Bloomberg Markets Full Show (11/16/2021)

Bloomberg Markets Full Show (11/16/2021)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. She said the 16 3:00 p.m. in London 10:00 a.m. in New York with 30 minutes into the trading day in the United States from London. I'm Guy Johnson Alix Steel over in New York. Welcome everybody to Bloomberg Markets. Alex I'm a little confused today. I thought the U.S. consumer was on the downhill right now. I look at the court the confidence data doesn't look good. In fact it's plummeting. Then I look at these retail sales numbers. I look at the numbers from Wal-Mart and Home Depot.

They're amazing. I know what we've been doing. It is perplexing. You have sentiment. Consumer sentiment is lower. Inflation expectations are higher. We thought this number was not going to be that great particularly for the likes of Wal-Mart because that's where you're gonna get hurt if you're really pinching your pennies on things like food not happiness. Take a look at what's gone on the market. S&P is up by about three tenths of 1 percent led by health care but also consumer discretionary where

Home Depot is definitely outperforming a super solid numbers across the board. Spend money live better. That is Walmart's a rip off of Wal-Mart's slogan save money live better. You have to wonder are people no longer saving as much or spending down a little bit of their savings. And is that contributing to this. Now the aftermath of that. And you have industrial production also holding up very well. And then you have James Bullard talking to Michael McKee saying we should taper faster so we can hike sooner. And you can take a look at the two year automatic response yields up by about 1 basis point. So a little bit of

selling in the front end. Now irrespective of this I just want to highlight natural gas. Natural gas futures here and over in Europe are very very high today because Nord Stream too seems to be caught up in a procedural delay. The reason why it's also so important is because that's going to feed through to the sentiment and inflationary picture and then the consumers start to care. I don't know. We'll break that down for the next couple hours. Guy. A couple of big stories that are really watching one of which is Panitan we're getting the details of the offering the secondary that's coming through onto the tape right now. And the biggest story to me today Revere really and is now worth more than Vogue's fog. And I find that no absolutely amazing that we've gone so fast and really kind of overtaken some of the majors in the auto industry so quickly. We'll talk about that as we work our way through the next couple of hours. Let's talk about some

of the biggest stories we're focusing on right now though. Annmarie Horden is at the White House. President Biden's pick for the Fed chair. When are we going to get news on that. Damien Sassa has the takeaways from yesterday's virtual summit between President Biden and President Xi. Olivia Rockman is looking at how the US consumers as we've just been discussing are opening their wallets. Retail sales numbers up for a third month in a row. And Senate Banking Chairman Sherrod Brown talking about the fact Alex that the House pick sorry the White House pig for the Fed is quote imminent. That is the story I think we really should be starting on. Jim Bullard spoke to Bloomberg earlier as well on this leadership story that we're all focusing on over at

the Fed. No matter how this comes out there'll be a lot of continuity in Fed policy. Both of these players have a long track record at the Fed. So certainly it's a big committee. Also I think people have to keep that in mind and there's a lot of experience on the committee. So I think we'd see continuity. We don't know what's going to happen. To be honest if you read through the Sherrod Brown statement he's not even clear a decision has been made. Let's go to the heart of the matter. Bloomberg Washington correspondent Amery Hole done outside the

White House with the latest. Is there any latest Amari. There's not but a. To your point from Senator Brown. If I could bring you the full quote. He says I hear it's imminent. I'm not going to speculate who I think it might be now. I assume the decision's been made and they haven't announced it. But I don't even know that. So I'm not quite sure he's a good enough

timeline for where when we'll going to find out who the president is deciding on whether or not he's going to reappoint Jay Powell to stay to stay in that top spot or potentially potentially elevate Governor Brain. What we do know the president said he would be making his decision very soon. And of course The Wall Street Journal yesterday was reporting potentially as soon as this week. Definitely many are speculating it's going to come before Thanksgiving because remember we have to then go through a Senate process and there's about two weeks left in terms of working days for lawmakers in the House and in the Senate. And they have a very big to do list. But we still are waiting of course from what the president

will say regarding the Fed. And it's not just that top position potentially it's others. And there's one other thing I think we should keep in mind. This does seem to be a little bit slower than former administrations. And when we learn from The Wall Street Journal is that in that interview between the president and Chair Powell and Governor Brainard there's only one other individual and that was Brian Deese. So it does seem like this is very centralized between the president and his economic advisor D. And there's not like a big committee to be deciding what the potential new Fed could look like. Yeah. Also imminent

