Bloomberg The Open 08/15/2023
Yields up, stocks down. Live from New York City this morning. Good morning. Good morning. Your equity market on the S&P 500 negative here.
The countdown to the open starts right now. Everything you need to get set for the start of U.S. trading. This is Bloomberg the Open with Jonathan Ferro.
Live from New York. Coming up, the latest retail sales data coming in hot. China cutting interest rates by the most since 2020. As Yellen says the slowdown there poses risks here. We begin with the big issue, the consumer in America. The U.S.
consumer still remains extremely resilient. The consumer is strong, very, very resilient. Resilient. Consumer sentiment is high. Resilient. Consumer with their spending going to begin to see the impact on the consumer demand cools just a bit.
The consumer. Starting to show some cracks to say because we're starting to be exhausted. Savings are being worked down. Consumers are accelerating their borrowing. There will be some headwinds. Student loans, the consumer is going to come under increasing pressure inflation, food prices, oil prices.
There are a bunch of debts coming due. Rates start to materially weigh on consumer activity. It's how consumers behave, not what they say. Retail sales surprising to the upside.
Joining us now to discuss this, BlackRock's Amanda Lynam, Morgan Stanley's Michael Kershaw. Amanda, first to you. Bit of a sell off again at the Treasury market, a two year briefly through 5%, a ten year at about 423. Can we start with the data? Amanda, what did you make of that 30 minutes ago? Yeah. Good morning, Jonathan. Thank you for having me. I think it kind of reinforces this resilient economic backdrop that we've been seeing for quite some time.
And I think the major, major read through for corporate credit investors is what does this mean for Fed policy and how long we stay in this restrictive territory. And so it's really less about what is the ultimate terminal rate, but more about does this resilient economic backdrop leave the Fed in a position where the bar for rate cuts is very high and they hold that this restrictive tight monetary policy environment for a while? And that certainly has implications for the higher cost of capital environment that we've been expecting in the corporate credit market for some time. Michael Hershman Let's build on that. What are the factors behind this resilient the US consumer, and are they expected to fade any time soon? Well, I think it still comes down to that underlying story that coming into the rate hiking cycle, the household sector in general had hunkered down with refinancing their mortgage rates to as you're probably well below below 3% for many people. And corporate consumer cash flows are pretty good.
Interest rates go up on savings and mortgage rates on liabilities don't go up. And your aggregate OC Of course, for certain sectors of the household sector who rent instead of buy, it's bad. And what's happened is not good for all households. But by and large, with nominal wage growth as fast as it is and increasingly real wage growth has, inflation falls. The household sector again in aggregate looks pretty solid. And even with savings diminishing,
there's no real stresses on them yet. With the unemployment rate is job growth is 200,000 approximate per month, which was the average was the previous decade before the pandemic. Why should the consumer be too stressed? Let's build on this then. Amanda is good data, bad news for credit
based on what you said. I think to a certain extent it can be if it if we have this environment where inflation is showing improvement, but the economy is still strong, unemployment is still low, the labour market in general is still pretty tight. I think it removes a sense of urgency for the Fed to normalize policy quickly and that certainly will have implications for corporate credit. I mean, we're already seeing it now. I would point to the Moody's default data that we received overnight. We're seeing an ongoing dislocation between the leveraged loan default rate and the high yield bond default rate, meaning the leveraged loan default rate is outpacing and continues to outpace the higher bond default rate.
And it feeds into exactly what we've been discussing, which is this higher cost of capital environment. The only distinction really between the leverage loan universe and the high yield bond universe as it relates to that point is that those higher cost of debt are flowing through immediately for loan borrowers. But it's taking some time for the high yield bond universe for that to flow through.
So to your question, if we stay in this higher cost of capital environment over time and we move closer to those maturity walls that will eventually flow through. One of the questions we get asked a lot is why is this not showing up in high yield spreads at the moment? And the reason is high yield. Borrowers, by and large have the luxury of being patient at the moment. They've done so much refinancing, so
much proactive liquidity raising in 2020 and 2021 that they don't need to act just yet. So they can still be patient, but it's only a matter of time before we get closer to that maturity wall and I think that will flow through. Now, when you look at the corporate credit market and Michael alluded to the dispersion that you're seeing at the consumer level, and there's a lot of dispersion that's happening at the corporate credit level. So if you take that index level of 375
basis points of OAS in the high yield bond market, that in and of itself is tight. But if you look under the surface, half of that universe is actually trading below 300. So so there's significant dispersion between the haves and the have nots, and that's true within high yield, between high yield and loans. Certainly as you get up into the investment grade landscape, it's a bit more resilient, but it's going to be a name of dispersion. I think, as we move through the next 12 to 18 months. And I think that will be key for corporate credit investors.
