Bloomberg Surveillance 03/14/2024

Bloomberg Surveillance 03/14/2024

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Look at the bigger picture of the broader trends in inflation and core are moving down. Most people are not anticipating a re hiking cycle or a re acceleration in inflation. Ultimately, I'm just after what we went through. I'm just happy the tightening is over. There's plenty of time to see how the

balance between growth and inflation plays out. The economy is on a cooling path, but it's a very gradual path. There have been a lot of tailwinds for the economy. This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz and Annmarie Horden byrne live from new york city this morning. Good morning. Good morning.

For our audience worldwide, this is Bloomberg Surveillance share equity market on the s&p 500 positive, my third of 1% in yesterday's session, pulling back from all time highs. Just a touch a fairly quiet state of affairs over the last 24 hours. That picks up in about 2 hours and 30 minutes time. Get a ton of economic data. Retail sales, pie. Lisa, jobless claims just around the

corner. It's the last inflation read before next week's Fed meeting. And to me, this is the key point. Do we get a confirmation of what we saw from CPI? And if so, do markets care? Because so far it doesn't seem like anyone's been particularly fussed about the fact that inflation keeps coming in hot and the Fed is still going to cut rates. That's the belief right now that disinflationary spat, if we can call it that over the last six months, feels a little dazed and confused at the moment.

Citi's Andrew Holland host and we talked about this note yesterday. He called it the last mile problem. How big is that last mile problem? Well, it remains to be seen. The CPI will give us a little bit more hints of what's going on. Also, retail sales, what is going on with the consumer. I look back to the reports that happened

in January, the earnings report, Wal-Mart's CFO, they're being tasteful. They say consumers are still coming into the store. They're shopping frequently, but they're trying to be choice full on what they're buying. Is that going to see a softer retail sales? Is that going to maybe potentially put a little bit of a dent of this resilience we've seen in the American consumer? Well, speaking of what's going on with the consumer, look at the estimate for jobless claims. If jobless claims is anything to go by, nothing's going on with the US consumer. The US consumer is totally fine.

218 is the estimate for jobless claims today last week to 17 Yeah, the whole thing about that, it's noisy and there aren't enough people reporting to the survey. It doesn't really work because it's this way every single week. So then it raises this question what do we have to reassess in terms of where we are? Jenny, yesterday was talking about how she actually was wrong with respect to what the rate was post-pandemic, that she does think that it's going to be higher. And that, to me, really indicates that people are reassessing what this means and how hot this economy really could run. You took a stand to Washington to talk about Secretary Yen and let's talk about what happened through the house.

Tick tock. Bill breezes through the house, then senators start to line up just to say slow down. We take our time here in the Senate. This could drag on and on and on.

It absolutely can. And then you look at some of these hawks, usually on foreign policy, like Lindsey Graham, he was on Fox last night and he said, well, it's a good question. When he was asked how he's going to vote, and he said, I'm leaning yes. But his concern is and he's kind of

coming in line where the former president is a potentially that's why he feels this way. He's concerned about if tick tock is not there, where do those individuals go? And it's the Facebook meta play. It's the potential of Google x Twitter. But the bottom line is and I was pretty

astonished to see yesterday the bipartisan support one for passing, but also the bipartisan support of the no's. Marjorie Taylor GREENE lining up with Alexandria Ocasio-Cortez. It's not every day you see this in Washington. Well, but isn't that the way it always works, that the polls kind of come together? And that's sort of where we're at right now. I am curious about this pushback because of the political affiliation of the potential buyer, the fact that you want a conservative buyer to come in and take over Tiktok's operations so we can have a hearings to sort of, you know, justify someone's credibility on one side of the aisle or the other before they can take over this, because you want to prevent it from the liberal social media companies of taking over. I mean, really, where is this going? I find the whole episode very entertaining, particularly hearing what China's got to say about the whole thing, the reaction from the counterfeit capital of the world. This quote right here, When someone sees

a good thing, another person has and tries to take it for themself, this is entirely the logic of a bandit. Can I share with you a report that came from Katherine, say, in the last year or so, WeChat, China's most popular chat app, one of the largest platforms for counterfeit goods, counterfeit and pirated goods from China, together with friendship goods from China to Hong Kong, accounted for 75% of the value of counterfeit and pirated goods seized by US Customs and Border Protection sites. Here, China talk about bandits and stealing other people's things when the stats sort of say something else about what happens in the mainland is rather entertaining. It's also pretty rage that they're saying the US should respect the market economy in principle of fair competition.

To that point, let's think about this for a second. That's all I could say. Well, also what American social media company is actually being able to be successful in China? None of them, so. It's just a little bit funny.

Also, the tick tock version in China, very different on how they allow children to engage on that platform than it is in the United States. Well, that story in just a moment. Let's start with the price action this morning. Busy day ahead with tons of economic

data. Equity futures on the S&P 500 firmer here by a third of 1% in the bond market. Yields a little bit lower this morning at the front end, down about a basis point. But, Lisa, creeping higher. We've gone from the full forties to the four sixties on a two year yield in quite a short space of time. And we're slowly pushing back

expectations for a June rate cut. I mean, basically that's where we're at right now. It's all down to 73% from 78% the day before yesterday. How much do we see this continue? Because at a certain point, don't we have to have some sort of capitulation to this idea that maybe rate cuts aren't going to be as great as you think? Right. That could be dependent on stronger

