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Let's get this trading week started. Live from New York City this morning. Good morning. Good morning. Equities up a quarter of one percent on the S&P.

The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg. The Open with Jonathan Ferro. Lapham, New York. We begin with the big issue. After a decade of excess income, the cuts. There has been this disconnect. Despite major headline news about

layoffs that has not translated into a broad based weakening of the labor market, there is clear divergence going on. First we see states one where businesses begin to freeze hiring. We are looking at job layoff announcements. They're picking out the stage to research to see sizable layoffs. We're going to see these layoffs that we were just witnessing show up. Then we start to see that filter in to the broader data.

We just don't see that happening right now. It's coming from sectors like financial services and tech. You talk about tech sector layoffs. Yes, there is some softening in the

labor market. It's inevitable that we see some of those job cuts, but it isn't in the sectors that the Fed is really worried about. Let's start any discussion. JP Morgan Stephanie Roth joins us now. Aberdeen's James FTSE alongside of Stephanie. First to you. What can we learn about the adjustment process that big tech is going through right now? Yeah, this is probably the first sign of the slowdown that we're going to see in the labor market. Tech companies over hired in the bulk of the pandemic, and it's not surprising that that's the first area that we're seeing weakness now that the jobs picture last week was a bit mixed. But we do expect that what we saw from

the unemployment rate can be a signal of what's to come. Unemployment shouldn't should start to rise. And it might take a couple more months where we really see the cracks in the labor market. But that should that should come. What the Fed has done is enough. And we do think that that should result in a material slowdown. We'll probably see more layoff spread

throughout the economy. But it might take a little bit more time. Stephanie, as things stand, though, what we see is in a part of the economy. It's in tech. You see it in the likes of lift. You see it in Twitter. You see in the chip makers, Qualcomm making cuts in sales, spending cuts, layoffs, et cetera. Do you see this early signs then of a broader breakdown in the labor market or is still too early to tell? But we do think that we'll see we'll see that play out in the rest of the economy. It's just a little bit early.

It is a bit siloed at the moment. But we should start to see a slowdown in in in in job gains. And that should ultimately result in job cuts. But we think it's still early. We'll probably see that in the second quarter of next year. We're expecting recession to hit in 2023 and that that's a clear indication of that. James Arthur, your take on this

conversation. And welcome to the show. As always. Haidi Lun. Yeah, I mean, I agree. I think what we're seeing is exactly as has just been described, big tech over hired. Essentially these these businesses extrapolated their scale growth far into the future when most of them really didn't have any right to do so, that these businesses are more cyclical than had been assumed. And in a lot of cases they've never really been profitable.

They don't have IP, which necessarily protects their position. So they're open to competition and yet investor cash has been thrown at them with abandon. You know, when I see a company like Dock, you sign the seven and a half thousand employees. I really do scratch my head and wonder what they're all doing for what it's relatively simple, straightforward business. And I think we're seeing this sort of tail end of the pandemic effect. We have a huge amount of goods consumption relative to services because we were locked up at home shopping on, you know, an Internet retailers.

And then as the economies have opened up, we've seen this long tail of a switch back into services consumption. It's gone on longer than I expected. But this is a services economy, service businesses. It's low productivity and it's it's extremely heavy on labor. So it's no surprise that labor markets remain strong or service consumption is as healthy as it is. But the shock to incomes, the shock to the economy from this tightening of monetary policy hasn't yet played out. And when it does, I'm sure we'll see joblessness.

James, you mentioned the pandemic. Stephanie mentioned the pandemic. I'm trying to work out whether the access that we're trying to unravel here is two years worth or a decade's worth of access. James, which one is it? Good question, John. It's both. There has been access in many areas for a long time just because of this ultra easy monetary policy forever.

The constant provision of liquidity by central banks into markets, which has caused this misallocation of capital, it's caused far too much for too big a percentage of the GDP pie to go to owners of capital relative to labor. And that's a big problem that we need to resolve on a more secular basis. But on a cyclical basis, obviously, when you print money in the size that many economies were the US in particular and just start handing out checks to people, then that creates a different kind of excess. So I think the answer is both. Stephanie, do you view it as both? Yeah, I totally agree. They're a combination of a decade worth

of extra hiring in the space, and we think that the next decade might look a little bit different from that perspective. But we're also seeing a sort of cyclical near-term over hiring and in some of these areas and we're just working off some of that right now. The next area within. Yes, that's me.

Carry on police to the next area within the economy. It's going to be the services sector right now that that's incredibly firm. But at some point, the excess cash is going to start rolling over.