Amanda, could you frame for us just how painful that maturity well might be? Let's pretend it's a month away. What's the difference between the coupon they're paying on existing debt and what they'd have to borrow at today? Yeah, that's a great question. So I think the most instructive way to conceptualize that is to look at some of the sectors at the index level. That differential is around 200 basis points, but for certain sectors it's upwards of 300, 400 basis points or more. Now we know that in practice sectors don't issue debt, companies issue debt.
But for some of those sectors that are facing, I would say a combination of limited pricing power, secular headwinds, you know, ongoing idiosyncratic risks, those mark to markets in the cost of debt will be significant. Now, corporates can offset that to some degree. They can issue less size, they could be strategic about parts of the curve that they target. They can try to be as opportunistic as they can about timing. But but we do think that as that maturity moves closer, it will become a major a major story for corporate credit investors. And I think importantly, it's not just the 2025 maturity wall.
It actually doesn't let up until 2029 in the US high yield bond market. So so there's a significant quantum of debt that needs to be refinanced. And of course we're coming off of record low supply years in 2022 and so far a year to date and record low coupons owing in, of course, to the activity of 2020 and 2021. Michael, what's interesting about what
Amanda just said is so much of this is known to some extent. We have some insight, some clarity on this. We know where the maturity will is. What I'm trying to understand, Michael, is when do we start to worry about it? I think it's it's by the middle of next year. By the middle of next year, we should see for sure a slowdown in the economy and the Fed able to bring down interest rates and maybe bring down the whole term structure of interest rates.
But if some things have changed so fundamentally that real interest rates, the final term interest rate, the Fed's talking about, I think one of the big risks for the Fed in the second half over the fourth quarter of the year is that they don't change monetary policy. But they say actually that two and a half percent of final terminal Fed funds rate, maybe it's 3 to 8%. And the rate cuts you can expect are much lower.
But the demand for capital, the underlying strength in the economy, is strong enough to generate that strong growth, and it may be very uneven. And who benefits and who loses from that? So by next year, we should see in terms of who's benefiting, who's losing, and how much the Fed will give relief to what's going on. That will depend critically on the inflation rate and the lesser degree of.
The unemployment rate, the Amanda, is that a source of comfort right now? This is a problem out there in the distance. And before we get that, the Fed is going to be cutting rates. As you know, Jonathan, we think the bar for rate cuts is very high. So I don't think that near-term rate cuts in the US are a likely outcome from here. Taking your question specifically on
timing, if we just look at the mouth of it, the 2025 maturity wall is is really what we're focusing on in terms of the beginning of those refinancing needs. We know that high yield corporates in particular don't like to let their debt become current. So it's reasonable to think that they will start to address that 12 months or more before those maturity dates to avoid that situation. So I don't think it's that far off in
the distance. I think really what this hinges on is the unemployment rate, the backdrop of economic resilience, and is there urgency from monetary policy officials to normalize rates? I think we'll look towards the Jackson Hole symposium for for color on kind of the duration of how long we stay in this restrictive territory. But I don't think and this is very consistent with our colleagues in the BlackRock Investment Institute, that the Fed in particular is coming to the rescue anytime soon from this higher cost of capital environment. Equities this morning, 20 minutes out from the opening bell down to here by 6/10 of 1% on the S&P 500. In the bond market, retail sales pretty strong relative to expectations. Yields were higher, three 5% at the
front end on a two year back to way since then, down about two basis points on a session now to about 495. On a ten year there were much higher three four, 23 426 briefly back down, just sub 420 at the moment for 1992. Joining us now is Bloomberg's Irish jersey to break down the data from about 40 minutes ago. Ira. What did you make of that? Yeah, so clearly the consumer is pretty strong. They like lower prices.
