Bloomberg Markets (02/10/2022))

Bloomberg Markets (02/10/2022))

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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 Thursday February 10th. Here are the top Marcus stories we're following for you this hour. While hot hot hot American wallets getting hit again with a higher than expected jump in consumer prices. Inflation charging ahead at the fastest pace since 1982. And now the spotlight is on the Fed. Money markets are betting a whole percentage point of rate hikes by July. Do traders have it right. Will march be the start of a historic tightening cycle

when its 50 basis points back on the table and turbocharged after the Aston Martin unveiling its latest Formula One car. We'll have an exclusive interview with none other than Aston Martin F1 team owner Lawrence stroll on what they're doing to keep the momentum going from New York. I'm creating it that with Guy Johnson at Alix Steel is off. Welcome to Bloomberg Markets. That was a hot number wasn't it Sunny. Cool. It's a few people on the hop. Big reaction pretty steady on the front end of the

curve. The curve a lot flatter. We're seeing an impact over here in Europe. The real question is does this change the narrative for the Fed. A lot of people Scott mine out included talking about the fact that 50 is now on the table. I think we're pricing 50 50 on 50 for March. So let's talk about our question of the day. Is the

number we've just seen peak inflation does it fade from here or is there more momentum behind the inflation narrative than we first thought. Let's bring in Bloomberg's international economics and policy correspondent Mike NIKKEI over in New York and Bloomberg Markets editor for rates. Christina Keno joining me over here in London. Mike let me start with you. First of all is this peak inflation. Is there anything within these numbers within these data that we can use usefully to determine whether or not we go higher from here or fall from here. Well unfortunately because there are so many categories there isn't really a way to tell. We do have some clues however and there was a little bit of good news in there. We did see used car and new car prices start to moderate their increases. Used cars was the lowest increase that they've had since last September. And

new car prices actually dropped a bit. So they've been a big contributor there about 10 percent of the CPI. And if that continues that'll put some downward pressure on it. We'll see what happens with energy prices going forward. We'd had flat gas and gasoline prices during the month. So those categories went down. Energy overall was up but it was just energy services. Rent is going to stay in there. So you're gonna have to put up with the fact that home prices are going to go up. However the Fed raising interest rates will have an impact on that sooner or later because it'll be one of the most interesting one of the most sensitive sectors to what the Fed does. So there are some reasons to think we might be close to peak. But it's hard to say whether it's this month or next month. Christine. Hop on in here. Because the immediate reaction off of

this very hot inflation report was 10 year yields getting higher and higher nearing that 2 percent level. I think some contracts even trading just above. Talk to us about what that means. What is the bond market pricing in when it comes to peak inflation or perhaps persistent inflation. Well Kitty I think the reaction is very much reflective of the fact that the bond markets are getting another dose of reality that inflation is here to stay. And I think you know that

reaction in the 10 year yield potentially just a sign of a more yield moves to come and more Russians getting broken here as this flows through markets I think is very important as well that in terms of the short and pricey we are seeing that 50 basis point rate hike possibility really getting nailed on for traders but more especially the July pricing of 100 basis points. That to me is actually more significant because that implies that there will be at least a 25 basis point rate hike for each of the four Fed meetings between now and July. That's pretty significant. Can I just clarify something here. I'm pretty raises it and it's being hopefully clarified for me by Bloomberg's camera cries because I've been asking the question do we get north of 2 percent or we know get north of 2 percent. His answer to this the old in inverted commas 10 year bond which

basically had a maturity 30 first of the 11th i.e. November traded at just over 2 percent. The new one again inverted commas auction yesterday could be peaking at one point 9 9 9 7. You need to go to four decimal places as John Farrow continues to put it to points out. But it just depends as you say on which one you're looking at depending on whether or not we got north of 2 percent. We haven't said it yet. So we'll watch you maybe that new one to go through two percent. Christine let me counter

with you this conversation about what the Fed does with this number. It's going to get another figure between now and the next meeting. And this comes back to our question of does it come down from here. Is this peak inflation. Does it start to subside from here. It would have to I'm assuming subside significantly for the Fed to alter course for market pricing to change significantly around this as well. Absolutely. I think there's probably little question that the Fed will have to act one way or another in March because of market pricing has kind of pushed them toward there. And they've indicated themselves