The impact from higher rates is just gonna feed through the economy and the services sector. It's likely that, James, if you two both agree that this could be a decades worth of access. James, I wonder what this means for the future of this benchmark in the United States on the S&P. I had this conversation with Michael

Shout of markets filled a little bit early this morning and he made the point that he thinks if you put the top in the equity market just in the last 12 months, that you're going to have several years worth of remorse that we could face a decade, a lost decade for big tech. And because of the waiting on the S&P, perhaps big challenges in our future for holding the index, the market cap weighted S&P 500. Yeah, I mean, again, I think similar to the end of the 90s and the early noughties. It's not to say that they weren't brilliant businesses in there. It wasn't to say that there wasn't an ongoing technical technological revolution and then that would be hugely successful flip for the winners. It's just the way in which that that was

blindly applied across the piece to all manner of companies which were assumed to be world leaders and world dominant long before they were. And indeed they were assumed to have a potential marketplace which was global in nature. And actually a lot of them it was much more nation. It probably wasn't anywhere near as big as was being suggested. And therefore there's a lot of froth to come out. And as you've described, these are

market cap weighted indices. So the performance of those companies led them to be dominant in terms of their size within the index. I think when you look at the size of energy, the outperformance of the energy sector over the last two, three, four, five years now, it's been a leading sector in terms of performance, but it's still only, what, 5 percent something around that of the S&P where it's taxed and above 20, that sort of transition, if you like, back to the old economy in some respects versus some of these tech companies, which I don't think really are the sort of world changing businesses that some have assumed. That's unlikely to happen quickly. I think that's a much slower burn. So, Stephanie, what do you say to a

generation of investors who have been told they love the index by the market cap weighted it S&P 500 over a decent enough time horizon, let's say five years it will deliver. What's the challenge to that view now? That's right. You hold it holding the index and especially the US compared to the rest of the world, we still think that it could outperform. We also just have to level that a little bit. We might not experience that trend that we saw over the last decade, but we still think that we're trying to be decent. Maybe think about growth. Growth returns looking more like some of the rest of the index rather than the index performing terribly over the next couple of years.

Futures right now up a third of 1 percent on the S&P and the Nasdaq up a third of 1 percent. Also talking about the big tax cuts we're seeing in big tech, saying in medicine as well, medicine planning to begin large scale layoffs this week. That's expected to affect many thousands of employees and investment plants come as soon as Wednesday, according to The Wall Street Journal this morning. My NIKKEI has a different story.

Morning, Mike. Morning, John. Well, Stephanie was right. This is kind of siloed within tech, but it's also siloed within the silo because it's really tech firms that have earnings or financial issues right now that are laying people off. It doesn't show up in the broader economy. You take a look at the layoff rate. According to the JOLTS figures, and it's under 1 percent. And obviously jobless claims haven't

been rising at all. So at this point, right now, the rest of the economy gets up every morning and goes to work. And also, we're hearing anecdotal reports that a lot of startups out in Silicon Valley are licking their chops because a lot of talented people are going to be available in the tech space. Is it going to happen? Well, we don't know yet. This is a kind of a different situation than previous recessions. And, yes, there are recession calls out there. But look at this survey from the

conference board of CEOs going into the fourth quarter. Eighty one percent said business conditions had worsened and eighty five percent said they expect a recession next year. But 44 percent are still expanding their labor force and 86 percent say their capital budgets are going to remain the same or increase. Companies don't see a really bad time ahead. So it all brings us to and I know you're looking forward to this on Thursday, John, the CPI report to what happens with inflation and how strict the Fed has to be for how long. The New York Fed has an underlying inflation gauge that tells us more about perhaps where turning points are than actual the actual inflation rate. And it peaked in March and has been

coming down since. You look at the two ISE for both services and especially manufacturing, and they peaked at about the same time and they have been coming down. A lot of people think that we might see inflation fall faster than Wall Street is anticipating. I'm not making any predictions, but if it did, then we would see the Fed react more quickly. And this could be a whole different kind

of recession and recovery than we've seen before. A lot of pandemic related. I'll get someone else to answer that question. Might NIKKEI. Thank you. Is that someone else, Stephanie? That's you. Can inflation fall as quickly as it rose? Is it stickier on the way down? Elements of it being sticky. We certainly seen that this year there

is shelter, inflation has been a big contributor to core inflation, and now Wall Street has come to the conclusion that shelter, is it likely to start cooling down? But it might take until the beginning of next year. You look at real time measures of rent inflation, they've actually contracted. So there are elements with inflation that are a bit lagging. And certainly we're starting to see that disinflation within goods, services, inflation should start cooling in the first half of next year, in part because we expect the material slowdown. Look how quickly things have flipped in one particular segment.

