Inflation Easing? | Bloomberg Surveillance 03/02/2023
Central banks hope that by now they'd be clearer evidence of services, inflation easing off. But that just doesn't seem to be happening. I'm not necessarily going to be getting back to expansionary environment just yet, but trade into what we call more cyclical parts of the market probably happened too fast, too soon. Earlier on this year, we're still going to see prices going up here.
That's the main event, still medium term of the opinion that this monetary tightening, we'll see the economy suffer in the future. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz Halo 4 percent life from New York City this morning. Good morning. Good morning from audience worldwide on
TV and radio. This is Bloomberg Surveillance alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro features right now down a half of 1 per cent on a S&P 500 one hour ago. Eurozone CPI T.K. record high. Once again, what we've seen here is a trend of the last number of days and frankly the last number of weeks, John. This screen that I'm looking at now on
the Bloomberg, I've never seen its periods. That's not 1994. It's not 0 6 or 7. There is something moving here. And the word the prose uses convexity, which is French for a car acceleration. Like if you're in Bahrain and your Alfa Alfa, whatever, you catch up with Aston Martin once you accelerate up.
Right now, we're accelerating. We're seeing it and 7 percent above mortgage rates and they're 4 percent 10 year yield. So to confront core CPI in the eurozone at all time highs.
What is the ECB to. They're gone 50 basis points this month. Not sure. Do they have to tee up another 50 basis points to count? Was speaking Spanish GDP a bit early this morning time. It feels like that's the direction it's come in. And this is not about the central banks now. This is about observable data that's not
slowing down. It's not transitory. There's gonna be a new urgency to this and all the different comments that Lisa talks about, John. And all I can do is go to the screen and the screen is new. The comparison of the two months and the 30 year is extraordinary. Never seen it. Well, let's go through the curve piece by piece. The two year in the last 24 hours through 490, then we break 4 per cent on a 10 year. I think for the first time since
November. Is that right? Cracks. So you this morning still hanging in there in and around 4 per cent, Lisa, up another 2 or 3 basis points. So here's a question. How far do central banks have to go to just get to neutral? And I think that's a new question, because right now the fact that inflation is still accelerating has people concerned that maybe we haven't gone as far as we think we need to go just even stabilise the economy. And that, I think, is the fear. Well, I also think is interesting on the heels of that data out of Europe, why is the euro losing versus the dollar? Really? Because this is basically where the ECB is going to raise rates enough to diminish some of the some of the economic trajectory that can't look at just the pair in a vacuum. You have to triangulate.
In about 40 minutes ago, you were just getting in. About 40 minutes ago, I triangulated euro yen. And the answer, what did you find? Euro with convexity. Euro with convexity is strong. Euro.
Japan's being left behind. I get it. But that's a key technical break. If you have euro yen break out to new euro strength. That really shows how they're both ratcheting up along with all these rates. It's a global story here right now between Europe and the United States.
And Japan's a feature in all of this as well. Inflation's looking stickier. What was interesting about the ICM yesterday, as I said, manufacturing the headline number wasn't tremendous. It wasn't terrific. It was an improvement. It was still sub 50. The prices paid component just spooked people. And Lisa, that speaks to the moment.
And Ruskin at Deutsche Bank wrote about this yesterday. And I think that speaks to sticky inflation. That data point dead. This market does not like it one bit,
which really highlights that this is the new narrative, right? Sticky inflation, stickier than we thought. Anything that confirms that is only going to spook markets. Then they'll just ignore the other data. So I really go too far on that as we went too far, perhaps on a macro disinflation.
Equity futures right now down four tenths of one per cent on the S&P. Let's whip through it for you, starting with the equity market just a little bit softer, lighter, low, lower negative on the S&P in the bond market yields a little bit higher by a couple of basis points. Get used to this, maybe your 10 year four point zero 160 per cent on a US 10 year. And just to finish on foreign exchange, Eurodollar confronting a record high core CPI reading out of Europe this morning. Lisa, just a little bit weak on the euro side of things. 1 2 6 19 Dani Burger, which I find
fascinating because we just saw a hotter than expected CPI print and you would think that that would indicate further rate hikes. That would be strength, not weakness. We'll get into that later today. We do get retail earnings that do include Macy's right before 7:00 a.m.
Eastern, Best Buy a Kroger all before the market and then after the bell and Nordstrom and Costco. Do we see what we saw yesterday from Kohl's, which is a negative outlook going forward, negative margin compression, basically seeing a real lack of profitability at a time of inflation. If you take a look at the retailing index, we've gone full circle this year. We basically saw a big recovery, as people said. All right. By all the beaten up stocks. And that's almost been completely given up as we get those earnings, 830 and we get initial jobless claims.
Could be. A market moving in a way that hasn't been in the past. If it is sub 200000 thousand as many people expect, does this only confirm what we're talking about before? Stick your inflation strong relieving market for longer. More that central banks have to do. And today, the Fed's peak does include Fed Governor Chris Waller at 2:00 p.m. Minneapolis Fed President Neel Kashkari
at 6 p.m. Neel Kashkari yesterday, John, talking about how he is open to a 50 basis point move at the meeting later this month. This is new re accelerating rate hikes rather than staying at that 25 basis point mark, not just his comments yesterday. Also, Rafael Bostic at the Atlanta Fed. The president now, Lisa, talking up
maybe 525 well into 2024, just pushing that story right the way through next year. This is a new trajectory. The data clearly has concerned the Fed members. That is new. This feeling that perhaps they underestimated the stickiness of the strength of this inflation. And I am curious whether that permeates the comments that we hear today. Let's get out ahead of Friday when many publish it into the weekend.