economic data. We might get that later. I was also looking at the ECB, another speaker over at the ECB. This time, I think it was the Greek central bank governor talking up two cuts before the summer break. Keep looking at the calendar now. Summer break starts in August for the ECB, 100 basis points maybe this year. That's when you start to think about maybe what's the difference between the ECB and the Federal Reserve for the year ahead and what the spring and what the summer. What do they mean? Because that might be what they come down to? Is that what they going to do in the news conference? Which is why do we have to talk about this? More on that later. But honestly, it's fascinating to see

the divide, given the fact that the peripheral regions don't need it as much as Germany and Germany is still the hub versus some of the others. So kind of a kind of twisted state of affairs. Euro dollar right now, one of 940. Coming up this hour, Russ Koesterich of BlackRock. As Megacap Tech pulls the S&P 500 down from all time highs. Tobin Marcus Wolfe research as a bill to

force the sale of tech stock heads to the Senate. And Julia Coronado of Macro Policy perspectives ahead of PPE and retail sales too. At 830 Eastern time, we'll begin with our top story megacap tech pulling the S&P 500 down from all time highs as traders await PPE and retail sales data later this morning. Russ Koesterich of BlackRock Staying optimistic.

We remain constructive. On the macro backdrop. The Fed's first cut will come in June and we continue to like growth, including software, health care and select consumer names. The constructive. Russ Koesterich joins us now for more. Russ, can I get into the month of June? It feels a little stale. Russ Here in June, June, June. And I'm wondering what informs that

based on the information we've had in the first couple of months of this year. What informs your view? So good morning, John. And I start by saying something else maybe, which is that is this necessarily the most important thing that's going to happen to the market this year? So I think June's a reasonable baseline. You know, our view is the Fed's still likely to cut three times this year. We have that view coming into 2024. The market start of the year differently. But at the end of the day, you know, as you mentioned a few moments ago, the market has been remarkably resilient as we've repriced from seven cuts down to three as we've gone from March to June. And I'd say that whether the Fed goes

for three or two is maybe not as important as the fact that long term yields have been relatively contained. The economy is still solid. We're likely to get to two and a half percent real growth, four and a half to 5% nominal growth. That's a good background for earnings. And this is why I think the market is continuing to move forward, even as investors have repriced these Fed cuts. Has the market gotten a little over its

skis, though? Russ and I talk about this with the credit spreads on higher bonds now at the lowest going back to the beginning of 2022, you've got equal weight outperforming as this rally does broaden out in the equity market. It all began because the Fed was going to start cutting rates. Now, they might not cut rates as quickly and it keeps on going. Is it really justified?

Well, at least I think that's a fair question. I mean, look, stocks have definitely had a big run. And I would shock anyone if we had, you know, some point in the not too distant future five, 6% pullback. I do think there's an important

difference between two or three cuts and no cuts. And this is maybe one of the risks that investors do have to be aware of for the market, which is that you can live with slightly less easing by the Fed if it's happening in the context of a strong economy and strong earnings. Now, if we get to a point where inflation is so sticky that the Fed goes the entire year and doesn't cut, yes, I agree that that's qualitatively different and that's something that probably leads us to a different conclusion then. And you get to three or four, it's

probably not as big of a driver is all the other things that have been supporting stocks, including a lot of money coming into the market, a lot of cash, a lot of dry powder still on the sidelines. Russ the other thing I'm struck by, as you said, that one of the reasons why people have gotten this enthusiasm is because of stability in long term rates. We saw that again with yesterday's auction of 30 year notes. Pretty successful, strong. And yet we keep talking about how the leverage has been shifted to the US government and how at some point this is going to be a problem and you're going to see it reflected in structurally higher yields. Why doesn't that give you any concern?

Well, I think it is a concern, but again, I think it depends on the time frame you're looking at. I was speaking with clients yesterday. You know, look, if you're talking about the deficit, I do think this is a real issue. It is structural. As everyone knows. It's not obvious this is going to derail the market in 24. Does it come up in 25, 26, 27? Hard to predict. But again, in the short term, I think

the market's going to focus on what is the volatility of rates, what's happening with the Fed cuts to a degree and the strength of the economy. And as you were talking about a moment ago, the labour market remains remarkably strong. Initial jobless claims remain low. You know, we generally have an environment where earnings are coming in pretty strong. That's more likely to drive the market over the next 2 to 3 quarters, in my opinion, than the federal deficit.

Russ, you have been underweight long and US duration though, and if that's not in supply, what's it on? Well, it is mostly supply. And I think this is where you do start to have some concern about the effect of the deficit, both short and long term. And again, it doesn't mean that you're necessarily going back to 5%, but you've got to two and a half trillion dollars of growth supply. You've got to sell. You've got an environment where many of the foreign buyers are, you know, less engaged. The Fed is still shrinking their balance sheet and the term premium. In other words, you know, the

incremental return you're getting for going out on the curve is still relatively small. So when we look across the different asset classes, in our opinion, they're better places to be. We've remain modestly underweight with most of that underweight on the long end of the US curve. Russia killing me in the space of 60 seconds. It doesn't matter. It kind of matters. We'll move on with talk about equity markets. Let's talk about your overweight two

equities and corporate credit advice to US equities. A little bit of Japan as well in the mix. Russ, I want to talk about that little bit of Japan. Seen a big move in the Nikkei yesterday on the Nikkei 225 start to see it pull back after the yen start to strengthen. Russ what's the relationship between the two is again makes a difference but again I think it also affects what part of the market you're thinking of. So Japan is ripped we still think there's upside.

You know I think people now are well aware of the reasons normalization of monetary policy, corporate reform. What I would add to that is, you know, as we spoke about in the beginning, the market globally is run. Japan is still probably the place in the world. We still see the best value. Having said all that, I do think we're

at a point in the cycle in Japan. When you start to shift the exposure a bit. So, for example, banks have had a great run. Are they going to lead the market going forward? Maybe not. Some of the domestic players which actually benefit from a strengthening yen. So we still think this market is upside.

