Bloomberg Markets (02/08/2022)

Bloomberg Markets (02/08/2022)

Show Video

From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the U.S. trading day on Tuesday February 8th here at the top market stories we are following for you at this hour closing in on two percent. The 10 year Treasury yield inches higher and traders see that nice round number in sight.

It's just one part of a bond sell off rippling across the globe amid expectations of more aggressive tightening. A plot twist and pellets on the fitness company reports early cuts its revenue forecast plans job cuts and announces its CEO John Foley will be stepping down. How does it all change the odds of a potential sale. And small business big price pressures. NFIB optimism falls to an 11 month low with the weight of inflation and labor shortages. We'll take a closer look with Sharon Miller Bank of America president of Small Business from New York. I'm Kailey Leinz with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets. And Guy you and I were just discussing it feels like it should be later than the week then it is because the news flow just keeps on coming. It continues to be brutal and it continues to policy in lots of

different directions. What do you think. We get to two percent by Friday. Do you think we can expect that a lot of things to get through between now and then. Feels like a fairly big number doesn't it. Let's talk about it Kelly. You raised the question so let's dig into it. Two percent is now insights. Historically two percent doesn't feel very high. But does it mean anything if we get to that kind of a level does a 2 percent yield really do anything for these markets. Well let's kick it around a little bit. Kelly and I have already been discussing it all morning. Let's bring into the conversation. Kitty good to Bloomberg

Markets reporter and IRA Jersey chief US rate strategist for Bloomberg Intelligence. IRA let me start with you. This 2 percent mean anything. How quickly do you think we get there and where do you think fair value even is right now. Or so. Well that's three different questions. So firstly two percent really doesn't mean a whole heck of a lot. In fact if you look at most of the charts we're actually right there at one point ninety seven percent which is a very important technical level for these markets. And above that we could very quickly get to around around 2 and an eighth on on 10 year yield. So you know 2 percent is kind of a vacuum. Okay. Kind of no either side of that. Whereas fair value fair value is actually right around where we are. So is our fair value model shows for 10 year yields around one point 9 2. But importantly look at where tips

are because this whole move has been all about really yields. It's not about inflation. It's not inflation going up or the market expectation inflation going up. It's all about the Fed and hawkish monetary policy and really yields have gone up substantially. So watch those and those currently are approaching our estimate of fair value at around 40 negative 40 basis points on the 10 year. Right now they're around negative 46 basis points. Well as I points out creamy real yields moving higher. The equity market doesn't always take kindly to that. It's 2 percent a bigger threshold from the equity market than maybe for the bond market in that sense. You know it kind of seems like it would be just given kind of the carnage that we

saw in 2021 I think was about a year ago to the day where you had the kind of mean frenzy the idea of 10 14 basis point moves really rocking tack and of course the index broadly. But I think I was right here. And that two percent doesn't actually mean anything not just for the bond market but what are you for the stock market as well. There's always going to be those kind of short term fears those near-term fears that 2 percent is going to be kind of the shocking round number. But if

you look historically when we have crossed that 2 percent barrier I'm looking at 2013 with the taper tantrum after Ben Bernanke he made that congressional testimony. Yields shot up over 2 percent. They were actually below before that same story in 2017 right before the trade war. You also had this kind of growing in line with yields. So yes immediately on that knee jerk reaction you did see a little bit of a sell off but he kind of rubbed it kind of rubbed or what's the word. It kind of shook it off the shoulder whatever the phrase is. Was it on the chin. Yeah. There you go. It kind of rally. There's a British way of saying that. Yeah. There's always a good British way of saying pretty late. Okay. Let's. IRA brings up inflation and says that this isn't about inflation. This means that we're seeing right now. And suddenly you look at the price action particularly

since you can see the justification for that. Nevertheless we're coming up to the big inflation points of the week. We're looking at CPI. And I'm wondering kind of which assets are going to react the most to that CPI going to be something if we get a expected or higher print going to be enough to push us 3 2 percent equity markets is starting to sell off now. Do we get a bigger reaction there. I'm wondering how inflation is going to be priced later on this week. It's the asset classes that we're tracking here so carefully. Where do we get the big reaction bonds or equities. Yeah. Can I take a third option say the dollar because I think early

where it could be the big one. The idea here is that the bond market is of course going to react to the CPI print no doubt about it. But the equity market seems to lately at least in the last couple months been taking their cue. The idea that it was kind of spooked by yields in 2021 and 2022. It spooked more by oil prices than anything else which of course is the driver of