Look at the chip makers, JMS, they look at Qualcomm, look at Intel. We've gone from a situation where they can produce enough of this stuff to now the cuts, the cuts on spending, the cuts on hiring, the cuts on the workforce that's already at the companies. James, that's happened quickly. Can the rest economy go the same way? I mean, yes, initially it can, John. I mean, obviously, inflation ism is a rate of change. And so you need constant forces driving it, driving it higher in order to maintain those sort of large increases. So when it comes to the inflation

picture, broadly speaking, higher prices in the past tends to mean sort of lower inflation in the future. That has been the pattern. I think energy commodities are possibly a fly in the ointment there. But in terms of cyclical activity, I think there are plenty of signs out there, not just in the U.S. but everywhere, that tomorrow is going to be worse than today. And we really are in fairly early stages

of this. And as we discovered during the pandemic, right. Chips are in everything. So if people are just buying a few less washing machines and people are just buying a few less cars, all of these things are depressing demand for chips. And because of the lags involved in production and supply chains and what have you. It's almost inevitably the case that the

production capacity is increased at the worst possible time. And so you then end up with this inventory overhang, you end up with this supply overhang, and that tends to depress prices even further. We're seeing that obviously in goods inventories in the US.

But I do think that will be part of the story again in 2023. James Ethic sticking with us along side. Stephanie Ross to the two of you. Thank you. Equity futures positive this morning across the board. Coming up, it's the home stretch.

President fired its final push ahead of the midterms. The board much for your time. It's going to shape the outcome is going to shape our country for decades. The drama and the power to shape that out promise in your hand. Twenty four hours to go.

That conversation. Up next. Most important elections in our lifetime. You have to get out. You have to vote.

We're going to have a problem. Our economy continues to grow and add jobs even as gas prices continue to come down. Our country has never been so bad as it is right now. He's doing stuff right now, solving problems right now with a Democratic Congress, and he can continue it. If you vote, you're going to elect the incredible slate of true American first Republicans up and down the ballot. This election requires every single one of us to do our part. It's that important.

A busy weekend of campaigning and a busy weekend of clarifications. President pardoned, sparking criticism from within his own party. It's also not cheaper to generate electricity from wind and solar than it is from coal and oil. To accommodate that transition.

No one is building new coal plants because they can't rely on. We're going to be shutting these plants down all across America and having wind and solar. Senator Manchin from Virginia slamming those remarks, running the following comments like these are the reason the American people are losing trust in President Biden. Being cavalier about the loss of coal jobs is offensive. Disgusting. The White House walking those comments back. The press secretary saying the following

the president's remarks have been twisted to suggest a meeting that was not intended. He regrets if anyone hearing those remarks took offense. Joining us now, Dan in D.C. is Emery Montgomery. Good morning, John.

What really an embarrassing moment for the Democratic Party ahead of a midterm election. They're having a spat within themselves about the future of energy. Of course, in this statement where the president's remarks were walked back by his press secretary, they were saying that the comments they felt like were twisted, pointing to without naming him Senator Mansion's remarks, because the president was talking about what was economically and technologically changing in the energy space. At the same time, John, it also is an awkward moment for the fact that the whole world is dealing with really an energy crisis. We are not as far in the transition as many would have hoped or liked to see. And we see that this summer we saw that rising gasoline prices.

And unfortunately, we'll probably see that this summer. This winter. Excuse me. With home heating and already there's an issue happening in the northeast because we have incredibly low supplies of diesel to heat homes.

And this is something that this administration is already grappling with. And the question I've got and I think this is important for market participants as well. How long is it going to take to get the results from these midterms? Well, why, as I told you and during surveillance, Jonathan, you and I could be talking about the composition of Congress for the next four or five weeks, because we may not know until December because Georgia may end up being a runoff election for the senator, Herschel Walker versus senator, the current incumbent, Warnock, that could go into a runoff election. And that may be the deciding factor of who, whether or not it's the Democrats or the Republicans have control of that chamber. Thank you. I'm a break down in Washington. We'll be catching up a little bit later. I'll be heading down to D.C.

with a team Tom Keene and Lisa from its full special coverage tomorrow and on to Wednesday as well. Stephanie Ross Tidjane Thiam back with us. Stephanie, first question to you. How do you think this market will deal with a prolonged battle of runoff races, say a runoff race in Georgia? Four more weeks of this stuff.

It might might put a bit of a headwind on markets, but I think the more important thing is really going to be CPI. And I heard this morning on the rail and you're asking guests, which is more important, the election or CPI. I would say the inflation outlook for the next couple of months is going to be much more important, especially when we're thinking about the Fed potentially causing recession in the U.S.

economy. James, you agree? Yes, absolutely I do. It certainly seems unlikely that the House is going to be in sort of embroiled in uncertainty for weeks and weeks and weeks, so if the Republicans win the House, then essentially the Democrat lock on Congress is over. And of course, it does make a difference

at the margin whether the Democrats are in control of the Senate. But it doesn't become such a big issue then. So presuming as we expect the Republicans win the House and do so fairly handily, the fact that the Senate race drags on I don't think is significant for markets particularly, you know, agree is definitely completely the CPI number has the potential to be a much more dramatic market and market moving event from the market's perspective. I get all this. I understand that in the short term, it's all about having some certainty over fiscal policy, perhaps constraining the ability to deliver more fiscal stimulus and spending.