But you maybe start to think about where are you in this market relative to where you might have been three or six months ago? Russ, Just how crowded is that trade in your mind from your perspective at the moment, given how excited people seem to be about it in the last few months? You know, when I look at across all of the world, I don't think it's the most crowded in. As you say, it's been a huge run. But let's put it in perspective. You just took out the high, which was established in 1989, and this was a market know. I can tell you from talking to institutional investors, individual investors, that no one to hold for a very long time, they forgot about it. So, yes, people have come back into Japan in the last year, but it was very owned for a very, very long time. Took a while to get back there. Russ, It's good to see you. Russ Koesterich That thanks to

BlackRock. Appreciate it's its underweight the long end of the US Treasury curve. Supply kind of matters just a little bit on the equity market. Let's talk about Japan. We've seen shares of Toyota over the last 12 months. Just compare the chart to the chart of Tesla.

The difference between the two. We're going to talk about the auto makes a little bit later. That's not just because it has a Japanese ticker, by the way. That's about Toyota committed to hybrids and not making the move to go into the pure easy play like we've seen from other manufacturers. And they've benefited massively from doing so. I'd be interested if someone breaks out

how much is because it's a Japanese company and how much it's because they're embracing the hybrid. But they are getting it right. It does highlight how Japan is now suddenly this new engine of growth that it hasn't been for so many decades. And it sort of exemplifies why people are going in beyond just sort of a currency trade that may or may not continue to be a positive. Yeah, it's still a question, isn't it? It dropped from 150 to 1 4320. What does that leave stocks?

What? Maybe we won't ever find that out because former Bank of Japan officials coming out and saying probably April is the time. So cool it. You know, and I wonder how much of a weakening in the yen if that happens. One 4782 on daily unchanged on the session. Let's give you an update on stories elsewhere this morning in case you feel impact brace with your hara hacker. Sayonara.

Hi, John. Treasury Secretary Janet Yellen says it's unlikely that market interest rates will return to pre-pandemic levels. The yield on the ten year U.S. Treasury notes averaged 2.39% in the decade through 2019. But last October, it spiked above 5% after the Fed raised rates aggressively to combat inflation and now sits just below 4.2%. Saudi Arabia is pushing ahead with one

of the largest stock offerings in recent years. The kingdom is said to be in talks to add top Wall Street banks for a secondary sale of shares in oil giants Aramco. Sources say Saudi Arabia plans to hire Jp morgan as one of the main underwriters to the offering. Bank of America and Morgan Stanley are also contending for lead roles on the deal, which could raise as much as $20 billion. Rents in Manhattan rising during a busy February for leasing. The median rent for new leases in February came in at just over 40 $200, up 3.3% from the year ago.

Overall, the number of new Manhattan leases signed in February were up nearly 8% from last year. Rents typically dropped during the winter months, but apartment prices haven't let up. That's your Bloomberg brief, John. Big month in Manhasset, Yara, thank you. I won't talk about that a little bit later here. You don't want to think about it. Up next on the program, I think talks fate resting in the hands of the Senate. We have invested to keep your data safe

and all platform free from outside manipulation will continue to do all we can, including exercising our legal rights to protect this amazing platform. That conversation coming up next live from New York City this morning. Good morning. Stocks on the S&P 500 positive here by a third of 1% on the S&P after pulling back from all time highs in yesterday's session, unchanged on a ten year for 1938, yields creeping higher over the first three days of this week. Under surveillance this morning, tech stocks fate resting in the hands of the Senate. Just wanted to share some thoughts with us users about the disappointing vote in the House of Representatives.

We have invested to keep your data safe and our platform free from outside manipulation. We have committed that we will continue to do so. We will continue to do all we can, including exercising our legal rights to protect this amazing platform that we have built with you. Here's the latest this morning. Fight over Tick Tock heads to the Senate after the House overwhelmingly passed a bill to ban the app or forced the sale from its Chinese parent company.

The next stop is likely the Senate Commerce Committee chair, Maria Cantwell, saying she's very concerned about American's data, but stopping short of committing to taking up the House bill. Tobin Markets and Wolfe Research joins us now. He does not think anything happens before November ten, but can we talk about that? You've got five reasons to why it won't happen. What are they?

Yeah. Thanks, Jonathan. So first, the Senate has a long history of killing House bills. This would not be the only thing that's passed the House in huge bipartisan numbers in the past few months that the Senate is just sitting on. Number two, I think we're already seeing key senators show a distinct lack of enthusiasm about picking this right up and move with it.

You mentioned Cantwell. You know, she has a kind of competing approach. I think she and other senators are going to chafe at the idea that because the House suddenly sprung into action on this particular bill, they need to follow the House's lead. That's not really the way the Senate operates. Number three, the congressional calendar is a complete mess.

This needs some kind of a vehicle to ride along. So I think it's very unlikely it gets a standalone Senate vote. There are not a lot of these vehicles going around.

And the closer we get to the election that more things are going to shut down and move into campaign mode. Number four, Trump's flip flop on this, I think, obviously complicates the politics on the Republican side, but less discussed is what it means on the Democratic side. You know, I think heading into a campaign, there's going to be reluctance from Democrats to do this in a way that lets Trump say, you know, I stood against this and didn't want to take away the service. And people like, you know, there's sort of an implicit bargain that the blame on this needs to be spread around. And Trump is somewhat throwing that out the window in the past, the past week. And then finally, there are some First

Amendment concerns. I think at a minimum, there's uncertainty about how litigation would go based on what we're seeing in in the proceedings around the Montana, Montana state ban. And that's going to be a concern for some senators also. So, you know, the picture changes the farther you get between now in November.