in D.C. an imminent for the rest of the planet is different. Ed Henry thanks a lot. One reason we heard during. Joining us outside the White House. In the meantime President Biden was very busy yesterday with President Gene. They agreed to keep talking. Leaders of the two largest economies in the world held a virtual summit last night that lasted longer than expected. Damien Sasso our Bloomberg intelligence has more. Damien what did you learn. Well I mean the feel good vibes are there. I mean look I mean you had President Xi referring to President Biden as my very good friend. Good to see you again. A pragmatic approach

forming common guardrails. But really it's all about the economy Alex. I mean this is about getting the removal of tariffs. So you know President Biden can get his domestic house in order to keep inflation pressures from spiraling out of control. In the case of XI he needs to get growth moving in the right direction. I mean we're calling for five point eight percent year over year growth next year you know ahead of the party Congress where he hopes to secure a third term and be leader for life. So you know

this is really more about the economy. And for me if you just look at the price action today I mean look you see dollar yuan weakening off the news ever so slightly. And certainly you would have thought to see the five year credit default swaps spread for China come in. And it's actually risen and widened a little bit which is kind of interesting to me. So you know the markets

are sort of still trying to digest all this but the feel good vibe is there for sure. Yeah. Which is going to be interested to see how we work our way forward on this Damien because there was a there's a good feel to the discussion but I didn't feel there was a lot of concrete stuff coming out of it. They wouldn't get to the concrete stuff. The feel good factor starts to ebb away a little bit. Damien said Sarah Bloomberg intelligence greatly appreciated as ever. Let's return to the conundrum of the morning. US retail sales jumping in October by one point seven percent. That's the most since March. That's despite the fact that we've got the fastest inflation rates that the United States has seen in decades. A lot of this is going to be inflation. Consumers though if you

like take a look at the sentiment figures. They're feeling pretty downbeat right now. So how do we tie this all together. Olivia Rock ruckman joining us now to give us that take. What is your kind of assessment of where we are. How does the consumer sentiment story fit with the retail sales story. Fit with the inflation story. So in these retail sales data there are really

two things going on. One is that we're seeing strong gains in categories like e-commerce which reflects spending. Amazon for the holidays. We're seeing strong gains in autos and gas basically across the board. So that would imply that the consumer is still spending. However these data are not adjusted for inflation. And so it could just be that these higher gains in certain categories are only because the prices are higher. Take autos for example. So what will be really interesting is to watch next Wednesday when we get personal income and spending data which are adjusted for inflation to see if those square with the number we got from retail sales today. We'll also get some

interesting earnings from retail companies which might give us a better gauge John where holiday holiday sales are going and also if consumers are reacting to some of these price increases. Yeah exactly. Also did people buy earlier in the holiday season because of all the supply chain problems. Libya. Thanks a lot. Appreciate it. Bloomberg Quicktake Rockman joining us there. Let's look at the other conundrum then. And that's what happened at Wal-Mart and Home Depot. They had earnings out earlier today.

Super solid Abigail Doolittle is looking into those reports. Abigail Wal-Mart is getting hit a little bit on some margin worries there. But walk us through the numbers. Well it is interesting cause we have this very mixed reaction between these two big box retailers. You can see Home Depot absolutely soaring up four point four percent up more than 40 percent on the year. Wal-Mart on the other hand as you were just mentioning Alix Steel one point eight percent because of margin concerns. However if we look at the quarter for Home Depot excuse me Wal-Mart first we're going to see it's a very strong quarter.

They beat they raised their comp. Their same store sales number came in at nine point two percent versus the estimate of up six point nine percent. They raised the range. This is the third consecutive earnings beat that you have. So some strength there. And again U.S. comp sales now seen up 6 percent. They're raising. So it really seems as though perhaps investors traders worried about what will come next. Will they continue to manage costs. Well it seems as though Americans are going to this store to some degree because of the lower prices. But the margins that is the concern. As for the strong strong quarter home Home Depot they beat they raise. This is the twenty ninth out of the last thirtieth quarters

where they have beaten. But the interesting thing is through the pandemic this will be the first time that this stock may in fact rise. We've seen over the last number of quarters the stock down. And in fact for the last quarter in August reported down four point three percent again despite beating. But it seems as though investors traders guy really like this one. And the trend of wanting to fix up the home is still in