I believe no. Murray yesterday began to voice 50 basis point lift. How many others will join them? And my answers, based on what we've seen a lot. Four week moving average of the weekly claims, a number I have never mentioned ever. One hundred and ninety one thousand two hundred. Credible, exceptional largest. That's just for. John, I can't say it enough.
I've never seen a screen like. It's amazing. Next week, Chairman Powell semi-annual testimony to Congress. So look at it. See the screen.
Let's see if we get a shift from Chairman Powell in any way, shape or form. Apparently, you can look through the whole of the summer and just get to September. Kit Jakes assault charge is going to join us now.
Just wake me up when September ends. Kate, what happens in September? Rates peak according to the forward curve. The question is out right out of the gate. Look, I think that this is the piece. We I mean, there's been no progress in inflation economics since the since 2000. For the sake of argument until recently, because we didn't have any to analyze.
So we're making it up as we go along. We're in unprecedented times in terms of the volatility of the economic data, which means we are doing our best to interpret numbers that are permanently surprising us on all the bits of the economy. The one thing we know is they've got to go with they've got to go harder. And the one thing that most of us I
think feel is that in the end, they're going to have to go hard enough that somebody is going to break and waking up when we know whether it's a kid, we're having a financial discussion, maybe on a Hickson basis, we're on the L M curve. But the reality is we live on the ISE curve. What happens to our assets, to our property, to the things we own with the convexity we're seeing in interest rates? Well well, you know, this this is this is kind of I mean, put simply, it's back to these large and variable lags that we all talk about so lightly is how do you how do you slow something down that you don't understand, except by eventually leaning on the brakes hard enough that something breaks on what brakes or asset prices nearly always and then the real economy.
So this is dangerous, more dangerous because the Fed's doing a good or bad job is doing good or a bad job. But because they don't understand, we don't understand. It's all very new. The data are all over the place relative to expectations. So they have no choice but to talk about going 50. That's a risk doing too much. Tell us that that's some idea of
control. I have no idea what that is. And go too far. I was talking about triangulating foreign exchange pairs to get out to September to see you in September. Which pair is most efficacious? Which pair can I profit from? I think right now you can start off profiting out of out of your yen. To be honest, with respect to where you are, because the Japanese are talking down rates even as they're facing up to the need to come back with further yield curve control. So. So we we saw at the end of last year, clearly short term rates moving in line, expectations of Web DOJ policy rates would go in line with the rise in yields. The first thing that Mr.
Wade has done is reversed that pretty convincingly. That means that at the moment, but the US and Europe are seeing rate expectations move in the opposite direction from what they've been doing in Japan. And again, is is pretty vulnerable. We could break through some some levels that look pretty scary on charts in in yen crosses today at the rate that we're going to get. I think a lot of people would want to go to sleep and then wake up in September, especially the way this market's been going. I'm just curious whether you do in the meantime. Right. I mean.
Yes, OK. Perhaps the euro yen is as across that you'd be interested in. But do you have a safe place to hold on and wait until there's sort of a more clarity in the market? I'm tempted to say that in currency terms, this might be the time for the Swiss franc to start doing well. I have a sense that the Swiss don't want a cheaper currency at this point. They are going to be leaning against that. If it happens, just because they don't like inflation, then possibly they dislike inflation more than the rest of us. If it's if it's possible for anybody to
do that. So I think they'll they'll benefit. I wouldn't be surprised if the market comes back and revisit some of the places like Australia, New Zealand, but perhaps particularly Australia, who's been perceived to be less keen to fight inflation than some others. Despite the fact their economy is not in bad condition, the terms of trade are epic. If they if they're forced to look at the world and think, yeah, we need to we need to get on our bike and start hiking rates, then then they've got some catching up to do. I don't want to hide in emerging markets personally right now.
If this starts to get dangerous because rate rises hurt them quite a lot. You know, it's probably too late to just hide in the dollar in the sense that, you know, we've had such a big run. The dollar is very strong, not fear having reversed some of it. But the Swiss franc note, not the worst place to go and hide. And when things get scary, I can't. We got a squeeze descent. You were at the Emirates last night.
The Arsenal game looked absolutely fantastic. Watching it on the TV, that girl from Sanka just looked absolutely awesome. Clinical top quality stuff. What did it feel like in a stadium kit last night as an Arsenal fan? He's been waiting for this moment for a long, long time. The mood was very good.
It wasn't raining. We weren't being beaten. We ought to help with the league. I have nothing but fun. He did score at the other end from me, so he was putting way away when he did it. That's that's my only objective. Covid. Score that on my.
It doesn't look like Arsenal could beat Sheffield United last night. I haven't watched that game. It's like double good news for us to see Covid from from. He said this is a Dodge Dart.
Spurs lost. Arsenal won. That's a good thing. Top of the league. Top the league. And it looks real. A sign to look real in a way that it didn't. I mean, the start of the season when just died to build. There was a feeling that they wouldn't get this done next time.
In London, Lane's borough, every single guy in the cigar bars, an Arsenal fan kit. Jake's is such an kid. Wonderful to catch up. Thank you, sir. He sounded like a Mets fan. You know, it wasn't a hurricane. We weren't blown away. I didn't the levels in a long time since
they were up here. I know. And they may well cross the finish line. Look out if UBS is going to join us in the next Nats sums to talk about in the next sanction and ESG showdown between the Senate and the White House, AMH down in DC. Up next. Keeping you up to date with news from
around the world with the first word. I'm Lisa Mateo. Inflation in the euro area fell less than anticipated last month. An underlying price pressures rose to a record that reinforces expectations that the European Central Bank will have to raise interest rates again. Consumer prices hit eight point five percent. Core inflation, which is what policymakers are focusing on.
