Target Earnings | Bloomberg Surveillance 02/28/2023
Here we are talking about what does the landing look like? I'm looking backwards at 20, 22 and say that looks like the landing to me. The market collectively does not have a clue at this point in time. Hence, we're going to get a choppy market. We're seeing the beginnings of a regime shift back to a point where interest rates matter. We are moving back both in growth and inflation to what we would refer to as the old normal.
This inflation is not a concept that is dead. It may be around the corner. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz.
Remember the good old days, the disinflationary process, it starts transmitting, the risk around inflation were becoming more balanced. What happened was a month ago, life from New York City this morning. Good morning. Good morning from audience worldwide.
This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro features positive here by a tenth of 1 per cent T.K.. We're back to look at inflation in places like France, in places like Spain. This has been terribly reported this morning for America waking up. It's not transitory. Spain and France and particularly
France, a vector is oddly the vector is not disinflation. Even worse, talk about transitory Jonathan Ferro in the vegetable. Then at Tesco or whatever. The grocery stores are in England's Ghana, 17 percent. I don't really understand the 70 percent statistic, but easily 8 or 9 percent food inflation in the United Kingdom.
Things are moving in the wrong direction and yields are higher again this morning on a German two year up by 6 basis points, three point one per cent worth pointing at the beginning of March twelve months ago. Negative about 70 basis points at a front end to the German curve. And Lisa, now we're not talking 3 per cent of the ECB we're talking for. I'm just so glad you said that. I saw that. And I thought I remember what everyone thought.
If they raise the rate to 1 percent, that all of a sudden you'd see this massive implosion of the entire debt market in Europe. Now we're talking 4 percent overnight rates over at the ECB and you're not seeing spreads uncontained in Italy. So here's the question. Can they execute this and is that going to be enough? Do we understand where central banks have to go to contain inflation? That has been a lot stickier than people thought. Welcome back. Thanks.
Good to see you. You seem excites me back as excited to be back. Well, just to get away from the family. This is good. Good morning to you.
They're not up yet. Equity features positive except the one per cent. Let's wait for the price action for you when the equity market and in bonds as well in the bond market, a lift in the US to buy a couple of basis points to 393 17 in the affects market eurodollar. Just about clinging to 1 0 6 as we close out the month of February. Somewhat arranged for euro dollar a low of 1 0 533 in the last week, a high of one tenth 33 when the ECB last met. I'm going to go with the yields higher
again and again. We've got a more restrictive Bloomberg Financial Conditions Index positive point 1 5. We'll get to that in a moment. But I think the bellwether today is if
you've got cash, get rid of it. And Chevron Wharf during their folds into every story we're talking about. And what I would suggest is here's somebody with a 10 year track record of seven point one percent per year.
You know, you look back 10 years. Big oil's not doing all that much. But the free cash flow in this surgeon is extraordinary. And it folds into everybody watching the show this morning in corporate America. How do they respond to this buyback frenzy? The stock is up by more than 1 per. Lisa, as you know, given the you've spoken to Mike Worth in the last couple of months, they previously planned rate was 15 billion. That's going to go up to seventeen point five. And I imagine the White House might have
something to say about all this, too. I have no doubt they'll come out and say, why not reinvest it? Why not start more production? And Chevron's going to say, we're doing for our business. We've been doing for our business. And you know what?
Why aren't you saying this to others? You're going to hear that kind of tone. Oil's into oil majors in general have been returning so much cash to shareholders, regardless of some of the pushback with and saying talking about earnings and companies target releasing earnings this morning. They're holding an earnings call at 9 a.m. in New York. Here's a question that I have. What do we see with respect to inventories? That was a big problem. And we see the same kind of guidance
that we saw from Wal-Mart in terms of the year ahead outlook. What is the audience for TAJAI? Right. So this is going to be the real question. Are they going to capture the lower end shoppers that are going to Wal-Mart or do they still continue to benefit from the discretionary items and not even the housing market? This will be very interesting.
A number of price gauges coming out. The deceleration expecting to continue, which is a good thing. However, yesterday we saw home sales actually increase pending sales, surprisingly to a much more significant degree. Are we seeing a reaccelerate in as mortgage rates comes down? This is sort of the real conundrum for the Federal Reserve, that it's just kind of stickier than they feel and act to 30 p.m., Chicago Fed President Austan Goolsbee, who is a voting member, is going to make his first public appearance in this role. He's giving a speech in Indiana. This is going to be really key because
this is someone who does have a vote on the Federal Reserve, on the Open Market Committee, and he's might give some guidance. What does he think that 2 percent really is the optimal and rate for inflation? Does he give some guidance of how quickly he thinks inflation could potentially come down, John? Great to see him in that seat. Lisa, thanks for that. Thank you very much. Joining us now is Maggie Patel, senior portfolio manager at Offspring Global Investments Market. We have to begin over in Europe. Eurozone CPI out in a couple of days. France had Spain upside surprises. What's your take on that this morning? Well, we can see inflation is a global phenomenon. All the developed countries flooded
their economy with money during Covid to try to stimulate the economy back. And we're really seeing the effect of this tidal wave of cash CAC came in by the sustained period of high inflation. So nothing the Fed is going to do short term is going to bring that down to 2 percent. Margaret, you are a claim for traipsing between fixed income and stocks, dividends and share buybacks when the mood prevails. Have you ever seen, as The Wall Street Journal brilliantly sums up today, the one trillion dollar moment we're having right there now of buybacks, including this morning's Chevron? Have you ever seen this? No, because I think this is one of the best positions.