place. Absolutely. Hardware stores are almost kind of right at the top of the list in terms of my favorite places. So much fun. Gotta love it. I. You could spend an absolute fortune in there but you got to fight the contractors because they're in there buying everything up at the moment trying to get hold of a piece of wood right now. Really trickier. Alex is going she spends a lot of time thinking about lumber prices. Abigail Doolittle that would choose lumber shoes. Yeah exactly. I know exactly which way we're going to come down on that one. You need the lumber to

build the shoe cupboard. That is certainly true. What do we got to talking. Yeah. There we go. We finally found it. What are we gonna do next. Equity investors feeling pretty bullish right now. Goldman Sachs is amongst them boosting its S&P target for a year and 2022. Where are we. Fifty one hundred upping the European story as well. Peter Oppenheimer Goldman

Sachs chief global equity strategist up next. This is Bloomberg. The challenge is if we overreact by saying let's just change the path of monetary policy to try to deal with a one time effect that could lead to a worse long term outcome for the economy. That was Neel Kashkari a Minneapolis Fed president speaking earlier about inflation. Now this is the day that we all love. The Bank of America fund manager survey where we get a read on clients are actually doing in the market. And this read was very different than the previous months and that clients are

convinced inflation is transitory and expect the Fed to remain well behind the curve. And you can see that in where the asset allocation is. I mean global fund managers have the biggest rubber weight in U.S. equities since August of 2013. Also a favorite emerging market equities as well as Bitcoin. Those are three things that you're probably going to want to invest in if

you think that inflation is transitory as it seems like my managers are now playing like it is Guy. Absolutely. And there does seem to be a single narrative that is working its way around the market. It has been for a while buy stocks. That's where a lot of people are allocating money. Do you allocate to Europe. Do you allocate to the United States. Do you allocate to emerging markets. I wonder if that's the more finally balanced decision. The decision on stocks feels like

everybody's on board with that one right now and we ain't done yet. Apparently Goldman Sachs expects the S&P index to rise by 9 percent. That take you to 50 100 by the end of next year. They got a pretty positive call on Europe as well. Peter Oppenheimer Goldman Sachs chief global equity strategist joining us now. Peter great to see you. People are looking into next year trying to figure out exactly where stocks are going to go. You guys are at 40 or 50 100 for the S&P. What gets us to 50 100 by year end

20 to. Well I think there are a couple of things that that really supporting a still positive view on equities. One of them is that the economic cycle is still intact. It's slowing from the pace this year. Globally GDP growth this year was around 6 percent. We're expecting four and a half percent in 2022. Still

above the long term trend growth rate. And even at around three and a half percent in 2023. So as long as the economic cycle continues to expand we would expect profits to be growing. And that's the principal driver of returns in equities. But the other important point of course is that as you would think discussing inflation is picking up policy rates remain at an all time record lows. Real interest rates are negative. And that's pushing investors understandably into real assets. Bear in mind

that the dividend yield on equities is still pretty positive in the corporate sector is very cash generative. So this is really a real yield. And I think that's what's really driving the continued push higher in equity prices albeit at a slower pace. So Peter if that's the case is it still going to be US equities emerging markets or is it going to be time for other areas. And in that are bonds ahead anymore for these rising equity prices. Were two really good questions. I think the first thing is context. The last cycle after the financial crisis was so dominated by the US equity market outperforming and that really reflected two things. Firstly greater success in the US economy than elsewhere. And secondly the great success of the growth

factor and in technology companies in particular which were very heavily represented in that in that index other indices particularly those in Europe were much more heavily exposed towards troubled value sectors banks energy and so on. As we move forwards we find that the profit growth differences between the US and other markets are likely to be narrowing. Technology is still doing well is becoming a bigger component of other markets like Asia and Europe but also the very troubled areas are no longer facing the same kinds of headwinds. And actually they've been the areas where you've seen the biggest profit recovery this year. So overall we will be arguing for much more diversified geographical exposure. We don't think the US is going to do poorly but we think that there are good reasons to be less geographically specific a more diversified Joe Weisenthal Paul Sweeney them forwards in time. So it's a bit to that point. We're going into Europe more specifically in just