Rose three tenths of a point to five point six percent. The Biden administration is on a potential collision course with big tech companies. It's coming out today with an aggressive new cyber security strategy. The plan seeks to shift the blame from companies that get hacked to software manufacturers and device makers. The process will require Congress to pass legislation in the UK.
Conservative lawmakers say former Prime Minister Boris Johnson's prospects of returning to power have been killed off. The reason? Ricci's soon next success in securing a new settlement for Northern Ireland with the European Union. Johnson had refused to back to next efforts. China has sent the most fighter jets
near Taiwan in almost two months. The move came after the US approved the sale of six hundred nineteen million dollars of weapons to Taiwan. Almost two dozen Chinese fighters were detected in the south western part of the island's air defense identification zone, and even months must hyped much hype. Master plan for Tesla fell flat with investors. The four hour presentation failed to offer any firm detail on the company's next generation of electric cars.
Musk said that what he called a proper product event will be held later. Shares are lower in premarket trading. Global news powered by more than twenty seven hundred journalists and analysts in over 120 countries.
I'm Lisa Mateo and this is Bloomberg. I called on the prescription drug companies to bring down the price of 35 dollars to everyone, not just seniors. Today, Eli Lilly, the largest manufacturer in the United States of America, agreed to do just that.
Thirty five bucks. But guess what that means? Every other company in Macon is going to have their lower their prices at thirty five because they can't compete. It's a win for the president of the United States. That's the good news.
Let's get to the policy effort down in Washington this morning. Here's the latest. An ESG showdown between the White House and the Senate. The US Senate passed the measure to block the US Labor Department from enforcing its new ESG retirement investing rule. If you're not familiar with this, this
is what the rule does. It permits private sector workplace retirement plans to consider ESG factors when selecting and monitoring investments on behalf of participants and beneficiaries, not some. When we talk about ESG that we use in the term a little bit loosely when we think about this showdown. This comes down to one thing investment in big oil in America and that face off that showdown is really ramping up.
And I thought it was interesting, Lisa, yesterday to see Ron DeSantis, a Floridian governor in The Wall Street Journal, with an op ed piece on. Guess what? SAGAL You're basically saying, quote, A weak CEO can use the corporate bully pulpit, bully pulpit to exert influence over society, basically trying to reduce the corporate rule over how people are supposed to live. That's the that's the pushback. This is a show down some right now. I think showdown is the right word in a lengthy, lengthy campaign. Both sides have to find topics to topic about. And I think you're right, John. This is the showdown topic around climate control.
It adjusted by the war in Ukraine and such. And here we are this early on. And I'm going to go back to a wonderful summary by Betsy Aikins and Forbes magazine a number of years ago. And with Emery Horton joining us, our chief USG correspondent in Washington, Emory. Betsy goes back to May of 2017, where basically the shareholders of Exxon Mobil put the management of Exon Mobile and the ESG time out share. And they said, no, you are going to look at this. Who holds the cards right now?
Who holds the corporate power on the ESG debate? Well, I think what you're seeing is this debate that has been taking place on Wall Street now really coming to the forefront in the political stage stage, especially ahead of 2024. I mean, Jonathan was just mentioning Governor Santos, an op ed. He mentions this a lot, this quote unquote, quote, capital on how he wants to cripple this ESG investing. In his book, he's on a national tour promoting this.
So this is becoming a hot button issue because for the Republicans, what they're trying to shed light on is like how Republican how corporations are using what they deem social issues when they come to investing. But the bottom line is you already see places like BlackRock, like State Street, already taking ESG into consideration when they are talking about investing. Also, this labor rule is not a mandate. And you really get that point across when you look at Senator Schumer's op ed in The Wall Street Journal as well as well, and just saying that this is something that they should be allowed to look at. But while, yes, this has implications for the financial community, this is really going to be either virtue signalling or a way to get out a completely different message on the political line. I mean, they've got a ways to go here just because a time and early morning I'm going to cut to the chase is a political polarity.
Do you have any sense or does Gallup have any sense or any polling or academics? Do they have any sense where the middle of America is on this topic? Well, I haven't seen any polling specifically on ESG investing. But to my earlier point, I think what they're what politicians are trying to do is use this just to talk about other issues like Governor DeSantis is using this to then talk about a number of other issues in terms of what he thinks Democrats are using in terms of, quote unquote, wolk politics. I don't know if everyday Americans even know this rule in the Labor Department exists. This goes beyond virtue signalling in Washington. I think you have to get to the state level to think about how this really hurts businesses and banks at the moment.
The asset managers may well be stuck right back. Slam bang in the middle of all of this. There is a list in Texas state law that limits government entities from doing business with firms that restrict business and oil and gas producers on that list already are the likes of UBS and BlackRock and the Texas comptroller in the last day or so plans to add at least one more firm to the state's tally of financial companies on that boycott. Less now, Emery, I'm just wondering how you expect this to play out. State to state in this country in the coming years? Well, at the moment, for this exact as it is with the Senate trying to block this and this has gone ahead, the president will veto this.
But I imagine, Jonathan, depending on whether or not it's a red or blue or purple state, that's how it is going to play out. When you talk about the oil and gas industry, though, it's interesting because it also puts the Biden administration in a little bit of a hypocritical position, because at the same time, they want to make sure that this rule stays intact and that these fisheries are looking at things like ESG when it comes to retirement planning. They also have been begging the oil industry to pump more. And the issue with the oil industry is they say that we don't have the bankers and we don't have the investment in New York and cap and financial capitals around the world. NYSE John pointed to this Rhonda Santos op ed and one of the lines in here really highlights the bigger issue here. Yes, this is an ESG issue. Yes, this is a fossil fuels issue. But Rhonda Santos writes, The
regrettable upshot of the Wolk ascendancy is that publicly traded corporations have become combatants in battles over American politics and culture. Almost invariably, siding with leftist causes has to sort of tilt toward ESG environmental, social and governance concerns. Kind of made the Republican Party traditionally the bastion of corporate America, suddenly pitted against the same corporate America that they used to support. Well, I think that's the heart of it. Governor Santos is getting out right.
