Bloomberg Markets Full Show (11/23/2021)

Bloomberg Markets Full Show (11/23/2021)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. Softer U.S. growth business activity hits a speed bump by higher prices and supply constraints. Stock off their lows. We're going to speak to the man behind those numbers Chris Williamson IHS Market. Chief business economist. And it's definitely a turkey tantrum. The lira freefall is President Irda one re ops his campaign to lower interest rates. Lira hit with its longest losing streaks in 20 years and a crude reality. The market is underwhelmed by President Biden's decision to release 50 million barrels of oil from reserves along with other consuming countries. From New York. I'm Alix Steel my co-host in London.

Guy Johnson is here as well. Welcome to Bloomberg Markets. Guileless picking up that last story. Oil prices up counterintuitive. Oil stocks best performing sector on the S&P right now. These counterintuitive told us exactly what everybody was expecting.

Everybody knew that this was going to happen. It's been well telegraphed as a result of which it's in the price. Now we've got it done. We can continue to see elevated prices. I think prices have been suppressed for a while because of the expectation this is going to happen. And we're going to talk about this throughout the show. Alex maybe perversely what we

need to see is higher oil prices so that US oil companies stop producing more oil. Yeah. But but but but a lot of the oil that can be released in the swap market. So they're going to have to buy it in the next few years. And you could argue that might actually depress the back into the curve. Just a touch that doesn't give the right kind of price incentive for U.S. producers to pump more oil. I also wonder if it sends a signal to U.S. producers there is a cap there's going to be some kind

of cap before this verbal intervention. Maybe maybe I I would be surprised if this is something that gets repeated. This feels like it is being shown not to work and as a result of which the chances of it happening again very unlikely to to be repeated. I do think though that in some ways this is a genius trait. So that they're selling at 80 and buying at 60. This is quite smart trading. You could argue from from President Biden. Well we'll see whether it has an effect. But at the moment I am I am unconvinced. And I think a lot of people in the old market are unconvinced.

It had the effect prices were up a box yet whether or not that number. But it already happened like it actually worked. Whether or not that that's enough. As a different story. Yes. But it's not going to hold. U.S. consumers are complaining at at the prices they've just had i.e. during the SUPPRESS period. President Biden had a problem with gasoline prices at the over the last few weeks. He's now going to have an even bigger problem going forward. This hasn't solved anything as far as I could tell. And the price action just speaks to that. Prices are higher today. Price pressures are a massive factor Alex. In this economy they continue to rise for both businesses here in Europe and in the

United States. Economies on both sides of the Atlantic very much struggling to cope with these ongoing supply chain constraints and higher oil prices. You could see that in terms of the impact on inflation the PMI data on both sides of the Atlantic really highlighting that. Fifty minutes ago we got the U.S. data. Let's dig into what we learned. Brubeck's might be key over to you. We'll guy following on what you said about the oil market. It is exactly kind of as you would expect in the services market for the United States manufacturing PMI. This is market which is medium sized larger companies that export versus ISAF which is mostly really big companies. But the manufacturing number comes in higher.

And we know that business has been good at manufacturers services. Look at services services drop and that pulls down the composite. So that sets us up for the question of what happens with the ISF when it comes out next week. Probably going to see it rise because manufacturing has been good. You can see here how both

of these have gone up. They dipped a little bit but you know trees don't grow to the sky. The real question is what happens with services going forward. And you can explain what's happened there by the virus itself. The fact that people are not over the idea yet that they are a little bit nervous going out and trying to spend. We have shifted our spending. It was a service economy. Lately it's been a manufacturing economy and we've seen a lot more manufactured goods be on people's wish lists. And that has slowed. Manufacturing services though just kind of drops. And you can see here how much interest there is in services here. This is services spending

versus good spending. And until that starts to come up until people start going out more often we're not going to see the kind of services growth that our industries would like. All right Mike great set up for us. Thank you very much. Commerce Michael McKee joining us there. Let's get some more insight here on the PMI numbers. Chris Williams and IHS market chief business economist joining us now. Chris as Mike was just pointing out this is not taking