We have to remember that even though inflation and based on the CPI report that we received last week, it was was generally still not in the Fed's comfort zone. Goods prices were actually a little bit lower. So I think it just shows the propensity of the consumer to continue to purchase goods when goods prices aren't going up significantly. So I do think the data is better. I think the big thing that we have to take away from this from a monetary policy perspective is not does the Fed necessarily hike more, but how long do they keep interest rates where they are now? So if if the market starts to price out some of the cuts from that that are being priced for next year, that's as good as a hike in in terms of financial conditions. We've said it a few times.
It's not just how high, it's how long our A. Thank you, sir Michael Cushman. Amanda mentioned the Fed in Jackson Hole. Next week, we're expecting to hear from Chairman Powell. Michael, what would you expect to hear
from him? I think it's a bit complicated at the moment. So we know the FOMC is a bit conflicted in terms of what they think we should do. Some members think we should hike rates further. Other things we've done enough. We have to wait and see. Others think maybe we should have rate cuts if inflation continues to fall to keep real rates where they are. So if you got three different kind of
views, at least amongst the board. So we'll have to wait and see how that plays out. I don't think Chairman Powell can deviate from the current situation where we're waiting for more data. We're data dependent, and there's nothing else we can say at the moment until we get more data. Michael Kuchma. I'm at a line on the latest with the Federal Reserve and the latest on the data as well. They're going to stick with us. Equity futures right now in the S&P 500 negative here by, let's call it a half of 1% with some movies that ran the opening bell about 20 minutes away.
Here's ABC's and a bit of a risk off mood as you're talking about John but one big cap tech stock that is super resilient Nvidia after rallying 7% yesterday and Morgan Stanley saying that the recent and in my mind stealth 15% drop from the July top offers an attractive point of entry and I should say recent top who knows there could be another one B of a following today boosting their price target they report of course next week the stock up another 2%. JPMorgan Morgan down 1.4%, falling amid this risk off mood. Plus, there's some continued chatter about banks getting downgraded. Even the best of the best is feeling that pinch today. And then Tesla well off of its lows
earlier, down more than 1%, now down about half a percent after they have rolled out a new base, Model X and S, but with a price tag that is $10,000 cheaper. Speaking of being off the recent high, Tesla off 22% off of its July. Hi John Abby thank you on the latest more on Tesla with last low in about 20 minutes from now. Coming up China's surprise rate cup. We're going to need to see considerably more across different areas of policy for China in order to really give this recovery firm footing. There is such an accumulation of different problems and challenges facing China's economy.
It's not just one thing right now that. A section. I'm next. We're going to need to see considerably more across different areas of policy for China in order to really give this recovery firm footing, only to see more coming on fiscal given an absence of demand coming from other parts of the economy. I think we'll need to see more measures to stabilise property given the latest warning signs there, and we'll need to see more follow through on these initial efforts to boost longer term confidence. Michael Hirsh In there of 2012, research weighing in on China's surprising rate cut, the PRC unexpectedly cutting rates by the most since 2020 in hopes of bolstering an economy that's facing fresh headwinds from a worsening property slump and weakening consumer spending.
Secretary Yen And acknowledging the risk of contagion, saying this China's slowdown will have the largest impact on its Asian neighbors, but there will be some spillovers to the United states. The team coverage begins right now with Bloomberg's Katie Vines and Tom Olick joining us down in D.C.. Tom, just how bad things are Bad are things how bad are things down in down in China and what can they do about it? So what we've got right now, Jonathan, is a crystallization of risks for the Chinese economy. The property sector was already turning down, but repeated efforts by the government to put a floor under that downturn don't seem to have gained any traction. And now we have Country Garden, one of
China's biggest private developers, apparently on the cusp of not being able to services. That's worse news signs that that slump in the real estate sector and spilling over into the financial sector with one of China's biggest trust companies, one of China's biggest shadow banks struggling to make its investors whole. All of that reflected in the July gross data with industrial output, retail sales, fixed asset investment, all the big gauges of China's growth, missing expectations and pointing to a bleak second half. Well, the cavalry's on the way, but hasn't quite arrived yet. People's Bank of China cut interest rates by 15 basis points. Normally they move in ten basis point increments. So 15 basis points is a signal and
there's a bit more ontheir the normal still relative to the magnitude of the challenge which China is facing and also relative to the enormous interest rate moves which we've seen from the Fed and the ECB and others as they battle inflation. 15 basis points really looks inadequate to the scale of the challenge. Expect substantially more stimulus from China in the days and weeks ahead as they attempt to put a floor under growth. You're not alone. I've heard that plenty of times this morning already across the south side sector and said this is unlikely to be the last measure.