That would complicate the Fed's effort. We've got all that, Stephanie, in the near-term. What I struggle with in the longer term, Stephanie, if we don't have the availability of a countercyclical fiscal buffer at a time when the economy is rolling over, do you think we've we revisit this and say maybe actually it's not that bullish having divided government? I think assume that we're going to be having divided government, in which case the market is likely pricing that in December, then we're not expecting to have a big fiscal stimulus in the onset of recession next year. So it's likely our hands are gonna be on the Fed in order to stimulate policy. And they probably will, but it might take some time because they want to make sure that inflation is truly cooling. So we shouldn't really expect much from fiscal next year, and I don't think the market would be surprised by that. James, your response?

Yeah, I mean, I completely agree. One of that one of my biggest concerns and this has been the case for quite some time is just the extent to which we believe that each and every recession requires some dramatic policy response to offset it, because, you know, there's nobody sitting around any of the tables who's prepared to accept any short term pain. And in doing so, they're quite often sacrificing long term stability and the long standing long term health of the economy. I think one of the big issues is that things have become so imbalanced because there have been so many and so frequent efforts by policymakers to deal with any and every little downturn in the economy. The idea of humanitarian creative destruction has been completely issued. And in doing so, we have, however, many zombie companies in the US which are sucking up capital and not using it productively.

We have savings, which is way too high because we have such a skewed sort of concentration of income and wealth amongst people and amongst corporations. We have reduced competition across a number of sectors which permits that to happen, all of which is a headwind to potential growth, to structural growth rates and short term spending actions from governments and easy monetary policy as far as the eye can see, not helping these problems than making them much worse. So it would be nice in my mind if we get to get to a place where governments were investing for the long term and monetary policy was far less activist. I'm not sure on that front. I'm not sure they're going to embrace your view of Austrian economics anytime soon. Either change, but we can run with debts just briefly. Stephanie, I hear a lot of people say short and shallow. Our audience hears that all the time.

If there is no countercyclical buffer here, countercyclical circuit breaker from monetary policy anytime soon, from fiscal, it's not going to have the ability. Doesn't that tell you something about duration of a potential downturn? Could this persist longer than people think? Sure, we think it would. It could look more like a typical recession or recession at last, about four quarters has an unemployment rate rising up to 6 percent. The argument that it's going to be specifically short, I think it's a difficult one, but where we would push against is a severe and deep recession that we don't think will happen. So we don't expect anything like the

great financial crisis. Economy is is fairly healthy. There's not that much leverage in the system. But sure, it could look like a normal type of recession where you do get job losses and the unemployment rate does. Right.

It's been nothing normal about the last 20 years. Stephanie Ross, James, I think if I see you, Stephanie. Thanks for joining the program. James, to you as well. Features right now a four tenths of one percent on the S&P. Coming up in the morning calls. And later, the man himself.

Morgan Stanley's Mike Wilson on why the bear market rally might be able to continue that conversation. Coming up, the opening bell just seven minutes away. Five minutes away from the opening bell, equity futures up a third of 1 percent on the S&P coming off the back of a week of losses on the Nasdaq down by about 6 percent last week, biggest weekly loss. Going all the way back to January of this year, trying to bounce back again and build on Friday's gains, then that's net one hundred up four tenths of one per cent as the price action escapes.

And Monaco was first up. Wells Fargo downgrading Costco to equal weight 490 price target highlighting a weakening consumer and potential currency headwinds. That stock is down by one point six percent. Next up, Berenberg downgrading as they loaded a hole to 24 ISE targets. And the company lacks visibility on a potential recovery. We're down by one point six percent

there for 2 0 7. And finally, Barclays trimming its sample price target at 144, seeing growing risk. The Q1 estimates after kind of its outlook for iPhone shipments were down that by one point three percent, 136 50. Coming up, Morgan Stanley's Michael Barr and expect in the midterms to keep the bear market rally go in that conversation just around the corner with equity futures up a third of 1 percent on the S&P. This is Bloomberg. 24 seconds away from the opening bell, equity futures just about positive, up a third of 1 percent on the S&P. We kick off a new trading week and I say the same thing every single Monday, big week ahead.