this year. But in terms of and handing it isn't going to be bonds. Is it gold at this point. What is it. Yeah well bonds are not a particularly good hedge I think. Now again if we look back at the last cycle and even over the last 20 years you've seen an exceptional period of returns in the sort of 60 40 equity bond balanced portfolio. And that's because both major financial asset classes have done extraordinarily well. As interest rates have moved towards zero but also in the periods of time when

equities were facing stress because of recession or fears of deflation. Bonds were a great hedge. I think as we move forwards given that we're at record low historic bond yields it's difficult to see the same kind of returns. In fact we'd be expecting negative returns in bonds as we move forwards in time. There's not a great hedge for a higher equity weighting. And so cash probably represents a much better way of hedging against an increased exposure to risk assets like equities and other risk assets and real assets as well like commodities where we've been structurally positive. Peter let me make the pivot to Europe. Alex brought it up. You've been talking about it.

I've got a chart here. It's the stock 600. We got through for 90 a little bit earlier. Wrong. We've retreated a little bit for eighty nine. But this is a long term chart. And you can see that Europe European equities have been moving up. They've underperformed broadly what we've seen in the United States. We're only really starting to play catch up. So that's the kind of context for eighty nine. I think you are kind of you're expecting further gains next year as well. But the key question

I think is this one here which is a fantastic chart at the moment the European discount to US stocks is at a record. We're at a 30 percent discount. Peter on a forward PE basis we've been traditionally kind of 20 25 throughout my entire career. I think we've been in a situation where that discount has existed but we're now at 30 percent. What does that tell you about the story for next year. Do I want to make that pivot to Europe. Is that discount going to continue to widen. What do you expect.

We expect the discounts to start narrowing. We have to be careful with valuation because there's been a big valuation discount in Europe relative to the US for a long time. And one could have made the story that that would have created an opportunity for European outperformance. It didn't happen. But that's mainly because the fundamentals didn't support it. The last time was so dominated by growth outperforming value. The markets that were heavily weighted in the growth factor in the US in particular with its especially high weighting in technology was outperforming and the falls was in interest rates were supporting longer duration assets. And I think as we move forwards this record discount does make a difference because the

fundamentals are shifting a bit. The value areas at the market are likely to benefit more if we do get higher inflation or bond yields. Steeper yield curves help for example banks higher commodity prices help energy resources and so on. And also we're not seeing the same negative drag on European economic growth forwards in. We're looking at well above trend

growth in the European economies next year. Pretty similar to the US. So I think that that discount is probably too big. It's also worth mentioning that even if we adjust the two markets the US and Europe they have the same sector exposures. Europe still trades at a record discount. So I think that for people who are looking at value you're looking at some diversification. Europe is a good place to be. And actually this year for the first time for well over a decade it's roughly held up with the US achieving mid 20 percent returns so far that pretty decent particularly when it's still got quite a low weighting in technology. Peter a great insight. We have to leave it there. Peter Oppenheimer Goldman Sachs chief global equity strategy appreciate you joining us today. Coming up in

our time this is Limburg. OK. Let's get into gear. Peloton kind of gear. The company is coming out slashing its revenue forecasts. Remember and it is now going back to the market with a secondary. Let's get the details now. Dave Wilson over to you. Well thanks guy. Yeah. We

found out poet Tom was looking to raise a billion dollars by selling shares. And it turns out they ended up selling one point one billion which tells you something about why the stock is up today. I also have to look at what's happened since they came out earlier this month and talked about what their outlook was and people in love what they heard. That's for sure. And the shares fell 45 percent in seven days. So they were a whole lot cheaper than they were before. Those projections came out. It's still up though 59 percent for the price at which the company went public a couple years back. And maybe people saw the

opportunity to kind of step in and buy at this point. Sure looks that way. I mean given the rebound that we've seen in the shares today and let's face it Peloton needed the money they went through about 650 million dollars cash in their fiscal first quarter. They ended the quarter with less than a billion. When you figure in cash and equivalent securities for the first time in nine quarters had the chief financial officer Joe Woodward said on a conference call after the earnings came out. We don't see the need for any additional capital raise based on our current outlook. Clearly something changed in the past two weeks or so. And now you have peloton selling stock. Quickly Dave. What about the sub numbers. They look like. Well I mean you're seeing growth still not quite so fast in terms of subscribers but other indicators. Not so great. Total revenue falling at a