We actually heard from the treasury secretary acknowledging that this could be bad news for the US. To what extent could that be bad news? Well, she did try to downplay this while acknowledging the risks, Jonathan, She said that she still feels good about U.S. economic prospects overall while recognizing that China does indeed pose a risk factor, of course, is the Treasury secretary, former Federal Reserve chair. She is not immune to the knowledge that anything that happens in the second largest economy and fragilities in it could have ripple effects around the west of the world. She was, though, more careful in the selection of her words than, say, President Joe Biden last week at a donor event in Utah called the Chinese economy a ticking time bomb and said that they were in, quote, trouble.
And that trouble is feeding through to the US policy response to China as well. Of course, we've heard repeatedly from not just Secretary Yellen but others in the administration saying that they are not intending to hold China back economically with some of their policies or decouple these two largest economies in the world, rather, using narrow, specific targeted things to protect national security interests like that, narrow in scope, outbound executive order related to outbound investment into China last week. It's a very difficult needle to thread, not just geopolitically, as this administration is also trying to improve relations with Beijing, but economically as well, given the risks of spillover. We heard the treasury secretary
acknowledging yesterday, Katty Tom, to the both of you, thank you for a final word. Amanda and michael back with us. Amanda, just a word on China, the financial stress that is emerging, the economic slowdown. How concerned should we be stateside, both from an economic perspective and a markets perspective as well? Sure. I mean, I think from a risk sentiment perspective, it's a key factor to watch. I think really for for investors, the critical point will be does the contagion spread? And so, as we know, the high yield property market in China has been under pressure for quite some time. We're seeing high double digit default rates already year to date. So to some extent that's a known risk.
I think how much that extends both within the Chinese market and then if it does extend more broadly globally, is a key impact. Probably in the near term the focus for investors will be on just. Persians. So are there sectors, are there companies that are reliant upon China for that next leg of incremental growth? What does that mean for the cyclical momentum behind those sectors and firms? And I think that's probably in the near-term.
Absent future developments, what we should be watching. Michael Cashman Fan a workplace. I agree with that. I think in addition, many of our large trading partners in Europe have been highly dependent on Chinese growth for exports to to to their to China. And we know Europe, for example, is struggling quite mightily right now across the board. And continued weakness in the Chinese economy can't be good for them, which then feeds through to the US, which are very large trading partners with the with the United States. And the US trade deficit could easily get larger.
Subtracting from growth as import growth remains strong because of demand from from the United States consumer. On the other hand, demand from outside the United States for U.S. products diminishes, which will detract from growth going forward, which again, is not great. Michael Cashman And that allowed him to the two of you. Thank you. Plenty to talk about today. The US consumer retailer says plenty of earnings later on in the week as well.
We hear from Wal-Mart on Thursday. You'll hear from Target tomorrow. And plenty to talk about over in China as well. Disappointing growth. We're just not where we thought we would be relative to the hopes and dreams of the China reopening story At a start of the year. Those faded and faded fast. Your equity market right now negative by 0.4% on the S&P, but slowly recovering as we inch towards the opening bell in the bond market that moves fades as well. Early this morning, that real selloff
continued got higher, just about unchanged now on a ten year in at around 420. Coming up the morning calls and later 20 to our of Canaccord joins us around the opening bell recommending investors stay patient until there's a clearer outlook for rates and the Fed. That conversation just around the corner.
5 minutes away from the opening bell. Equity futures down across the board here on the S&P 500 negative by 0.4%. That's the price action. Let's get you some morning calls. First up, GPS ready to get some video price targets of 540. Expecting shares to rebound on the back
of next week's earnings report. Stock is up by 2%. BFA downgrading Valero to neutral, saying energy stocks could move sideways after their recent outperformance. We're down there by a little more than 2%. And finally, Evercore adding Discovery
Financial to their tactical underperform list, saying limited upside after the company CEO abruptly stepped down, that stock is down by almost 9%. Coming up, stay patient until the clouds start clearing. That's the recommendation from Tony to our of Canaccord. What he needs to see to stop being bullish on stocks once again.
That conversation coming up shortly. Europe in about just around the corner. 24 seconds away from the opening bell here. We're negative across the board, as we have been all morning. S&P 500 futures -0.4% on the NASDAQ, 100 down by about a third. But improving as we get closer and closer to the opening round of the United States, just breaks glacial opening bell in the states.