CPI coming up in a midterm. I would say it's a big week ahead on the Nasdaq right now, up a half of 1 percent, taking home the Russell as well. The small caps of 6 10 says you have the power switch on the board and get to the bond market.

Yields look like this on a 10 year, I'm saying. So I tell you, at 415 forty five and ASX market Eurodollar had a sneak peak at life again above parity a little bit early this morning. Right now back to ninety nine. Ninety four we're positive.

Four tenths of one percent. Crude unchanged. Ninety two. Fifty three. Still trying to get used to it again in the 90s, 90 to 55 now basically unchanged on the session at the opening bell on the S&P.

About 20 seconds into this. Bring up the schools in my terminal on the S&P, up a third of 1 percent. Utilities kind of like into the moment. Communications services tougher to pop up about nine tenths of one percent. Breaking things down for you, these categories out. Hey, John. Well, let's start with the metal after that Wall Street Journal report over the weekend that the company plans to start cutting thousands of jobs this week. Shares are actually rising, though, and

that's what's interesting, maybe because the company is starting to get serious about cutting costs. This, of course, is it's still burning billions of dollars in the metaverse, but that's another story. Apple, too. We've got some news there. The company said that shipments of its newest premium iPhones will be lower than previously expected. The company said demand is still strong,

but it's China lockdowns that affected operations at a supplier's factory. That means longer wait times ahead of this holiday season. Shares only offer about half a percent or so.

Outside of tech. Well, let's talk about Disney, because the stock is rallying ahead of tomorrow's earnings report. Disney expected to widen its streaming lead over Netflix.

Shareholders seem excited. Shares are higher. Jamie dot com. Also in the green, it's one of several Chinese Internet, 80 hours higher this morning. The government there saying that Covid zero policies are still in place.

That theoretically means more time spent online. You can see a dot com shares up over 3 percent. Back in the physical world, though, you have U.S. natural gas soaring this morning that says a winter storm hits the Pacific Northwest. That's boosting lights of Southwestern energy and E Kuti John. Complaints about Disney's Haley.

Have you seen the price increase? Seventy five. Ninety nine to eighty to ninety nine. My husband handles that job. Does he? That's not your thing. I'm handling that right now. It's a problem.

Thank you. The S&P up four tenths of one percent. I'm not sure I've handled that it so Taylor Riggs onto the midterms. I was going to say you only like Hulu because the Kardashians are on it. John ISE, how did you know? Because I know that you love Kendall Jenner and Kendall Jenner. Only celebrity. Let's get to the midterms. And on a serious note, those opening

bell that you talked about, take a look. Historically, really interesting calls coming out this morning. On one hand, you Morgan Stanley saying, yes, the traditional story correlations hold up in midterms.

Equity in December looks pretty good. Evercore ISI, though, coming out and saying, you know what, maybe not so fast this year could prove to be different regardless. And we'll all be keeping our eyes on tomorrow and sort of the performance as we head into the end of the year.

Take a look at sort of the probability. Hard to be a betting person, but when we take a look at the market ETF relative to the Democratic ETF in that terminal chart, you'll see that maybe the Republican ETF rises just a little bit relative to that and then predicted the odds of both the Republican House and the Senate. And that is the blue line is well elevated, but off the highs of the session. So if you're a betting person, that's one way in which you can look at it. I think all in all, John, though, for the market, how we're thinking about this is how is equity performance heading into the end of the year in a mid year year? And this is it. November actually looks pretty good. It looks really good in a mid-term year,

much better than either an election year or any other year. So that is the momentum heading into this month was a big front of revenge bodies with Chloe as well, sort of record. No one believes this anyway, so it doesn't matter. Tyler. Thank you. Any equity market on the S&P up a third of one percent of the Nasdaq up to 10. So so Morgan Stanley's Mike Wilson expecting stocks to overcome another challenging week. He wrote the following this morning.

The bear market rally was severely tested last week with the Fed's clear message that it's far from done. We think it survives the game with the midterms provided the catalyst for low upon yields and higher equity prices. I'm pleased to say that Mike joins us right now. Mike, I want to start. If it's okay. Of course, with last week's no, not the week over the weekend when you said the Fed meeting, it's critical for the rally to continue, pause or even incompletely.

Mike, when I watched that Fed meeting, I was come in kneeling or kind of leaning into the end of that one, maybe it ending. Why can this continue? Yeah, thanks, John, good to see you. I mean, look, we gotta be flexible here. And what I would say is that the message last week from the Fed was pretty mixed, right? The statement itself was dovish. You know, the market rallied off of that in the press conference, was a bit more hawkish.

But this is the ambiguity that we have now. People like to interpret these statements and these reactions on their own. It's not going to be that exact anymore. The Fed doesn't exactly know how they're going to end this.