It's hard to see exactly how and when this moves forward. Given that reluctant reluctance, is that why Majority Leader Chuck Schumer put out one of the most vanilla, lukewarm statements I've ever seen come out of the Senate saying the Senate will review the legislation when it comes up from the House. This passed overwhelmingly with bipartisan support. And Schumer's basically like, MA, maybe we'll get to it. Yeah. I mean, when the House says jump, the Senate doesn't say how high. They say maybe sometime eventually we feel like it.

It's, you know, they have their own bills. I mean, you know, you've seen some of the Senate leaders on this issue get in line. So Mark Warner did come out and say, let's move ahead with this particular bill. But in general, there's a lot of turbulence between the House and Senate. Sort of no love lost between between the chambers, even when they're looking at their partisans on the other side of the Capitol. And, you know, it's not surprising at all that that Schumer is responding to this, you know, as you say, essentially empty way.

That leaves all his options open based on how conversations go. Tick tock, though, is still under severe review. So if Congress doesn't act, what happens to that review? Yeah, I mean, that's a great question. We're now on what year, you know, three, four of that. It's I think the general understanding has been that the administration is apprehensive about moving forward with their, I think, fairly open preference to compel or or sort of influence a divestiture based on concerns about how it would go in court if they attempt to order that. You know, I think that kind of paper

trail going back to 2020 under the Trump administration about the sort of considerations here and whether or not you can mount a sort of plausible national security case that's free of politics is a concern. You know, but everyone I talked to, both inside and outside of the administration, has a distinct lack of confidence in their ability to prevail in court if they were to move forward there. So, you know, it seems to me like that probably stays in limbo, too. They obviously don't want to sign off on the project Texas mitigation Plan that the Tick-Tock folks have moved forward, but they also, I think, understandably, are not eager to take their chances in court.

And the idea of divestiture becomes even more complicated when you have all the arguments over who is an acceptable person to buy, said tick tock. Right. I mean, how realistic is it that there would be any kind of agreement on which company would be viable, which company has the funding, and what the government's role is in facilitating that. Right. I mean, I think the biggest obstacle is from Beijing side. They have said openly that they're not interested in approving a divestiture sort of at the point of a gun from the U.S.

side. And of course, that's been the message from Bytedance. Also, you know, playing the video before, they're going to exhaust all their legal options.

They're sort of going to fight this till the end of the day before before going along with this, you know, the logistics around know, sort of figuring out who has the financial capacity to absorb this, who would actually make sense as a buyer, you know, sort of how you manage the antitrust concerns. Those are all very real also, particularly on the short timeline that specified by this bill. But, you know, I think the biggest obstacle is probably from the Chinese Communist Party in terms of willingness to approve it. That's an interesting point. I want to finish on the former president as well. Tobin, We've talked about this over the last few days, complete 180 from him from where he was about three or four years ago on this issue. And we're trying to figure out what that could mean for US-China relationships and the Trump volume, too. What does that look like?

So a bit. Yeah, absolutely. You know, I think that the there's a prevailing expectation that US-China tensions just get sort of uniformly worse under Trump. Obviously, he has this proposal for a 60% tariff on all US imports from China, which would be quite a drastic escalation of the trade war. But I think we saw in the first Trump administration and we're seeing again now that there is a great deal of transactional wisdom.

And so sort of if you're willing to flatter him both from the US side, from Xi's side, there are the possibility, I think, for kind of selective easing on on various different points. In the early days of COVID, he was quite, quite complimentary of she and the Chinese Communist Party's COVID containment strategy based on the fact they were trying to kind of close the Phase one trade deal at the time, including a big sale of US soybeans. So, you know, the Chinese are using this as a propaganda tool, not least in in Taiwan. There's a pretty open effort to try and tell the Taiwanese if your story of how you continue asserting independence from the mainland is by relying on the U.S.. Trump is not the guy who's going to be there for you because you're sort of can't count on him to stay strong on these various, you know, kind of hawkish positions if political winds change. So I've been really thoughtful stuff. Appreciative Toby Marcus there of Wolfe

Research. I just want to pick up on a couple of points. The one point is I think we're all sitting here assuming that Bytedance would actually sell it and we're going through a list of US companies that have the money.

It's a long list and a list of U.S. companies that might get the green light from Washington. Much shorter list. Also got to consider the fact that maybe they won't allow it to be sold, which is what he thinks is the more likely potential vehicle and what this could do to the tit for tat in terms of the messaging domestically in China. Much more on tech tell throughout this morning. Coming up next, Bloomberg's great true down on trump is facing Tesla and the EV market. Their stock is down again this morning with -1.4%.

Live from New York. Equities positive across the board here. Up a third of 1% on the S&P 500 we talk about in the morning in the states will get a little bit later in just a moment on the Nasdaq, we're positive by half of 1%. The Russell two smallcaps doing okay, up 0.2%. Let's check out the bond market together. I want to talk about the front end of

the yield curve. Looking at a two year yield right now, yielding for 60 to 60 yields on Monday, up six basis points on Tuesday, up five, up another five on Wednesday. Lisa, a little bit lower this morning, but yields are starting to grind higher through the week.

We started this week at about 448. That's what we opened. We're now in the four, six days people are flirting with fewer rate cuts, not no rate cuts. They kind of dismissed that as being a bit of histrionics. But they do say the market collectively, if the market had a voice, we're not so sure about how many rate cuts can really come this year given the hot CPI print we got and given the fact that economic momentum can sell so continues to chug along.

