Bloomberg Markets (02/01/2022)

Bloomberg Markets (02/01/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the U.S. trading day on Tuesday February 1st. Here are the top market stories we're following for you at this hour. Dead cat bounce stocks coming off their best two days since 2020 ending a messy January on a more positive note. But they start February on less firm footing. ISE on earnings. U.P.S. surges as higher pricing helps deliver a profit beat alphabet and GM set to report after the bell. Plus we'll break down an XP semiconductors results with the company's CEO Curt Sievers this hour. And diplomatic flurry. Lincoln talks to lab Rob Johnson Mrs. Galinsky. Putin meets with Auburn as global

leaders focus on the Ukraine crisis. We still await Russia's response to the security proposals from the US and NATO from New York on Kailey Leinz with Guy Johnson in London Alix Steel is off today. Welcome to Bloomberg Markets and guy. Forget about everything I just said. The breaking news at this hour. Tom Brady has officially now announced his retirement from the NFL. We just talk a little bit for a moment before we get to ask him about Katie lives his feelings about Brady. I think everyone knows them at this point. He is the goat guy. Yeah. Stats speak for themselves. I'm not going to argue with it. Isn't is he my

favorite person. No. But congratulations to him on an incredible twenty two seasons. That's all I will say. OK we'll pop that one. We're going to come back to it though. Let me assure you about that. Let's talk about the data that is hitting the Bloomberg right now. ISIS numbers dropping plus jobs as well. The ISE.

Let's go through the details. Headline number. This is ISE said manufacturing fifty seven point six. That's actually slightly ahead of expectations. It's a drop from fifty eight point seven prices paid techs back up again really quite substantially. Remember this got up into the 90s. Then it faded quite significantly. Last number 68 the expectation 67. But prices paid comes in at seventy six point one. New orders fifty seven point nine. That's a slight fade from last time. The expectation

fifty eight fifty seven point nine. The number the employment index comes through at fifty four point five jobs comes in. Jobs comes in ahead of expectations. We were expecting ten point three million. We get ten point nine. The prior numbers also been revised higher. Kelly some pretty solid numbers here. And if you're looking for an inflationary narrative to come out of this data it is a tight labor market. Continuing with inflation maintaining its presence in a big way. The prices paid component

to the ESM certainly something to pay attention to and certainly something that central bankers are going to be paying attention to as well. Let's get more on these numbers with the ISE and Business Survey Committee chair Tim Fiore. Tim when we look at that prices paid index in particular is there a sense among manufacturers that we are reaching peak price pressure or do they expect that to persist. Also we increased our growth in January compared to the summer. I think what you really have going on is you had a whole bunch of new prices going into place in January. So these prices

were essentially set back in the October November timeframe. They were implemented in January. So I think that's why you're seeing that number step up. I think you're gonna see it kind of relax as we go into February March. I'm not overly concerned about the pricing. No I think you know the inside story of the month. Well I'm sorry. Sorry. I said carry on. Carry on. Yeah. I think the story of the month is really on the front and the high excessive absenteeism that has also cause a lot more early retirements and we've had in the last four or five months. And I think that's why you saw the production number not pop as much

as we wanted to. And also the new order number not get above 60. But overall you look at what's happened here in January and we've had some pretty good performance in spite of all the headwinds that we have. And I think we're in a pretty good position here for the rest of the quarter. What about further on from that. There is this concern growing Tim that we're gonna see some sort of a growth shock potentially later on this year after we've seen the Fed tightening just in terms of the momentum that we have right now. How sustainable do you think it is. Well I think it's strong. If you look at the employment number gained again that doesn't actually mean employment on the factory floor for the month of January. But that goes really well for the future. You know I think our supply will be no most

likely should have went way up in the month of January. I expect it is probably going to go up in February as a carryover from the January absenteeism. We heard reports of 15 20 percent absenteeism in January. That's incredible that we were able to really produce as much as we did produce. Given all the unplanned absenteeism from on the ground the good thing about it was that the people who were absent weren't out for long compared to what we saw back adults. And prior to that. So I