that they really are prioritizing the reaction to inflation. And so whether it's 25 or 50 that's another conversation altogether. But in terms of indicating signaling that they will be doing something come March that that's almost a sure thing at this point. And you know in terms of the question of whether this is peak inflation or not I'm afraid it's not you know because well I'm just listening to what we've been hearing from various companies during this earnings season. And a lot of them are declaring that they have pricing power. And so that really means that there is a potential for the second round effect of even higher prices for goods and services in the coming months because these companies are feeling empowered to raise their prices. And so even now that the hard data is showing this is where inflation is it's already quite

hot. I'm afraid that there is potential for it to get even hotter in the next few months here. So Mike let me bring you back into this conversation here. If this is peak inflation does that mean that the Fed's original stance the idea that inflation was actually transitory. Is that kind of come back into play or are we still concerned about simply inflation sticking around and therefore kind of justifying a more aggressive rate policy. Well it does justify a little bit more aggressive rate policy. And it's not just a question of whether it was transitory or not. I mean it's been around long enough now that it is actually affecting people's lives. So the Fed is going to do what it can. There are

questions about what it can do. It is to the extent of supply side problem. The Fed is going to have less of an impact on that. And they want to be careful because we have gotten a lot of people back to work and they don't want to slow the economy so much that that starts sending people away. In some ways at this point we're all just sort of dancing on the head of a pin because inflation goes up. The Fed raises interest rates. That's you know dog bites man. And whether they do it for meetings in a row or whether they spread it out doesn't really matter much to the overall economy given that it works with a lag. It's more a

question of how you're going to trade it than anything else. Mike is there a danger that the Fed has to play catch up. The Fed has already moved quite a long way relatively quickly but is there a danger and I'm wondering kind of what Fed speak is going to look like over the next few days. The market needs to be lined up for even more aggressive policy. And if so how do you see that happening. How does the communication work in the build up over the next month or so. The communication we've gotten in the last couple of weeks is we don't think we need to do 50 basis points at any particular meeting that could start to change. They could start to signal that they're more open to the idea if they need to do it. They probably won't say much about doing something at every meeting because they want to leave their options open to see what happens with that next CPI report. And they do like the idea of pausing to be able to see what happens with the economy when they raise rates. But if the market is moving up the way it is it's going to have an effect. We could see certainly we're

seeing some inversion at the very high end of the curve. We could see some inversions in two tens. And if that happens that's a signal the market thinks the Fed is going to go too far. So it might push them the other way. You can see the inflation break evens that I was talking about earlier this morning on surveillance. You know I said watch these. And if they go way up then the Fed is going to be pushed to do more sooner because they're worried about the inflation expectations becoming unmoored. And you can see what happened today. Let's see what happens over the next day or so with those. But

obviously the Fed would see a problem there that they might want to address. Christine let's bring you back in this conversation and take it global because overnight we also got some news that the BMJ the Bank of Japan is also sticking to kind of their dovish stance. We know the ECB has kind of sort of made a hawkish pivot. What does inflation in America signal perhaps about what the inflationary trends are in the rest of the world.

Well Kristie you know central bankers would want to argue oh we have a different regime we have a different economy from the rest of the world and therefore we're going to be doing monetary policy our way. That's really something that we heard from. The Reserve Bank for instance is the Swedish central bank earlier today arguing that it's not just going to follow in the footsteps of the ECB for instance which is arguably a bigger economy or a bigger central bank presiding over a bigger economy. It's going to go its own way because it has a different inflation profile. And I think it's going to be interesting to watch actually how these central bankers kind of diverge from each other or converge on heading into the next couple of months. You know markets are mostly uniformly moving toward the expectation that policymakers are going to have to pivot more hawkish. Lee But perhaps we might see a little bit of a pushback from certain central bankers in different parts of the world and therefore creating some interesting divergences to tradeoff. Well Bloomberg's Michael McKee and Christine Aquino thank you so

much for your time. We really appreciate it with your insight as always. Coming up we'll get another take on whether we've seen the worst of inflation. We dive into those CPI numbers with Mike Wilson Morgan Stanley chief U.S. equity strategist and CIO. This is Bloomberg.