into account the recent rise in Kobe cases in areas particularly in the Midwest and potentially crimping what we see in terms of services grow. What do you expect. It's the key things to look out for isn't it. Yeah we we're on the cusp of another wave essentially which is going hate that service sector. We've seen this in Europe. The numbers earlier today showed especially in the euro area where you've got a big

rise in infections again starting to really adversely affect sectors such as tourism recreation consumer spending on services. That's likely to happen in the US if you get a further uptick in numbers. It's going to be as bad as it was because the containment measures on aren't needed to be as aggressive as they were really due to those high vaccination rates. So they've got to be careful about getting too too depressed about how much you're going to see activity fall. But it will weaken. It looks

like we've got a slower growth phase for the global economy coming our way. Now at the moment this is actually being driven by services the charts to see that little bit comparing apples and pears because you're manufacturing PMI as a number of indicators in there including surprise delivery times which is really boosting that number up. If you look for example at the pure output numbers in the US what are the services. Fifty seven ISE fifty seven point zero in November for that flash PMI manufacturing fifty three point nine. It's a similar situation we're seeing in Europe whereby services actually driving the economies. At the moment manufacturing is being hamstrung by still pretty much record supply constraints limiting those

production capacities. In terms of what Covid will do to that story Chris very nice to see you. Would we expect that a rise in Covid cases would make bottlenecks worse and therefore the inflationary components of what you're seeing in your data. Worse as well.

In many respects yes. You got two things going on you've got bottlenecks due to those Covid restrictions. Think about ports where ports congested. If you got to introduce more a social distancing measures like that's only going to aggravate those measures. And the second is of course this shift in spending from from services to goods say even greater demand for goods in the holiday season. Coming up a course that's going to lead to a surge in spending is only going to make that supply demand imbalance even worse which means more price pressures. Let's talk a little bit about the Eurozone and a bit more detail.

These are the November PMI data. Chris you've kind of obviously worked your way through all of the various aspects to it. I want to focus the numbers generally are very positive. We are seeing growth continuing to be very good but we're also seeing super strong inflation as you've already highlighted. What is the takeaway asked to where Europe is right now from this data and

just focusing in on the U.K. as well and a bit more detail we're seeing again strong growth and strong inflation. Does there need to be a monetary response off the back of this. So certainly better than expected numbers according to what most people are anticipating even things like the Bank of England are expecting a fourth quarter slowdown in the UK. Probably not

going to happen but other numbers rising up again. Unless you get the Johnson government introducing some some quite draconian lockdown measures in December you're going to get a good month again for activity in the U.K. in December. So let's assume that we're going to get a good month in the Eurozone is much more nuance. We've got a good month in November

but the data we collect today is up to the 19th. And since then we've got more worries about Covid infection rates coming through. It doesn't like you're going to get more restrictions implemented into December which is going to mean the ECB is probably going to take a much more conservative view on the need for tapering. So you've got this and this is being reflected in the affects markets recently. Right. So you've got the Bank of England you've got green lights for rate hikes. I mean in terms of the price pressure gauges on solid economic growth in the euro area it's much less clear cut. Yes. You've got these record price pressures but the outlook is not quite so buoyant. Just take a

look at if you drill down into these numbers in Germany where you've had quite a big rise in infection rates in the service sector inflows of new business there in December fell to near stagnation. They've been growing strongly or in the air. It's just. Oh Peter the way those Covid infection rates have hit demand for services now that's possibly a harbinger come for the rest of the region as these private waves spread through other countries. So I think the ECB is going to be looking at those more forward looking indicators things like imposing new business future expectations. They fell sharply in the euro area is Covid ways that suggests that you're going to get more weakness come through in the euro area. That said perhaps less

so in the UK and the US. So Chris last question here. But going forward as we deal with these regional issues and targeted lockdowns except train restrictions in Europe less so in the US and UK what country do you feel is best positioned for continued sustainable sustainable growth in manufacturing and services. Where's the bright side. Brightest spot. Well I think the U.S. is pretty well placed at the moment if it can get the port congestion sorted. Then there are some indications that we're over the worst. Those port congestion and the container issues. The US is pretty well placed. UK has