Corporate America's pay on the balance sheets are clean. They've been very profitable. Profit margins have held up. So it isn't surprising. We're seeing a lot of buybacks where they don't want to reinvest it, which is a case in the energy industry. But isn't also the question here, the taxation of dividends and the arch reason is a tax shield. Yes, it is. Yes, it is. So I think they'd like to do that right
away and I return that money to shareholders. Do you personally like it when companies buy back their shares? Is this a reason to go into the company or is this not? Because it means that investment necessarily isn't going toward expanding the business in other areas. Well, I would always rather see a company invest wisely rather than buyback shares. It's kind of sad really to say they have a high return on invested capital and the best use of their money is to simply reduce the size of their business. So I'd rather see companies that are investing their their extra cash flow and improving the business really. Right now.
How optimistic are you that we have seen, if not a bottoming out as some sort of feeling that the optimism for the economy outweighs some of the gloom that we could potentially see down the line? Yes, I think the economy is surprisingly strong. The reason I say surprising is because we had that 4 plus percent increase in short rates last year and the economy inflation. Inflation is up. Unemployment is really very, very down. And so that says to me there is a lot of strength in the economy, particularly because this cycle one Fed started citing tightening. There's no sector of the economy that really is hurting, is really way over levered, is really in trouble. That might pull down the whole economy.
So basically things look pretty good. Margie and Margie, at the margin, do you. That could be a name. Your book, Margie. Margie, when you look at the migration between fixed income bonds and quality equities, which were you tilting right now at the margin, which looks more attractive? I still think you have to go for equities, even though we may see a pretty bumpy year because interest rates are rather low for the rate of inflation and yield spreads a rather narrow. So if we have the Fed raise rates more than people were expecting, you could see some negative price performance in the fixed income market. So I don't think those yields are as
compelling as what we see on the equity side, really. It's a market. You don't think it's the year a fixed income. The year of the bond. I think for the fixed income investor to get a yield, say, in high yield of, say, six and a half to maybe eight percent is pretty good. But I think equities will do at least that well. And if you're a little bit more patient, I think a lot better over the next couple years. Interesting nugget.
It's out there of all spring global investments. Doesn't think this fed clearly a sufficiently restrictive thinks they've got more today. My girlfriend thinks that it's well over a Bank of America published in the last 24 hours. And here's the quote from him. For those of you that would like to follow his work, a big slowdown in consumer demand might be needed for inflation return to 2 percent. He said this could require several more
Fed hikes. This will likely lead to recession, Lisa, because the non consumer sectors of the economy already look soft. Mike Capon of BFA. He is not alone. A lot of people are gaming out what a 6 percent Fed funds rate could look like, which sounds unheard of. Based on what we saw two months ago in the macula disinflation and suddenly is what people are putting back on the table, we don't know what's required to bring inflation down.
And I think that you are right to point out this long and variable lags isn't cutting it for him. Growing number of people. Six might sound foreign at the Fed. A reserve Maria Tadeo for the ECB to make sounds even more thorough. I don't make any fall at the ECB. Foreigners from negative 50 basis points. We're now talking 4 percent potentially. I'm an old fogey on this. I don't think they've got the underlying nominal GDP to withstand that shock.
I'd love to be proven wrong on that. To the spirit of continental Europe. What I would focus on, John, is, is this idea of disinflation, the dynamics on the screen, and the one factor that's not given away is the real yield. The 10 year yield has just crept up for eight, nine, 10 days in a row.
It's quiet, but it's there. Traditionally in Europe, the focus on the spread between Italy and Germany and I have to say is not threatening to break the whites of last year. But if you just focus on that and just on that and nothing else, you'll miss the fact that the whole of the fixed income universe across Europe, Germany, Italy, Spain, France, that's just the left, Lisa. There's just a massive Emma Chandra, but
it is globally. Right. And so some people would say is warranted because you have higher inflation and you're seeing something that seems in controlled and explainable. The fact that you're not seeing a peripheral break out means that there isn't gonna be a certain kind of dissent among ECB members and amongst some of the member states to fight inflation, make that the premier concern because they're dealing with it, too.
I mean, this is unique. And I just wonder what the consequence is with all these central banks raising rates, why we haven't seen a more significant long and very why we haven't seen things break as well. I think in Italy and elsewhere, it's amazing to spend this morning talking about the CPI data out of Europe. We'll get a read on Germany tomorrow. We're also going to talk about this by back over Shafron. Warren Buffett over the weekend in his investor letter when you were told that all repurchases are harmful to shareholders or to the country or particularly beneficial to CEOs. You are listening to either an economic
illiterate Tom or a silver tongued temper CAC. Just bear in mind. We might hear some complaints a little bit later. You nailed this, John.
And what was so interesting here about Mr. Buffet and thank you, Doug care so much for e-mailing me on the wonderful Henry Singleton. He's the guy that invented this. Buffett worshipped Henry single turn of Teller down and forgotten his name. Thank you. Thank you, Doug. As for sending that to me, he was a teller and he was out of the Naval Academy. Electrical engineer. And he said do a share buyback, but do it when the shares are cheap.
And that's a buffet. That's the nuance here. You know, we're talking about is Chevron cheap? Coming up shortly. A little bit later this hour, Chris Brown looking forward to that conversation in the next hour. Whaley of BlackRock, fantastic conversation in the 7:00 hour, about 50 minutes from now. And coming up next, Bloomberg's Annmarie
Horden down in Washington, D.C. features positive by tenth of 1 per cent. Brammer is back. It's a beautiful thing. It is a wonderful thing. Welcome back. This is Bloomberg Real Yield gloom further. Keeping you up to date with news from
around the world. This is the first word. I'm Madison Mills. A surprise inflation report today from France and Spain both seen prices rise in February.