think we were off to a good start here. And we've run excessively long period of time here over 60. If you look back over the last 20 years we have never run that long over 60 significantly longer. So I think we're now going to you know we're settling in as I mentioned last month. Fifty seven. Fifty nine and a half. That's good performance. Year over month over month expansion of the manufacturing economy. Fifty seven fifty nine is really good. So you know I think we've probably now dropped below that 60 number absent some massive shock that would impact the supported living number. But I think we have a

good position as we start the year. Tim you talk about the on Micron variance and the impact it has on the employee picture and absenteeism. What about China in particular in the Covid Zero policy and how that could impact supply chains for some of these companies. Well that's for sure. Concerning. But China's been running out of PMI somewhere around 60 to 52 last year and a half. They've been very sluggish. I think you know the big screen here now for the US is we're in that three lunar new year

olds that comes into this into the ports in January. Lunar New Year started today hoping that for the next three or four weeks as we get the final boats coming in that will be a low burn offs in the backlog. I'm not so sure anymore know especially given the fact that we've got potential labor issues on the West Coast ports in the summertime. So you know we're still struggling here with poor congestion. We did have some positive indicators on the

transportation side about the January that is a little bit better than December. I wouldn't call it a gift yet at this point but both the transportation sector and the labor sector and the supply chain sector we had indications that things were better than the summer. Just picking up on that and figuring out where companies are with our inventory what are you seeing if we are going to see a continued issue when it comes to the ports. When it comes to

China when it comes to shipping what do inventories look like term in terms of the robustness of these businesses to keep going through these difficult phases. Yeah I think that's it remains to be seen but I do expect that the manufacturing units are a number to pop back up in February and March. I think we have some carryover effects here from end of year December that kept the inventory number low. I think going to get back to the fifty five fifty six level. So you know

you say running at at fifty eight new order level you get production above 60. Now you've got the labor reporting back to the workforce. You gain one or two points a month. Unemployment supply deliveries hang at sixty five to sixty three. Inventory gets to 54 55. And you know you're in that 59 range for the forseeable future. To me it's always great to get instant analysis on this number. The market really has a great deal of hunger for that right now.

Trying to understand exactly what we're seeing on the screens in front of us as we try and figure out where the Fed is going to go next. Tim Furey ISAF Business Survey Committee chair. Sir thank you very much. What are we gonna do next. A question of the day the first day of February. Have we seen over the last few days a dead cat bounce or is now the time to pounce. Let me assure you the Kailey Leinz wrapping this question of the day is something that is going to happen on this program. That's next. This is Bloomberg. Ten minutes past the hour. Live from London I'm Guy Johnson Kailey Leinz in New York. Alix Steel is off this week. This is Bloomberg Markets. So our question of the day is this dead cat bounce or time to bounce now. I don't think I'm doing

this. Justice Kailey Leinz has a reputation in the office for her wrappings. How would you say. How would you. Just a little say that you know it's a little more pizzazz dead cat bounce or time to pounce. You know pounce is the emphatic word. That's what you've got to hit right. Yeah. Okay. Romaine Bostick co-host of Bloomberg Markets The Close and Bloomberg Markets

editor Christina Kino joining us. I'm not gonna get either of you two guys to try and kind of go one better. I'm sure remain good to be honest. But but nevertheless let's talk about the the direction of travel here and where we are with this market remain. Let me start with you. I look at the charts at the moment. I look at the post Fed rally that we've seen in stocks. And I wonder whether the pouncing. I hope I hit that properly has already happened. Normally it takes four months for these kind of these kind of drops to unwind. We're on track to get back to record highs during the month of February. Are we moving

a little too quickly back on the upside. I think so because you have to ask yourself what sort of facilitated the draw down to begin with. And the reality is we really haven't gotten I guess to the main event here which is actually the tightening cycle for it to begin. Now maybe that becomes sort of a sell the news type so type of event. But remember we're still a month more

than a month away from when we finally do get some sort of decision out of the Fed and we get a little bit more clarity about what they do. So I think to a certain extent the selloff that we had may not have actually been the entirety of what we're going to get. It's just a matter year right now guys of the timing and the pace of how the market shifts. Yeah. Christine I guess it's hard for all of us to believe we are in March already because January felt so long. What's going to be the catalyst between now and then in that as Remains says in theory that the Catalyst event has already been priced in by this market. Well Kelly I think it's going to be all about the divergences