those inflation fronts interest. Typically when we get those CPI points you actually see CPI beat the survey estimate. So it's kind of that assumption that they're going to be and they're going to beat by a huge amount or the CPI for it's going to be by huge amount relative to the economic surveys that you are seeing. So that's the kind of mentality the S&P 500 equity investors are going to be going into the print with. The bigger move is going to come from the dollar especially because they're kind of dealing with those haven flows that are ongoing the idea of rate differentials essentially but also the inflation for us. I think if you start to see a higher spike in the dollar off that CPI inflation print that's ripple effect is what you're going to see in the S&P 500 and commodities as well just given that they're pricing those dollars. So I mean is that third option. I think it's a guy named Guy. If I could. If I could. I'm here just for a second on that. Yes. So if you think about you know my fear is that if we do get a much higher than expected say something

close to 8 percent on headline CPI this this month which is is a non-trivial probably a possibility that what what probably happens in the rate market is you get a significant flattening of the yield curve and that probably will affect risk asset markets pretty significantly. So it's like the second order effect is you know the curve flattens. People say oh the bond market is saying that we're going to have a recession next year and that's going to hit risk assets. So credit spreads wider equities may be somewhat lower on the back of recession fears for for a twelve month twelve month forward look. All right. So CPI one potential catalyst this week IRA. We also have a significant amount of supply coming online. When

you look at the auction slate you got threes today tends tomorrow 30 is on Thursday. What are you expecting in terms of what the take down could be like in the resulting move in the bond market. Yeah. It's hard to love these auctions. Right. So so we will be watching very closely what the bid to cover ratios are and who exactly gets these bonds. But remember the Treasury Department is cutting them so they just cut them a. A couple of billion dollars 20 year next week is actually cut by four

billion dollars and they're going to continue to cut auctions for the rest of this quarter. So. So I do think that there is a risk that that's the impetus when we get the 10 year auction tomorrow that you could push too you could finally see a print above 2 percent. In fact the one issued issue for the tenure is right around a little bit under but very close to 2 percent right now. So. So this new 10 year might be the catalyst for that 2 percent number to finally be hit. Pretty only come with a European angle as well and figure out what is going on globally. We have seen since last Thursday a

huge repricing in European bull markets to reflect that pivot that was delivered by Christine Lagarde. To what extent is that playing into this rapid move higher that we're currently seeing in the U.S. tenure. Well a good chunk of it I would say I say like the latest like higher is actually coming from essentially what you saw on those periphery yields. Italian the Italian spread to boons especially actually influencing what the yields are going to be doing. That's really where you're seeing this kind of get closer and closer to a 2 percent level. That doesn't mean it's going to continue though because I think as you start to see more commentary coming from the Fed and a little bit more clarity about whether or not we get the 50 basis point hike in March which I think is the real question when it comes to the U.S. bond market at least on the surface level here and we're

talking about this cross asset correlations the idea that the bond market is still pricing in a 50 50 chance of a 50 basis point rate hike in March. I think that clarity is what's going to move the needle more than what you're going to see from other central banks around the world while creating. To that point I feel like I'm seeing more and more notes out from strategists at different Wall Street banks essentially saying we've seen it all priced in at this point. The peak hawkishness. It doesn't get

any worse from here. Do you get that sense looking at where these markets are that it's all baked in already. You know it's interesting that you say that because that's what people said about the Bank of England. And yet you saw a pretty interesting reaction. Right. They said it was all priced in. We know of the Bank of England was very hawkish. And then here we are. And the

reaction was well the ball's now in the guards court. Right. That what the ECB does is going to create that currency moves more than anything that the central bank does. If you apply that same logic to what you're seeing here and the Fed the idea that yes the Fed seems to have taken this hawkish tone well it's not just them right. It's the entire world. And they're trying to target inflation which if you look at what's going on we go global here. If you look at these attempts to target inflation from central banks around the world emerging markets which are far more exposed those commodity moves than other countries. They've been trying to do this for months and months on end. This is why the Fed is behind the curve right. Because they've