And this also comes down to, you know, when you're running. Want to run a presidential election? You need massive amounts of money in America to do that. And what we've seen over the course, I mean, really a decade. But this was incredible. CAC incredibly quickly under during the prior administration is employees at corporations really pushed top management to make different decisions and to make sure they were considering social decisions and managements have moved on it. And so this is something that Ron Governor Ron DeSantis is really poking, trying to poke a hole in, and he's taking this message nationally. Mary, thank you. Down in Washington, we'll continue this conversation in the next hour.
Looking forward to that. Interesting to see the governor of Florida on a bit of a media talk at the moment, some with a new book. That was a Wall Street Journal opinion piece to kick off the week. I think there was an interview as well with The Times of London as one on that book, too. Just getting a little bit more familiar with the man down in Florida. Yeah, well, it's a media tour and it's
also visits to states and it's all wrapped around the primary season. I mean, this is secure on a media tour in the United Kingdom right now. Labor? No. I mean, I think they're always on some other media, too. But it's interesting to see him engage the national media, the international media, the other 10 candidates as well as, you know, officially declared yet.
Has he not? They haven't. Yeah. But, you know, what are we in store for Tom Keene? I mean, does someone got a challenge, Mr Biden, if he decides to run for a second term? Well, and then whereas the gravitational force for both of the parties. Right. I think that that seems to be one of the big questions that really gets raised with some of the discussions that we see in Washington. Is it going to be China where there's
bipartisan agreement? Is it going to be ESG is sort of social? Some of the signal signal, some of the social issues that really have galvanized a number of of the parties on both sides? I have no idea how the middle of America polls and ESG. I have absolutely no clue. To me, it's a complete mystery. It's pretty clear how they poll on energy. They don't pay a lot for it. You know, you're absolutely right when
it comes to tell you that. Yeah. I mean, it limits my travel dollar 59 nine. I'm a person. I personally think that it's become, you know, a trigger phrase that people you say. Yes. And you've got some people who are like,
yes. Other people say no. Has become completely politicized in its removed scientific analysis of what exactly needs to happen to produce carbon emissions in a logical way while preserving enough of a lifestyle that people want to perpetuate politically. Now, agreed. That's why I said when we started this segment, the term ESG has just been used really, really loosely here. And politically, what a complete RTS for a lot of people is just whether you support fossil fuels or not, whether you want to support big energy in America. But I think that if you talk to investors, it's much more nuanced.
And even the fossil fuel companies are very much in on the history of Formula One. Are they seriously? I think trying to say DAX, they're trying to become a little bit more than 200 miles an hour at a time. At the end of the day of your tour in the world for nine months, 10 months from city to city. He features a lot of his softer hair. Good morning to you.
We are negative by four tenths of one per cent on a S&P 500 and the second day of March facing a test in the bond market. We'll get to that in a second. On the Nasdaq right now, down six tenths of 1 percent. Here is your test in the bond market. It starts with 4 on a 10 year 4.0, 2 to 1 per cent yields high by 3 basis
points. We had a four handle on its end yet for the first time since last November. The two year looking at for 90 a couple of times in the last 24 hours, up a single basis point there on a two year. Just signs, more signs. The inflation is looking stickier at the ICM manufacturing rate. Yesterday, the prices paid component.
So this wasn't about the headline, which was still sub 50 and improved just a touch. This was about the prices paid component. A lift there spooked this bond market in the affects market. The data point out of Europe about 90 minutes ago spooked a lot of people too, although we kind of knew it was coming based on the regional breakdown of things. We saw France, Spain, Italy, Germany, inflation still elevated and across the eurozone core CPI all time high. Tom, one of 622 euro dollar negative,
four tenths of one per cent fifty is absolutely now down 50 basis points from this ECB this month. It's about whether another 50 after that is now done on and a lot of people think it is. And the new data dependency, as we hang on every interest rate topic, I would look also at the 10 year real yield. One of the series that I use is really not at a technical breakout. It doesn't give me the drama of 4 percent 10 year yield, but the real yield at one point five 8 percent is grinding ever higher. We're just not at a breakout. Are we sufficiently restrictive with that in mind so much? Daddy, I think you're asking the wrong question.
Even at neutral mean, I don't think people understand if we had restrictive sufficient restricted. If you take a look at real yields or if you take a look at inflation expectations on two year, year to year bases in the US, they're back to the House levels going back to November. Concern about stickier, longer inflation in the US. Shery Ahn Matthew, right now we do this. The Dean Koenig is founder CEO of Macro Risk Advisors who writes a really adult, pro math driven, quant driven note on where we are and the market's lean forward and we'll try to sort through the jargon. There is a band and trend dean of two
standard deviations up to standard deviations down. My calculation this morning on the 10 year U.S. yield is two standard deviations up as an elevated four point one 1 0 5 percent. Does your body of work suggest we will get there? Well, I think we're certainly all beholden to the data at this point. And we've got a raft of incredibly important data coming. I think there's no precedent for the big three macro catalysts from a data standpoint occurring in just nine trading days. So you've got NFP, CPI and FOMC all
within nine days. So it's exceptionally important, obviously, for the market. The vulnerability here to me seems to be to better news. So it's a good as bad sort of dynamic that crept back into the market. And, you know, as we sort of look at the different segments of the yield curve, we could look at three month, two year, we could look at 2s, tens threes to three month, two year flatten.