faster pace. Quarterly workouts down from where they were a year ago. And a similar story if you look at them on a monthly basis not down quite so much perhaps but certainly all this kind of pointing to the stay at home company Palatine. And people aren't staying at home and it's showing up in the numbers. And so now politicians responding with a share sell. Yeah I mean it's getting cold. I mean what is down. Well some think flat. And the very same thing. Joining us that I come out Russia's Nord Stream

to pipeline faces yet another delay. We're gonna break that down. Plus the global LNG market with Shery Ahn Suki Artillery and executive chairman and co-founder. This is no. This feeling increasingly familiar European gas futures jumping sharply today. This after the regulator in Germany suspended the approval process for the Russian gas pipeline Nord Stream Sea. Joining us now to talk about this ice is that maid who leads gas power and renewables coverage here in Europe. She appears on the set almost as much as I do these days probably even more.

This is certainly the story of the moment. Let's talk about what is happening here. Why is this happening. You came on and explained to me beautifully. Basically the idea is you can't own the gas and the pipeline. So what the Russians what Gazprom is having to do is put the pipeline into a separate legal entity but that's going to slow down the certification process. That's right. And Gazprom had already tried doing that when it set up Nord Stream to A.G. in Switzerland. But it turns out that the Germans basically investigated and looked into it. And the regulator said that there isn't a way of doing that unless there is an entity set up in Germany. So that's exactly what they are trying

to do. Now Nord Stream to AIG which is set in Switzerland is now going to open a German subsidiary. And all of the staff and all of the paperwork and everything will have to go to the German unit. And meanwhile the approval process is suspended. All right. Until when. What does this do in terms of the timeline. Because I've got the head of Trafigura warning today that Europe faces rolling blackouts if it gets cold. Can we afford a delay here. Well it's going to take as long as

it takes for Nord Stream to AIG to actually submit the documentation. So the process was going to run all the way to January 8. What's going to happen now. It's going to be suspended. And as soon as a German regulator has all the documents it picks up from where it stopped. So it starts counting. We had about two months left. So as soon as they have all their paperwork that two months starts counting again. I think I've just about got it now. ISIS. Great stuff. Thank you very much indeed. Explaining a complicated story in a very simple way. I said

mate. Thank you very much Alex. You OK. So what the energy crisis has now really highlighted over in Europe is the role that U.S. natural gas can play in the world. A year plus ago there was a glut and now there's lots of demand. So basically if LNG export terminals are now working full tilt. So now we're looking to the next generation of export terminals to really provide that kind of supply globally whether looking at Asia or over in Europe. This is an LNG export commitment that

goes back from August to made June July. And you can just see you're looking at a huge amount. About 11 12 million tons per annum is now contracted from some of the really big players like to Laurean and Venture Global. The reason why those contracts are important you get the commitment you get financing you get to build the stuff then you export the stuff. That's sort of the sequencing of how that goes. And since then Venture Global's actually secured a bunch of other commitments as well. So want to get more in-depth on that and sort of what the outlook is. Joining me now Shery Ahn Suki to Laurie and executive chairman and co-founder to learn is trying to build a twin nine billion dollar LNG export plant in Louisiana called Driftwood Trade. Good to see you. It's been a while in person and it's has been great.

It's great to be back here with you. Yeah. So I mentioned the fact that you secured nine million tons per annum in terms of these contracts. So now you have to finance to build. Where are you in that process when you get the financing. We're in New York talking to all the banks that eventually would be part of the finance group.

So it's doing what it's supposed to do. I think the fundamentals have changed dramatically on a global basis as you can dig and you have been talking about. So the atmosphere now for financing LNG facilities for global supply. Very very attractive. So the entire world is kind of holding their breath for when you can officially announce something because it's such an enormous project and that's going to be huge in terms of the export facility from the U.S.. Can you give me a little bit of timing. I don't think there's any change. We intend to start construction by the end of the first quarter of next year will be on the site now prepping this site to turn over to Baghdad when we can and will be in construction by the second quarter. So nothing is Shery Ahn. The program is in the same. Yes.