been doing this a way before the Fed even decide to admit that transitory wasn't worth using the word wasn't worth using anymore. And yet they still haven't done it. So I think the bigger question isn't necessarily is the Fed going to hike. Is is the Fed actually going to be tackle tackling inflation. Very good question. Thank you so much to Bloomberg Screen Gupta and of course to IRA Jersey of Bloomberg Intelligence and Guy. Of course to critics point it's not just if the Fed Fed will hike it's also a question of how far they will have to with a market reacting like this how much work has the market already done for not just the Fed but central banks across the board. And the markets reacted really quickly and I think this is significant as well and it's now starting to creep in the credit markets as well. And I think that's the real tale here in terms

of the way that the market may be repositioning a little bit faster than the Fed is in some ways. If you start to see credit reacting if you start to see that transmission mechanism being affected in the United States then I think that is something the Fed will pay attention to and we'll maybe have to sort of lean against in terms of the it's it's about the pace here that I think is important. And that's what's really catching my eye here. The credit markets beginning to move. Is the Fed going to be comfortable. Not with the not with the move but the pace of the move. Bond yields are going higher. Is the Fed going to be comfortable with the pace of the move 2 percent. I don't think it's particularly relevant. But how fast we get there I think is. And what does that tell us about ultimately whether terminal rate is going to be as well. Yeah. How comfortable will they be

with a flatter curve as it persistently flattens. Definitely questions. We will try to answer and we'll talk about with our next guest coming up who thinks we may have been at peak hawkishness already. Where does he see us going from here. And what role does the retail investor have to play in all of this. We haven't seen them buying like this in about a year. We'll talk with veteran Patel global macro strategist at Banda Research about that next. This is Bloomberg. 196. 14. That is where we currently sit on the 10 year Treasury yield getting closer and closer to that nice clean round 200

basis points. But our question of the day is what a 2 percent yield actually mean anything. We're joined now by Mirage Mittal Banda research global market strategist. Mirage obviously we like round numbers. It's something that we can mark to you and pay attention to. Does it actually make a difference whether we're at 2 percent or 1 point 9 9 percent.

In reality probably not. Especially for the Fed. You know I think it really here you know whilst it's really difficult to be a dove in the world of the hawks at the moment you know we do think that we're really we really are urging people cash fed. A couple of reasons for this. I think you have one just in terms of what's baked into the front end. You know this aggressive

front loading tightening is a narrative that we would want to start feeding. You know all the talk around the 50 basis point hike is not what we see on the cards. We really just want to get that first hike out of the way and effectively see a buy the rumor sell the fact across yields. But really what's going to be important this week in CPI and especially tomorrow's CPI Fred. You know we think that it could come on come in on the softer side especially given a lot of the factors that have been driving the upside. Things like new and used car prices. We started to see them moderate. So you know the Fed had this peak

I guess an inflation coming in the second half of this year. If we start to see signs of that earlier as early as tomorrow then I think that will be a real big wakeup call for both the Fed and markets especially in terms of what the Fed can actually deliver in terms of rate hikes over the next couple of months. Veronica. Hear hear what you're saying about peak hawkishness. But nevertheless the inflation print is going to tell us that we are still well away from where the Fed's target is. And as a result of which the Fed is going to have to take some remedial action to get there. And that probably means taking interest rates north of 2 percent. We haven't fully priced that yet even at the fronts that we haven't fully priced that yet. So isn't there more room to go in terms of yields going higher. There's a couple of ways in which this plays out really over the

next two to three years. On the one hand yes I think if central banks wanted to just take interest rates straight 2 percent in a linear fashion facts about quakes like what we're seeing prices in the UK know that is one option. But as we've learned from the post GFC era of really gradual limited it has always been the phrase and we don't see any necessary need to veer from that messaging too fast too quickly. At least in terms of where the London zone is for inflation. As I said the talk comes in slightly earlier. If we get to a period of good deflation this time next year. Energy based IBEX working their way out of the

CPI print. We could be in a very different inflationary environment one that optically looks bad for the Fed to continue tightening in an aggressive manner. So I think markets are really underestimating this scenario where central banks get a couple of hikes on pause. See how the economy digests that and then waits to get a second wind of rate hikes at a much later stage. So what does that mean for the equity market for us. Yeah I think we're getting close to a really constructive environment for growth and attack mode for one know see if yields do start at least the momentum in the selloff in the bond market starts to wane in the next couple of weeks. The second factor is really positioning. We've seen a huge capitulation in

positioning especially across the U.S. equity investor types based on our indications here at Bond. And I think that coupled with a peak in yields at some point would be a really constructive environment for growth in tech stocks. One factor that we have also seen is retail investors buy and that's going to be construction shots as well to the environment group. Okay. So let's just dig into the retail side of things for us. What if retail investors be doing during January into February.