Right. That was a head scratcher for a period of time, the speed with which the Fed was supposed to be cutting rates after raising them so quickly, that didn't make a lot of sense. That's normalized quite a bit that that curve has flattened out. And so the next one to sort of wonder about is something like two tenths. So if two is are up here in five and tens or at four.
Right. At some point the tenure is just a succession of two years. And so we have to ask ourselves, what does higher for longer truly mean? The Fed comments are in the last couple of days. Someone like Bostic is not a voter right now, but it's pretty hawkish stuff. It's basically saying we're gonna be up here in restricted territory, at least in their mind, for a period of time into 2024. And then, of course, what we're all asking is, what does it mean for the whole economy and for corporate earnings? Are all the trends that you see around the cross moments fancy talk like ketosis and variance in the rest of it? Do they suggest controlling bold, measurable trends or do you worry about a disjoint or jump condition? Well, we use the word SKU, at least in the equity derivatives parlance. We're basically talking about the extra
premium that the market's willing to pay for out of the money insurance. What's our experience with things like the 87 crash or obviously the great financial crisis as markets tend to crash down, not up. And so if I'm buying insurance, I'm charged an extra amount for that acceleration of down moves that typically occurs during a risk off event. As of now, that skew premium is actually quite low and it's low for a good reason. It's low because it really didn't perform last year. The folks that are good sponsors out of the money puts on the S&P found that it just wasn't working properly by mid middle of last year.
And so what do you do? You adjust and you try to take what the market's giving you. And right now, it's not giving you those deceleration moves, you know, to the downside. In fact, just a real quick statistic. Last year we had 46 two percent moves either up or down in the market. Right now, this year, as of the first two months, we're on pace for twelve. That is the engine for a long ball.
You need those 2 percent daily moves. And if you're not getting in, the VIX is going to struggle to get back up into the high 20s and 30s. Dean, you talked about following the data.
A lot of people have talked about data dependency. And yet even if you get the data right, you're gonna get the market wrong potentially, because that has been sort of the theme of the frustration of 2023. How do you know how to interpret the data? Right now, data is being skewed to good data is bad data. How do you know what the right interpretation is at a time when you're trading on sentiment? So since so significantly like you. Yeah. So there's the solid Stanley Druckenmiller quote. He said, the best economists I know is
the stock market. And I think what he's basically saying there is market prices matter. They can be wrong quite a bit with that. That happens all the time. But we try to take the tells from the
market. We look at correlations, for example. And one of the things, Lisa, we've talked a lot about is stock bond correlation. It was negative for the better part of 20 years. It formed the basis of the institutional portfolio construction, where in a risk off you get your bond market rally.
It would defray some of your losses in the stock market, of course, last year. That came undone in epic fashion. And it's not ended. In other words, we're still in a positive correlation between stock and bond prices. So that's one thing I look at closely. Another one is just correlations to the dollar. It's been the anti S&P for the better part of a year. And I think that's something we're supposed to watch as well.
You know, the high point in risk last year was, I think late September, early October. It was the guilt crisis, but it was also that chokehold that the dollar had on this sort of system of risk taking. So we've obviously sold off in the dollar, but it started to creep back up.
You know, we're supposed to watch that as well and then just hit up the good old Bloomberg W IRP page. You know, look for work now north of 3 tightening as that was supposed to be zero as of a month ago, getting into a four way and now, you know, an introduction of discussions of 50 basis points. That's a that's a new thing for the market to grapple with. So I try to look at market prices rather than predict the next economic data release. Right now, the market pricing is actually not necessarily confirming this belief that earnings will be a driver of some of the downturn ahead.
And I point to what made Mike Wilson was talking about yesterday. I'm Bloomberg Technology with John. I'm thinking about what a lot of people are talking about, an earnings recession. And we see these earnings come out at Macy's, just out where even disappointments are met with gains. There is a sort of bias to the upside. Is there a message in that from the stock market or is the stock market wrong? Well, we made an adjustment to the P E ratio last year. I think that was consistent with higher
inflation and higher rates. So most of the damage that was done to the S&P was really just the multiple. And so what folks will say is this is the year where the impact of higher rates starts to flow through to the real economy, into corporate earnings. And, you know, you get to current levels of the S&P with something around a 17 and a half forward P E and to 30 on earnings. That's not my forte.
But it just seems to me that keeping the short rate up period 5 percent, knowing what it ultimately does to critical aspects of the US economy, like the housing market, it's going to ultimately matter. And if I'm thinking about volatility and I'm thinking about hedging, the brightest line I can draw in terms of what moves the market is a deceleration of earnings. And perhaps what's happening, Lisa, is that the market is just waiting to see that. You've actually going to have to see the decline in earnings for the market to start to move. But, you know, I think it I think it is coming, especially if inflation is just not going away.
It's going to be a long haul. To truly get back to 2 percent is just going to be an incredibly long haul for the policymakers and I think for the market. Dana, final word on this August 20 21, thinking it comes on this program and he turns around that towns is transitory, is the new subprime is contained nuthin. You just now did.