Switch to the ball and get to the bond market. Yields look like this on a ten year for 1992 U.S. up. I'm not even a basis point this morning in the market a break of 109 briefly what a nice 41 right here positive by third of 1%. And that currency pair let's get to one stock to watch of the open is Home Depot, the company topping earnings estimates. We're starting to see signs of a pull
back from consumers. The CEO writing, quote, While there was strength in categories associated with smaller projects, we did see continued pressure in certain big ticket items. Abigail Doolittle as more have a Hey, John. Well, lots of nuances in this quarter. Indeed. So on the surface level, as you mentioned, they beat and they also beat in an important category of same store sales because they've actually had over the last two quarters declining same store sales. The last quarter was down four and a
half percent. Well, this one came in down 2%, beating the estimates. So there is a positive there. They also beat the earnings in their revenue estimate.
So again, positives. But yes, we do have that color from management, that bigger ticket items, they're not really selling. On the other hand, that average ticket price did rise, suggesting that they are continuing to able they're able to hold higher prices. Another nuance, though, the continued deflation of lumber and other items.
If you recall, they actually lowered the full year guidance back in May. So that could weigh on other quarters. And they stuck with that lowered guidance. They didn't raise it despite the beat. That suggests that they're either trying to build a cushion for later this year or they do, in fact, see weakness ahead. As for the stock it had been earlier in the pre market, now up about 7/10 of 1%, rewarding the company a little bit here.
But on a bigger picture, John, this stock has essentially been stuck in a range between, let's call it 303, 2340 somewhere in that range. They're probably going to have to put up better results on this to pop out of that range. 334 right now. Abby, thank you. Let's turn to the auto sector.
Tesla shares under pressure after rolling out cheaper versions of the Model S and Model X. It's the company's second move in as many days to lower prices after offering fresh discounts throughout China just yesterday at auto has more morning it. Yeah good morning Jonathan Tessler actually just turning a corner up 2/10 of 1%. It had been lower immediately following the open basically flat.
Now base models or new base models for the model S and model X are $10,000 cheaper than the prior generation. They have lower range. Remember, this is a low volume production vehicle for Tesla. The S and X accounted for about 3.4% of overall deliveries in the first half of this year. But it does come 24 hours after you and I discussed Tesla cutting prices in China on the two variants of the Model Y, the long range and the performance both cut by around 1,900 USD. Tesla has not been afraid to use the lever of price cuts or introducing a new lower spec base model of these two S and X in a way to find new pockets of demand.
And you know, you and I have discussed this so many times that Musk and other Tester executives are very clear that they are willing to sacrifice the bottom line and the impact to margins in order to protect that overall target growth rate of 50% annually. And this is another good example of that. But again, a lower volume production and we're flat on the stock, Jonathan, is the stock that's up 94% year to date, totally unchanged. Thanks for the update. Thank you, sir. Let's take you to a housing market. Warren Buffett's Berkshire Hathaway investing a big bet on us homebuilders.
The company disclosing new positions at D.R. Horton and VR and another together worth more than 800 million USD. This according to their most recent 13 filings.
Katie Greifeld has the story. Hi, Katie. Hey, John. Your homebuilder homebuilders certainly rallying today following that vote of confidence from Berkshire Hathaway. We're talking about D.R. Horton, Lennar and V are those positions
were added in the second quarter. And of course, those stocks have been on a tear all year given that big demand for houses has been met with a severe shortage of existing homes for sales. Now, in addition to these new positions, Evercore analyst Stephen King, Kim points out that Berkshire Hathaway already owns stakes in private homebuilders through Clayton Properties Group. So these new positions deepen that bet. And this was interesting. JOHN Evercore Kim wrote that Berkshire's
investment could help highlight, quote, the homebuilders strong cash flows, healthy balance sheets and favorable industry backdrop to a broader audience then the builder stocks have historically attracted. And you can see they're certainly seeing that love this morning. Katie, thank you. Taking advantage of a frozen property market. The people with 2% mortgages don't want to move and the people facing 8% mortgages can't really buy. Finally hedge funds putting their faith in big tech and AI related stocks.