We've obviously see huge amounts of volatility. Growth stocks have been hit particularly hard. Have they still been buying. What have they been buying. And would you expect that buying as you suggest maybe to shift back to growth if they've been picking up other areas. Once we start to see the environment you suggest will come to come to bear. Yeah. You. We've noted this is a really different retail investor to what we saw pre-programmed. And you know I think there's a lot of people on the street waiting for that capitulation to come through. Look we haven't seen it over the

past month. You know we estimate that net purchases by US retail investors has been around 30 billion dollars. And that's equivalent to what we saw this time last year. You know at the height of the main stock rally. So retail been buying the debt quite pretty aggressively especially on days of heavy selling. But on those rally days what we've noticed is that older folks

older buying has been focused on large cap techs in particular. You know this phrase that we're going to hear the time stocks you know Tesla Apple AMG and video these new large cap tech stocks which has been effectively the darlings of the retail investor world. That's where all the bindings been focused on. And that's probably where all the blades are going to be focused on in the next couple of weeks if we get a bottom in equities. Okay. We'll see what causes that boredom in equities maybe to form a mirage. Always a pleasure. Nice to see you on the show for Raj Patel Fund a research global macro strategist. What are we gonna be talking about next. Gonna dig into some of the corporate

news. We'd be watching shares in Pfizer a little lower today. The drug makers latest forecast for sales and profitability coming up short. Details next. This is Bloomberg. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now. Embers could get to big changes are on the way at Palatine the fitness company's share price plunge after a slowdown in demand. Palatine

co-founder John Foley is stepping down as CEO and will become the executive chair. He'll be replaced by the former CFO at Spotify and Netflix and Barry McCarthy. Those moves are seen as a victory for activist investor BlackRock Capital. Paulson also said about twenty eight hundred jobs will be cut. The Australian electric vehicle charging company Tritium will build its first U.S. factory in Tennessee. President Biden and tritium CEO Jane Hunter will make the announcement today. The plant will be

located east of Nashville. It's expected to create 500 jobs and make as many as 30000 electric charges a year. Pfizer will cost twenty twenty two thousand profit. That fell short of Wall Street estimates. Drug makers expectations for his of ISE vaccine and recently cleared oral therapy disappointed investors. Pfizer's 100 billion dollar plus target for this year would mark a record high for the company. And that is the latest business. Flash guy hit me pretty good. Let's pick up on that Pfizer story and talk about it a little bit more. Eye Wall Street was really bullish on what was expected from Pfizer. And you just wonder how we ended up with this gap in expectations versus reality. Let's turn kick this around a little bit. Sam

Persily senior pharmaceutical analyst for Bloomberg Intelligence. Joining us now. Sam how do we end up where we are right now which is a big drop in Pfizer's share price. Wall Street was expecting a lot to be honest. Pfizer delivered a lot but not quite enough. So how did we end up with this gap. Was it a communication problem. Was Wall Street just simply

getting ahead of itself. Yeah. Hi guys. So when I look at the numbers we have detailed estimates and Bloomberg Commodities Edge which we can look at. You could see that the estimates have given for community which is their Covid-19 vaccine for 2022 is about 2 billion shy of what the consensus was looking for. So it's up 32 versus 34 a tax. It is at 22 versus about 25 the consensus we're looking for. The question I have is why does anyone think that consensus was going to be right on any of these numbers. If the company had at all they had done was say this is the number of doses we're going to make that we know about Paxil of its price in the first contract they did with the US and that's about it. So how this

number fall fall I think is what what consensus that obviously got a bit too excited about. Now could could they do better than this. I think so. I think they could do better than this especially on Paxil of it as the year goes off. But let's see what they see in the call with regards to the average pricing if they ever make you comfortable. Well one reaction from Citigroup was about its dependency on Covid treatments and vaccines in particular saying quote It remains the challenge and the opportunity. Is Pfizer at risk of becoming too Covid oriented here. Well not really. I mean they have two of the best products

out there. It goes to a vaccine and a drug for Covid. That's just the way it is. So let's just celebrate that. But in the reality what's happening underneath if you take this layer of Covid away is business as usual. Some products didn't do well because they had pressure from Kobe etc. So the company has a lot of pressure on now to utilize this cash flow in a good