Let's get back to our question of the day. Is this peak inflation. Joining us now is Mike Wilson Morgan Stanley chief U.S. equity strategist and CIO. Mike thank you so much for joining us. We'll start there. If this is peak inflation which I think was the consensus of what going into this kind of CPI report. What does that mean for the consumer. How are you

thinking about this. Yeah I think that. I mean we agree with the premise that the rate of change and inflation is probably peaking and a lot of these metrics in this high frequency data is also very volatile. Right. So the idea that you know we're going to trade this data is that precise I think is a bit of a fallacy. But directionally it's a little bit hotter. All that really means is that the Fed is not going to be going more dovish. I think the equity markets

in the last few days would be kind of hoping that the Fed maybe isn't gonna go as quick as they were fearing a few weeks ago. And this pretty much throws cold water on that. But that's been our view all along. I mean you know whether inflation seven point three or seven point five percent I mean they're going to go and they're going to go hard until they either get inflation down to a more palatable level which is a long way from where we are or you know we get the markets to really break down and they got to back off. And we're just so far from that right now. That doesn't change our view in the Fed whatsoever.

Mike if these kinds of numbers though do persist and I hear what you're saying about maybe starting to slow down but but the rate of change in the slowdown is going to be important as well. This may be the peak. But but let's say the slowdown is shallower than we're anticipating at the moment. Would that change your view of how we set this market up. Because at that point you'd have to be thinking that the Fed not only needs to be more aggressive but needs to be more aggressive for longer and maybe generates a higher terminal rate as a result of that. Yeah I mean like this is the 64 trillion dollar question how much

tightening can the Fed actually do. If growth is slowing and I think that's our view. You know we were very focused on the Fed last fall and we felt like that was the final part of our narrative. And now here we are. It's it's very consensus. The Fed is behind the curve and way offense catching up in a hurry. So I think that from a good news

standpoint I would say the market now is probably pricing the Fed correctly. And I would I would be surprised quite frankly if if we're able to get through all the tightening that is now being promised by not just the Fed but the ECB and the BMJ and the BNP all the developed you know major banks if we do all of that tightening we're gonna have a very significant slowdown both in the economy and I think markets are going to figure it very well. So I think the thing we're focused on now Guy is how much is the economy slowing optically. Any the US as a U.S. consumer you're going to back off a little bit because real

disposable personal income growth is going to be negative in the first half of this year for a large majority of consumers. At the same time supply is picking up. And I actually think that we could be surprised over the next six months how fast inflation comes down as pricing power fades when supply picks up and demand comes down. Now is that a good thing for stocks. It could be for some because rates come down and maybe that maybe at least expectations on the turnover rate maybe doesn't go up anymore. But I think the earnings disappointment if it's if it's bad will rule the day. And that's why we continue to be a bit skeptical on S&P 500 at forty five hundred. We don't think that's great risk reward here. Mike let's stick with that theme of slowdowns and that supply buildup. I really want talk about inventories here when it comes to a lot of these earnings

stories. How do you interpret that going into the year ahead. Let's say we have the next hypothetically six months really focused in on the Fed and their monetary policy there. After that how much does inventories play into simply the valuations and the way that the stock market trades. Well it depends on the sector. Obviously some sectors don't have any inventories where they run their business whether he services or some of these asset light type businesses and so for those industries is not really going to be that big of a deal. And think about this way. So building inventories is bullish for the economy but it's not so great for earnings. So it's a mirror image of what we experienced coming out of the pandemic when inventories couldn't keep up with the excessive demand. But now force you know inventories are going to catch up. And as demand

is fading not a recession by any stretch but it will create you know over oversupply in certain industries and in consumer goods. Some of that you know maybe the industrial supply chain some of the housing supply chain that's where you're going to see perhaps margin pressure. So even though you have a decent economic situation because inventories are you know it's GDP growth it doesn't translate into earnings growth. In fact it could translate into earnings revisions to the downside as operating leverage turns negative for a good chunk of the market. That's what we're focused on. We know the answer to this yet but that is the risk that people are not focused on just like they're overly focused now on the Fed and inflation. And