Consumer prices in France jumped by a record seven point two percent from a year ago. Meanwhile, Spain's inflation rate hit six point one percent. That will increase pressure on the European Central Bank to deliver more of those interest rate hikes.
And for the first time, markets are pricing in a 4 percent peak rate from the ECB. And Hong Kong is ending one of the world's longest mask mandates after nine hundred and forty five days. Hong Kong leader John Lee says the city has completely return to normalcy.
Shares of companies linked to tourism gained on the news. And this comes after the past three years of global isolation have weighed heavily on the city's economy and global standing. And here in the states, the Supreme Court hears arguments today on President Biden's move to forgive the student debt of more than 40 million people. Republicans contend that the president is overstepping his authority on the move. Biden put a freeze on federal student loan payments on his first day in office. And in Ukraine, President Vladimir Zelinsky says the defense of the besieged city of Balkh mood is quickly running out of options.
But Zelinsky stopped short of announcing that his troops would pull out. Last week, he said that Ukraine would not defend a buck mood invasion at any cost. And Chevron is showing confidence in its ability to generate cash even after a 30 percent decline in oil prices. The energy giant will repurchase the stock at a rate of seventeen point five billion dollars annually starting in the second quarter. Previously, Chevron had planned a 15 billion dollar buyback rate. Global news powered by more than twenty seven hundred journalists and analysts in over 120 countries. I'm Madison Mills.
This is Bloomberg. It will mark one year since the beginning of this full scale invasion. The message I bring you from President Biden is simple America will stand with Ukraine for as long as it takes. We commend your ongoing focus on the importance of fighting corruption and precedents. Alinsky School of Strengthening Accountability and Good Governance. A surprise visit to Ukraine from Janet Yellen, the US treasury secretary there will pick up on that story in just a moment.
Let's pick up on the price action if you are just tuning in. Good morning. See you. Equity futures activated by not even two tenths of one per cent on the S&P 500 and a little bit of a left to close out the month of February.
And looking to close out the month with a month of losses in the bond market yields higher materially. So through the month so far of 2 basis points on a 10 year this morning, 390 376 yields much higher over in Europe on the session off the back of hot a CPI out of Spain, out of France. A read on German inflation comes tomorrow. The euro marginally stronger here. Some euro dollar ones there are 615. John, thanks so much. And we'll continue to watch as John, the
inflation story to me, I think has just underreported, too. I think it's just a huge deal. We were hoping it would go the other way. Tom, you remember those central bank meetings or DAX Bank? You had Chairman Powell on the Wednesday turnaround to say that disinflationary process.
It started the following day. You had the ECB president, Christine Lagarde, saying the risks around the inflation outlook have become more balanced and the data is just pushing aggressively in the other direction. We'll have to see on the data today we get to is tomorrow. Jonas, I assume today we've got, as Lisa mentioned a little bit. Next up, I think for this market is German CPI. Coming up tomorrow, at least the ISE in America on the U.S.
side of things, which has continued to surprise to the upside, which is a negative David Westin right now. And Secretary Yellen in Ukraine, Emery Harding joins us. She's Bloomberg's Washington correspondent. I think the nation Emery needs an explanation of this. I get that the head of the Pentagon, I get that military officials are going to even that the president shows the flag in Kiev. Why is the circuitry of treasury there? Well, she's there to mark the one year and one year mark of Russia's invasion of Ukraine and reiterating Biden's statement.
But she talked a little bit more about this financial aid. So it wasn't just about the military. And what she was talking about is that Americans need to know that it is money well spent.
And to the Ukrainians, she's talking about the fact that, yes, there is this a defensive in the east, but also that they need to make sure the country is running in terms of everyday provisions and items and things. You do like going to school, making sure there's infrastructure. So that was really her message was a little bit different than obviously the one the president made. But clearly, the U.S.
wants to show a full sign of support in Ukraine, as Russia was as they mark this one year of Putin's invasion. Are the allies on board with this and they will send finance ministers? Well, listen, over the course of the past 12 months, you've seen you've seen a number of leaders around the world show up. I mean, more most notably to me over the past 72 hours was Prince Feisal, the Saudi foreign minister. This is the first Saudi official to visit Ukraine in some 30 years. And as much as this was an olive branch to the Ukrainians, they were, you know, talking about ammo use for energy and humanitarian aid.
But this was a huge olive branch to the Americans. The U.S. was in this, quote unquote, review of their partnership. And then yesterday, you heard Admiral
Kirby coming out to the platform in the press room, talking with how they welcome this visit by Saudi Arabia. So this to me spoke volumes to not just Ukraine, the United States, but also to the Arab world. This is the first and first Arab official to go to Ukraine as we commemorated and really mourn over the full year of this war that's been playing out in Ukraine. We're dealing with also the aftermath of it and the renewed focus on energy, on oil and oil production in particular in the U.S.. Will this administration have a response to the Chevron buybacks announced this morning? Is there still a continued focus on reinvesting in U.S.
production? Listen, this will certainly, I'm sure, have a tweet from the president or the press secretary at some point today. The administration has lambasted the oil industry for these share buybacks and instead not putting money into more production. This is something also that I think the administration thinks really plays well with their constituents and in the polls. So I'm sure we will get a response from the US in a minute administration. And I'm certainly sure that it will not be a friendly one to the oil industry. Does this administration not like buybacks just in general? I mean, to ask this because there was a story about the chip's act and any money that companies received from it being used for share buybacks.