creative way. And that's going to be the interesting thing to see because it's not going to last forever. At some point we'll end up just taking an annual shot perhaps if you're over 60 or whatever. And so that's that's the critical element here. What are they going to do to get the rest of the business to motor. Sam what does this mean for beyond tech out of Germany. What does this mean for the Derna. What do we learn about what is happening in the wider pharmaceutical market today. And what do we learn about what the long term trajectory as you say is for Covid treatments and how maybe that's going to fade a little bit. Yes so far beyond tech it's relatively easy. It's not that easy because it's not the only. It's not like they take half of what Pfizer make in terms of gross profit on the vaccine and that's their revenue because they sell direct into Germany and Turkey. They also have a deal in China with Frozen. So it's a bit more

complicated. What exactly they receive. But obviously ISE gets less than they'll get less in terms of sales for more than ISE a lot simpler. If Pfizer is doing X amount then I think people will assume that we're going to do just a little bit less. So for all of these vaccine makers we're still going to be having this question. Guys what are we going to need in terms of further shots throughout this year. And what does that mean for next year. Shots that have been contracted this year don't end up being used. Right. Does that then fall into 2023. All right. Excellent questions. We'll look for answers. Thank you so much to Sam Brazil a senior pharmaceutical analyst for Bloomberg Intelligence. And as we

know Colbert has impacted inflation and the labor market that affects small business. We'll discuss that with Sharon Miller Bank of America president of Small Business next. This is Linda. For about an hour into the Tuesday U.S. trading session and as usual Abigail Doolittle is here following the moves. Abigail it's less exciting in stocks today more about the bond market. It is certainly more about the bond market. Right now we have stocks fluctuating between small moves or at least small modest mixed moves. Bonds though it's very clear what's going on. We're looking at a bit of a sell off.

This is a 10 year yield over the last year actually from the last year. And you can see right now almost at 2 percent we've been talking about the possibility of 2 to 25 even 250 on this program. Well there is 2 percent. That of course brings into question valuation on tech stocks. Also the cost of money for companies higher prices for consumers. But right now stocks are

doing relatively OK especially not surprisingly bank stocks. Take a look at J.P. Morgan. Bank of America really eating that up as yields go higher of course can help their lending activities. Oil is down a little bit today on the idea that perhaps geopolitical tensions are easing. So you can see some of the big

oil names are down. One stock that's not down in fact up for a big way in is for a second day. Here's peloton. Take a look at this. Over the last two days now up 41 percent in the premarket after reporting a very disappointing quarter. Also announcing a new CEO and organizational changes. The stock had been flipping around but right now up about 12 percent up more than 12 percent actually beats yesterday up about 21 percent. So big big gains for Palestine largely has to do with the speculation that the company will be taken over by another company. Investors long probably relieved about this because

this is the new range in terms of revenue down sharply from the prior forecast and the estimate IBEX profit a much wider loss than had been expected. And then of course the subscribers of three million down from what had been expected. But again by the Victorian peloton is the idea that perhaps a company maybe Nike or Amazon those names have been thrown out could acquire Peloton. Was this enough to keep the activists happy. Are the activists going to be wanting more. Are we going to see other C suite executives maybe having to depart as well. Abigail thank you very much indeed. Let's turn our attention to some of the data we've seen really relevant to the U.S. economy and the trajectory we're on. Inflation and labor shortages certainly weighing on the minds of small business owners in the United States. The latest ripples on small business sentiment is out. The NFIB data released a little earlier on the Bloomberg terminal. Bloomberg's international economics and policy

correspondent might be key. Joining us now to sift through what we should take away from these numbers. Mike what's the big takeaway. Well the big takeaway is that small business owners are starting to get less and less optimistic about the economy. As you can see here the optimism index the white line has declined to ninety seven one. That's below the average for the NFIB numbers that it's way below where we were before the pandemic started. They see profits falling. And as you see with

the yellow line expansion plans have been put on hold. They're going down. And the biggest reason is they can't find workers. Here's the survey's top problems for small business owners labor quality and shortages. Twenty three percent they can't find the workers they need. Inflation is now up to 22 percent right behind it. They're paying more for what they've got. Labor costs are going up not quite as fast as their prices but they are going up now. Here's the interesting thing. This bears on what Abby was just talking about higher interest rates for businesses. Only one percent say credit. The cost of credit or