So so. So basically you're on track. But as we've already been talking about and it's great to see you as well. Let's talk a little bit about what happens after that because demand at the moment is absolutely massive. You look at the situation here in Europe you look at the situation here. I'm sorry. Over in Asia everybody wants cargoes. Are you at the point where you think you could go Phase 1 and then Phase 2 relatively quickly. No I think that from a construction standpoint we have to be very disciplined. It takes about nine months for phase and every

phase is about 5 million tons. So we really can push the date push it faster than this. So for us to be able to deliver 27 million tonnes it is going to take something like six to seven years would be half. We'll have first LNG and four and a half years but then it has to get sun. So I just wonder in the meantime then if you if you can't really speed it up who you're talking to. So you've signed deals a lot of big trading houses Ventrell Global signed deals with a lot of

Chinese guys. What about you. Are you talking to Europe. Are they picking up the phone. We're sold out for the Phase 1 and then the numbers are so attractive at the moment that the rest of the plant will be built from there from Castro. So we don't have an issue except how fast can we build. So in terms of being able to we're looking for commercial deals. There's no pressure. We've got more demand than we can supply for the time being. We sold out. Shery Ahn what is the long term picture and what is the long term picture post cop. Gas was definitely seen as a transition fuel. A lot of economies were going to rely on it.

People are trying to work out whether or not that is still true. They're trying to understand what the regulatory environment is going to look like going forward for gas. What is your expectation and do you think that the lack of current clarity is going to put people off long term contracts. I think there's a number of things that need to be and that men need to add to their picture. And to answer your question. The first one is transitioning from hydrocarbon is going to be a lot more difficult than people expect. Hydrocarbons represent 85 percent of the world energy. Renewables represent only 5 percent of the world energy. Just you can see the mathematical proposition. Eighty five into five.

It doesn't really work. And then when you look at the growth and the insatiable appetite for energy in general from the Nano or ECD countries if you put it in perspective or we see these countries with 18 18 percent of the world's population consume 40 percent of the world's energy. If you want not only see these countries to get to half of that level you need one hundred and fifty million barrels equivalent and renewables are only 15 today. So there's no conceivable plan by which renewables are going to fill the full amount of energy that is needed in order to bring not only see these countries to the same levered or to an approaching level of comfort level and energy consumption so that we can use everything we can to encourage renewables. We're still going to need an enormous amount of hydrocarbons. And the most attractive hydrocarbon is natural gas. So the demand for natural gas is enormous on a global basis. So I feel like what the trajectory was and you

correct me if I'm wrong in this is that that was the story a few years ago. Natural gas wouldn't be the bridge fuel. A lot of people invested in it. And all of a sudden there was a glut. That's what happened back in 2019. Prices were low. Couldn't get a contract signed then. That totally changed within the last year and a half. And now there's so much demand. What gives you

the confidence at this time. That thesis will stick. I am looking at the demand pictures in places like China and India. And we haven't even started with the needs of Africa for additional energy and hydrocarbons. And I think the most important thing instead of trying to put a timing on it is the aspiration.

Now that we've discovered air conditioning in China. Go tell the Chinese middle class that they can no longer have their air conditioning. It is not an easy thing to do. So it's a problem for the ruling and for infrastructure to be able to go back to their people and say we're going to change your lifestyle. Right. And this is

what we're talking about today. We're not affecting people's lifestyle. And that's an existential threat. So then what do you make of the U.S. and President Biden's energy policy. Do you know what that policy is. No. What do you think it is at the moment. It's a prayer. It's not a policy. So I think what we're looking at is we've shellshocked in the United States because 10 years ago we were in very large importer of ISE carbons. And now all of a sudden with we are the hydrocarbon superpower of the

world along with Russia. We are the largest producer of gas. We are the largest producer of oil. And we have not assumed that the role that we've taken and a global in the global markets we have to first understand that we are no longer simply a consumer of hydrocarbon. We are also the major producer of how to quote govern on that OBSS. Sharif let me just pick up on that point then and ask the question from it from a different angle. You mentioned Russia. What do you think about Europe's energy policy

right now. You talk about the US one being based on a prayer. What do you think about what Europe is doing right now. Its reliance its increasing reliance on Russia. It is the same prayer with a different accent. So we don't have an energy policy consistent with the needs of the world today for additional energy and the need to deal with climate in a serious way. And that does not happen by accident. That is something that requires a lot of thinking a lot of planning and a lot of intelligent global policy. It's not enough to do it at the local level. It's always good to catch up with you. You've been in this market for so long and it's so great to get your perspective on it. Thank you for coming. Thanks for

being here. I'll catch up with you when you finally announce that financing for driftwood. Thanks very much. Read Su Keenan to Larry. All right. Coming up Wal-Mart customers are not shying away from in-store shopping and retail issues. An upbeat forecast the same time they warned about squishy squishy margins a recipe to an analyst who is bullish on the stock. Simeon