This sort of a overall blanket feeling that it's bad politically. I mean, it does feel that way, and then every president even mentioned it, mentioned these kind these kinds of things, share buybacks and dividends. In his State of the Union speech. So this is something that the administration constantly talks about when they talk about big multilateral corporations. When you're looking at the chips program, Lisa, it's not even just share buybacks. There's also social provisions to it. If you're taking this money from the
CHIPS Act and using these grants, then next, your manufacturing plant, you also need to make sure there's some sort of daycare place for individuals that work in the manufacturing plant to make sure they can have proper care of their children. There's also a foreign policy angle to it. Countries of concern. You cannot be manufacturing in a real sense if you take this money. I think what's clear from the administration is we are happy to invest in this U.S. industry, especially when it comes to
semiconductors, but there will be strings attached. I mentioned just picking up on that line in the transcript from the State of the Union address from the president on fossil fuels. We're going to need oil and gas for a while. I believe the Republicans then laughed and then he had to go one step further.
What does that mean? We're going to need it for a while. And what do you think that the big U.S. crude energy suppliers are thinking when he says that? Well, I think they're thinking we've been telling you this right? We've been telling many people, especially on the far left of the Democratic Party, that potentially thought we were, well, far ahead of the energy transition, that we're not there yet and especially difficult when they are reimagining the global energy map with sanctions on Russia. That clip, Jonathan, will probably be played by Republicans going into 2024 as a way to say that this administration was wrong when they came in on their energy policy. I think what the president is saying to the American people is we do need fossil fuels and we're going to need them longer than many had potentially thought they might. Thank you.
Great work down in Washington. As always, we'll catch up with Emery in the next hour. I want to pick up on a line from Secretary Yellen. Was this line here? We command your ongoing focus on the importance of fighting corruption. The United States is committed to that 32 billion dollars of assistance to Ukraine for security to basically fight this war. Now, Lisa, there is a corruption issue in Ukraine is well documented, well publicized. And I think the secretary going over
there, the treasury secretary, and essentially saying that pretty clearly to them tells you the the concerns that we still got at home in Washington, D.C.. Oh, it's a political liability on a massive scale, especially at a time when a lot of strategic strategists say that Vladimir Putin, the whole goal, his game plan is for the West to become divided, lose interest in funding this war, and then going in and just and then taking over Ukraine. So how does this administration fight the potential for corruption to undo what they've done and reduce some of the political power and the political will? May I suggest that she went for her good friend Kristalina Georgieva, to give cover to the IMF on their next tranche of aid? Or caregiver can go to the assembled and say, look, the secretary of treasury is behind me on this. I think there's some theme to that, too, as we go to the spring meetings and the other challenges, the IMF has no one to shape the spring meetings for you, the four nations, you know, as published here, Nigeria, Turkey.
I can't remember the others. It's like a game of rescue, you know, 3 and 2, Central America. I can't keep track. But the answer is they've got their hands full with a select group of nations. I went back and forth with our Buenos Aries office today on peace. So now to one 97 in Buenos Aries.
The black market rate is 3 7. The. I wonder if they're talking at all at the IMF meetings about the idea that that the developed world is raising rates to levels not seen since 2006 2007. Remember that this was thought to be a huge liability for the developing world. Is there that same pushback at a time
when, in fact, this is hard as it is? I mean, that's gotta be a real potential hot button issue. Well, let's go to the gravity for the United States. The United Kingdom and other fancy nations is normal. The gravity for each is like Jupiter. You know, it's like to squash down. I mean, the grip you got, you're with me
here. Stay with me. Go ahead. Come on. Come on. Carry on. Is cute and squashed down because he's on a heavy star heavy planet.
The gravity is bigger. So there's a squeeze down. Is he? Who's he? Don't ask me questions. I don't think the IMF lead in on anything right now. I think the leaderships all over the place at the start of the year is all about the prospect of a global recession. And now its central banks need to hike more to get inflation back to target. Pick one.
Get a ton of retail earnings through the week, it starts this morning with Target. We should get those numbers in a couple of minutes when we get them. Lynx is going to be all over it. It's fun way for them. And hopefully police call it fun. But nobody's gonna scream, don't you? Every store is different.
Sure. It might be that way in the real fun superrich sign. Okay. Futures are up by a tenth of 1 percent on the S&P to close out the month of February. Pretty dreadful month. To be honest with you, down on the month by about two point three one percent. But really, you need to go down from the highs, the highs of the year right before that payrolls report on a closing basis.
Down from those highs by about four point seventy three percent. Yields are higher by 2 basis points on the session on a 10 year, 93 and 95 off the lows of the year, though, on a 10 year high by about 60 basis points off the lows of the month on a two year higher by about 80 basis points off the intraday low of early February. Just get getting those numbers right now from Target. Lisa, what do you see?
Well, first of all, a pretty big disappointment from last year. Full year adjusted EPS is 775 to eight dollars and 75 cents versus the estimate of nine dollars and 25 cents. Looking forward, it's a big problem for them. And that is not going to be positive for their shares, which I'm sure are lower on the day when you look over what they're talking about. They're expecting operating margin to reach lower single digits. They're talking.
Well, excuse me that they expect some of their revenue. But honestly, the operating income margin, they're expecting to go be on the pandemic rate of 6 percent. That isn't necessarily creating any confidence. You're seeing those shares decline by
more than 5 percent on the heels of that. I'll keep digging through that, getting more detail. These are amazing headlines and the one that comes out their comp average transaction. With zero percent. Yeah, with this inflation, it's not going to get it out here. I've never seen a herd like that headline like they so they they give you an outlook town for the first quarter and a full year.
They see the first quarter adjusted EPS in a range of 150 to 190. The estimate was to 19. They see a full year adjusted EPS range of 775 to 875. The estimate was 925 stocks down 4.5 percent. And if you just go through the previous few quarters on earnings day for this name, it was down 13 percent.