that was a story six months ago. OK. I mean that's what you should have been paying attention to then. A lot of that has now been priced in the bond market for sure. And even within the equity market given the D rating that's happened for the high multiples DAX. The other end of the high multiple stocks is the energy sector. If you've been outperforming this year Mike you've got to have been in the energy sector. The president called Saudi Arabia yesterday. The conversation I'm sure at some point turns to the possibility of more oil coming onto the market. What is your outlook. From from looking at this market through the through the lens of

the oil markets and thinking about how the energy story is going to be driven from here. Do energy stocks keep keep outperforming even if energy prices come a little bit lower. This is a core area of the market right now in terms of our performance. Does it stay that way. Well it feels that way for sure. I mean this is clear an area

we've under invested in. I think it's very you know this is becoming more clear that while ESG and the E part you know moving to alternative fuels is it is a desired goal. It's going to take a long time. And we probably didn't invest enough in fossil fuels to make that transition smooth. So that's the bullish intermediate term view which we kind of share. I think that's that's a very bullish view for crude to go higher over the next several years. I think that's that's good for energy

stocks. I think the short term risk for energy stocks is that once again this slowdown that we're seeing right now perhaps even backs up into the energy market as demand pulls back a bit. And we have a little bit of a hiccup. I mean it'll be short lived. I think it'll be a buying opportunity as far as I can tell. And then of course the big elephant in the room is what's going on overseas in Russia and Ukraine. I mean that's there's definitely some geo geopolitical risk premium in the price of crude. The question is how much. You know nobody knows but it's probably about 10 bucks.

Michael Barr 6. Let's stick with the theme of energy of course up front for oil stocks. It's a great it's a great thing to see a lot of the rest of the market. At what point do these surging energy prices become more of a headwind for the consumer or a headwind for corporate America and eat into their bottom line. Well I mean look energy is one component of inflation for sure. So the way I would think about it is if you look at consumer confidence numbers and you look at the survey of small businesses in particular these two entities you have to eat the pricing.

The confidence numbers are through the floor mainly because prices are too high. We've never seen readings as high in terms of pessimism around inflation from the consumer or small businesses. The energy is part of that that the only thing is there a magic number on crude that says okay we're in a you know things in a flip over now. We get real demand destruction. You know there's all kinds of estimates out there. My simple rule of thumb in the U.S. is that once gasoline prices hit about four dollars at the pump on average we're not there yet. That's when you start to see demand destruction for gasoline which of course

is one of the biggest components of the crude for crude oil. Mike just wrapping things up a little bit. I'm coming at this from the from the earnings point of view. Earnings have been super strong over the last 18 months. How symmetrical do you think it's going to be going forwards. Almost a bit like sort of the Fed target we had pull forward. Is that what the last 18 months were about. And if so from an earnings point of view thinking going forward do we get the

opposite and equal reaction. Yeah it's interesting. I mean you know in April of 20 20 we were on the earnings ball on this positive operating leverage story. And I would say people were slow on the draw and that it took a long time. And quite frankly we underestimated how much operating leverage there was. It was just it's just been a

phenomenal run. So I think it would be naive to suggest that if we have the normal kind of you know oil rule coming off the boil if you will slowdown that you typically this time of the expansion that there shouldn't be some negative impact on the other side. The payback in demand is one argument. The consumer income growth is another argument. And then the inventory bill which could put pressure on pricing which is really where all the over earnings came from it was pricing. There was no

discounting because the shortage all three of those are going to play into what I think is a complete mirror image guy. But definitely some payback. And just to get one last thought as we think about like where's that payback. The greatest. Just remember there's a little bit of palatine on everyone OK. Everybody benefited a bit from the pandemic. There's a little