Brexit issues. The Eurozone is also hamstrung by these this big wave. It's not evident in the US at the moment. Now the big bit of bright light really on the horizon that came through last month from ISE was the upturn in production from Southeast Asia which we've seen output hit hard by the Dow's wave. So now you've got SE. Asia is the fastest growing manufacturing region in the world as it rebounds from those lockdowns. Meaning that you're going to get more supplies coming through to the US to Western Europe. If you can get your ports to deliver those those goods to the final end user. So that's why the logjam is at the moment. That's what we're going to be watching if you can alleviate that. The U.S.

is looking good more so than Europe where you got those Covid waves likely to hurt more so in coming months. Chris it's always a pleasure. Thank you for joining us. Chris Williamson IHS chief business economist. Coming up tech erasing some of its earlier losses. Our next guest watching valuations very carefully in this space. Carl Murphy Castro holding seat i

o. Joining us next. This is Bloomberg. Francine Lacqua Guy Johnson Alix Steel over in New York. This is the Bloomberg Markets. Alex let's talk about what's been happening with tech over the last 24 hours. Over the next 24 hours as well. It's certainly been getting hits. The market is looking at what the J. Powell renomination story means and figuring that we are heading towards higher rates.

That is bad news for tech. Obviously the tech sector has become increasingly narrow as well. It's a really interesting setup. Abigail Doolittle walking us through the moves. Yeah. Guy this is a super interesting story because at this time yesterday not so long after that Powell announcement was made we actually had tech up sharply up more than 1 percent the best sector on the day. But at the end of the day down more than 1 percent. Big big outflows. That's especially true for the QQQ or that tech ETF

one point seventy two billion dollars worth of outflows. The ultra short QQQ is or highly leveraged not as much. So perhaps those investors are sticking with it or maybe they're already out. Will be taking a look at a chart in a moment that may suggest that. And then the Vanguard Communication Services think Twitter Google Alphabet those not as big of a decline but still overall outflows.

Yesterday on that Powell news and the idea that you are going to see a normalization of rates and that that could pressure these high valuation stocks. But take a look at this to the point of higher quality tech taking the hit yesterday. That's because high quality tech is really largely been up up and away. More recently the less profitable tech shares have taken a sell off. So perhaps in some anticipation of yesterday. And then finally in terms of the technicals Alex which you know I love for sure we're taking a look here at the Nasdaq 100 and then the members above the 50 day moving average right now on the downside at 56 percent now. Alex that's actually pretty high. Anything above 50 percent is good but you can see the direction not great and it could go down much more if the techs only continue. Yes that was my chart from Friday. Thank you very much for validating me Abigail Doolittle. Joining us from Bloomberg are joining us now for more Karen Murphy Castro Holdings chief investment officer. Karen let's just start right there with

tech. You sell into the sell off. So I think that's a really great example of what we're paying very close attention to valuations is the one kind of fly in the ointment when it comes to the market. The market overall has really strong underpinnings strong profit growth free cash flow margins. But when you look at valuations whether it's price sales price of book price long term earnings they're really very high levels. But if you can look in pretty much any sector and find stocks that are still relatively attractively valued and still have that really strong free cash flow generation and balance sheet and I think you're seeing that divergence within tech where investors are still maybe liking the tech story but are rotating into names that they can get a little bit more comfortable with. But the market is becoming very tight during this phase Kyra. And we are leaning on more and more stocks. You get a dip in

Apple you're seeing a major effect. It was Amazon yesterday. The market feels like as a result of which it's looking more vulnerable as we make this switch and become tighter. Well certainly Apple has been a big driver of the overall market. But you know again there are stocks like that that have really strong valuations. And I think there are a time there are other measures of the market where you can see pretty good breadth across different sectors. You see companies that have

improved margins improve free cash flow. So I don't think you have to be in the exact individual names in this market in order to where. OK. But to that point it feels like you're describing energy and financials at that moment. Are those the places that you want to be. So. Energy is one of the few sectors that can do well

consistently in a high inflation environment. So if you have a view that you know inflation is going to stick around for a while if you want to make a more medium term that I think energy can be quite attractive and can be a really helpful hedge on inflation. The challenge with energy is that you have to get your timing right. If we are not in a sustained inflationary environment or if we sort of pass through that period energy does not have a great track record of outperforming the market. So I think you know in that case you know you mentioned financials. That's another area where valuations have really lagged. You can still have a pretty good valuation story even with flattening of the yield curve. You have credit improving.