and particularly how other markets and other central banks diverge from the main event as Romain said which is the Federal Reserve rate hike that we're all expecting in March. And so you know you really have this feeling this week of the baton shifting from the U.S. to Europe because as you know we have these two big central bank events going on this week likely the beauty and the ECB. And it's really kind of hitting markets over here in such a way very similar to what we saw in the repricing in the U.S. when it came to the Fed heading into February and over and in January. And so yeah I think for the moment you know traders kind of giving the Fed Catalyst a bit of a rest and looking to other catalysts certainly in Europe. We have that in the form of Beasley and ECB and we'll see what happens after Super Thursday. How did DAX false see is that we're not calling

it. OK I'm ready to pounce on that Super Thursday. Let let's talk a bit about though what the market is signaling about the Fed. So we had Hawker on Pat Volcker on a little bit earlier talking to the surveillance team. He's talking about March. He is kind of a little more Brad Stone on the 50 idea but certainly nailing down the idea that we are going to see some sort of a hike maybe in March 25 basis points. What is the market though. Sick post the post the last Fed meeting. What is the market signaling about whether or not it believes that the Fed is going to do all that is expected of it. Because that comes back to

this question of what you do with equities. Do you believe the Fed is going to go five times seven times depending on your on your kind of call on this if you don't believe that equities look significantly more attractive potentially assuming that we don't get a growth. FLATOW Yeah absolutely guy. I mean in terms of kind of what we're seeing whether the markets are believing the Fed it really took them a while actually to get with the Fed in terms of what it was signaling even dating back to December at the jailhouse press conference then where he was saying three rate hikes back then that seem like a lifetime ago. But even

then when he explicitly signaled three rate hikes it took the market a while to believe that it was going to see some saw something similar from the markets this time around when five was on the table. So we just got that pricing. Markets aren't necessarily gearing up to price for more six or seven as we've heard from several quarters. And so I think it's really the bar is high enough for the Fed to kind of surprise the hawkish side. Exactly. Beyond what we're seeing here I mean we've talked a lot

about the macro side of things. On the micro side the actual fundamentals which I know Taylor Riggs makes you talk about a lot. She forces us to talk about that. Well a blow out from the likes of Alphabet or to make a difference to the market. The short answer is probably not. They definitely don't buy their obviously high weighting companies. They don't necessarily have the same pool that an Apple or Netflix or Tesla would have on the market here. Keep in mind the fundamentals so far have

actually been relatively good. When you think about it the concern is really the guidance and some of the draw down. I will say this on the micro side. Yeah. Have you looked at the technicals. Because I think that all to trust the technicals. That's my plan for you on the day here. Because when you look at some of the key moving averages you look at the Rs. ISE on some of the major indices there all seem to suggest that maybe we have come a little bit too far down too fast. But you're not

necessarily seeing that being pushed up quite as fast as we came back down. All right guy you heard it here first. Forget the pounds forget the bounce trust the technicals. Is the message from Bloomberg's Romaine Bostick and Christine Aquino. Thank you so much for joining us as well. That one was me. I actually did come up with that. I mean I know. It was great. Thank you very

much. All right. Coming up an upbeat forecast from one of the biggest suppliers of ships to the auto industry. We'll talk with the CEO of IBEX Semiconductors Curt Sievers next. This is Linda. Live from London I'm Guy Johnson Kailey Leinz is over New York and this is Bloomberg Markets. Let's talk about what is happening in the semiconductor sector. Also industry as we all know still desperate for all the chips in the less hands on. That means that we are seeing significantly rising sales numbers for an XP semi the second largest supplier of chips to car makers globally. The company came out with a better than expected revenue forecast today. It is growing at a blistering

rate. That top line number is certainly above what we're seeing elsewhere even in the semiconductor sector and exports. CEO is Curt Sievers. It's great to have him on the program again. Welcome back. Thank you very much indeed for your time. These are blistering numbers. These are super strong numbers. How sustainable are these figures. Yeah first of all thanks. Thanks very much guy for for having me again. Today we absolutely believe they are sustainable. And maybe just to put it a little bit in context. We had grown last year 28 percent year over year and that is 25 percent over the