the availability of credit is a problem. Sixty two percent say they have no interest in borrowing right now. What are they doing about their problems. Well they're doing what you think they do right now. You can see the number of jobs open in white drops just a little bit but it's still 47 percent have jobs open that they cannot fill. And the quality of work is a problem. The

availability of labor is a problem. Fifty five percent say so. They are raising prices. That's the old line. Sixty one percent say prices are going to go up to try to keep profit margins worthwhile. All right. Prices of everything seem to be going up. Thank you so much to Bloomberg's Michael McKee. And let's get more on the state of small business. Our Shery Ahn Miller Bank of America's president of small business as well as head of specialty banking and lending sharing. Given some of those

pressures that Mike was detailing to us on the labor side on the inflation side from your view. How resilient are small businesses right now. Well we did see a decline in the data for the NFIB report that just was released. However we still see improvements when you look at the comparison year over year. So small businesses do remain optimistic. We are seeing in our own data that our deposit balances are up year over year. We're seeing demand for

loans out there and we're also seeing payments at record levels within the small business space. In terms of what needs to happen though to bring supply and demand into balance Sharon demand is incredibly strong. Is the expectation do you think the demand comes down. Or do you think we're going to see some of these bottlenecks be they labor or

materials or whatever it is starting to ease. Is there an expectation that some of these bottlenecks start to actually fade as we work through the rest of this year. We do see and anticipate facts some of these bottlenecks will begin to fade as the year moves on. We do still see as you indicated supply chain issues. Of course inflation is a big issue. And I think the most relevant and what we hear about so many times not just this report but every time we survey our business owners it's around finding the right labor. And that has just been even a bigger issue throughout this pandemic. Getting the right skilled labor to go to work in small businesses across the country. They just

can't fill the jobs that they have opened. And do small businesses have more difficulty outsourcing or autumn make shifting towards automation things that maybe larger scale companies could do in the face of labor shortages. Do they have the ability to do that. They do have the ability but I would say that it is more difficult in the small business space. You know when you're competing against global corporations it is very difficult to really keep up with the investment in technology.

And so we have seen our small business owners in fact continue to invest in digital capabilities and especially during the pandemic those that had digital capabilities and were able to go online and be able to create the goods and services and really distribute those goods and services across the country through digital means. It is those fared much better at Bank of America. Eighty five percent of our small business clients are digitally active. And so when you think about the capabilities the tools and the resources for small business owners not just so that they can really protect and grow their business and get through this pandemic to the other side but also using that as a way to distribute their commerce. We're seeing more and more of that especially coming out of the pandemic. So what's happening with inventories. Clearly we're seeing

shortages everywhere at the moment. These small businesses having to dedicate more working capital to inventories to make sure that they can navigate some of the supply shortages that they're seeing. And how significant an increase are we talking about. Yes I mean ended there is there's certainly a pressure on inventory. You know you can just go to order a furniture or a car. You're waiting months and months. So this is this is an issue for the consumer. And for a small business balancing you know do I have the right inventory. Can I meet the demand that's out there. This is what really is that juggling act between the two. Now we're just coming out of the holidays. And so as we talked about the January data from the NFIB report we do tend to

see a decrease because you've got a lot of demand going on throughout the end of the year in the fourth quarter and then going into January you do see a bit of a lull. So you although the unified data was a decrease versus December I don't see it as alarming. I would say it is. It is what we normally tend to see in the trends. And obviously when we're talking about inventories in the capital needs that brings me to a question of where that money is coming from. Are you seeing small businesses being more active in seeking out loans. What is loan growth look like. We are in it at our company. We are seeing loan demand begin to increase. We have seen pre pandemic levels. When we look at the comparison for our balance sheet for small businesses and what they are doing to access capital so our clients are coming to us they are accessing capital. And as you

talked about this segment and beginning we did hear that there's not an issue so far of business owners. That's not one of their top issues in getting access to capital. And so we are seeing more and more demand that is coming. And I think it has to do with getting more inventory taking advantage of some of these opportunities that are out there as we come out of the pandemic. And clearly hiring more employees and wage pressures. OK. But let's just dwell on that issue of of the availability of

capital the availability of the money you set and certainly that house. What's the sensitivity do you think to the cost of money. If we see the cost of money starting to go up and we spend the program talking about 2 percent yields on a 10 year. Clearly there is a rising cost of money right now. Where do you think that that starts to have a significant impact on small businesses. When do you think actually they start to maybe reduce their desire for attracting fresh capital into the business. At what point does that come. Well we're still at historic lows as fast as rates go. So yes we do see sensitivity