You could have loan reserve releases and a pickup in loan demand. What is my inflation hedge in all of this. How do I balance out thinking about a positive economy. Thinking about the growth narrative we've just been hearing about the PMI ISE here in Europe really strong growth numbers good momentum. But at the same time super strong inflation in that makes as well. How do I manage one with the other. Yeah and that's the tightrope that we have to walk as investors right. Managing that growth expectation with the fear of

inflation eating into returns. And that's why we would favor investing in things like tips bank loans things that don't have the volatility associated with the energy sector and can have a more consistent return. But I think those are great tools for investors to be able to incorporate in their portfolio to better hedge themselves in an inflationary environment. So where does

that leave consumer stocks. We're showing right now a chart of Best Buy. I mean a huge gap down 15 percent. Margins got hit. There were obviously some idiosyncratic issues as well with Best Buy. But the margin story is something we saw with Target with Wal-Mart that kind of weighed on their overall rosy outlook. What do you do with those names. So I think though you know partly if we look through we believe that inflation is transitory then those prices that are challenging those margins are going to be over time. And then if you look at the end consumer very strong wage pictured strong labor picture a lot of cash in consumers pockets. I think longer term that demand picture should really take those types of horror. What I don't understand is is the time frame though over time we

are going to see this working out its way through. Over time we are going to see this inflation being transitory. The debates over transitory seems to have changed quite significantly. In fact I'm hearing that word less and less right now. I think there is a belief that inflation is going to be with us longer than we anticipated. Yes at some points it may drop but between

now and then could actually be a fairly elongated period. How are you thinking about the duration of inflation right now. Yeah that's a great question because I think I think for many of us the idea of transitory went from like a quarter or two to a year year and a half. And certainly the supply change challenges are taking a lot longer to ease than we would have expected. But I actually think once we start to have inflation turn it could turn quite rapidly. So think about all these folks who are anticipating supply chain challenges so they might order multiples of a single product hoping that one is going to come in time. So there's gonna be a period where you know the ports these goods get on the trucks that they need to. And we're going to find that there are a lot of goods a lot more goods sitting on shelves than we had expected. So I think that once we get

through that turn is actually going to put a lot of downward pressure on prices. That's a good point. Like a different kind of inventory build really. Hey Carl before I let you go there's going to be no doubt some volatility if that scenario winds up playing out. Also volatility to the end of the year. Where do you seek safety right now. Safety. So again I would I would give it towards those names and you can find these like throughout different sectors names that

have better valuation characteristics stronger free cash flow. And you know we talked a bit about the banks. I think that's a great place where you have a lot of those characteristics. Carr has been great to catch up. Really useful insight into what is happening here. Karen Murphy of Castro Holdings thank you very much indeed. This is Bloomberg.

Live from New York I'm Alix Steel Guy Johnson London. This is a Bloomberg Markets we are an hour into trading and it feels a little bit like yesterday. NASDAQ now trading pretty heavy down by eight tenths of one percent dragging the other indices down as well. They will is looking more at the stocks and sectors on the move. Hey Dave. Hey Alex. I mean yeah you're definitely seeing some weakness among big tech. Which would explain why you know the information technology group and communications are lower in early trading. Chris the big move of the day is really what we're seeing in the energy stocks. You with the release of the Strategic Petroleum Reserve 50

million barrels coordinated with five other countries. You actually see oil move up. By some accounts the reserve release was actually smaller than people were anticipating any other way. You have the issue of you know having to replace the crude that's taken out of the reserve which will come down the line eventually. You figure U.S. companies would be among the beneficiaries of that. Do you see that in the likes of Exxon Mobile and Devon Energy. So the shale companies especially