Indeed. Does any investor, including ourselves, what we do know is that we're getting closer to the end and the rate of change probably on the pace of hikes is coming down. And that's our forecast, 50 basis points in December. Twenty five in the January meeting. And then a pause from there. And that's a that's a quick ending. So that's enough for the bond market to

potentially rally at the back end, particularly if we get the outcome in the elections that we expect tomorrow. Let's get to the midterms in a moment. Do you consider the end of hiking, the end of tightening? And it sounds like you do. So let me ask you this. Would you consider affect the policies and stops hiking in a recession that rolls over to be tightening or not? Well, it's not one of the same, right. So the Fed is likely going to achieve its goal. It already has in terms of slowing the economy. Ultimately, I think they'll be successful in getting inflation down because it's not really about the Fed so much as it is about the excessive fiscal spending. And of course, what that did to demand

and that is already fading because of demand, destruction from prices and of course, as people run out of money. So it's all one of the same. And look, the tricky part here, John, is that, you know, do we just you know, is there going to be a window of opportunity between the end of the Fed hiking cycle and the recession itself? You know, this summer we wrote about that. We said it's too early to think about the Fed ending its rate hike cycle. So we didn't try and play that rally. This time, though, we think there could be this little window of hope, particularly at the year end, when there's pressure to perform and people have to chase stocks in the year and potentially and still are saying, you know, the midterms historically are positive catalysts for at least for the month of November. Well, let's talk about where you want to be long within the equity market. The recent outperformance in the equal, why S&P up the last couple of weeks is clear for all to say.

What's the signal you take from that, Mike? Well, look, I think that look, the equity market leadership is fading, right. So technology has been a massive underperformer this year. Consumer discretionary as well. We've been underweight those groups. And the question, of course, is like, what's going to take over? And I think what's interesting, like what we're trying to do, Josh, and how we're you know, we look at the internals of the stock market to help guide us and we're getting close to the end of the bear market. We're not there yet. But you know what we want to watch you want to try and figure out is what outperforms in the last leg down. And because that will tell you what's going to outperform in the next leg up eventually when we get there.

And that's been industrials, financials and some of the commodity complex. That makes perfect sense to us, right in the next economic expansion next year. We think that that will be a major leadership change from the former leaders to these new areas. You think tank gets left behind. Well, look, I mean, the reality is, is that there are plenty of good tech stocks that will be fine. The reality is that there's too many a right and there's and they got overvalued.

So it's not that technology is dead in terms of the spending trends, we're very bullish on technology spending. However, there's too many competitors now and the valuations has gone out of whack. So we take that out. Yes. So there'll be a lag. They'll be a laggard probably in the next recovery cycle. But that doesn't mean there aren't great single stock opportunities within the midterms.

Let's go. That was in, you know, this morning. It's not just a risk event. Mike, we need to clear. What does that have? Outcomes that have consequences one way or the other. You know, I view the CPI as kind of as

risk event that needs to just get out away and sort of like, who cares? You know, it's backward looking data anyways. But we've got to you know, we've got to get through it. And then we're pretty confident that six months forward, inflation will be materially lower. That's our forecast. And so is this that's that's kind of the risk of it just has to come and pass the midterms, though. However, it could have lasting implications if it's a decisive victory for Republicans, because, you know, as I said before, I think the majority of the inflation spike was a result of excessive fiscal spending. And that, of course, will be curtailed even if the Republicans just win one chamber.

That's not to say that the Republicans are fiscally conservative, too incredibly fiscally conservative. But it does throw a wrench into this idea of a single party, which the market also likes, the idea that not no one party having single control. So ultimately, it should be good for bonds. Bond yields lower. It's been key to our tactical rally college, you know. And I want to make it perfectly clear, John.

If we don't get rates to come down, the rally is over. You know, we had thirty nine thirty nine fifty. But, you know, we see enough in the tea leaves and enough in the factory boss to suggest we should hang out and see these two events this week play out first.

Mike, different views though, and you've written about this in the past, so I'd love you. You want it now. Rates coming down because there is this increased perception that the cycle is ending, the hiking cycle is ending or rates going down because perception is global growth is rolling over. And in the near term, I get it. You try it on just the move. But when you start to trade on the reasons for the move, it's next year. Yeah. Know, so we you know, we have to kind of serve many constituents as a trading halt. OK, for our core, you know, kind of

view, we remain of the view that the bear market is not over primarily because of the view we've had all year, which is that earnings ultimately will decide the end of the bear market. And we think earnings expectations for next year are significantly too high. Maybe as much as 20 percent. And that will happen over the next three to six months, meaning the numbers will finally come down. Part of the reason we threw in the towel on that happening now is because we just got a sense that companies wouldn't talk about 2023, which they did not. And therefore, the earnings remain high

for next year. But I want to be clear, over the next three months, we think that will change. We think companies will discuss 2023 and that reality will set into the numbers actually come down. That will form the bear market low probably sometime in the first quarter next year. We see signs of that now with some of these tech companies. Mike, reporting cuts, hiring freezes or

layoffs. Well, let's separate that because first of all, we saw many of these large tech companies report pretty weak third and fourth quarter. But then when you actually look what happened, 2023 numbers didn't come down that much, at least for the majority of them. And that's just kind of laziness. The numbers nobody talked about. So they just kind of keep them there. But then I want to talk about the cost cutting. OK. So, look, this is the way this is.