bit over earning from everyone. And so we're seeing a little bit that the earnings season now with other companies kind of admitting to this. And my guess is that it hasn't finished playing out. A little bit of pellets on and all of us Mike. On that note we will leave it. Thank you very much indeed. Great stuff. ISE ever Mike Wilson of Morgan Stanley. Thank you very much. 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 where you could get it. Twitter sales rose 22 percent in the fourth quarter. Their social networks and business held up despite changes to Apple's data collection rules that have hurt some of Twitter's larger rivals still. First quarter revenue may fall short of expectations. And it's a sign that Coca-Cola is benefiting from a return to normalcy despite the lingering

pandemic. The beverage giant posted fourth quarter sales that beat estimates. Coke says it expects inflated commodity costs to continue this year. And Elon Musk's space X has lost dozens of satellites to a geomagnetic storm. As many as 40 of the 49 stalling satellite close on February the 3rd were hit by a storm. The next day SpaceX says the satellite's either we entered the atmosphere while on track to do so burning up in the process. And that is your latest business bash guy. Really. Thank you very much indeed. Kristie this is going to be good news for NASA. I think NASA's a little bit worried that

Elon Musk is putting maybe too many satellites in space. Apparently we're not going to be able to see rogue asteroids coming towards us because as a result of this crowded low orbit space that we're now creating. You know it's kind of wild to me that we're in an era where we have this much space debris in our in our orbit. Because I just wonder not too long ago I think we

just had the International Space Station. That was kind of the only thing up there. Right. Guy. Yep. And you could see it. We used to use it for my children to say that it was Christmas. That was sensor up there. You could see the ISE flying across the sky. Anyway to talk more about the Fed next. This is Bloomberg. What's about an hour into U.S. trading session. Bloomberg's Abigail Doolittle is looking at the moves. Some read on the screen some read on the screen. But we're also looking a little bit of a U-turn here. So the intraday volatility that we've gotten so used to this year we have it once again. Of course today's big impetus that hot hot hot CPI print seven point five

percent a four decade high. You can see the Nasdaq 100 futures overnight basically flat. And then this massive dip on that hot number of course tech stocks. Growth stocks more pressured by high inflation rising rates because it calls into question valuation. But investors rethinking it calmer heads prevailing down just about 7 10 six tenths of one percent at this point. But the day is young. Let's see how it goes. And here are those yields. A two year yield. Just extraordinary. Now at almost one and a half percent. Remember the 10 year yield started the year at one and a half percent. That's almost where the two year

yield is today backing up 10 basis points. The seven five year excuse me also up 7 basis points. And then you can see the 10 and the 30 up about 4 basis points. Of course the yield curve today is flattening. We continue to watch that flattening. As for where yields may go next guy we have been talking all year and even last year about outlook likely that the 10 year yield would go above 2 percent. This is why you have a beautiful uptrend in the 10 year yield out of the pandemic lows. You also have this huge area of congestion as investors. We're trying to make up their minds what was next. We have a breakout. This entire area of congestion probably suggest we'll have a move in an equal proportion to the upside. That could be two and a

quarter that we've talked about. It could be two and a half. It could even mean 3 percent. So it could be what we'll count the most is why are yields rising. Probably the Fed. And then how fast. Stay tuned. As for inflation on the day we are seeing it influence the results of some companies. PepsiCo at this point down one and a half percent. They put up a great quarter

relative to demand and volumes and sales but operating margins ten point nine percent. One analyst saying that's the lowest in about 20 years on these rising commodity prices. Similar story for Unilever. A very nice quarter there. One analyst though saying their margin outlook for the next two years. They're saying profitability will be difficult because of rising inflation is ugly. That's their margin picture. On the other hand take a look at Disney. A five point nine percent a great quarter beat profits by more than 85 percent. Having everything to do with park subscribers very strong. They're saying that's their Disney plus streaming service is likely to accelerate into the second half of the year. So really going right past Netflix

and then Uber also going very fast no pun intended. Guy know you love cars of course but a four point one percent a great quarter their outlook strong. Also the diversification of delivery very important. Their guy. We'll be talking to Aston Martin a little bit later on we'll get all of my car enthusiasm out at that point. But Abigail we need