moving higher here. Retailing really a mixed bag in today's trading because on the one hand you've got Dollar Tree which is in effect become a dollar and a quarter tree. They're moving the base price for most what they sell to a dollar. Twenty five from that one dollar mark which gave the company its name. Now on the other

hand you've got Best Buy down 15 and a half percent after its results. You know among other things I'm talking about stuff that their store is. It just goes to show you how things are at this point with with people coming back with employees coming back to. Beyond that I mean you look at what's going on in financial stocks. We've got another day of higher treasury yields. And that's a plus for the banks you figure because they'll be able to make more money on their loans and investments down the line. We're seeing it show up in the financial index where the S&P 500 and the likes of JP Morgan Chase and Bank of America as well. Dave great stuff. Thank you very much. I guess the Dollar Tree

Poundland model probably doesn't work quite so well. If you want to stick to the letter of the law on the name of the company in a high inflationary virus we've got smaller chocolate bars over here now. As a result of it all. Dave thanks very much indeed. Dave Wilson on what's happening in these markets. Let's talk a little bit about what's happening with the old story Dave highlighting what's happening with the oil stocks today. Oil is higher on the back of the release of the SPDR the US China Japan India South Korea and even the U.K. deciding to release reserves today. Joining us now Bloomberg Washington correspondent Amari

Haidi Lun who broke the news about President Biden's decision yesterday AMH. Alex and I are arguing about whether or not this works was a good idea. I just look at the price action. Yes it's been suppressed for a while but now that it's done we move back up. Move back up slightly I have to say guy I've been hearing your debate the entire morning and I'm on Team Alex on this one. WTI just over a month ago is north of eighty five dollars a barrel. And we've seen over the past few weeks the United States have this verbal intervention Washington verbally intervening in the oil market and it worked. WTI prices are down and now they are you know they talked the talk and now they're just putting their money where their mouth is. And they're saying we will tap into the SPRO. Now potentially it's not as big. You're seeing other

modest consumers adds modest barrels to the market more really politically a bold statement that I think is going to really impact the price. So I think that's on one hand what some of this is. This has been talked about and it was very much so baked in that verbal intervention was baked in. And I think that verbal intervention worked. We can agree there. But the second thing and potentially is why you see markets moving a little bit higher as the ball now is in Riyadh's court. Right. The IMF Secretary-General Jo McGonigle said yesterday and as PR released potentially may move Saudi to want to ratchet back their production. So they're supposed to be producing every month. They're adding to for adding 400000 barrels a day potentially with consumers adding more ballots to the market this OPEC flush change course. But at the moment there's no evidence for that.

That's pure speculation. All right Emery great stuff. Team Alex I dig that. Thank you very much. Emery her Daryn joining us from Bloomberg. Let's get more insight now Damian Korbel and a Goldman Sachs head of energy research. Hey Damien you had a note out yesterday that said the market was already pricing in one hundred million barrels of oil in terms of a reserve release. What is your response to what we saw from consuming countries and the corresponding price action. Hi Alex. So as you just discussed the announcement came smaller in size and RV than the market was pricing. Sure more countries. But the details of the release are actually not that impressive. And so you know our view was the market had priced in that plus

fear of European lockdown plus fear of Chinese growth. So the release is a source of relief for prices and we're rallying today. Do we continue to rally Damien now that we've got this out of the way. We think so right and we think that the oil market is still in a structural deficit. We really haven't solved anything with 80 dollar oil prices for the past six months. And so really the solution to the big deficits is opaque initially but it's really just higher prices driving more investment. That's what needed to really prevent significant spikes in prices in the

future. Now keep in mind this is the end of the year. Liquidity is low. We have potential. I ran headlines next Monday. So one should expect some volatility in the short term. But our thesis remains that oil are still not at the price they need to be to balance this market over time. So to that point because you're at 90 right. Price target. Yes. Ninety four year. Yeah. OK. So ninety for your ad. And I'm wondering though what do we learn from this. But it seems to me what we learn is that there is a consuming contingent of oil countries that want to intervene in the market. If we get above 80. Does that continue. I mean does that sort of change how you need to look at 90 or 100 dollar oil.