Gutman of Morgan Stanley joins us next. This is Bloomberg. This is Bloomberg Markets Summers could get through you're looking at a live shot of the principal room. Tune in to the Bloomberg New Economy Forum happening throughout the week club discussions amongst world leaders on topics. This is Glenn Beck. That checking on the Bloomberg Markets NIS IBEX you could give to Joe Biden and Xi Jinping appeared to accomplish as much as possible in that first summit. They agreed to keep on talking without letting tensions over Taiwan and other issues derail the

US China relationship. The virtual conference lasted more than three hours longer than expected. In the UK the labour market strengthened after the government's benefit program for those out of work in the pandemic came to an end. Companies added a hundred and sixty thousand people to that payrolls last month. Meanwhile job openings such to a record high. That all bolsters the case of the Bank of England to raise interest rates as soon as next month. It's another hurdle for Russia's controversial Nord Stream to natural gas pipeline. Germany has halted the certification process needed before the link with Russia can stop operating. The move comes as the pipeline's operator has decided to set up

a German subsidiary in a bid to meet EU requirements. Germany's announcement said Europe gas prices up as much as 12 percent. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in the 120 countries which could get to spin back Alex. All right thanks so much. Redick shares a Walmart dropping even as the retailer lifted its outlook for another quarter as we head to the holiday season. Joining us now Simeon Gutman a retail analyst over at Morgan Stanley has an overweight rating on the stock and a price target of 170. I mean why is the stock

down 2 percent. It's a tough crowd out there. I don't know what to say. Good quarter better earnings a healthy operating income. I think the market is penalizing any blemish. So any type of MIS or anything that wasn't clean. And in this case gross margin we call that a little squishy. It was down in the U.S. four basis

points. But I mean come on. I thought it was pretty expected that sequentially we're going to see some pressure because of supply chain and freight costs. And Eddie at Home Depot by contrast put on almost a perfect quarter as if the margin issues freight issues are not having an impact. Yeah I really wish you hadn't used the word squishy it's Alex's favorite phrase. We're gonna be living with this for quite some time and you just kind of given it some justification Simeon.

Let's talk about let's talk about Home Depot. You say this is a company that can walk on water. It seems to be doing absolutely no wrong. As you said this was a pristine set of numbers. Is this a wily coyote moment for Home Depot. How much longer can it carry on delivering. How much longer can it carry on raising prices dealing with the supply chain issues. Is there going to be a point at which it starts to bite. Look it's a home improvement market it's one of the best segments that we cover. Pricing is somewhat benign. So you have oligopoly. Consumers are price takers so you can raise price.

Demand for shelter for home is still going up. There's still pent up demand. They have a big pro-business. They've made a lot of reinvestments over the years. And so I think they're showing an ability to take cost up or take price up almost as quickly as costs are rising. And that's where I think you're going to see the fragility across other businesses. So this sector like we

should be clear this sector is just much better position than being in a competitive broad multi line retail sector by contrast to Wal-Mart. But we think the outlook's great for home improvement. We think it's one of the sectors that could buck the trend of what we think will be reversion in the next two years where all the durable spin starts to fade as services spend starts to grow. So is that a clean read through then to Lowe's and a negative clean read through and to target. Look we think for sure it's a good read for lows that underlying demand is good. Consumers are price taking. Lowe's is somewhat

similarly position. I will say Home Depot has made more investment and reinvestment over the last several years. So maybe some of the comparison for Home Depot was a little bit easier on target. Look they have a discretionary business especially in apparel and in home and home furnishing. That's higher margin that could potentially allow them to buck the

trend on margin relative to Wal-Mart. But I think the message from Wal-Mart is that supply chain pressures are coming. They're going to rear their head and Target should be as susceptible as was Wal-Mart. So I think Target has a little bit of a different mix. But we think this message is that the rate of change for gross margin is slowing for most big box retail. Me I'm trying to understand what is happening with the consumers mindset right now. I look at the retail sales number today which