After reporting earnings in the last quarter, they were down two point seven percent on the day after reporting earnings in the quarter before that. And you will remember what happened in May, May 18th last year when the stock cratered twenty four point ninety three percent and that down another 4.5 percent this morning. They just can't keep out of trouble on earnings day care. Lisa, what do you got?
Well, what's interesting to me is that they beat an earnings per share in the fourth quarter. And we've seen this for a number of companies. It's all about the forecasts, right? That actually in the fourth quarter, the last three months of the year, it wasn't bad. It's going to get worse.
And that is the message that we're hearing from Wal-Mart and that it's the message that we're hearing from Target. You look across the murder, Amazon and all the rest of digital, the layoffs that we're seeing, dribs drabs, some of the smaller, non profitable digital firms. Target's fourth quarter digital comp sales down three point six percent.
That was an unimaginable event five years ago with digital growth. But they're also dealing with some pretty stiff competition. Wal-Mart's been investing. We have it on their digital world to try to compete with Amazon. Are you seeing a consolidation in the digital world that's more significant with Walmart and Amazon and it's harder for Target to break into? I wonder if there's some idiosyncratic story there, too. We'll continue to look at this list, going to dive into it. And course she's going to fabulous
coverage of all the other retailers as well. Not joining us, frankly, the interview of the day, given the gyrations of the moment as Christopher Verrone, partner and head of technical macro strategy at strategic US. It is a bad company. Chris, there are two types of charting. There is stochastic looking at the jumps, trying to catch the falling knife and there's trend based. You and I are on the same page on the efficacy of trend base. Is there a trend out there right now? I think there's a dominant trend out there, and, you know, we always say trends will trend where.
And it's in the right market. I mean, what you've seen over the last few weeks, particular rates. I counted twenty two countries over the last several days that have been new highs with your yields. So you short raise that continue to surge everywhere we look. We've lost Chris there, Chris thrown a strategic us, I'm not sure he'd want us to freeze on that show either, because that wasn't very flattering. We'll get it back. Try and re-establish that connects
failure. We got target earnings about four minutes ago, so let's go through them again. They offer a rain check forecast for the first quarter and the full year and EPS range to 775 to 875 for the full year. The estimate was 9 25 cents below
expectations. The first quarter, a range of 150 to 190. The estimate was 219. So that's below expectations also. Stock a bit softer in the premarket. No real drama, though, was down about 5 percent.
Lisa, it's now down only about one. But I'm looking right now through all of the earnings. It was pretty weak and looking at comparable sales in the fourth quarter, it was up zero point seven percent versus the estimate of a decline, but versus eight point nine percent year over year. I mean, this is basically what we're looking at right now. And I think that what you're looking at as a company that's struggling with the same headwinds as others and yet with perhaps a weaker footprint than the ones that are consolidated, a lot of the power like Walmart and like Amazon. Is there a macro story here?
It's a good question, because they've dealt with inventory issues in the past. Is that really the hangover of that that's coming to the fore in some of these numbers? I don't know. The 9 a.m. call Eastern Time from this company will be really instructive when it comes to that. How much is just a planning issue versus a macro issue? I think, Tom, you've raised the right question in a high nominal GDP world posting flat sales growth, perhaps not the one.
Well, it shows a challenge here. And Brian Cornell, I think, you know, nicely addresses that, as he always does. He has two companies he's doing he's got household items, beauty, project products, essentials, you know, the stuff, food, even at Target, they do a little bit of a food business as well. And then they've got this thing that they're called discretionary categories. And people are not being discretionary with their discretionary spending because they're spending it on rent. It's funny you mentioned that, Tom, because discretionary is outperforming on the S&P 500 this share, yet today especially is doing really, really well.
For full disclosure, with a few years ahead of this, I've never been comfortable with the word discretionary in sectors in the Sam Stovall world. I've never been. I just don't I've never gotten it. There's toothpaste. Is that discretionary? I don't know if it is or not. Is a bow tie discretionary? No, it's not. Yes.
You know, on and on. I just saw discretionary is bow tie. Absolutely should fit under that category. Might be a staple for years very personally. I agree. Hanging is not discretionary. It's actually a good point and not necessarily about the bow tie. But when it comes to discretionary, how much are we looking at the resurgence in travel and experiences as supporting the discretionary spending? The casinos? Exactly.
He says it makes crazy people to get on boats for a week. That is what we're going to we're going to be doing surveillance cruise going to resurrect that. We're not the IDF is stuck in a boat NASDAQ with a few guys. Absolutely. Like family to me. I've got no problem with that. Total strangers. Now we're going to do the surveillance. So many people have heard this ramp before and it's dirty.
Our savior. I just I'm still in shock that we're all we have Mr. Rome back. Very good. Let's go to Christopher Verrone now with
two teachers in the very company who I believe is joining us by telephone right now, which is good overview as eight inches of snow to the north of New York City. Mr. Varon, you mentioned that there is a trend there and it's a challenging trend. We dovetail it with Target, which we can all agree is a well-run company. What sectors shows signs of life? What sectors of the equity market can we be comfortable owning given the moment? Well, I think, Tom, what's notable here is how the market, despite a very good rally off the low. I don't think we should call this move
monolithic at all. There are certainly clear areas of strength and there are also clear areas of weakness on the positive side. I think we have to continue to tip our heart to the strength we've seen from the industrials and not just domestically. I mean, the industrials, whether it's in Europe or Japan, the machinery names have been absolutely fantastic here. I think they're telling us something, leadership last year and a difficult year and also leadership so far this year in the market. That sounds like something that is trying to communicate some secular story to us.