Institutional investors loading up on shares of matter Microsoft and Apple in the second quarter. Tech stocks accounting for the biggest weighting of the group's portfolios at 28%. Sonali Basak has more recently. Hey, John, if you think about the tech buying you saw during the second quarter, perhaps not surprising given what you saw in the moves in the Nasdaq. But you do have to take a look at exactly what people were buying. If you looked at the top five holdings,
it actually wasn't all big tech. A lot of it was Amazon, one of the top five holdings. And outside of that, in the top five holdings you had buying of the iShares U.S. Treasury Bond ETF as the top buy for the quarter as well as iShares core total U.S. bond market ETF being the third. So Bonds being two of the three biggest equity buys in the ETF land when you look at what funds were buying. Now we also have to talk about the movement we saw during the quarter because hedge funds, as we know, are not static 13 to go through the end of the second quarter and it has been weeks since then. So it is just as important to look at
what people were selling as it was what people were buying. And you did see some of the biggest tiger cubs in the hedge fund land sit and start to pare their stakes in some of the biggest holdings. You also saw some of the biggest billionaire family offices also pare their stakes in massive tech names. Soros Fund Management exiting Alibaba, Exiting Alphabet, Stan Druckenmiller, Duquesne also exiting the likes of Alphabet and AMD. So you did see some selling.
But again, people were nipping back in the market at the margins here during a very healthy moment in the markets, not, you know, it's that time of the year. We asked the same question, how useful are 13 filings? Not very because they are old. However, the direction of travel is important to watch here. In addition to the 13 filings we had also recently, for example, John got a note from Goldman's prime brokerage that is putting out their outlook for the rest of the year.
And it says a lot of what we see in the 13 FS where it's credit, it is bonds, it is not equities. That is the biggest question. And the biggest kind of point of excitement here for the biggest investors is not only thank you for the update, we're about six or 7 minutes into the session. Equities are lower here by 0.4%. Not quite as bad as it looked earlier on this morning. Similar story in the Treasury market. Yields were much higher now higher by just a couple of basis points, the ten year and about for 21.
Turning to our of Canaccord recommending equity investors stay patient writing this the time to be bullish may be when bad news becomes bad news. The better economic performance reinforces the recession over the coming quarters because it keeps the Fed's rates higher for longer. Historically, the catalyst for forward growth is a much more favorable outlook for money that only comes with a rapid drop in rates.
Wait for the clouds to clear. Tony, I'm pleased to say, joins us right now. Tony, is that another way of saying this soft landing talking is also bad news? So, Jan, I've been kind of public with, I think the soft landing scenarios, the worst case scenario. And the reason is because it keeps rates higher for longer. When you're in a generationally levered system on debt to GDP, the longer that you keep rates elevated the high, the more interest expense you're going to have over time. For example, I just think a common sense, you know, for the viewers and the listeners, how many people have you heard get loans in the last three years where there was no interest payment for a year? So all of a sudden you fast forward and your interest payments could potentially be a lot higher.
And I think ultimately that's why people like you said, are stuck in their house mortgage rates. Listen, you need an improved outlook for money. When I look at the soft landings of 1995 or 1966, in both of those cases, you had a 200 basis point drop in short rates. We have government interest rates at the same level as a year ago, corporate interest rates at the same level as a year ago, mortgage interest rates at the same level as a year ago. So let's even assume a soft landing can
magically happen. What's your next catalyst for double digit earnings this upcoming year? And I know people in say, well, productivity and certainly that could help, but you really need a revenue pump and I don't know how you're going to do that with money where it is. It's only these issues around rates that I speak to. The recent developments in the bond market. I've asked this question a few times over the last week Just what is the dominant factor underpinning this bond market move with yields back up to about for 20 on a ten year and close to 5% on a two year? I got to say, it happened right after Janet Yellen announced an increase of a third and Treasury know issuance. I mean, you're financing paper now at
over 5% no matter where you are on the curve. That was that was zero. It was it was 0.5%. So the issue that we have here is for a generation, the refi cycle is probably broken because I look at my own household, I have a two and 7/8 mortgage For me to be able to refinance that mortgage and take money out and do it affordably with somewhere anywhere near the same monthly payment, you're going to have to get the ten year back down toward 1% and imagine what the employment picture would look like if that's the case.
So, you know, there are some offsetting. This is, you know, sounds Armageddon negative. The offsetting positives can be that private credit is kind of stepping up into a place where the bank credit is falling. Listen to you, Tony. Shove enough. I've got a two handle on my mortgage. Tony, that's like saying you've got a Lamborghini on the drive in 2023. But I'm pretty good and I'm pretty good at being wrong in the stock market.