Sure. So it is useful information to know that there could be in fact future intervention when you look at the countries participating. They have more excess reserves and they need and they've mentioned that they could do more. Again those are transient sales. They're a one off event. You could do it a few times but that's about it. What we really need is aggregate supply to rise further to meet what is still relatively good oil demand. Right. We're back to pre Covid level growth in the global economy. International travel push demand to record highs next year or the year after that. So we truly need that CapEx

increase. That's what we're solving for what gets producers to spend more. And it's no longer 60 65. Right. That was the early days of shale where growth was rewarded for growth scale. Now we need actual good corporate returns. We need to overcome the headwind PSG and outright demand uncertainty. And that just takes a higher price. And I think that's the real message for governments intervening today is don't prevent that price signal because this is what helps fix the shortages in the future. Whereas that price. Whereas that price points where discipline could be maintained but output could increase.

So we think it's 85 90 but we're still looking out for exactly where that is. Look at shale producers. They're ramping up but they're ramping up slowly. They're not yet at a point where they're able to deliver a significant growth next year. And you listen to their guidance. They're quite cautious cautious about opaque. They're cautious about demand. Future regulations that to us so far means the risk could be to the upside. Now of course then there's Iran right. Everyone's assuming I ran comes back next year. We've made that assumption. If I rent doesn't come back. We need a lot more investment. And then suddenly the

price risk is above 90 dollars for sure. So we're just having a headline right now that says that Iran wants constructive engagement. The IAEA to your point of like will Iran or won't Iran come back to the market in full swing. What do you think the conversation is right now between Putin and Mohammad bin Salman. I think from an opaque perspective the rational hasn't changed right now. There were excess inventories that are normalizing. They have pricing power now. Right. They can increase slowly with other producers like shale ramping up aggressively. That's the key difference from say 2015 to 19. So from their perspective a cautious ramp up is the way to go. Do they want to

go ahead and offset the PR release. I mean all in it's a two dollar impact on prices. It's not that big a deal. That's more of a geopolitical discussion point unnecessary. But I think the framework is there that opaque has no incentive to increase production aggressively and the SPRO release play comfort them in that reaction function rather than suddenly force them to be very aggressive in ramping up. I think that definitely is not how they're interpreting disparate these. Damien people are getting in their cars this weekend. They're gonna be driving it's Thanksgiving over the next few days. Prices are a little lower but not by much. You talk about the fact that we need to get to the point where we are starting to see investment that we are starting to see new barrels flowing onto the market. But in the meantime if we stay around these

levels and the president continues to worry about inflation and it's hitting his polling numbers what else can he do. Are there any other options. Is there a plan B. So when you think about the tools at the disposal of the administration it could do further as PR releases. Right. You know so what we've estimated is this release is worth two dollars. So you could do more of those. There is a second past which is your biofuel mandates. So you know we have to blend ethanol in the US. That's that stated by government mandates. Those volumes are flexible and that contributes directly to gasoline retail prices. And so an easing

of those requirements that are onerous to refiners could be the second regulatory pathway to lowering gasoline prices. And a decision is expected soon. I think that's definitely the second pathway. The third one is OK we need more investment. So you know that we've argued does take higher prices but also take some regulatory certainty. Right. You have a lot of rules right now that are being discussed whether it's methane whether it's potential royalty drilling permits some policy certainty is helpful right. Investing under uncertainty is never comfortable and tends to delay investments. So providing a clear framework

for what are necessary emissions and climate policies would eventually help as well. That's in the making but it still takes time. They've been really useful insight. Thank you very much indeed. Dana Covello of Goldman Sachs. Greatly appreciated the latest on the market. What comes next. I know a lot of Americans are now

thinking about their Thanksgiving meal. We're going to talk turkey from a different angle. The Turkish lira in freefall after President Taiwan intensified his campaign for lower interest rates. There are now in its longest losing streak against the dollar in 20 years. More on that next. This is Bloomberg.