pre pandemic year 2019. So just to put it in perspective half of our business is in automotive and the automotive part of our business actually did grow by 44 percent last year compared to a SAAR growth of only two and a half or 3 percent I believe last year. Now looking at the guidance we just guided this morning to have another year on year growth of 21 percent in the first quarter of this calendar year. And I also made kind of a soft forecast for the year to be above

our long term growth plan which is 8 to 12 percent over the next three years. So I did say we will be above 12 percent for the total company for the entire calendar year 22. Now I do think it is sustainable because our the largest part of an XP is exposed to the automotive and to the industrial markets. Those are very low longevity markets very sticky design wins. Very very very strong content growth. If you think about electric vehicles if you think about smart manufacturing in the industrial space and our design when inventory is so full that I'm I'm very very confident about that growth. Well speaking of the automotive space in particular Kurt I was speaking with the chairman of Renault last week. We've

heard from a number of auto executives that they think that this supply crunch on that on the semi side on the chip side is going to ease in the second half of this year. Are they being too optimistic. We actually believe that there might be areas where it's indeed a bit easing in the second half of the year. A bit easing means that maybe become a little bit closer to to a demand supply balance. But over and above I do not think that at the end of this year we will be exiting and we'll be in balance between demand and supply. And mind you all of this is still in a

situation there especially the auto audience and their suppliers. The Tier 1 suppliers would love to build up strategic inventory going forward. Nobody I think is going to be in any position this year to do this. We see inventories still being super lean across the entire extended supply chain. So I I really don't see how we will come into balance through this year. In the past this has been an incredibly cyclical industry with a huge investments at the moment being made by you your rivals across the industry. You talk about the industry not getting into balance for really quite some time. Is this cycle going to be different. Are we going to see at some points going from sort

of the famine to feast in terms of the availability of semiconductors on the market. Or and I hate to use this phrase is this is this is this cycle going to be different. Is this time going to be different. I don't know if it is going to be different for the entirety of the semiconductor industry. I think it is different when it comes to the markets which an experience is is almost uniquely exposed to which is the industrial and automotive market. So think about three quarters of the company is an industrial and automotive in here. I do believe it is different for two

reasons. One the kind of applications which are coming up here are just showing significant sustainable new demand which is not about short wave mobile or computing demands but it's much more about stable demands in strongly industries like automotive and industrial. China is a very very large market for you Kurt. And I'm wondering how you you're seeing the demand picture there in particular given some of the more idiosyncratic syncretic factors happening in that market in particular. Excuse me Kelly I didn't understand which market you're referring to China which represents the bulk of your revenue. Well China represents about half of our ship to revenue. But that doesn't mean all of that product remains in China. In many cases we actually ship to China. It's being built into a half

finished or fully finished product which is then re-explain it back to Europe or the US. We currently don't see any slowdown in the demand from China. Okay. Let's just talk a little about production and what's happening with the increasing desire on a nation by nation basis to be able to have some degree of production on short Curt. We

have the chip's act going through Congress at the moment. We'll wait and see exactly on the timing surrounding that. But nevertheless you are a company that outsources a a decent chunk of your production. What do you make of the chip's acts. What do you think it's going to achieve and will it change your thinking in terms of how you think about production and where you manufacture. First of all we greatly appreciate the TRIPS Act. I think it's a

it's a super important element of the policy in the US to strengthen the that that the chip industry in the U.S. because there will be ever more demands and ever more dependence on semiconductors going forward. At the same time what we are seeing is that they are the semiconductor industry used to be almost a perfectly globalized industry. There is no more a move again. And I don't know where this is exactly going to land going forward more and move again to be more regionalized because the same thing the U.S. is trying to do is happening in Europe. They think it's going to be next week. They're going to announce what they also call the Chips Act which is the target to I think quadruple the amount of

semiconductors being manufactured in Europe to a 20 percent world market share. So this is happening in the U.S. and it is happening in Europe. And I think genuinely this is a good move. And given the fact that an export is a very global company we definitely support and appreciate that. Let's not forget we actually have three manufacturing large manufacturing facilities in the U.S. So we are in deep dialogue here to try and influence and benefit the chipset for the U.S.. All right. Thank you so much for joining us today. Current Sievers and XP Semiconductors president and CEO. Appreciate your time and congratulations on

the corner. Now coming up Bloomberg talks interest rates and of course inflation. In an exclusive interview with Philadelphia Fed President Patrick Harker he doesn't think 50 basis points in March is the move. We'll ask that question to Lisa Erikson U.S. Bank senior vice president about her expectations of Fed policy how quickly they need to go. That conversation is coming up next. This is Linda.