But my mortgage tricks, Tony, The Academy. I wish I had a mortgage with a two handle locked in for 30 years. Tony, I've had a lot of people tell me that we can't sustain life above 4% on a ten year. This isn't sustainable. Do you endorse that view? I don't think it's sustainable yet.
For example, this morning I have this great research assistant. His name is Google. So I just Google's, you know, strong retail sales and, you know, better than expected prior to. I went back and I looked at 2007 and November 2007. You had a huge move up in retail sales and the reason was better than expected income growth and full employment, better consumer confidence. So, you know, all you have to do I believe in this thing is try to maintain patience and what we're going to do all day. Unfortunately, you have to do it and I
have to do it. We have to comment on what the stock market's doing in this half hour and what we found over the course of this year, last year, in the year before, is that intraday volatility has become so extreme, I think that information is useless. What is useful is where are we with employment? And that's been pretty good and where are we with interest rates? And that's not so good. So ultimately, when that higher interest
rates, if they stay higher for longer, do buy into the interest expense and companies have to pull back a little bit. That's when the employment at your start unemployment picture starts to rise. That's when bad news becomes bad news. And that's when I want to attack. The time to be seriously negative, in my view was last August and man, did I feel dumb last August. Market was ripping in, as you remember.
I'm sure you remember I was pretty negative feeling really wrong. And then we went into the October swoon as rates started to really ramp. Now I believe is the time as is stocks pull back John to take to try to take advantage when bad news becomes bad news because that's when the outlook for money improves as the Fed cuts rates. It's only due fear. The repeat of that late summer story coming into September last year. I think you got a buffer, John. And I think part of it is like, for example, three or four months ago, nobody in China was talking about a hundred basis point rate cut. So, you know, things change fast when
when unemployment starts going up because it becomes a political influence. So, yeah, I do think we can have a sharp sell up. I don't think we're going to go back to the October lows. You don't need to.
I think a good enough sharp sell off that really comes from worse economic data and the employment picture that helps the Fed really in expectations for Fed rate cuts have the six month to year come down hard. I mean, think about this, John. We you got you. And Lisa earlier this morning did a great job of talking about mortgage paper. So we're a seven and a quarter and a 30 year fixed conventional mortgage. That comes because there is a historic spread wide spread between ten year treasuries and mortgages. If you have the Fed cut 100 basis points
and if you have that spread, go back to a more normal level. If you stop, cut, or at least pause it, then all of a sudden you got a 200 basis point drop in mortgage rates. And when that happens, you can really kick start maybe the next economic cycle.
I don't know how you're going to magically do it without a real drop in rates. Turning to our chief market strategist at Canaccord and owner of a 2% mortgage. Tony, thank you. Seven, seven, eight, seven, eight. Just very close to making a sound even better for you. Tony, go away. Tony, Thank you. I'm so jealous. Honestly, the mortgage envy is real. Your equity market on the S&P 500
slightly negative this morning. Coming up, Secretary Yellen leading the fight, an Army battle. The administration remains committed to taking actions to lower prices for Americans where we can.
That conversation coming up shortly. The administration remains committed to taking actions to lower prices for Americans where we can, and we continue to monitor and monitor developments, particularly those abroad that may affect prices in growth. Secretary Yellen praised the president's economic policies in Las Vegas. The administration celebrating the one year anniversary of the Inflation Reduction Act with Vice President Kamala Harris speaking in Seattle. President Biden addressing voters in Milwaukee at 2 p.m. Eastern. That's all ahead of his big speech
Wednesday from the White House. The president trying to ramp up voter support as presidential candidate Donald Trump gets indicted in Atlanta over efforts to overturn the results of the election defeat in Georgia. The indictment alleges that rather than by abide by Georgia's legal process for election challenges, the defendants engaged in a criminal racketeering enterprise to overturn Georgia's presidential election result. Let's get to the full impact team Caroline's and Mario Parker joining us down in Washington, D.C.. Mario, first to you. What's the latest, please? Well, the framing that you had in your introduction, Jonathan, I think was spot on.