to that. But I'm not anticipating any time in the near future that that would cause some sort of strain or constraint on access to capital for small businesses. We see that that demand is continuing to grow. We are at historical lows in terms of interest rates whether you're applying for a small business loan a mortgage an auto loan all of that. Really we're at historical lows. Well and Sharon obviously when we're thinking about the cost of money a lot of that is influenced by the monetary side

and conditions becoming less easy on that front. We are also experiencing simultaneously a lack of fiscal impulse that we have seen through much of the pandemic. And I'm wondering especially as so many of these businesses are raising prices consumers have to be tolerant of those price increases. Are we going to start to see a bit a bit more difficulty on that front. Well you know there are raising prices we say when we expected that when when the cost of goods and services are getting to know where inflation is at a 40 year where we're seeing increases in all of that. So I do think that you have to pass that along to the consumer. Small businesses cannot hold onto that. And so we have seen an increase. I mean on the flip side of that I mean it's sort of a tale of two cities because we do see consumer spending. We just released a report yesterday on

consumer spending of our clients at Bank of America. Is it record high. Payment rates are at record high. We're seeing small businesses continuing to spend and in fact that's up 22 percent year over year. So as you think about the demand of goods and people having money available to spend our deposit balances are continuing to grow both in the consumer as well as in the small business segment. And that again is up double digits from from last year. So all of those point two there's a lot of cash on the sidelines. There's a lot of money to be spent. And we know that consumers fuels small business. So as consumers spend as we see more goods and services out there and as supply chains you get the abate a bit. And this year we will see the matching of goods and continuing of improvements overall for the economy.

Yep and such an important area when it comes to labor as well. Half of private sector jobs in small businesses. So the health of this sector critical. Sharon it's always great to get you on the show to talk about the NFIB to talk about what you're seeing in your data. Really appreciate your time today. Thank you very much Sharon Miller. Bank of America presidents of small business. Greatly appreciated. What do we got coming up for you. A shakeup at palettes on the fitness maker replacing its CEO cutting hundreds of jobs. Got an activist investor indicating it's not enough though. Will more heads have to roll. Details next. This is Bloomberg.

Let's check in on the Bloomberg Markets what these numbers could get to the U.S. is losing patience with China regarding trade commitments reached during the Trump administration. American officials say they haven't seen any real signs of Beijing making good on its agreements. China pledged to buy an extra 200 billion dollars in U.S. agriculture energy and manufactured products through the end of 2021. Taking on Spotify musician Neil Young has set his sights on big banks. Young has called on baby boomers to quote ditch the companies contributing to the massive fossil fuel destruction of Earth. He proceeded to encourage people to take their money out of JP Morgan Chase Citigroup Bank of America and Wells Fargo. Global news 24 hours

a day on Adam Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in over 120 countries and which could get to this big bad. So we got Neil Young Christine Legarde on a whole host of other central bankers. That's an unusual Venn diagram. It absolutely is. I mean Neil Young has made his fair share of headlines in the last week or so. First you take your music from Spotify because you don't like Joe Rogan's podcast where Spotify ISE response to it. You actually see your music actually getting somewhat of a lift off of that even removing Spotify from the equation now taking on the big banks. And to read off the quote here guy he said join me as I move my money away from the damage

causes or you will unintentionally be one of them. So he's definitely taking an activist stand here. But I think it probably goes to the idea of big banks their role in financing the fossil fuels industry and what that means from a regulatory standpoint as well. Just just from a market's point of view though the energy sector is having a cracking start to the year in the banking sector is having a cracking start to the year. So just in terms of investment advice that's a tricky one. Maybe don't. Yeah. So the music fantastic. The investment advice maybe maybe

a little bit different from an ethical point of view. Well that's a whole different argument. Let let's talk about something else we should focus on as well talking about things that are changing pretty fast. Let's talk about pellets on the stock is all over the place. That's the one year chart. But just look at look at the right

hand corner. There is a what looks like a fairly diminutive spike but in percentage terms that's absolutely enormous. Now we've seen overnight this news coming out and there's going to be a huge shakeup at the fitness company that's now reached the C suite. We've got the CEO stepping down a new CEO coming in talk that maybe we're going to see other sea sweet exits as well. What does this all mean in terms of the idea that potentially we could see an acquisition here changes coming. Well let's go to San Francisco and bring at Ludlow into the conversation. Ed what is this. What are these changes a recognition of. Are they a recognition of that there is now a need for a foreign acquisition or are these changes a recognition that the company just needs a different direction. Yeah. I mean the stock move is crazy right and I think you take

each of the actions in isolation. So first off John Foley steps down as chief executive officer becomes executive chairman. This is a company that he founded a decade ago. Right. 2012. For those on global Wall Street that want to see this potential takeover happen. I think that you know Foley stepping aside increases the likelihood that a Nike and Amazon potentially an