to refocus now on what is happening with the story you've been focusing on and that is the impact of inflation. The annual inflation rate in the United States hitting a little earlier today as it dropped onto our screen a full decade high seven point five percent. That's the headline number. The latest consumer price index rose last month by significantly more than expected. The question now what would this mean for the Fed. What does this mean for the Fed. The market is now pricing in a 50 50 on a 50 basis point hike in March. Is that realistic. With us now former Richmond Fed presidents Jeff Lacker. He's now an economics professor of course at Virginia Commonwealth University's business school. Jeff Lacker great to see you on the program to get your insights. We really appreciate it. The market as I say 50 50 on 50 for March. Which side of the fence

would you fall on. There's a very strong argument for a 50 basis point move at the March meeting. If they move just a quarter of a point it would beg this question. They're clearly late. They've delayed last year starting off on the tightening process. They've got a long way to go. That's very clear. It would raise the question of

why. And moreover it would it would submit this perception of them as somewhat addicted to gradualism in gradualism is what bit them last year and is what led to them delaying so long. So yeah 50 basis points is a strong argument in my view. Well Jeff I think there's a thought here that the longer it takes to actually hold onto inflation or rein it in the more hikes are going to be required. How long will it take for the Fed to get a handle on this problem. It's hard to quantify but very substantial rate increases are clearly in store. The Fed has to raise interest rates in order to restrain the growth of demand. They have to significantly

restrain demand. And if they don't do that inflation will continue to roar. That's the mechanics of how things work of how monetary restraint functions. And so they've got they've got to get ahead of things. So I think they've got to send signals that substantial rate increases are coming. I think you saw Chairman Pelt try to do that at the January press conference and I think they'll continue to do that. Do you think the message has not been strong enough. The market seems really comfortable with this idea that inflation comes back down that we're going to see a peak and then we're going to we're going to fall back relatively quickly and get back down to I don't know circa 2 percent in the not too distant future. Are you saying you don't think that's going to happen given current market pricing. Do you think that we're going to need to see

even greater monetary policy tightening to deliver that outcome. Financial markets have a history of underestimating persistence of inflation. Saw that in the last episode of an inflation surge in the late 60s and throughout the 70s when inflation surged. So I discount that. I think what really matters for inflation isn't what financial markets think is going to happen but more what people on the ground see what businesses see. Are they able to pass on cost increases. Are they able to pass on higher payroll costs higher input costs. And if they see demand showing up and

their costs are going up they're going to act and pass that on. When the financial markets expected it or not. Jeff I think there's a big fear in the markets right now and arguably among economists strategists as well that somewhere along the line the Fed is going to make a policy mistake. Let's say just for four to be devil's advocate here that they don't that they get this one right. They're able to successfully kind of pull us out of essentially these emergency measures that the pandemic had brought on. Well historically recessions happen every four or five years. So does this set the precedent for future recessions and how the Fed handles it. I hope that they learn a lesson from this that that in essence they made a big mistake last year by not by essentially learning the wrong lesson from the last expansion. I think they're going

to be a little more hesitant to pull out all the guns and blaze away with asset purchases and keeping rates low and tamping down the yield curve next time. I think they're going to be a little more cautious about the possibility of a surge in inflation coming out of a dip. And if they get away without causing a recession this time I think they'll be a little chastened.

Jeff what impact do you think given the nature of the inflation that we're seeing at the moment. Well rate hikes have and what impact do you think rolling off the balance sheet will have. I'm just wondering what you think about the cause of the inflation where we're looking at at the moment is and what the best levers to pull to deal with it are. I think that the balance sheet is just a marginal impact. I think it's more valuable as a symbolic tool for communicating

their stance and approach to policy. I'd like to see them set a course for relatively soon and rapidly rolling off the balance sheet and in particular rolling off the MVS holdings as rapidly as it can perhaps even shifting them into treasuries because there's no there's no godly reason why the housing market needs more stimulus at this point. So I think rate hikes are the the the main attraction here. And as I said they act by restraining demand. So they're going to throttle action in the housing market. SALES will decline. You'll see housing construction fall off. And then more broadly they'll dampen investment spending perhaps but it consumer spending more broadly and thought of it that way. You can see why very substantial hikes are going to be

needed in order to have a significant bite on demand growth. So what about where does the fiscal policy fall into here. Because there are several things that perhaps the Biden administration can do to build back better plan perhaps releasing more crude from their SPDR reserves. Where does the Biden adminstration fall into their partnership essentially with the Fed. Hopefully they're cooperating but I think unless you know there's a substantial reduction in deficits going forward a substantial pullback in spending or increase in taxes the main attraction is going to be the Fed and more interest rate hikes.