So I really want to respect the message from industrials here. So what's the message and how do you treat it? Well, I think intellectually we can all come up with something, right? Perhaps it's Risher or onshore and or any number of other things. Well, I'm more concerned about, as you have big machinery stocks from every geography around the world that really haven't worked for the better part of the last seven, eight, nine years coming out of these mochi year bases, whether it's Japan came up to whether it's the US and parker-hannifin. We've been using this acronym, even parker-hannifin, Ingersoll, Rand and Cummins Engines, APAC, I think. That's going to be a more important half
of them than saying over the next number of years. So when somebody asks you, does that mean by yourself? What do you say? I think there's some pretty epic leadership that's coming from this industrial group. I like the law. Christopher wrote Suffering with the Snow in Derry in Connecticut. Chris, we appreciate it.
Thank you. Steve Smith to come in and make that sucker got eight inches, eight inches. A lot of the upstate New York and Connecticut areas where we saw our 18 year old man who was supposed to get.
We didn't get an inch of rain. So last night, the boys were counting snowflakes. They were like, please, like a snow day, please. I was not going to be a snow day.
Two and a half inches doesn't do anything. And it's melting. They're like, it's not melting. It's sticky. Look at that car. I'm like, it's not sticking. You get snow days in the era of zoom. For these kids, the pandemic is the pandemic killed snow days.
Yes. But we had this discussion. Right. Does it matter if you have to do school, I assume. And basically what it comes down to is
school, I assume is that school. And so it's better than having to go to school because then you'd have to get trained, not participating. Mohamed El-Erian. Didn't you see all those videos of people would say, like pretend the screen froze and then they'd be like cats moving behind them and things like that for a free shot? It I love that. And people in this snowball will
understand this. We prayed there wouldn't be a snow day because if there was a snow day, you were at home and your father was such a hitter that he had a driveway that was like, you know, a road. It was so long. You hand you the snow shovel.
And say, he started the street. Yes. It was bad. You'd pray. You pray that there was snow. It was amazing for DAX.
She got a little bit of snow in the whole country, shuts down. I just guaranteed. Yeah, you don't need a census. You need like you need a couple of centimeters of snow.
Game over. Is that true or is that just the fair? How so? I mean, you know, Easter, we used to do that. Okay. Leaves on the leaves on the railway line.
That's the thing. Well, I just canceled Tracy Alloway. It's canceled show. Well, that's what happens down south. Fuchs, they got prepared for it. They don't have the big inventories of salt and everything. And I told the kids I'm like, no, just because ISE. And so the season doesn't mean you're
going to start it. It's collected and they are they taking a day off on don't have a sleepy sidewalk. Dani Burger a break. Stay safe room or a temple and protects teachers. Right now, the S&P positive two tenths of one percent. As we close out the month of February,
we get a little bit of earnings for you from the likes of Target, a little bit softer on the back of earnings, a cautious, cautious profit forecasts from the company in the face of what is still high nominal GDP. Given what we've got in this country at the moment, discretionary goods demand that not great. As you pointed out, some at that company yields are higher this morning as well by three basis points on a 10 year, 390 454 over in Europe. There are a whole lot higher, particularly in Germany at the front and high there.
On a German two year by five or six basis points on the session, three point one, three per cent hotter. Inflation in France in Spain is Germany's turn tomorrow. This is Bloomberg. Keeping you up to date with news from around the road with the first word. I'm Madison Mills. The Biden administration has a warning
for companies lining up for funding from that U.S. Chips and Science Act. The money will come with major strings attached. There will be restrictions on investing in other countries and a limit on stock buybacks.
The thirty nine billion dollars and incentives are meant to boost semiconductor factories here in the US. And Fox chairman Rupert Murdoch testified that Fox News commentators endorsed false claims that the 2020 presidential election was rigged. That's despite Murdoch's immediate doubts about the conspiracy theory. Murdoch was questioned in a lawsuit against Fox by Dominion Voting Systems. Fox has denied it promoted false claims
about the vote in China. Media regulators are looking at ways to curb, quote, excessive video use among young people. No companies have been named, but short form video content on platforms like tech talk has exploded in popularity. Regulations that restrict viewing time
for minors could impact big tech giants from Tencent to bite dams and in the UK. Home buyers are getting their best discounts and more than five years, according to the property portal Zoo Blood. The average reduction to an asking price this month was 4.5 percent and it was
just four tenths of a percent last year. And Sham. Shares of Xoom are higher today. The video conferencing platform gave an upbeat profit forecast for the current quarter. The outlook suggests that Zoom is finding its footing again after a dramatic boom and bust cycle during the pandemic.
A cost cutting push is helping offset a slowdown in sales. Global news powered by more than twenty seven hundred journalists and analysts in over 120 countries and Matt Miller. And this is Bloomberg. You have not come to the reality that our concepts of demand and supply for labor for wages may not work the same way our textbooks told them told us they did for the last several decades. We know from history if you make people poor enough, they will have to go back to work. But is that what we should be doing? And is that what central banks are doing? What a treat to have Frances dono back from Manulife. Just absolutely brilliant.
A breath of fresh air and asking some really important questions about central banks. When central banks say and use this phrase, we need demand, destruction, soft demand. What does that actually mean? But what they mainly stress, we know, is ultimately they want unemployment higher. They want people out of work. Now, I'm not saying that they would ideally like to see that, but that seems to be the mechanism that they're discussing when they talk about softer demand and lower inflation.