Live from New York I'm Kailey Leinz along with Guy Johnson in London. This is Bloomberg Markets. While we're an hour into U.S. trading Bloomberg's Abigail Doolittle is tracking the moves. And Abigail it's not the best start to a new month I've ever seen. It certainly is not. And never a dull day. More volatility here for the first day of February. This is the all day the all

session chart of the Nasdaq 100 futures. So you can see the overnight very very small declines. But then coming into the open small gains and then we have this big dip around the ISDN print. The Nasdaq 100 at one point close to down 1 percent after having its best two days since 2020. I believe it is. So the volatility that we saw in January continuing but well off of those lows. As for what's dragging on the day. Let's take a look at the shares of AT&T down four point eight percent. This on their spin out spin off plan to combine their Warner Media assets with discovery. Plus cutting the dividend. We have down one point eight percent. No particular reason. And that seems to be the case for Apple and Microsoft as

well. Yields are a little bit higher. So that could of course be a pressure for big tech. That's been a dominant theme that as yields rise it brings valuation to question to top stocks. However having to do with earnings let's take a look at the shares of U.P.S. up twelve point four percent. The best day since April of I believe 20 20. This after they put up a blowout quarter beating top and bottom line estimates. Importantly the guidance is excellent. They expect to put up one hundred two

billion in the current quarter and margins preserve excuse me for the year margins preserved thirteen point seven percent. That of course is very important too. So that stock up in a big way. And Exxon Mobile really get it. Seeing a nice pop the best profit going back to 2014 as oil and natural gas rises. Those shares really having a nice day the best day since November 20 20. As for earnings season overall it's really pretty interesting. Lots of different trends coming out. One here the buzz word to come out of this current earnings season. It is supply chain. There are others that supply chain as that top spot right now with eleven hundred mentions on earnings calls followed by margins inflation headwinds not so great. I will say

one encouraging note though. Guy Covid on bottom one hundred seventy six mentions but again supply chain. Eleven hundred mentions. Big time concern there. I guess they are both connected as we watch the impact of overgrown lot in the United States but also elsewhere particularly China. Writing back to that supply chain story Abigail. Great work. Thank you very much indeed. Abigail Doolittle took us through the market action thus far and what we're seeing in terms of the supply chain story Abigail talking about that in detail. It is certainly a subject that everybody is tracking very carefully. Philadelphia Fed President Patrick Harker talking about the impact of supply chain crunches in

terms of the inflation narrative. The impacts on rising prices and then by extension on interest rates. He spoke exclusively with Bloomberg's Mike NIKKEI. The question is how quickly this has always been the question. How quickly are the supply chain constraints going to leave us. And it looks right now like they're not going to take some time. So slowing down some demand just like monetary policy does. I think it's appropriate. I don't think we're behind the curve in

that sense because we don't expect a big part of why there is inflation. That said I do think we need to move now to try to control inflation. That is something I firmly believe. Let's move now but then move. How often after that and how fast did that you know the questions out there the 50 basis points in March the seven rate increases proposed by Bank of America. Where do you come down on that. So let me again let me step back from it. So we're going to stop

the tapering and march. I would be supportive of 25 basis point increase in March. Could we do 50. Yeah that should range from a little less convinced of that right now but we'll see how the data turn out in the next couple of weeks. And then when we're sufficiently away from zero we can argue work above zero is 125 basis points 400 basis points. Then we start normalizing the balance sheet start bringing the balance sheet down which of course will also reduce accommodation. So it's really a two step process here. Yes we want to increase the Fed funds rate which is our primary tool of monetary policy. At the same time we want to start removing accommodation by shrinking the balance sheet. Both things have

to happen in tandem. It might not. Philadelphia Fed President Patrick Harker in an exclusive interview earlier on Bloomberg Television. Let's bring in Lisa Ericson senior vice president and co head of the Public Markets Group at US Bank into this conversation. She's joining us now from Minneapolis. Lisa obviously there has been a repricing of Federal Reserve expectations for 2022 that has weighed heavily on this equity market. And yet you say you have a glass half full view on equities right now. Why. Well to your point there are some overheads on the overhangs on