Now, when we look back at the disinflationary process has started, which was a comment from Chairman Powell in the February news conference. How do you think we can view that phrase by the end of the year? I think it was certainly half right. It had started. The question is how do you actually get the 2 percent if you're seriously about getting to 2 percent? It's really it's really the QE period of the post crisis era flipped on its head trying to get from 1 5 to 2 using zero rates is kind of similarly difficult to get from three and a half to two using five five plus percent short rate. It's gonna be a long haul and it's just gonna take a lot of time. So, you know, we're in the immediate
gratification business. Investors these days, but it's just going to take a long time people to have patience. Hey, Dana, thank you, buddy. As a waste in Canada of macro risk,
advisors get some headlines. Months ago, another retailer reporting. This time it's Macy's here in the United States, rather like Target. It's a beat in the fourth quarter, but they take what they called a prudent approach to the outlook. So here's the beat on EPS for the fourth quarter 188. The estimate was 158. Here's the outlook. They see full year net sales, twenty
three point seven billion to twenty four point two. That's a touch below the estimate at twenty four point three, two billion. And Lisa, off the back of this, the stock positive by a little more than 5 percent, which really highlights how people are willing to look past the prudent approach of some people. It's a kitchen sinking it because
they're being given a clean slate to basically come out with a really conservative gaming out of what they expect this year and saying it's probably going to be better than that. One thing I want to note, similar to some of the other retailers, they said that the margin declined due to markdowns and promotions. This is clearing out some of what they had in their stockpiles and perhaps as compressed what their margins are in the past. But going forward, it could be a brighter story. Let's put it in perspective.
And there was young lives two years ago going up the wooden escalator, which was iconic. I I had the privilege of doing it just before they rip the thing out. Tenure track record of Macy's is like Kohl's and all the rest of them. And outrage negative three point three
percent per year over the last 10 years. And what's stunning, John, and this goes to the world that we've talked to Dana Telsey about and Vanessa Friedman of The New York Times. And this is apples to oranges, price to sales. LVMH is five times sales. Macy's is zero point two. There's no other spread like that. They're not quite apples to apples that they are not apples at all.
So I think they still have the wooden, wooden escalator there. Maybe they don't have that. You don't have that on the top floor. You just want to not wear high heels because they will get stuck in between is not still on the top thing. And it been there for a long time. Haven't been there for a long time. That's just maybe an indication they've
taken that away another time. Maybe I stand corrected. Maybe can just field trips, surveillance field trip. You're not talking about a road to a remote? No. Santa Dan ISE of where? You could just see what I see. Oh, okay.
Tester Investor Day. We'll get 10 ISE thoughts on that next. Keeping you up today with news from around the world with the first word. I'm Lisa Mateo. Space X launched a four person crew to
the International Space Station early today. It includes two Americans, a Russian and an astronaut from the United Arab Emirates. They'll arrive at the space station on Friday and stay there for six months. It's a first victory for Republicans in
their crusade against the so-called world capitalism. The Democratic led Senate voted to block a Labor Department rule that allows retirement plans to consider environmental, social and governance issues in their investment decisions. President Biden is expected to veto the measure. The European Union is set to propose a
plan to provide Ukraine with much needed ammunition. It calls for the immediate transfer of ammo, especially artillery rounds from existing stocks. Proposal also envisions ramping up Europe's capacity to meet current and future needs.
Meanwhile, the U.K. is pushing for closer financial services links with the European Union following the breakthrough on Northern Ireland. Treasury Minister Andrew Griffith will make the case for greater cooperation during a visit to Berlin today. Financial services were excluded from the post Brexit trade deal that took effect in 2021.
Global news powered by more than 20 700 journalists and analysts in over 120 countries. I'm Lisa Matteo and this is Bloomberg. We intend to increase production at all factories. Affordability is what matters. So as you make the car more affordable. Have demand go crazy? The hard part is proving the class. I cannot emphasize that enough. The hard part is BOVESPA because and the entire supply chain that goes with the cars.
This is a logistics challenge of extraordinary difficulty. That was Elon Musk, that Tesla CEO on Tesla's Investor Day in the last 24 hours. Many analysts disappointed by Musk presentation disappointed. Tesla shares down in the free market by close to 6 percent. Dan ISE of Wedbush disagreeing, saying
this. This was a showcase event for Musk and the test the community. We maintain our outperform rating to 25 price top target and came away some very impressed by the Tester Foundation and Musk vision for the next decade. So that's.
I'm lost and I do. We need a brief on this. How much is the average Tesla, John? I mean, when we're looking down the roads, you and I look at what features you get on it. Exactly. I mean, but they're pricey.
I mean, the answer is we've learned that Eevee is pricey. Right. We can all go there, show it 50 K plus. Okay. Dan ISE joins us now with Wedbush Year on his enthusiasm for Musk Automotive. Dan, I look at the desire for a cheap electric car. Everyone else has the same desire. I'll leave it up to you, Nissan, etc., etc..
Isn't he competing at the low price point with five, six, seven, eight other vehicles? Look, I mean, no doubt to hit the masses, you need a sub 30 K vehicle, I think one must showed yesterday that tax evasion is for production and scale in the red and Mexico batteries that I believe that come down 30, 40 percent. They're now going to be able to it there is and hit the masses that I think ultimate to flex the muscles movement for. So should allow the industry stumbled. Okay, well, this is fine. But as John mentioned and I saw a stream
of disappointment over this Investor Day, there was a stream about the Goldman Sachs Investor Day, but it was nothing. What was your take on two guys in black T-shirts up with Mikes given an Investor Day? I mean, I'll get it. Look, I think these Investor Day look, we've seen it with Apple and Cupertino. You tend to come out wanting more, more meat on the bone. I think for taxes we've seen before, they lay out the foundation sometimes don't unveil the actual VIX. They talk about two new vehicles coming out. But the last thing they want to do is
sort of get ahead of this. I think this is on. There'll be probably a separate event, but I think the foundation to get to 3 to 5 million vehicles and eventually 20 million is there. And I think ultimately that's why, you know, I believe along with Apple, most transformational companies in the market.