We were talking about this last night. What's the connection here? What's going to keep people from spending money if they have jobs and if they're bank being paid more? What is the transmission and transmission mechanism? Is it that they've got higher mortgage rates? Well, they don't. Because guess what? If you've locked in your mortgage rate, you have the same one. So it shows just that. It's very difficult to get inflation lower by the Fed's policy unless you get some sort of reduction in the workforce. And that's really, unfortunately, the byproduct of Frances said at some she asks the question, is that what central banks should be doing? Exactly. That is the heart of the matter. Is that a prescriptive policy to lower
inflation, if we do something, we can move inflation down. Or is it a greater system off of a pandemic, off of the Biden stimulus? Frankly, the global stimulus that has to be worked out over time. The insight yesterday, Lisa, you weren't here was the Taylor rule disparity that we see. I've never seen a model Taylor Rule, which can folks. Everybody's got a different model, but it's up here and inflation's down. The Fed's down here, rather.
And that that gap is bigger than it was at the heart of Covid County. It's out of whack. We are. Yeah. I mean, we're massively, massively out of whack. And that's where you fall back on individual data, which you do in securities.
Analysis is out of Tufts University in Boston. Michael Baker joins us. Really quite good. D.A. Davidson on the core of what retail's doing. Michael, I usually don't do this, but I'm going to go a life of 5 4 on you, which, you know, you and I studied in school, LIFO FIFO was back and that means inventories out the door targets one of the best run machines we have. The Swiss Watch of inventory management.
What are you learning about all of retail's inventory agony from Target that the retailers have done a really good job in 2020 to realizing that you've made a mistake and work through it? There's inventory issue. I really hurt a lot of retailers and try to try to just about a year ago, it was almost pulled off and they got really over sorted. I particularly tried to bring in inventory early in front of the supply chain issues that we had last year and they've all just got over sorted. That was a big problem. But the retailers realized it quickly right around March or April last year and aggressively moved market down. And it was a tough year for a lot of the
retailers. But. But I think they got it done. You made clear in your note, you look at it as a pandemic, one off in the target and others will return. You raise your price target and target a couple days or price target on target. A couple of days ago, I got that out. But Michael Baker wants a time line
where they clear the inventory challenge. Is it now, is it into 2024 now that they did it, that their inventories in the quarter just reported out of this forum were either up or down 3 percent of the press release right here? It was essentially flat, 3 percent, down 3 percent at the end of the fourth quarter. At the end of third quarter, we're up 14 percent mid-year.
It was, I think, 35 to 45 percent growth. So they really succeeded in clearing out those emitters and they start turning twenty three clean Michael Barr payments. Our issue is now behind them. It's no longer an issue. I was looking at some of the headlines as they came across after the earnings dropped. And I was pretty confused. They seemed pretty negative and they also seemed kind of motley.
Looked at an earnings drop, a profit drop and 43 percent in the fourth quarter, a forecast that came in under expectations. The shares are now higher by four point six percent. How do you make sense of this? Yeah.
Does doesn't surprise me for two reasons. Three reasons you're keeping like you. One, this is you've got to put up with Wal-Mart. Last week, Wal-Mart reported a beat in the fourth quarter, gave guidance that was below consensus and arguably conservative. The stock opened down in the free market and then and then it ended up being up. It's exactly what we're seeing with Target right now. I think the idea here is that margins
are going to be better. Margins will will will hit their low in 2022 and they're gonna be higher in 2023. So the analysts got a little bit too high in their estimates. I think the consensus estimate for next year is five point three. We're at four point seven. They guided to something that'll be
around 40. Half the five or so. That's up from three and a half in twenty, twenty two. So that's a good number. We're growing next year. We're just not quite growing as fast or recovering as quickly as the consensus estimates wanted. But two things. One, those in such Texas to me are probably conservative.
And secondly, we're heading in the right direction. 20 22 is the trough for target. Twenty twenty three be better. Twenty. Twenty four even beyond that. It might take a little bit longer than the consensus forecasts had, but to me, that's just a function of the analyst getting a little bit too a little too aggressive here. It's kind of hard for me to get my head around this. Are you saying that the market didn't really believe the estimates the analysts had put out there, that they basically thought they were high balling it and were expecting some sort of downgrade that target put out there? Or is this target basically low balling it to set expectations low? And everyone just says, oh, we know what you're doing. So we're gonna get ahead of that
more the second. I think I think that our target is giving nice conservative guidance. I'm not so saying that they're going to beat it by a tremendous amount, but I do think they're giving guidance that they believe they can come come in ahead of by the end of the year.
I think it's the right thing to do at this point. The biggest mistake that a lot of retailers made last year was getting too bullish for 2022. And they have to guide down to 3 4 times, I think target guide down at least three times in the year. The margin seems Brian Cornell does not want to do that again.
So he estimates that they've given here are conservative. They show nice growth, but they're conservative. That's a positive in both sense. And I think that's why the stock's up this morning. Well, now it's down.
I mean, it's basically been flipping and flopping and Target's been a lot more volatile than Wal-Mart. And so we'll expect to track that. Obviously, we can't really make a read on the sentiment given some of the volatility. I am wondering, though, whether you think that they've worked through some of the idiosyncratic issues, whether it's inventory that Tom was asking about or are just competition in general on the digital side when it comes to Walmart, when it comes to Amazon? Yeah, I think it's actually doing really well on on their digital business.
And in fact, they've been one of the leaders in that space and understand the idea that you stores can actually be an asset for your digital business rather than a hindrance. You go back 10, 15 years ago or whatever was video was close. All the stores stores are heard in the e-commerce business. I think Target understood early that they can use the stores to help supplement that online business. And so really the poster child to me as of an omni channel retailer.
So I think they've done a good job there, competitive wise that their sites for sales have actually been pretty good about the soul issue. It was the biggest issue right now is mix. They are still a little bit more assorted to nondiscretionary categories or sorry, discretionary categories. Right. So let's say Walmart and that is why their margins, Walt, grows much this year as somebody bought still going to grow year over year, but just not as much as I can. What's your single Best Buy then?