I think the shot in the balls in the caught there was a big financial stimulus a big fiscal stimulus last year. Traditionally that's meant tighter Polish monetary policy commensurately to offset potential inflationary effects. The Fed didn't give us that. They got to give it to us this year. I think that's where the action is going to be. Jeff do you think the fact that we're now seeing other central banks and I'm thinking here about the ECB in particular starting to move on a more hawkish tack makes the Fed's job a little bit easier. Is there a danger that actually rates have been held too low for too long in the United States as a result of the policy in Europe. The negative the negative deeper rate that the ECB has lent on pretty hard as that starts to unwind. Does that accelerate the move upwards in terms of yields and therefore

allow policy to work a little bit more effectively. I think the ECB policy shift the more hawkish direction will make the Fed's life a little bit more easy than the Fed. Nonetheless though focuses on domestic monetary conditions. And I think that the domestic inflation picture is what's going to be front and center in their mind. Sure. At the margins policy works also through the trade mechanism but trade channels. But I think and because

of that I think that the ECB in the general tightening stance is run around the world are going to help the Fed ease their concerns about the negative effects on the foreign account balance. Well Jeff Lacker former Richmond Fed president and Virginia Commonwealth University School of Business Economics. Professor we thank you so much for your time. This is Bloomberg.

Welcome now our Bloomberg Television audience and radio listeners from around the world. A fantastic interview in Prospect. Aston Martin unveiling its new car that it will take into Formula One's 20 22 season. A new era of aerodynamic regulations coming into force. Aston Martins F1 team owner Lawrence Stroll and Bloomberg's Matt Miller of course Matt Miller here are here to talk about that car and where we're going to go from here. Lawrence great to have you on the program. Thanks for taking the time on such an important day for the

company and for the team. Let's just talk about the car. First of all the 2021 season car was held back by regulation. You decided therefore that you were going to focus a lot of your attention last year on this car the 2022 car. What are you expecting from it. How big a step forward is this car versus last year. And what are you expecting it to deliver therefore when it comes to track position. First of all nice to be here. The twenty twenty two are probably the biggest regulation changes that have ever happened in

Formula One as far as Chase's rules are concerned. So it's a brand new car for everybody. It goes to a ground effects car which means the air goes under the car rather than over the car. And you know I've said many many times that this is our second year in a five year plan to get to be fighting for world championships. I recognize what it takes putting the right

people the right tools the right processes in place to be fighting for world championships. We're currently under construction building the greatest new state of the art Formula One campus. Last one was built 19 years ago. It'll be as I say the latest greatest. So getting that part of the tools we've been hiring like any other business maybe Formula One even a little more so. It's all about having the best people. We've hired about 300 people in the last two years. So all this is on our journey to be fighting for world championships. As I've pointed out many times this is your two of a five year plan. Yeah. And your son Lance is piloting one of the cars alongside Sebastian Vettel Vettel actually podium. In the last season do

you expect to be getting a first place finish when you win a Grand Prix in 2022. And also how did those two get along. They worked well together. They work extremely well together you know that there's a significant difference in age. Lance is just in his early 20s subs in his mid 40s. So Sapp has a lot of experience Lance. Even

in his early 20s did his hundreds Grand Prix last year in Abu Dhabi. So he's now getting the the time he needs as well as his exceptional speed. But they do work well together. They're great great teammates. As far as finishes go listen as I say it's for us. It's early days. It's our second year of of what I told you is a five year journey. So listen it's all new set of rules. We don't know where it will all play out. What we'll find out very shortly in six weeks at the first race in Bahrain. Can I ask you if you think the new rules are going to make it more exciting as well. Because you know when I first started watching Formula 1