Apple or a Disney could come in with with a bet. Right. Because the dual class share structure Jason Kelly. Well it's so young but he's still remains a shareholder. He has those super majorities. So don't you still need his sign off for any deal. Well that's why I point out. Remember he's the founder of this company and it's a decade in the making and a lot of it was

around psychology. Right. He personally has come under attack from Blackwell's the activist investor. They've issued a statement basically saying we're happy that he's stepping aside. We're not happy that he's had Becky hand picking directors for the company. So that you know that's one point. The other point is who comes into the seat. Right. Barry McCarthy a well respected former CFO Spotify and Netflix. You have J.P. Morgan saying that this guy has credibility on the street. He's proven that he knows how the subscription model works. And remember before the idea of an MFA in acquisition the takeover came about. The whole conversation was what is the future for Peloton. Because it's grown to a point where it can service

levels of demand in terms of the hardware the bikes the treadmills that just aren't there anymore. You know so they wanted to see somebody that could reinvent peloton to more of a services and a higher margin revenue business. And my real question is is that the famous San Francisco folk behind you or is that kind of Tom Keene some sort of steam ducts. Because that's the big debate now on this show because it looks really cool. Looks amazing. It looks mystical. I'm going to let you guys on a little TV secret that is actually real. That is what San Francisco looks like every morning. The Silicon Valley glow is still here. All right. Well Guy you and I seem to be in the wrong place. I'm

sitting here in my studio. It's kind of cold in here and I know London's always gray. So Ed Ludlow you get the better end of the stick there. Thank you so much for joining us from a beautiful San Francisco where the sun is rising. Appreciate it. This is Boomer. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and risk could get us bank grants to go ahead with that IPO of arms. Now the video and bond and a proposed acquisition of the chip designer both regulators are customers were opposed. It would have been the biggest deal ever in the chip industry. Harley-Davidson

reported a surprise profit in the fourth quarter. Results were boosted by higher prices behind Harley's iconic motorcycles. Plus sales rose 8 percent in North America offsetting declines in the rest of the world. And the latest threat from metal platforms doesn't seem to have European officials worried. The company has again warned it called proof of Facebook and Instagram from Europe if it is unable to keep transferring user data back to the US. Bloomberg caught up with the EU's

competition chief. I'm on Instagram and if it doesn't work anymore that would give me maybe another 10 20 minutes per day. Versailles says that threats are never a good idea with the EU. Regulators from Europe and the US are in negotiations to come up with a new data transfer agreement. That is your latest business fat guy. Thank you very much indeed. We start the count to the European close. Now let me give you an idea of what the price action on this side of the pond looks like. European stocks negative now down by one tenth of 1 percent. Earlier we were really quite positive kind of the early couple of hours of trade. Things were certainly moving in a positive

trajectory and then really quite a steep roll off as we've entered the afternoon. In terms of what actually I think the price action tells us right now it is that we continue to see the focus on the bond market and you can see what's happening with beekeepers. The sell off continues. Yields continue to track higher. You've got a big move in the UK. You've got a big move in Italy. It's really a story that we are watching very very carefully to see. We're focusing on the US approaching 2 percent. I find it fascinating that we still have Italian 10 years 20 below. The United States tells you a lot about what's happening with the various central bank price action that we've been

seeing a buying up a lot of bonds. Brent crude probably the biggest feature in terms of the story over here in Europe. The lead losing sector today has been one of the big out performers that we've been watching so carefully over the last few months. Energy energy falling today because energy is falling today. Brent crude down by two and a half percent. But obviously we've seen a meteoric rise. We'll talk more about commodities in the next hour. We're going to get an idea of what is happening with these markets. Should you favor Europe to go back into the United States. Caroline Symons the U.K. CIO at UBS Global Wealth

Management joining us next. The countdown to the close starts next.

2022-02-11 01:52

Show Video

Other news