Key question is when this becomes harmful, when higher rates actually seems to suggest slower growth going forward, because right now it's something that this market thinks this economy can handle just fine. That's not happening whatsoever in any way, shape or form. Looking at the headline numbers on aggregate extend to foreign exchange, let's push this through by fax. Now, this is a question Lisa has asked a lot, and ultimately Morgan Stanley and Evans sent in that pointed out just yesterday in their note where they effect strategist were, which is they expect Eurodollar to decline as markets increasingly priced in the likelihood of a Fed ECB policy divergence. And the fact of the matter is that all

makes a lot of sense. But in reality, that's not how things are playing out. Euro dollar is not one of 939. We have not seen that pronounced weakness that move towards parity that the likes of been we were talking about recently on this program. And the reason why I mean, Jeff, you said it was because of positioning. I don't know the answer to this. Is it because people think that the Fed

isn't going to necessarily remain as high as they are, that they're going to cut more aggressively? Is it because they think that the euro region has already been priced for recession is actually doing better than that? I'm not sure what this is sort of suggesting, because if you just look at the narratives, it would make sense for the dollar to be a whole lot stronger. I posed the question, I raised this, I think the last couple of days have we seen peak U.S. exceptionalism? And I think a decent example of that right now might be what's happened with Sterling, this stealthy rally back towards 131 2813, plus another 1/10 of 1%. Is the growth inflation mix improving in places like the U.K., where it's been

pretty terrible over the last year or so? It's a great question. And is it has it peaked or are people just getting sick of it and concerned that it's overly crowded? So looking for other places to potentially dip their toes and say what looks cheap? Because that seems to be what everyone seems to talk about later on in this cycle. Look great to go into small caps and go into international stocks and might as well get ahead of that even if it's not happening just yet. How much is that we're seeing versus an actual peak that people have been calling for quite a while? Mandy, So say back, what did she talk about yesterday? Not about foreign exchange.

She was talking about equities. They were dying, crying out loud to get that move, that shift away from large cap tech towards where the Russell Small caps, that's where the options market was leaning into with an upside bias and has been for a while. It has been for a while looking for that shock upward move. If you take a look, for example, since the middle of February, the Russell 2000 still underperformed, even as the equal weight outperforms. Even as you see, small caps, are the large caps not necessarily outperforming? Russell just still hasn't gotten off the mat. The Russell this morning up by 0.2% under surveillance today.

U.S. retail sales API data due out at 830 Eastern Time. Traders waiting to see if the inflation report will confirm or deny this week's hotter than anticipated CPI data. Bloomberg Economics expecting PCI likely rose 0.4% month over month from 0.3% prior. Investors will also be looking for a possible rebound in retail sales after weather and seasonal adjustments wait on the figures from January. Retail sales, PPI, jobless claims.

Take your pick, be focused on. I mean, pie is going to be interesting. It is the last inflation rate before the Fed's meeting next week and it does go into the PC core reading that the Fed likes to look at. So put that aside for a second. Curious to see if you do get hotter than expected. Pie report. Does the market finally react the way that we think that it ought to given a lot of people were saying before CPI? Well, the way they set up for CPI and how they reacted after maybe means pie will be to your point, a little bit of the same. I'm interested in retail sales. We talk about what Walmart CFO had to say in January.

The Walgreen Co. Similar retail customers in the U.S. are under stress and making deliberate choices to seek value. So does this resilience continue? We start to see a little bit more cracks. Is it going to be seasonal or is it actually going to be softer? Data drops in about two months time. Let's get the Janet Yellen view of the world. The Treasury secretary, Janet Yellen, warning we might be in a new normal for interest rates. Speaking to reporters on Wednesday,

Yellen saying, quote, I think it reflects the current market realities and the forecast we're seeing in the private sector. It seems unlikely that yields are going to go back to being as low as they were before the pandemic. Yellen's comments come during a trip to tout Biden's economic policies, including the inflation reduction. Treasury Secretary Janet Yellen hardly with a controversial take on the bond market at the moment. Well, here's the thing, though.

She shifted her language. January 2023, she said they were more likely to come down in line with where they were before the pandemic. January 2024, she said the jury's still out and now she says it's unlikely. What does she say to Fox Business yesterday? Well, to Fox Business, she she said she regretted saying inflation was transitory, but then she did explain that.

I think for most people, when they think transitory, they think days and months, not in years. And potentially maybe it's how you define transitory is the issue. That was the apology. Yeah, that was the apology. She has said she regretted it before. To be honest, though, from my reporting, it was Janet Yellen that was the one behind the scenes saying we should be a little bit careful on inflation.

It might not be as quick as you are expecting. But she also said the trend in inflation is favorable, but it might not be smooth. That's exactly what the Fed's dealing with. Let's think.

Think about things that aren't smooth and that's getting deals done in Washington, D.C. at the moment. So President Biden expected to voice new concerns over the proposed deal from Japan's Nippon Steel to buy U.S. steel shares of the Pittsburgh based company falling by the most in nearly four years. Nippon is offering to buy the company for $55 a share in cash. In a joint statement, the company saying the deal will strengthen the US jobs and national security. The comments kind of get spotted, hits

the campaign trail in Rust Belt states like Wisconsin and Michigan later on today. Look, if you think it's difficult at the moment between the likes of bytedance and Congress in Washington, Japan's an ally, Japan is an ally. And we think there's national security concerns around this. Well, this is, to me, the issue. You're doing this right before you know, the representative from Japan is going to come and to really join the White House, it's kind of an embarrassment, as some people are saying, to basically double down on this. And it also raises this question, do you put your campaigning to try to become the most union friendly president out there ahead of an international relationship? That's key to potential national security? 100%, right, Lisa, This is going to be one of the most awkward state dinners because the statement will come before the prime minister heads to Washington. But this is an election issue. Trump said he would banned it outright in February.

