans for a production movement anytime soon. And the Saudi energy minister for a long time has said he's going to wait and see demand before he acts upon it.
And that was a key theme last year when, again, there was talk of higher, higher levels of demand than it never quite materialized. So I don't think you're likely to see OPEC making any sudden moves in anticipation of a demand surge in the second half of the year. They're going to be reactive to that rather than products. Alex, thank you. Alex Longley on the story. Let's extend that conversation with Jack Saatchi at Bloomberg.
Jack joins us now. Jack, it's always great to catch up with you, sir. Just frame that a little bit more for us where this leaves OPEC plus and how they are responding to the criticism they got from this administration going into the midterms just a few months back. Well, I think with hindsight, it looks like they were they were taking a fairly reasonable action. You know, they they cut production, actually. Oil prices have come down. They've been trading in this kind of fairly range ground area.
We've seen energy prices across the board, not just oil, but also gas and coal have come down. And the world is breathing a little easier at the moment than it was a few months ago when when you and I last spoke, John. I think this is there's this dynamic which Alex highlighted playing out across commodity markets at the moment, which is everyone is looking ahead to what China's reopening is going to mean for the global economy. And it's a really strong picture. It's quite hard to see where the supply of a lot of key commodities, oil is one of them. But I mean, you could also look at gas,
metals, and it's quite hard to see where the supply at some point is going to come from. But right now, you're trading the markets today and there's still plenty of supply today and quite a lot of these markets. So oil, for example, the story is Russian supply has not fallen nearly as much as some people expected it would do. And so the markets are looking
relatively well supplied today, but people are worrying about what's going to happen in a few months time. We're pricing today also the investment decisions made five, 10 years ago. Jack Alex mentioned the Goldman CO, Jeff Carrier. You remember that line from Jeff Curry in the last 18 months or so? It's the revenge of fossil fuels, Jack. We've come into 23. We've trained DSP are here in America.
You can hear some officials in opaque plus really kind of flashing the light, waving a flag, saying we might have a problem here on the supply side. Jack, do you think we might? Can you give us a little bit more information on that? I think we certainly might listen. We've already had the problem on the supply side, right? Like last year across a number of commodities, most obviously gas and coal, but also oil. Remember, oil prices got three hundred
thirty nine dollars last year. We've had a supply side issue already. We've had extreme increases in the price of energy commodities. Today, it looks slightly better. But if we have a strong global economy for a few more months for the rest of this year, we have trying to growing strongly. I think very soon we're going to be
having that conversation about underinvestment in the supply side, not just in oil, but also across the energy spectrum, across metals as well. Well, copper is absolutely ripped as well. That's the story maybe for later this year, too.
Jack, awesome as always. RTS just reminding us that we saw triple digit crude last year. And remember, we did that with China locked down. Let's see how that demand clicks in a little bit later this year. Brent crude down about 1 percent. Eighty 467. WTI down about one percent or so.
Seventy eight dollars and about 17 cents. Twenty two minutes into the session, we pull back a bit by four tenths of 1 percent on the S&P and the Nasdaq down two tenths of 1 percent. We've been focused on the front end of the yield curve for the last 24 hours for sure. Your 2 year came really close to 470. A little bit earlier on 469 off the back of a much, much stronger retail sales spread. Big upside surprises packed away since
then, 461 on a two year. Let's get some sector price action is up. Hey, John. Well, that weakness in oil that you were just talking about, it means energy right now is the worst sector, down about 2 percent. But what's so interesting, we're looking at a roughly four tenths of 1 percent decline for the S&P 500 very low volume, 20 percent below the 20 day average. But yet all sectors are lower. So a lot of small declines right across
the board over the last month, though, John. It is a big, big difference. It's much more of a risk on picture because over the last month we have our hardware and equipment technology up about 11 percent. We have the chips up 11 percent. Energy, though, it is down over the last month.
And then take a look at utilities down 5 percent. That, of course, has everything to do with yields higher making those dividends look less attractive. Abbi, thanks for that. That's the latest on a sector price action.
Up next, trading diary. Retail sales in America jumped by the most in nearly two years. Five minutes into recession, equities pullback by six tenths of 1 percent on the S&P, on the Nasdaq, down about a half of 1 percent. Taking a small bite out of a decent year today, gain in the bond market. Yields have been pushing higher over the last couple of weeks. We came this close to 470 a little bit earlier at the front end of the curve.
The two year backed away since then. Right now on your two year, basically unchanged at 460, 96 as the price action. Here's the trading diary. Coming up, President Biden discusses the US economy at two thirty Eastern earnings from coming up from a Cisco after the closing bell. Plus, another round of jobless claims and U.S. CPI Thursday. And finally, more Fed speak. Mr.
Bullard, Kirk Barker, Obama to close out the week. That closes out the day for me. Thank you for choosing Bloomberg TV. Good luck for the rest of the trading day. This was the countdown to the open. This is blowing back.