Dan, there's been a lot of narrative about how companies are moving their supply chain out of China, including Elon Musk, despite some of his rhetoric supporting the cause in China and supporting his business there. How much credence do you put into this? Is this just anecdotal specific incidents that don't really move the dial? Or is there a seismic shift out of China to insulate some of these companies from the geopolitical risk? Yeah, well, normally it's smoke and mirrors type beltway talk. I think this is real in terms of Pollution Reduction Act. There's a real incentive through our tax perspective. That's why you're seeing more and more of a build out in round off. And I think you'll see more build out in
Fremont as well. What we're seeing across town, I think you're going to see more come to the U.S., but no doubt right now. And this for, you know, the next three to five years, China is going to continue to be the hearts and rooms of this supply chain. And I think Castlight just really sort of balancing between China and non China. That's why you're seeing that build out now in Mexico as well. Dan, how do you game out the market risk tied to the presence of a lot of these tech companies? And I'm including a Tesla in that loosely because it could be an industrial company. How do you include the risk of
increasing geopolitical tensions between the U.S. and China, disrupting such supply chains, forcing a more rapid shift into some sort of supply chain issue earlier that would cause some of the margins to compress? I mean, look, just to put in context, Apple, if they if they went fully and wanted to move production out of China, best case in the next three years, they can move 5 percent of production out of China. I mean, they're this is such the hearts and lungs on this cemented. So it's something where it would take a long time to start to move 5, 10 percent of production. That's why the reality and we saw with Tarzan and Apple in terms of the 0 Covid issues in December, I mean, really at the mercy of China and Beijing for now, although certainly moving in the opposite direction. What were your February channel checks on various and sundry tech names? I mean, it's holding up much, much better than fear.
I mean, even coming out of Asia, not seeing any short supply chain cut there for iPhone, which I think is important, right. I think what you saw from Salesforce and across the board, you know, this is not necessarily the many they yell fire in a crowded theater. Overseeing a Dan would be crowded theater for some of the parts. Analysis from you on Apple, somebody else on the show the other day, some of the parts. And I said I really don't know because nobody wants to mention how high that's. This is just the three to one statistic is Apple. One hundred and fifty dollars a share.
What's the sum of the parts? I mean some of the parts bull case get you to 25 to 40, base case two. I think the big thing is the services business. And that's a permanent rerating that we see there. And now when you start to see more and
more, especially with the next iPhone and you have 25 percent of the base that have not upgraded, I mean, as a stock that's going to have a 2 in front of it this year despite the macro. And obviously, many names are intact. Where's the to come from in the numerator and denominator, just fee or price to cash flow or price to record share buybacks. What drives it over two hundred. I mean, it's really services, I believe is one point three to one point four trillion. Of course you have the franchise hardware business and then you start to look at the capital allocation program. I mean, that's for jobs anywhere from that low to mid to level increments where I see the stock go down, just finish on Tesla. If yesterday was so good, why is the
stock down 6 percent? The interest, a typical sell on the News Street always wants more stock sells off, the haters come out, but only in terms of the path, in terms of record deliveries where they're playing. I mean, it's just more flex the muscles we be buying on the sell off coming at these events. What about the Seibert truck? Damn, what's happening with that? Yeah. I mean, look, I think this is something where by the end of this year you're going to see ultimate deliveries come out of production and it's important. And that's why this old to me, we used the groundwork for what we see as the next vehicle from the Tesla slacker system. Did you get enough from them yesterday on that release? I fell yesterday, they basically doubled down to that.
That target's going to continue to be there. It's knocking the goalpost. You're not going to get moved out further. I'd be a year from now. You're driving around Manhattan and you see cyber drunk. Okay, in the wild. Dan ISE of Whitefish. Thank you, Dan. Appreciate it.
As always, stocks down by 6 percent. What did he say? The stock sounds off often. A high has come out, so he doesn't want it. CEO Klein yesterday had a really difficult year last year. But it is flag yet today in a major way. It's a beast of its own. Is that a car company?
Is it a tech company? Well, I don't get is. Granted, they had the territory to themselves. I mean, John, let's be honest. Lisa used to drive a Hummer.
Scott sensitive EU clicked in. She got rid of the Hummer to do that with Sensitive. She can take it on if she pleases. I'm just curious with the with the reality. Elon Musk has to face a Nissan Leaf. I mean, even the names of Primo, a
Nissan Leaf loaded goes from 28000 out to thirty five thousand eight hundred. And Brambles gotta have the two tone paint job at six hundred ninety five dollars. That's how much that is. So we've been doing through this segment, price it up a Nissan Leaf. But this ask me to let you know. I mean, kids don't want to be seen in
it. That's a separate issue. I would love this. I sit here for long enough to blame me for the weather. I do think, though, like, honestly,
you're raising a good point. That said, the barrier to entry is so high that the competitors are struggling and revision really highlights that they are not competing. But with Tesla, even though there are other interests, I agree. But Nissan is not revered and this sounds like a real car. I just picked Nissan because I thought it's really grandma. This is difficult. I know this is difficult. That difficult cars to projects and to
transition the production line from one thing to another is not straightforward. It's hard. But but he's going into competition with how many 4, 5, 6, 8, 10 vehicles. He's going into competition with China. And that, I think, is one of the big questions.
And for a lot of these companies that are dependent on the China business, how does that get disrupted? If you start to see some of the back and forth, the political football and DC become policy? And that's really a key question. I don't see price in or gamed out in any capacity away from the stock. And just to talk about the cars, wouldn't you rather have a Porsche taken? Wouldn't you rather have that? I mean, for me personally, that's what that's what I have. Evidently, I'm in a leaf.
That's where you can drive my car, if you like. Thank you. First off, to stick him in, first person can shoot. First person, I'll drive you sit in the back. She's driving a Porsche with Birkenstocks. It's just.