the market but we really are still cautiously optimistic on the US stock market and really the reason is fundamental. So if you go back to a broad array of macro economic indicators what we see is they continue to remain in solid growth mode with continued increases in what we see as far as the data. And then if you look bottom up at what company earnings are reporting we'd actually had a very nice fourth quarter. And so we've continued to get a good number of beats both by percent as well

as magnitude. And so that gives us continued confidence that those underpinnings for stock market prices are still remaining intact. Lisa what kind of rates of return do you think I should be expecting this year. What will I have to invest in to get it. More specifically. Well when we look at the overall landscape again we see good operational results continuing both on the big picture macro basis as well as the micro basis. But that being said if you just look at the past three years we really had three years of very elevated stock market returns. So going into this year we continue to expect an up year overall for the market. But we

would caution clients to realize that the level of gains may not be the same as what we've really experienced in the recent past. Obviously a lot of the great gains in the recent past have been concentrated in the growth stocks. Lisa is there anywhere within growth you'd be comfortable holding on to right now. Well we continue to actually see a broad variety of growth is

attractive at this current moment. We see both some of those secular growth names even though more recently they've cut out come off some of their valuation highs as attractive simply because they continue to have those long term tailwinds behind them in terms of changes in business spending changes and consumer spending. But on the other hand as we continue to re-open and the recovery continues to become elongated as the economy opens in batches we still see opportunity for cyclical growth as well. Lisa there are some in the market that are growing concerned that we are going to see a growth shock that the Fed is going to make a policy mistake that it's going to over tighten that the economy is going to slow and slow quite significantly. Maybe not this year at the back end of this year maybe in 2023. The market

is a discounting mechanism. When do you think we should start thinking about that as a concept. And how would you price it in. Well to your point we certainly have an environment that's going to be tougher overall this year for stocks than it was in the last year simply because of what's going on in policy. And key among those to your point really is monetary policy where as we all know the Fed is really moving from one of accommodation to more normalization. And as that happens that is going to be

somewhat of a headwind for stocks leading to our more modest positive outlook for the U.S. equity market. And so that is something we'll want to continue to monitor. The Fed is definitely walking a tightrope here in terms of continuing to monitor its the pace of inflation and how it should respond to that. And yet to your point maybe not putting on the brakes too

quickly in order to potentially bring down growth in an environment where there is that growth concern out there. Does cash have any role to play in a portfolio. Generally we advocate really being fully invested in assets like stocks or bonds that will really provide return over the long run. It's very difficult to be completely out of the pool or in a in the pool at any one point in time when assets rise. They can do so very rapidly and very quickly and it's hard to catch that rebound. So we really advocate continuing to stay invested in your major risk on assets such as stocks and bonds and real

assets. Were you surprised by the price action in January Lisa. Well certainly we've been expecting some volatility throughout and it really is on the back of again shifts in really what the monetary environment is again that creates you know really a more difficult air type of environment for stocks to outperform. And we also knew coming into this year that given the very strong corporate performance in 2021 that there would be tougher year over year comparisons for companies. So add those two things together. And again we expected more volatility as investors navigated the developing data. But again overall we're still glass half full. On the US stock market.

These are. And on that note we will leave it. Great to get your views. Thank you very much indeed for sharing your time. Lisa Erikson of US Bank. Thank you very much indeed. Up next we're going to come back to Caylee's views on Brady. I don't think we've explored this enough yet. He's retiring. You can you can hear the chuckle the laughter the happiness in Katie lives his voice. We'll talk more about this in a moment.

This is Bloomberg. This is Bloomberg Markets I'm rich could get better and you're looking at a live shot of the principal room. Tune in to Bloomberg's monthly series Chief Future Officer. The latest episode featuring Macy's CFO Adrian Mitchell is now on Bloomberg dot com and on YouTube. This is Clint Van.