The union said they received, quote, personal assurances that Biden has our backs. Look at Pennsylvania. Trump won Pennsylvania in 2016 by didn't want it in 2020. This is an election issue. I don't think this is a national security issue. Look out for a statement a little bit later, potentially. Let's move on to the slump, continuing

hit by downgrade from Wells Fargo, calling it a growth company with no growth shares closing at a ten month low yesterday, while losing nearly a third of its market cap to start the year. In more struggles for a startup, Fisker is plunging after a report from The Wall Street Journal. While the company is preparing for possible bankruptcy Bloomberg strategy. Dan joins us now for more. Craig, we got yesterday a downgrade to

Tesla from Wells Fargo. We'll catch up with Wells Fargo a little bit later. We got an upgrade on traditional auto makers in the U.S. from Morgan Stanley.

Where is this market go? And Craig, where is it right now? Yeah, I think to add to that, just this morning, we have UBS out with lowering their price target on Tesla to 165 I think they were to 25 beforehand. So I think what we're seeing with Tesla is just a very clear indication on the part of their I.R. team, you know, kind of canvassing the analysts to say, look, you guys need to take your numbers down and really setting expectations much lower for the first quarter of the year.

When we look at what's happening in the US and in China with a real slowdown in momentum for EVs and with Tesla, you know, saying to start the year, look, we're going to have a noted notably lower growth rate. I think this is a case of, you know, we haven't necessarily seen consensus come down to sort of, you know, respond to that. And so we're seeing, you know, delivery expectations dialed back to a significant degree, you know, price targets and recommendations being adjusted as a result of that and more. Morgan Stanley, you know, coming out and really sort of, you know, questioning whether or not it made sense to, you know, spend as much on EVs, which I think, you know, is a little bit late, to be honest. I think we've already seen the likes of

GM and Ford and others, you know, really dialed back their investment in EVs And even, you know, in Volkswagen's case over here in Germany, altogether. Cancel a plant in Wolfsburg. Yeah, the south side catching up big time with this move that we're seeing in test is still Craig. It's not just lower growth, it's now growth. I was going through the estimates coming from Wells Fargo.

No growth this year, negative volume growth next year. I've got no idea what kind of multiple you should put on the name with no growth when it has such a growth in multiple. Great. Then I look at other names like Toyota. Fact of the matter is the auto sector is doing decently It's just the pure isn't aren't doing well at all. It's the hybrids.

Craig, I remember you and I talked about GM may be entertaining the idea of leaning into hybrids. Is that where the market is right now? And who's to say it's going to stay there for the next 1218 to. 24 months. I mean, it absolutely is where the US consumer is. And I think we're seeing acknowledgement even in Detroit of this idea of, you know, you know what, maybe we need to rethink hybrids. And I think Keith Naughton and in Businessweek just a few months back, had a great, you know, in-depth story about the fact that Ford, which, you know, just a year, year and a half ago was really, you know, sort of beating their chest about, you know, bringing out the F-150 lightning, the amount of investment that they were putting into EVs. You know, Jim Farley really sort of

talking about this being the way forward and sort of setting its sights on Tesla. I think, you know, Farley is is a former Toyota executive led Lexus for a time. I think they've really sort of, you know, rethought their plans. And you're seeing, you know, a hybrid F-150 offering. You're seeing Toyota not being able to keep up with demand for models like the Prius and, you know, the hybrid RAV4. I think we're absolutely going to see

some challenges with, you know, some pushback on the part of the consumer in the U.S. And, you know, even over here in Europe, I think, you know, Toyota sort of sneakily, you know, under the radar, has really built a heck of a business, you know, building and selling hybrids when, you know, ten, 15 years ago, the Germans wanted us all to go the direction of diesel. And we all know how that ended up. So I think Toyota has not gotten the credit that it probably deserves. You know, questioning just how how ready the consumer was to go fully electric.

And this is, you know, a palatable solution to to bring emissions down from where they would otherwise be wild, while not necessarily where the regulators would like the industry to get to. Okay. I wonder if we can write the chapter on electric vehicle subsidies, the idea of some of the discounts that people got for buying EVs in the United States. Was that a failure? I think it's been a really complicated issue in the US in that, you know, in order to to bring those back or sort of give give them a new lease on life, you know, Joe Manchin insisted that he needed an American supply chain for batteries and for EVs to be made in America. And that's all well and good. It's, you know, of course, very much in keeping with the Biden administration's agenda.

But the the huge complicating factor in that is we don't have a battery supply chain in the U.S. We don't have, you know, mines and processing and capabilities to bring, you know, cheap EVs to market the way that China does. And so if we're going to push the industry to do that, it's it's going to take some time. And it's also, you know, really going to, you know, go through some growing pains because it's going to be more expensive than it is in China for for quite a while before we even, you know, sort of start to close that gap. And if if we're not willing to sort of put up with the challenge that that's going to be, then, you know, it is it is going to ultimately end up in failure.

So to breathe some new life potentially into the EV market, the US would essentially have to say not all of those goods need to be produced in America or allies and actually welcome some of the supply chain components from China. I think there's absolutely some pushing on the part of some of some members of the industry to say, look, we need some relaxation on these rules. On the other hand, you have, you know, parts of the supply chain that say, look, we we need the support of the industry and to, you know, sort of move forward with this plan to sort of wean ourselves off of China or else, you know, our projects that we're trying to get going in response to the IRA are just not going to survive. They're not going to be viable. And there's a real sort of tension within the industry and within, you know, some of the players that aren't necessarily, you know, typically working with automakers and their suppliers of, you know, exactly how quick do we need to move in order to to make this all work.