was strong. I look through the numbers from Wal-Mart and elsewhere. And it may seem as it seems as if the consumer is spending now because the consumer is worried about what is going to happen later as we get into the holiday season. How much of what we're seeing in terms of current demand is pull forward and what happens when that money has been spent. Yeah it's a great question. You would have thought. Based on the timing of stimulus that by the summertime of this past year we would have already started to see a slowing in some spending especially in durables moving over to services. It's been

crickets. We haven't seen any of it. It's still holding if not some subsegments that we follow are actually growing at a faster rate that they were growing at a few a few a few months ago. There's definitely holiday pull forward. The retailers and the media have made us think a lot about buying ahead of time supply chain shortages every time we see those those boats lined up outside the West Coast. I think that sends more people to buy. You know stimulus is going to fade. And we do think you're going to see durable spend revert. So I do think it's probably some pull forward. Fourth quarter should still be healthy

mathematically. There's a lot of dollars there's a lot of savings. The reversion really shouldn't start till probably the early part of next year but that's when we could be closer to the precipice. Yeah I definitely bought my apartment dream house 20 21 a little early for that exact reason I talk myself into it. So there's also a theory that we've seen retail sales hold

up because the savings rates come down and that now that individuals have to pay more for food and gas and stuff and they've also spent some of their savings. That spending is really going to dry up. If this is true what do you buy. In terms of stocks I mean. So look look Wal-Mart for us has been this bastion of calm. We've been way too early on this. But we actually thought as a bellwether for consumer spending broadly it's actually a great conduit to invest because this was an investment year for them. They've invested in their marketplace so they're competing in the longer tail of items more

aggressively. The stock at this point has been flat this year. So it's wildly underperformed. And we think it actually grows back to its normal stated algorithm which is mid single digit operating income growth which is quite respectable. That's not intriguing at this moment because we have quarters like Home Depots where things look pretty perfect and other discretionary retailers are doing great. So I think it's a relative call that's early. It's just gonna take some time to play out as we get into the early part of next year. We mentioned we like home improvement. We think that's one sector that has unique drivers tied to housing that could buck the trend. Beyond that we still think

there's there's still some durability for Dick's Sporting Goods a name that is very debated in the stock market. Given the margin that they've that they've earned above where they were pre Covid. But we thought we think that category has been more habit forming and there's more durability to that earnings stream than the market thinks. Sporting goods and hardware stores Simeon. You're speaking my language. Thank you very much indeed. It is. Those are my happy places. Simeon Great stuff. Sameer Go and Morgan Stanley retail outlets. Greatly appreciated. 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 which could get to in the UK. The Competition and Market Authority will conduct a national security review of any videos proposed 40 billion dollar takeover of British chip maker ARM. The UK has been ramping up scrutiny of deals that may affect defence is considered a potential veto of the deal. The International Energy Agency says the end of the oil rally that sent prices to a seven year high is in sight. According to the ISE monthly report supplies catching up to demand and changes in oil stockpiles suggest quote the tide might be turning. Global oil output increased by one point five million barrels a day last month. And Pfizer is taking a step to help coronavirus patients in ninety five low and middle income countries. The company will

allow generic drug makers to manufacture cheaper versions of its coronavirus pill. Pfizer won't get royalties from the generic version as long as the coronavirus is classified as a public health emergency. And that is your latest business bash Alex Guy. All right. Thanks so much Rebecca. So guy I wonder if news like that and the therapeutics that we got from Merck to treat Covid-19 is part of why we can explain why the rising cases in Europe has not dented any sort of equity enthusiasm. Right. Like

every index at a record over a year. But is that why we're ignoring these cases. I think it's one of the reasons. The other one is you look at what's happened with the UK which I think is probably in front of the rest of continental Europe and it's managed its way through it. You take a look at the furlough data today. The employment data look pretty good. So I think there's a kind of a sense that this can be managed which I think is interesting. The other question that occurs to me is why is Pfizer allowing generic version generic versions of this but not its messenger RNA vaccine. Clearly that technology versus this

technology. This is the one that you want to hang on to because it's got greater opportunities there as well as ensuring that that's happening to messenger RNA. I think it's going to be something going to spend a lot more time talking about European equities on the front foot. Once again we're rising. We're picking up the pace. Valentine van organizing is going to be

joining us from. And next we'll get his take on where this market goes next. This is Bloomberg.

2021-11-18 21:27

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