Right. You've got President Biden going to Milwaukee, a key city in a key swing state, to tout his economic agenda ahead of the 2024 election. And you've got former President Donald Trump down in Georgia, another key state with the latest indictment. One thing to be sure about with former President Donald Trump and how he's using these indictments to try to capitalize and fuel his political comeback is that they're indistinguishable at this point from his campaign. Kelly, is this just drowning out the campaigning of President Biden on his biodynamics tour or is it helping him? Well, it's hard to compete with the headlines, right, John? Is so much media attention has been placed on the legal woes of the former president, but the current president is trying his very best.
Not just him, but others in the administration, other surrogates on this ten state swing this week to celebrate the one year anniversary of the Inflation Reduction Act. As you pointed out, there will be an event at the White House tomorrow. But before that, today, the president will be in Milwaukee, Wisconsin, with this message.
It's important to note the significance of that location choice as well. Wisconsin, of course, is a critical swing state. He won it by a narrow margin over Trump in the 2020 election. And the city of Milwaukee is also the location of the first Republican primary debate that is taking place next week. Now, as for whether or not this messaging, Willy, really is going to resonate to this point, despite what the president has touted as growth in the economy from the middle out and bottom up, it isn't necessarily showing in the polling.
Still, a majority of Americans disapprove of his handling on the economy that is consistently shown in surveys. His approval rating also remains low overall, and so that is what this tour really is intended to rectify. But definitely some oxygen being sucked out of the room by his likely opponent in a general election if the current stance of the race holds. Maria is now can you jump in and translate this for me, this headline that crossed from CNN just moments ago that Hunter Biden's top lawyer has asked to withdraw from the case. What does that mean, Mario? Well, it means that now we've got the former president kind of dogged by investigations and it looks like the White House, too much to its chagrin from where they were thinking things would be at least two weeks ago, will also have an investigation kind of hovering over the 2024 election as well. This isn't great news for the president. I mean, Republicans going back to the 2020 cycle have tried to make his son parts of Biden a focus of their attacks. And it's a weak spot for the president
going again going into 2024. It allows Republicans to engage in. What about ism as to Kelly's point, as former President Donald Trump is embroiled in his own investigation? That headline just crossed in moments ago. Mario, it to the two of you. Thank you. Just to share that with you again from
CNN. Hunter Biden's top lawyer asking to withdraw from the case. Plenty more on that, of course, on Bannon's apparent at a bit later of 5 p.m. Eastern Time with lies. And Joe.
Matthew, today I'm told that Emory is going to be back tomorrow, about 21 minutes into the session, went down by 0.6% on the S&P 500 with respect to price action. Here's Abby. And with that sort of decline, John, we are looking at all 11 S&P 500 sectors lower today, led by energy, down 2.1%. We also materials, financials down on the bottom, down more than 1%, joined by utilities up top.
Interestingly, technology down just 1/10 of 1% or thereabouts. However, on the month, it's a different story. So the month of August for the S&P 500, we're looking at a greater than 2% decline. That's the worst month of the year.
And this is one of the worst sectors. Technology down 5.4%. Earlier, I was talking about those stealth sell offs for Tesla and or at least that degree of. Them and Nvidia. Well, this index is also heading to its worst month right now since December of last year, John. It's had a tough go over the last few weeks, that's for sure. Abbi, thank you. Coming up on this program, you're trading direct.
25 minutes into the session. It's certainly not as bad as it looked earlier on this morning. Off the back of more weak data from China and a rate cut in the mix as well. We're down about 0.6% on the S&P 500. Not as bad as it was because it's not as bad as it was in the bond market to be. Switch on the board and get to the bond market.
Yields are right off the highs of today with the ten year yield right now at about four 1757, a two year but yields declining now to about 492. Only an hour and 30 minutes ago that was three 5%. Very, very briefly. Since then we've backed away. So that selloff in the bond market slowly getting bought in the last 30 minutes or so. That's the price action. Here's the trading diary coming up. The Fed speak from Neel Kashkari of the Minneapolis Fed. That will take place at 11 a.m.
Eastern Time. President Biden discussing the US economy from Milwaukee at 2 p.m. this afternoon, then delivering remarks on the Inflation Reduction Act from the White House tomorrow plus tomorrow, target earnings before the opening bell and in the afternoon. Some Fed minutes in the mix as well. Walmart numbers and another round of jobless claims. They come on Thursday.
And finally, we round out the week on Friday with eurozone CPI that runs out of money for May. Thank you for choosing Bloomberg TV and good luck for the rest of the trading day. This was the countdown to the open. This is Bloomberg.