Let's check in on the Bloomberg Markets what these numbers could go up to there's a flurry of diplomatic activity today as Western countries to try to keep Russia from invading Ukraine. U.S. Secretary of State Anthony Blinken will speak by phone with his Russian counterpart. British Prime Minister Boris Johnson and Dutch Prime Minister Mark Rutte will be in Kiev to meet with Ukraine's president. Meanwhile both the US and the UK are finalizing a package of potential Russian sanctions. Kim Jong un has now blasted his way onto President Biden's foreign policy agenda. In January North Korea's leader conducted more missile tests than he did in all of last year. That's seen as a signal that Kim is preparing to fire a long range missile that can

reach across the U.S.. North Korea wants the U.S. to lift sanctions whilst the U.S. wants an end to North Korea's nuclear program. And in pro football it is now official. Tom Brady is indeed retiring. The Tampa Bay quarterback is stepping away from the game after 22 seasons in the NFL. Brady won seven Super Bowls six of them with the New England Patriots five times. He was named the game's most valuable player. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries and could get to. This is Bloomberg. Gaily Kelly guy

seven Super Bowls. Yeah I've got three MVP but I could be wrong about that 15 Pro Bowls. This guy was an amazing athlete probably one of America's greatest ever athletes. And Katie has an issue because he didn't like getting knocked over. One could argue that he molded the NFL rules so that he gets hit as little as possible. So maybe that makes it a little bit

easier to be the goat. That said the statistics speak for themselves. We are Bloomberg. We follow the data. And the data does tell us he has the most ever on record career touchdown passes passing yards completions of any player in history. I will give him that. Still though not going to change my opinion on. I wish

I wish we could just replay what you said during the break because that was slightly less charitable. But we won't do that. I'm trying to be polite guy. He has had an amazing career. Truly truly. Do I still prefer Peyton Manning over Tom Brady any day. Yes. Yes I do. And we will leave it at that. We get back to the markets now. I feel like I should probably still. You have to opening. I wish we didn't. But we are Bloomberg guy. We follow the data and we talk about the market. So let's do that right now. One stock in particular we're following today U.P.S. shares jumping this morning after the company issued forecasts that beat Wall Street's estimates. The company has prior to ISE bursting profit margin over volume under the new CEO. For a

closer look we welcome back Bloomberg's Thomas Black who is joining us now. Thomas looking at the heads from the conference call as well they talked about how they expect pricing to remain firm in 2022. What does this tell us about their ability to exercise this pricing power and the trajectory for demand. Still a lot of packaged man and they have leverage on pricing through this year for sure and not only that they they are shifting their mix of sales towards small business packages which also pay more. So they're not only getting the price increases but there's some self-help in there as well. In terms of managing labor they are they all being successful essentially. FedEx on its Web page a little earlier on in the IBEX is called temporary labor shortages. Why is U.P.S. able to manage these enable formidable way. It doesn't seem to have been

touched in the same way as the rest of the industry. That's correct. U.P.S. is the gold standard for four parcel industry wages. They pay the highest among all the companies. They have a mostly unionized workforce and pay great benefits. Even their temporary workers tend to be paid more. So they weren't short on workers during the peak season where whereas FedEx was. And I think that limited some of the volume that was there but it didn't limit it

for U.P.S.. Obviously when we're comparing U.P.S. and FedEx as well we have to talk about the Amazon factor in this equation. Thomas and I noticed that only eleven point seven percent of total revenue came from Amazon in 2021. That is down from 20 20 levels.

How significant is that. It's settling down a little bit toward the pre pandemic range. I believe twenty twenty was an extraordinary year because a lot of people were locked down and they were ordering Amazon because they didn't want to go out and shop. Now that's that's subsided. Some people are going back to stores. So I think that relationship is is settling down and into more of a comfortable zone where Amazon is is more in the range in which they were pre pandemic. How did they get hit by higher fuel costs. I. It's it's a business that basically flies a lot of airplanes drives a lot of trucks. I appreciate that some of those trucks are going towards being driven by by electric motors rather than internal combustion engines. But what is that other than labor. What are the cost factors as is this company going to have to deal with and how can they head some of that. How much pricing power they