One has the mix that gets us out one year. Well, in our twenty twenty three outlook piece, we put best ideas out as a rally automotive as Dick's Sporting Goods and Ulta Beauty. We also put out Target as one of our preferred alter beauty lists. You're all about it. Some just very not whatever ultra ultra DAX moody ultra adds up. The ultra adds up. Do you spend a lot? Oh, we do.
What we do is we have a very low price point, but we have many things. Oh yeah. They try to do that. It's not easy to do that. But when you go to pay, you pick out. You can't fly. Your dollars is when you get the. You don't have counters and girls bathrooms. That's the pro tip, right? Okay.
You have good luck with out counters. Best the professional advice that limits the number of units. I'm sure you live in a happy house, so take care. Malcolm Baker Davidson.
Thank you, sir. Target's stock all over the place. The latest point just months ago. The stock is now higher. Brahma hard to keep up with. Up by five point five percent was lower, as you mentioned. And now it's positive.
Yeah, and it keeps climbing. My point, eight percent, I mean, you just watch it. But what Michael David said, what Michael was saying there, just that it was fascinating, this idea that basically people are rejecting the view that that target is actually more pessimistic than the street and that they're just guiding it down to basically set low expectations. That's what basically he's saying. And everybody has their gig. And so we know what your gig is.
Gentlemen, not on Twitter. John makes me smarter this morning. He's got a fancy Deutsche Bank ad from India. This is the Damian Sasso Our World. How about a seven and a half percent, five year C.D. with an annual ISE pop published at 9 percent? This is not crypto. This is Deutsche Bank. And of course, the issue is it's an
Indian currency. So that's you know, you got any risk there? Children see risk there. But boy, is the rate structure changed, you know? IBEX, it's nonsense. You know, I have no great hair. Well, high yield is starting to look a little bit more like high yield. Yeah. It's been a while.
There's always junk. It's a whole new world after not India. I'm talking about say credit. Yeah. Credit here in the United States says it's high yield again. Finally. Yeah.
And people are going into it because of that, which is the reason why it's becoming plus high yield. Here we are talking about what does the landing look like? I'm looking back through the 2022 Hang Seng that looks like the landing to me. The market collectively does not have a clue at this point in time. Hence, we're going to get a choppy market.
We're seeing the beginnings of a regime shift back to a point where interest rates matter. We are moving back both in growth and inflation to what we would refer to as the old normal. Inflation is not a concept that is dead. It may be around the corner. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. We should just do a whole hour of people
saying I've no idea. I don't have a clue. We do think that every morning we have no idea. Michael Barr from New York City this morning. Good morning. Good morning for our audience worldwide.
This is Bloomberg Surveillance with Tom Keene, Lisa Abramowicz and Jonathan Ferro. Futures right now up a quarter of one per cent on the S&P 500. Plenty of data Fed speak all that good stuff through the week. We need to pick up on European CPI this
morning. Hot in France, hot in Spain. T.K., get a read on Germany tomorrow. There is a left in eurozone sovereign bond yields this morning. Transitory further gone.
This is the second tranche of harder that we've had. And I'm going to go back. People think it's physics and it's just the reality of you look at a trend on a chart and there's a vector, the vector and French inflation in no way, shape or form signals disinflation. Now, all of a sudden, we're talking about 4 per cent potentially at the European Central Bank. TRUNCATE your head around that.
That's absolutely ridiculous. That's the ECB. Let's talk about earnings in the United States through the week. Get a ton from the retail names hit in America.
Target first out the gate. Bram, I've got to say, let's put the stock price action to one side. Let's just look at the numbers. The guidance is poor relative to what was expected for the quarter and for the year ahead. Correct. Which is the reason why you'd expect the shares to be lower.
They are not. They are higher. And this to me is really the question, are people willing to look past any negative guidance and just say they're playing a game with us? They're going to try to guide us down and then they're going to hurdle over that lowered estimate and we've got your gig and we're to get ahead of it and buy instead of just, you know, waiting for the data to come out. Now that we have to Libyan gravity, the math is back to what it was 16 years ago. Just perchance, security analysis actually matters. And you just heard that from Michael
Baker of D.A. Davidson, who's truly expert on inventory dynamics. And the answer is, I guess, zob, because as he said there clear movement or they had a big inventory problem last year. I it out. As you know, it's been difficult for the
retailers. That's for sure. That stock is up by about 3 percent in the premarket. Let's wait for the broader price action for you. Futures are just about positive by quarter of 1 per cent on a S&P 500 lift in the equity market on the session, a move lower on the month as we close out the month of February. We continue shifting higher on a 10 year yield by three basis points. Your tenure right now, Lisa, 394 54 Joel Weber. So we've talked about the target
releasing earnings, the earnings release. We're also going to be watching the 9:00 a.m. earnings call. That target is going to be holding. I'm actually more interested in that, especially in light of the share price reaction, considering the fact that have they cleared out the inventory issues? What are they doing on the digital front? How significant do they see the deterioration in demand as the year goes on? 9:00 a.m., we get a home price data that
FHA if a house price data, as well as the S&P CoreLogic, Case Shiller 20 city index. I know you love it when I say that, but it's going to decelerate and that's the expectation. But by how much? Because you're starting to see a bit of a resurgence in some of the housing prices you laughing at. You need to rebrand. You just need to refinance.
It's a Case Shiller index, but now it's like merged with NASDAQ Kamala Harris reporting this. And then it's like, you know, whatever it is, what you said it was Mark Gurman to 30 APM. I am curious about that. Chicago Fed Preside
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