This is where it will get us bullish, by the way. If we saw more aggressive cost cutting, not just tech companies, but by companies more broadly, this acknowledgement that we have a cost problem. And, you know, obviously we want to see people get fired. But, you know, layoffs, unfortunately, are part of that slowdown. One, that layoff cycle picks up in

earnest. That will actually be one of the keys for us to get bullish, because that means the bleeding will stop and the operating leverage. Final question. You hinted at the answer to it earlier in the interview. I've asked this question all morning, Mike.

You get the choice, the outcome of CPI or the outcome of the midterms. Right now, I can give you one. What would it take? I could see it right now. Clarence Binks I would say I'd probably

rather see the midterm election outcome because it has more lasting impact potentially. Worsen. Thank you, sir. As always, Mike Wilson of Morgan Stanley still looking for that bear market rally to continue for the next couple of months. Equity futures were positive going into the open. We come out the other side, but eleven, twelve minutes into the session with positive two tenths of one per cent in cash equity mark on the NASDAQ were basically unchanged.

Coming up, debate over China's reopening plans reaching a fever pitch. I'm not quite sure what a pivot on Covid lockdowns flight means in China yet, but it's certainly not going to be a sudden reopening, as we saw in the Western world. It's going to be more nuanced and the latest on airport production difficulties. That conversation next.

This Bloomberg ze open, I'm least Mateo live in the principle room. Coming up, Microsoft President Brad Smith. That's at ten forty five in New York. Three forty five p.m. in London. This is Bloomberg.

I'm not quite sure what patients are on Covid lockdowns fight means in China, but it's certainly not going to be a sudden reopening as we saw in the Western world. This going to be more nuanced and as such I'd be a little bit cautious about some of the optimism which is happening in Hong Kong. Economic headwinds piling up as China tumbles down on its Covid zero policy. Health officials saying previous practices have proven that our prevention and control plans are completely correct. This is the demand slowdown worsens.

China's trade taking the hit with exports falling and imports shrinking for the first time since 2020. Monarchy and Time International. Here with the latest Mike Monarch that wanted Joel Weber. You can easily see what the problem is with China. They have been much more strict than the rest of the world.

When you take a look at the Stringency Index, the measure of how tight their policies are on locking down the US and I just picked Germany have fallen tremendously and we're pretty much reopened, whereas the Chinese, you can see, are still very, very tight and that's having impacts across the board, not just on trade. You mentioned the exports and imports, but Chinese growth remains really slow. Their trade deficit was a trade surplus, rather, widened because imports are so low at this point, 10 percent of China's GDP still under lockdown, according to no bureau. And there are rumors of a Covid zero policy change that, as you mentioned, are being shot down by the government. So nobody quite knows what's coming out of China except that some companies like Apple having problems. There was a massive frenzy last week, damage sensor in the market off the back of these hopes. What's the truth to all of this, Damien?

Well, first of all, I don't know what the big surprise was. I mean, it was obvious that exports were going to get a hit here. I mean, the CAC South Korea exports declined for the first time in two years. Look at freight rates between Shanghai and Los Angeles. They're down 80 percent over the last year. Jonathan Ferro.

Things are boiling to a head. But to your point about the equity market action last week, look, what it says is you've gotten very, very light positioning from foreigners in China. And so it doesn't take a whole hell of a lot to move the needle. And that's exactly what we saw.

Look, I mean, I'm not saying suggesting that there's real value in China right now, given the geopolitical and legal overhang and the property sector, of course. But the reality is like positioning makes for easy markets. And so I think that's a lot of what we're seeing here. And it was a messy market over the last few years, that's for sure. Damien, Mike, thank you. Mike mentioned Apple. Let's talk about Apple. The Covid era policy in China wank on multinationals.