And I think a real sort of you know, you can also tell some hesitancy on the part of folks in Washington where essentially every time that the Treasury Department has had to make a decision about how quick they move with some of these rules and, you know, when are they going to, you know, formally implement some of these requirements, they've pushed things back. We've seen so much can kicking. And I think that's something we're going to continue to see. This started in the UK, a big reality

check, just pushing back the timeline. Craig great to catch up. Craig Trudeau at Bloomberg out of London this morning. My favorite graphic right now, it's just the one year move that we've seen in Toyota versus Tesla. This is hybrids versus EVs right here. Toyota is up by more than 90%. Tesla is down by seven over the last 12 months. It's much worse yet tonight, they've

lost about a third of their value. And a quote from Adam Jonas of Morgan Stanley jumps out to me. I saw this. Yes. Today, EVs may be the future. They're struggling to be the present. Hybrid sales are growing five X faster than EVs in the United States. That is where the market is right now,

and that's where the hopes and dreams have been shattered. When you take a look at Tesla down that much and down so much from its peak that was reached, I believe, in 2021, we have seen peak hopes and dreams for electric vehicles. And now we're starting to build on what the present is in terms of what people want to buy big time. That conversation is going to continue a little bit later. Just a programming note for you. We'll be speaking with Colin Langan of

Wells Fargo on Tesla 845 Eastern Time. After calling the EV maker a growth company with no growth. Story. Coming up just a little bit later, let's get you an update on stories elsewhere this morning. In case you're very brief with your hiring hackers. How are you? Hi, John. A bill aimed at forcing a sale of tick

tock is moving forward on Capitol Hill. The House passed the tick tock divestment bill by a vote of 352 to 65. It now heads to the Senate, where its prospects are less clear. Majority Leader Chuck Schumer has only said he'll review the bill and members, including Republican Rand Paul, have come out against it. While investors await the highly anticipated Reddit IPO, the social media company is giving guidance on its expectations. Bloomberg News has learned that it is telling potential investors it expects revenue in 2024 to grow by more than 20% versus the previous year, according to its filing with the FCC in 2023.

The company saw revenue come in at just over $800 million. Donald Trump is starting to think about what his cabinet would look like if he's re-elected in November. Bloomberg is reporting the former president is said to be considering billionaire John Paulson as his treasury secretary. Other potential names in the mix for the

post include former U.S. Trade Representative Robert Lighthizer and billionaire Jeff Yass. That's your Bloomberg brief. John Harris, thank you. You know how this is going to go. It's going to be like casting for a Hollywood movie.

It's going to go for months. The rumor mill is going to be overdrive. He's going to do some speech and then just throw out random names. This is going to go on forever. Well, that's what happened with John Paulson. He spoke after the New Hampshire primary saying that guy makes money anywhere. Everywhere he goes. Even though he was making money in Nevada, he can make money anywhere.

Maybe he'll be my treasury secretary, maybe the VP. Who knows? Up next on this program, the Fed's elusive inflation target. The market got way ahead of the pack earlier this year. When the market is pricing in 6 to 7 rate cuts, the Fed wants to be sure that they've actually been successful in getting inflation all the way down to 2%. And the, you know, the not so good inflation prints that we saw recently, you know, just reinforce the Fed story. Up next, big morning for economic data just around the corner. This is Bloomberg.

Stocks rallied by a third of 1% on the S&P 500. A little bit of a lift. Yields go nowhere ten year just short of 424, 1919. Euro slightly weaker 109 38 against the US dollar under surveillance this morning. The Fed's elusive inflation target. The market got way ahead of the Fed

earlier this year when the market is pricing in 6 to 7 rate cuts. The Fed wants to be sure to actually be successful in getting inflation all the way down to 2%. And, you know, the not so good inflation prints that we saw recently, you know, just reinforce that. So I think the world is sort of going the way the Fed Reserve was expecting rather than the way markets were expecting. And I think, you know, I think there's plenty of time to see how the balance between growth and inflation plays out. Is the latest this morning. The Fed expected to keep rates on hold at their next meeting next week after two hot CPI prints to start the year. Julia Coronado of Macro Policy

Perspectives writes in this We expect the Fed to hold rates steady. In a unanimous decision at the meeting next week, our base case is that the Fed will indicate they are in a holding pattern for now, with minimal changes to the policy statement and their baseline outlook, including the expectation that three rate cuts will be appropriate this year. I'm pleased to say we can catch up with Julia now. Julia, I want to talk about the difference at the moment between what we see in CPI and what you expect to see in PCA. The chairman was looking for a little bit more confidence.

So I wonder from your perspective whether he might have lost some. That's the that is the question. And certainly when, after the January reading, what we were hearing from Fed officials was it was sort of an anticipated bump on the road. So as Bill Dudley was just saying, the

market had gotten ahead of the Fed. The Fed had built in bumps on the road in their baseline outlook. That was why they had a more patient path for rate cutting than the market earlier this year. The question is whether February has rattled that confidence. February was only a little bit better than January.

Another bump on the road, perhaps. We're going to be watching whether the Fed raises its forecast for inflation for year end and whether it reduces the number of cuts in its baseline from 3 to 2. It doesn't sound like they need to do that right now. And, you know, they can three rate cuts. They could start in June, July, and they'll have more data in hand by then. They are not in a rush.