there were 12 cylinder 10 cylinder engines that boom you could feel it in your chest. It was exciting. And that's really what drew people to the sport more than the kind of drama of the interpersonal relationships. As we get closer to Formula E I don't know what's going to bring in the fans. Are they at least be passing each other. They will. I mean let let's let's be clear Formula One is the sport has never been greater. You know just that the last race in Abu Dhabi we had one hundred and eighty million viewers. It was the largest viewing audience of any sporting event in the

world in 2021. So Formula 1 itself has never been there in a greater place. Lawrence Football one of the sport. Let's just talk about can we just talk about that for a moment. You talk about Abu Dhabi. Michael Massey's decision at the end of that race for many people turned Formula One from a sport into entertainment. What

do you think about that. Just to finish answering the first question. I do agree with you that V twelves and V tens and those visceral of Formula One cars had a very very special appeal clearly as automotive manufacturers. There is an electrification component to our future. So I do believe that the hybrid system that we currently have with which a great combustion engine and electrification is quite clearly and I agree not quite exciting as a V12 or a V 10 but but understanding where the world is going. Probably the right thing to do as far as Michael McKee is concerned. You know I'd rather not comment. He he he's he's a person who I believe tried his best.

I don't believe there was anything more to it than a decision. Whether the decision was right whether the decision was wrong. I don't believe a decision was made to cause more drama in the sport. Lawrence can be a pivot to the really fun stuff which of course is your bond issue. You canceled it for the F1 factor. I'm

curious how you plan to find the development of that factory and the wind tunnel. I think Formula One racing is a lot more exciting than the bond issue by the way. But on the note of the bond issue I I had a much better alternative. We did a financing arrangement with Canada to finance the whole project instead of what was originally going to be only one part of the factory. We have three buildings that form the campus. We can't can you and I have a longstanding relationship and they stepped in and chose to finance the whole thing. I want to ask about the DB ex. I

absolutely love that truck. I'm not like a Gen Z julep nick hater but I wonder when it's going to get or if you can give it a really strong hybrid drive train. I know right now you've got the 787 out which has immense power but would it benefit from a battery in addition. What we do is we listen to the customers when we very successfully launched our original D IBEX only 14 months ago and in our first full year of production in 2021 we took 20 percent 20 percent of the luxury automotive segment. That's an incredible feat in one's first year in business. We also in

listening to the customer our customers said listen we love the vehicle we think is the best looking SUV. Certainly the best driving SUV drives like an Aston Martin sports car much better in comparison to others. However we would like a little more power or even someone lot more power more performance which is what we know how to do. So we came up with the most powerful and most performing not only the horsepower but the most performing and suspension new gearbox new underpinnings. The most high

performance SUV in the sector. It. It allowed perform anything else including sports cars even though it's an SUV. So we listen to our customers our customers telling us first we want more performance. What the customers say at the moment is a distant second but we are doing regardless. In the next 18 months we will have a fully hybridized Debbie X SUV that will have

significant if not greater performance to our 7 0 7 with a hybrid electric system. By the way not only the DB DAX. If I could just go a step further we will have all our cars. So we've already introduced three main engine cars that are electrified. Our famous Valkyrie the Valhalla we introduced in this in June at Goodwood in and again in Pebble Beach and our straight 60s IBEX which we sell in China. So we already have three electrified vehicles we sell at the moment. We will also be

bringing hybridization to our front engine program as well as our DB X in the next 18 to 24 months. Laughs. I've got 30 seconds left you a seventh last year in the constructors. What are you aiming for this year. Better than seventh. On that note we will leave it all right. As I said it's a journey. It's a journey a five year journey as you say. Aston Martin F1 team owner Lawrence Stroll. Thank you very much indeed sir. And of course our thanks as well to Matt Miller.

We're going to talk more about the markets. We'll get back to the CPI number in just a moment. Coming up on the European clothes bill out have fees. I understand he's just entered the building so he'll be up here very very shortly to talk to us about his reaction to the to the F1 story. No the CPI no story but higher fees coming up. Macro. Hi founder and CEO this is Bloomberg.

2022-02-12 03:17

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