It's just like how is coming up next from UBS? And I could see him in a Porsche. Sure. He's got one. He's going to join us shortly. So UBS money makes a difference. And Fiat features negative. This is Bloomberg. Central banks state that by now they'd be clearer evidence of services, inflation easing off. But that just doesn't seem to be happening. I'm not necessarily going to be getting
back to expansionary environment just yet, but trade into what we'd call more cyclical parts of the market probably happened too fast, too soon. Earlier on this year, we're still going to see prices going up. That's the main event, still medium term of the opinion that this monetary tightening, we'll see the economy suffer in the future. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. We've got a forehand handle on a 10 year in the United States for America for the first time since November. Live from New York City this morning. Good morning.
Good morning for our audience worldwide on TV and radio. This is Bloomberg Surveillance with Tom Keene and Lisa Abramowicz. Some Jonathan Ferro features trying to stage a recovery here.
Dan a third of one per cent on the S&P 500, but front and center inflation, some around the world looking stickier. I gonna to go back to December of 2007. Granted, we had a spike up here recently. But if you do a quarterly chart, a broader, longer chart of the US 10 year, you have John Taylor's Great Moderation, great disinflation. Down we go under 1 percent and the spike up. I haven't done the math work yet, but what we've got is yields back to where we were near August of 2007. The numbers speak for themselves.
Your tenure just north of 4 percent at the moment in the last 24 hours. We had a little look at 490 on a T. Getting closer and closer to 5 percent. That's the bond market. Some retail is out with earnings this morning. A little bit earlier on, we heard from Macy's. Lisa, what did you go? OK, so Best Buy comes out. Here's the confusion that really makes
it difficult to understand the earnings. Talk about market reaction and give you the data had its market react. Macy's gave a downcast forward look and their shares popped. Best Buy gave a lot of positive data.
Their earnings per share, the fourth quarter, 7 cents versus an estimated two point six cents. They talk about how just in general, revenues came in strong. You saw gross margins come in at 20 percent versus the Aspen of 19 percent. Those shares down by one point five percent. So here's the question, right. What are people looking for? They're looking for forward looks and how much can you kitchen sink it at this moment in terms of the potential negativity going forward? The forward look from Best Buy at the moment, they offer a range for the full year for revenue, forty three point eight billion to forty five point two billion.
The estimate was forty five point seventy four billion. So it's much like to their for full year adjusted EPS, the range they're looking for 570 to 650. The estimate there, 675. So a touch light on that one as well. Best Buy in a pretty market. Listen, a real drama. Down about six or seven tenths of one percent, which highlights, again, how many more companies are going to come out and try to give the most downcast view that they possibly can.
And is the market looking past the downcast by saying that simply this is a messaging exercise by executives? There also is a story about how there are a lot of different accounting shenanigans going on or creative accounting mechanisms to try to, you know, goose up earnings that Lu Wang wrote of Bloomberg. And I do wonder if I think it was a really good story. Taking a look at some of the hedging around the margins in terms of delivering some of these beats and some of these projections, I just wonder if people are, you know, giving the benefit of doubt. I'm not sure companies want to be associated with so-called creative accounts that agree with you at any point. IBEX Best Buy is down about one point six percent in the free market. More retail earnings still to come. This is going to go through your day. I haven't.
Just a moment. I'll wait for the price actually more broadly for you on the 500. No real drama down a quarter of one per cent off the back of a day of losses on the S&P 500 yesterday as one component of some economic data in America speaks to sticky prices, the prices paid component of the ice and manufacturing. So prices paid in the manufacturing sector just a bit elevated, spooking the bond market.
That's why you've got a brand new fall in fronts of a 10 year. Right now, your tenure yield some, just not the 4 percent, 10 basis points on the day back to 1985. John in this really gets my attention. I didn't realize it was this bad. The spike up in yields really carefully done on a large chart is exactly four standard deviations.
Luke CAC knows there is a difference between two standard deviations and four. We'll get to Luke in just a moment. Lisa, just to finish up with the data we've had so far this morning. Ton of earnings. Yes.
Eurozone core CPI inflation in Europe to record highs. Just not what the ECB president wants to see. And that sort of puts a 50 basis point rate hike as a lock for the ECB and then potentially another one after that. We're looking at today are the retail
earnings. We've gotten Macy's, we've gotten Best Buy, both giving a more negative projection, more cautious projection for the year ahead. But delivering good fourth quarter results after the bell, we get Nordstrom and Costco.
Here's the question that I have. How forgiving is this market going to be? How much are they going to look past the negativity or the more cautious view for it, 2023 and say you guys are just being really prudent in terms of your estimates. You've seen the retailing in DAX really go full circle this year and really end almost flat after two tumultuous months. Eight thirty a.m., we get initial jobless claims. Do we get a sub? 200000 print. Once again, people are just not filing for jobless benefits the same kind of way that they have been in the past.
And here's the question. Does this indicate some ongoing tightness in the labor market or is this a broken indicator because of the nature of the layoffs and the nature of the labor market right now? And today, the Fed speak includes Fed Governor Chris Waller at 2:00 p.m., Minneapolis Fed President Neel Kashkari at 6 p.m.. Do we get a more concrete sense, John, that a 50 basis point rate hike is on the table for the third week in March? Is that going to be increasingly what people are talking? I get a sense from Kashkari his comments this week that he's ready to discuss it. One thing he said yesterday that I
thought was interesting and maybe worth watching is that he wants to use the dot plot to convey higher for longer. So I think the media dot the dot for 23, what was at 5.1 percent, something like that. Does that get pushed out to market pricing, which is in and around 540, 550? Did they push that through much of 2024 in the way that Rafa Bostic, the Atlanta Fed, would like to see as well? So that's wh