This is Bloomberg Markets farmers could get drawn you're looking at a live shot the principal room coming up. Richard Haass the Council on Foreign Relations president. 12:00 p.m. in New York 5:00 p.m. in London. This is Glenn Beck. Let's check in on the Bloomberg Markets these embers could get to China has pulled back on its already halting progress towards meeting its U.S. trade deal targets last month purchases marked the slowest pace in a year. The agreement was signed in January of 2020. China's now each just 56 percent of the two year goal of 378 billion dollars. The Biden administration has been pushing Beijing to live up to its commitments.

In Turkey President Adwan vows to cut interest rates has sent the lira into a freefall. It's fallen below 12 per dollar for the first time ever. And in November alone the lira has lost almost a third of its value. The latest plunge came after Adwan defended his pursuit of lower interest rates to boost economic growth. Global news 24 hours a day on air on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries which could get to this is Bloomberg Daybreak. Thank you very much indeed. Let's carry on with that last conversation. The lira slide through books Kristie to Keno. Joining us now on set here in London some really brutal moves taking place here. My question is how much longevity does this whole process have. How much how much lower could the lira go. Yeah well guy that's

the big question for every investor out there who is still invested in this market. Right. How much lower can it go. Because it really does feel like the moves are accelerating even earlier today. We were tracking how long it took for the lira to go from those big levels especially after it reached the 10 per dollar level. And it was really shocking to see that. It was

really quite astonishing that the time it took for the lira to go breached those levels is shrinking. And even today it took one trading session for the lira to reach twelve and then go to 13. And that really is the pace of this decline at the moment. Hey Christine if I was invested in Turkey how would I still be invested in Turkey. What are the trading outlets right now. Well that's a big question Alex because I think you know a lot of the foreign investors we've definitely seen even the FT years before what we're seeing now slowly exit the market. Right. And so but you do have foreign or rather local investors still very

much in the markets. And you know I think the flip side of this lira move of course we've seen some benefit to the stock market. For instance we wrote about how we've seen the stocks there particularly those who are export sensitive. You can imagine it with a weaker currency is probably quite good news for them. So there are these silver linings that we're seeing. But you know as far as kind of the currency is concerned this is the pace of decline has really been the big news of the day. That really the big news of the last couple of weeks and at investors are very very wary of what comes next and where the floor really is for the currency. Any sign of contagion you know at the moment. No. And that's very interesting because we were remarking just a few

years ago you may remember the last time that we saw such a pace in decline in the lira. There is definitely signs that other emerging markets are getting sideswiped but not necessarily this time around. I think what we're seeing generally in emerging markets is a lot of idiosyncratic stories at the moment. And of course dollar strength the overarching theme for all of that as

well. Hey Christine what's happening within the bond market in Turkey. Well you know Alex we're following kind of the same pattern that we're seeing in the currency markets. You know we're seeing yields jumping quite a lot even just today following the move in the lira as well said bonds are definitely slumping along with the currency. We're also seeing some of the indicators of risk such as the CBS measure is also indicating more risk there. And

you can understand why given the pace of the move in this particular currency it definitely warranted here in terms of kind of what is happening on the ground as this takes place. As you say the rate of change the delta on this is absolutely huge. But Turkish people are Turkish banks that Turkish businesses suffering as a result of it. You talk to people they talk about the dollarization of the Turkish economy. Is this only going to accelerate as a result of what we're seeing here. Yeah I mean that's certainly a big question not just for traders right. But definitely for people in the ground. Because if you think about it you know if you're just a person trying to do your grocery shopping for gifts is right. You're seeing the outsized effect of inflation on the price of your goods. And this is definitely something that you can imagine.