have right now to pass those extra costs on. As far as fuel goes they pass that through almost automatically through fuel surcharges so the customers end up paying for that and that standard throughout the industry. A lot of people think that trucking companies and railroads and the partial carriers will get hit by field but it's passed on almost automatically to customers through these fuel surcharges. And let's talk about the composition of those customers. Thomas is U.P.S. really just waiting for a bigger rebound in the business segment here. I don't think so. A lot of there was a narrative around that but they said on the conference call today that their split of 60 percent residential packages 4 percent business package is probably will maintain itself going forward. So I think they're in a new e-commerce world. And the exciting thing and the reason

that the stock is popping so much is that their margins are expanding even with these increased residential deliveries which tend to to be less profitable than the business packages. But I guess with everybody returning so much stuff as well that's an extra kicker on top of that. As you say the e-commerce business certainly taking off rapidly. You saw that around Christmas. We saw it into January. Thomas demand is still strong. Thomas Black thank you very much indeed. Greatly appreciate it. This is Bloomberg.

It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and risk. GUPTA Airbus has dodged the threat of strikes in Germany. It reached a labor deal that would allow continued production of its best selling A3 20 jetliner. The agreement moves out mandatory job cuts and German restructured parts plants until 2030. Home Depot has a goal that will be made more difficult by the tight labor market. For retailers the home improvement chain plans to hire 25 percent more workers for its critical spring season. That's a total of 100000 employees. Home Depot says it will speed up the process so it can make an offer within a day of receiving an application.

And Tesla is disabling a feature of its self driving system that came under scrutiny from U.S. regulators. It allowed cars to slowly roll through intersections without coming to a complete halt when no other cars or pedestrians were present. No accidents have been reported. Tesla will recall more than 53000 vehicles. And that is your latest business flash guy. Thank you very much indeed. We can't take you down to the clothes on the first day of February here in Europe but it's a generally positive session. We're off our highs here in Europe. The basic resources sector the miners are doing very well. The

banks are having a really solid day. I'll show you UBS in just a moment. But the stock six hundred 473 were up by a percent cent trading up around five points. One factor that's in the mix certainly is what is happening in the foreign exchange markets right now. The euro is catching a bet. So essentially you come through month month and you see that demand for dollars that's now fading out of the system. The euro is catching it paid. We're also repricing really quite significantly. The ECB we've gone from 10 to 25 basis points of hikes price this year. Now I

suspect the Legarde is going to push back really strongly come Thursday on that idea but that pricing is having an impact into the foreign exchange markets. So the rates market now leading the foreign exchange market and the euro is gaining a little bit of traction on the back of that 112 60 is where we're trading. We'll talk about that more in the next hour. With today we've got French inflation data that kind of backs up the news we got yesterday in terms of the German and Spanish inflation data. All of the data is coming off in terms of the inflation narrative. We're seeing a fade but it's not fading as fast as anticipated. And that's the interesting story for the ECB to grapple with right now. The corporate story dominated by a number of names

here. It's U.P.S. over in the United States to UBS over here in Europe. UBS up by seven point three seven percent. The Zurich based bank having a really solid day today on the back of its numbers. Fixed income was very very strong. I thought the equity business did really well as well. We heard from the CEO Manus Cranny interviewed him. We'll hear from him in the next hour get an update on what is happening here because the strategy update look really good.

So a really solid set of numbers coming out of the banking sector here in Europe. How useful is that in terms of some of the other banks that we've still got to yet report. UBS up by seven point four percent Kelly. Well since you mentioned a guy I feel like I should check on U.P.S. shares now. And they actually are up more

than 14 percent potentially on their way to the best day since November of 1999. Far and away the best performer in the S&P 500 right now. Granted that isn't all too difficult to do considering it is mostly a down day for the broader equity market is really tech that is leading the losses today. The Nasdaq 100 off by about half of 1 percent. Not a great start to February after closing out January with its best two days going back to November of 20 20 in the bond market we're heading right around 180 on the 10 year yield up the better part of three basis points and the dollar is weaker. Guy that raises the question is it so much euro strength or dollar weakness. Of course we'll help answer that in the next hour. We certainly

will get to a lineup of guests that are going to really tackle this issue around ECB pricing and the inflation data that we're seeing. Katharina Timo Allianz Senior European Economies joining us next. He and Steve he's going to join us as well from J.P. Morgan. We'll talk about this next. This is Bloomberg.

2022-02-05 08:46

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