Apple feeling the pain and seeing significantly reduced capacity due to Covid restrictions. This coming amid a Bloomberg report blaming demand woes for at least 3 million in total production cuts for the iPhone 14 at Ludlow has to make sense of this morning. Get. Yeah. Good morning, John. Apple down for a sixth straight day, its

worst run of declines since January to stock trading at its lowest level since June. You're right. Two key pieces of news, one on the supply side. One on the demand side. Let's start with the demands demand

side. Apple expects to produce three million fewer iPhone handsets this year. According to sources, it's instructed its suppliers to build 87 million, down from 90 million. And according to sources, that is principally due to softness in demand for the lower end base iPhone 14 handset models you remember in September. Apple had actually originally instructed its suppliers to boost output of the iPhone overall, but then walk those back. When we got those initial pieces of soft demand and then at the same time, this the supply issues to Apple said Sunday that shipments of the premium iPhone 14 pro models will be lower than expected due to Covid lockdowns.

In particular, in the Young Joe region, where Foxconn, its principal assembler, has the bulk of their activity for the pro models, the higher end versions of the iPhone 14. Apple also warning customers globally that as a consequence of this, there will be an extended waiting period to get your hands on an iPhone 14 pro model. Why is that important? We're in the final three months of the year to key holiday season. The street very much worried not just

about volumes, but about the bottom line as well, because the net result of this being fewer handsets is also the mix will change fewer shipments at the higher ASP, higher margin pro models should impact the bottom line. There's also a really interesting take from UBS analyst John, real quick. They're saying that the market has not yet factored in these disruptions in China for fiscal one queue or full year. Twenty three. And then actually, according to UBS, the market is quite way too optimistic in its revenue and earnings projections for Apple for this year, which indicates actually we should take this much more seriously than the street currently is and how seriously are they taking it? And they've rethinking production in China. Yeah. I mean, we already know the story here, right.

Particularly as it relates to Foxconn, the main supplier that assembles the iPhone. They're trying to shift away from a reliance on China to India. But the reality is that 80 percent of these high. Rand iPhone 14 promos are assembled in the Django region, and this is an area that we've reported on right where they've been hit hard by quarantines. Workers have fled the region because they can't get into their workplaces. And right now, the government relating

to what Mike was talking about on the policy side only are allowing medical personnel onto the streets of that city. It's impossible to run a factory in that scenario. So, yes, longterm Apple looking outside of China and towards India, principally Apple down for a sixth day.

Thank you. We're down by one point eight percent. I talked about the analyst community, BFA, Barclays, both cutting targets this morning. Deutsche Bank lowering Q1 estimates. J.P. Morgan saying Apple and the latest news implies downside to Q1 estimates as well. Just a range of analysts rethinking maybe the story on the march in the S&P up to more than a tenth of 1 percent with the sector price action. Back with us. Here's Katie.

Well, John, the S&P 500, it's just about flat. But you actually have eight of eleven sectors higher right now. Energy is out in front. You do have crude back to flat. And like we talked about, you have U.S. natural gas surging this morning,

consumer discretionary to the downside. That's a lot of the travel names. But the story this week, of course, is the U.S. midterm election. So let's look at what the sector action looks like in the run up over the past week. It's interesting. You have aerospace and oil services,

those pipeline companies. They've both rallied relative to the S&P 500, not fantastic games, but for context of the S&P 500 down about two point four percent over the past five days. On the other side of the trading of green energy, those cannabis companies both trailing the big benchmark. So it could be a sign that markets see Republicans winning control of Congress. But, John, your guess is probably as good as mine. And I have a guess right now.

Katie, clueless, as always. Katie, thank you. About 20 minutes into the session. Equities down now from the S&P by a tenth of the NASDAQ by four tenths of one percent in the bond market, up six basis points on the front end year to year all over the place last week, close to four eighty post payrolls in the first few minutes and the lows of last week, close to 440. Right now, 472, 472 highs we haven't

seen in the last week on all the way back to maybe 2007. Up next, trading diary. From New York, this is Bloomberg. Twenty five minutes into the session this Monday morning, good morning to you. We are basically flat on the S&P negative two tenths on the NASDAQ 100. Some losses this morning, marginal losses on the Nasdaq and adding to the losses of last week.

Down 6 percent on the Nasdaq, 100 worst week and all the way back to January. The bond market looks like this, two stents and 30s. Your two year look at the front end up 6 basis points again and back through 470, 471, 75 on a two year just off the highs of Friday, which were close in and around for rates. That's the price action this day, the trading day, a big week ahead. White House press briefing coming up at 145 Eastern Time. Fed speak picking up with Collins messed

up Barkin all on deck. U.S. midterm elections on Tuesday. The results on Wednesday might take longer than that. Then we get more Fed speak.

Williams Barkhad speaking on Wednesday to and finally jobless claims followed by another big CPI print in America CPI Thursday, just around the corner from New York Equities, basically unchanged. Thank you for choosing Bloomberg TV. Good luck for the rest of the trading day. This was the countdown to the open. This is pulling back.

2022-11-10 21:09

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