And I think that's that's that's the holding pattern idea there. They haven't gained more confidence. They haven't necessarily lost confidence. This is sort of an expected bump. But but they will have more data ahead and they can take their time and gather that data. You say this is an expected bump.

Is there anything about the recent data that surprised you, that made you kind of rethink a couple of your baseline assumptions? That's a great question. I would say, you know, the January data, we had that worrisome jump in housing inflation that then reversed in February. So actually that was a bit reassuring. We were very much on alert after the January reading, but there's still the open question as to when that housing inflation takes another step down and step down. Last year, of all the leading indicators say it should cool further. It really hasn't yet. It's been kind of flatlining for about six months or so. So that's one thing that, you know, we think that we are going in the right direction there, but we really need the data to confirm that in the timing and the magnitude are highly uncertain. So that raises the question about when

exactly we are going to see that break down to a new range in in housing inflation. Have you rethought, Julia, the longer term rate expectations? And I'm talking as Janet Yellen brings up the fact that probably we're not going back down to pre-pandemic levels on rates. Do you feel like the recent data has confirmed that this is a new dynamic in the economy that will leave rates higher and inflation higher for a longer period of time? Yeah. I mean, certainly I think that rates are probably going to land at a higher level this cycle.

I, I think that that doesn't necessarily have to come with higher inflation. I think the Fed can get down to its 2% target, but I think the economy has a better productivity trend this cycle. We're not deleveraging like after the GFC and there's a lot of indications, business formations, the labour market resiliency, the investment strength that we've seen from businesses that, you know, we could be on a better productivity trend and that would mean a higher neutral rate for the US economy. So that isn't necessarily where we are right now. I don't think five and a half percent is is the new neutral, but it could be 3 to 3 and a half percent. That seems perfectly reasonable. Jenny, you're fantastic at this, so help

us out when we get p a little bit later on this morning. What are the pieces of pie that you're more focused on than others? Okay, so there's a few key pieces the the overall and the you know, or pie don't necessarily mean anything for us. All we're looking for is airfares, some components of financial services, some components of medical care. Those are directly taken from the pie and go into the PC. So we will get a much better handle on whether he is going to be better than CPI or worse than CPI after we get the data this morning in that, you know, what we saw in the December press conference when Chair Powell acknowledged that they updated their forecasts after the CPI on Fed Day.

You know, the Fed is watching this data just as closely as we are. So it's going to be important to see those details. That's the klimek we needed. Julia, thank you.

It's good to see you as always. Julie. Coming out of there, a macro policy perspective just got a headline from the president. We've been talking about us still. Here's the headline right now. US still should remain domestically owned and operated. Anne-Marie, your take on this one?

Well, it's what I said before. This is an election issue and this is about shoring up union votes in a we cannot stress how critical Pennsylvania is for both of these men. Trump won it in 2016 by didn't want it in 2020. And this just says to me that election issues of the unions and American jobs is coming before a key ally. This is not China, This is not Russia, This is not Iran. This is Japan. This conversation will continue.

Coming up next in the next hour, Mark Recine of Jenny Montgomery, Scott Brown, Weezer of Madison, and Will Mark Lipschultz of Blue Owl Capital, and Ralph Hammond, Jensen of Park Lloyd. That conversation coming up shortly, the second hour of Bloomberg Surveillance up next. We have continued to see equity markets continue moving up where companies are doing well. Earnings are positive. We're out of the earnings recession of last year. Fundamentals are good. Earnings came out very strong.

I think that's going to be what is propelling stocks higher going forward is the fundamentals. Households and businesses are still in very good shape. From a balance sheet perspective, we are kind of approaching that better equilibrium in the corporate earnings cycle. This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and Anne Marie Hordern.

The second hour of Bloomberg Surveillance begins right now. Live from New York City this morning. Good morning. Good morning. For our audience worldwide, this is

Bloomberg Surveillance three equity markets positive, my third of 1% on the S&P 500. The Fed is in a quiet period. We've had very little data in the last 24 hours. So the market narrative driven by the price action and the last 5 minutes. So so that changes this morning at about 90 minutes time. P retest jobless claims coming right up. Okay. So does it matter? Is it going to change the narrative at all? Because frankly, CPI was supposed to be the most important risk on a risk off event of the week.

It actually did have some interesting nuggets and it was treated as a dud in the market. So honestly, when will this market take signal from the data? It's being dismissed as only one data point, even though we're data dependent. Would you prefer to talk about a single name instead? Because we can do that. US Steel is down by a little more than 5% at the pre market. This stock got absolutely hammered in yesterday's session. This from the president of the United States this morning.

US Steel should remain domestically owned Emery and operated yet we were waiting for this statement we thought actually was going to come according to the 41st reporting that is going to come in a few weeks but the White House must have felt a tremendous amount of pressure after this leaked. BIDEN This first off, this has been under Cynthia's review as well for national security concerns. But Biden had already pledged, according to the unions, and quote, he had their backs. He is really choosing the election. The politics of this union workers over

if there's any potential national security. The bigger issue is this is an ally. And to Liza's point earlier, how awkward is it going to be when prime minister of Japan comes for a state dinner and they decided to block looks like they're going to block this deal, clearly putting their thumb on the scale here. Here's the statement from the president. It's important that we maintain strong American steel companies powered by American steel workers. I told our steelworkers I have their

backs and I meant it. US Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated. It is 2024, it is election year, and it is not business as usual in America in any way, shape or form. National security is doing a lot of heavy lifting. It's doing heavy lifting on every front. We're talking about potential national security for this US steel deal. We're talking about national security when it comes to v

2024-03-19 13:35

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