Investor rather consumer is not just in Turkey but all over the world where we're seeing inflationary pressures right now. They're feeling this in their pockets. They're feeling this in their budgets. And you know Turkey is no exception. And so there's definitely that aspect of the story. And of course just the idea of

having a currency that is essentially in freefall. What does that does to your external liabilities is another question that is worth asking. Because we definitely see a lot of debt coming due especially this month in November both. This is debt both by external debt by corporates by the government. And you've got to wonder what that does to those liabilities there. All right Christine thanks a lot. We really appreciate it. Christine Aquino from Bloomberg joining us there. I'm about an hour plus in a trading session here in the U.S. Tech rolling over now down by one full percentage point dragging the S&P down three tenths

of one percent. Best by leading the way lower though for the S&P will break down your trade. This is Bloomberg. I NASDAQ down 1 percent U.S. economy stumbling about an hour and a half into trading Steve Sosnik interactive broker is a chief strategist joins us. What are we learning about today's market action. What's the trade.

Good morning Alex. I think what we're learning is that yesterday's outside reversal if that's what you wanted you know is one of ways to look at it was for real. You know I think yesterday it seemed like we're off to the races yet again. And then you know that that just sort of ended abruptly. You know the more in the morning and then in the afternoon by accelerating. And then what you see today was you know whatever attempt there was to rally was pretty much squashed quickly. So

it it appears that the mood has shifted dramatically. Whether that's trading sentiment or investor investor sentiment remains to be seen. It's too too quick to say that after a day and a half or last. But I would say this has been an interesting sentiment change. And I think the fact that it's happened after a record monthly expiration month the expiry of options might be another clue to how much of the recent move was just driven by speculative options activity in case in case that was in doubt. Do you think though short some traders buying Coles except for going to be back on Monday. This is a shortened week. I guess a lot of people have taken off already maybe taking a whole week

off. Can we pop this week or do you think as you say this week needs to be paid attention to. I think some of each. I think I think you're not going to see them come back now. You know one of the one of the things that that is required though see that you know a lot has been made about the move in auctions and how much you know essentially how much leverage is involved. When you when you buy stocks with calls. But ultimately you still need the stock. The underlying

stock to cooperate. You know you you can't have a gamma squeeze without adult squeeze first or at least without Delta participating so to speak. And I think what you're getting now is taking a break. It is a lousy week to go to to buy options. But if you buy weekly options like many many of these short term traders do because you're missing a day and a half year you're essentially paying for a day and a half of decay that you're not going to get. And I think they will stay away whether they come back. I certainly won't count them out because every time

they've been counted out before they come back by then it has been a strategy that's worked. Steve what I am struck though is the move we've seen in real yields on an intraday basis. We're looking at the highest level in tenure really yellow since March in 2020. The last two days is no big reprice there. What is the feed through to volatility if the ref your real yields keep

rising. Well I think I think that the major volatility index are telling you that this is this is the time to start to be concerned about. Well I think the tide has been concerned about it was before. But I think there now people are realizing maybe we should be more concerned about it. There's been a change. You know I think the markets are responding to the change in Fed policy. Whether or not you know you accept that stocks are the

ultimate long duration asset and how much you actually really believe that the NASDAQ move has been driven by volatility measures. I'm sorry by valuation measures rather than momentum. We can leave that aside. But it's definitely a drag. You know the the higher real interest rates reduce the Tina idea and you know the idea that there is no alternative. And if we start to get the idea that there's alternatives or at

least that alternatives might be creeping in it certainly it certainly weighs on a lot of these ways and a lot of his investment themes. And at the same time a lot of the stay at home trade is not you know it's not acting well despite the Covid fears in Europe. So it's it's a really tricky time that we're seeing right now getting priced in. Steve thanks for your time today. Really appreciate it. Hope Thanksgiving goes well. Steve Sosnik interactive brokers greatly appreciate it. Well let's talk about some of those stay at home stocks because we're coming into the European close. This mentioning names out there are individual stock stories that are worth focusing on pets at home. So basically you could park and part of the peloton and use it as a coat hanger but you still got to feed the dog. The new dog that you've got as a result of

the lockdown for pets at home continues to do well. Some really positive notes out there. Isn't marriage the company that the family's buying back into the company that's being taken positively. But then you get to a oh well this is the white goods supply. It's fridges it's cookers that kind of stuff. The supply chain story really hitting this company hard. We're down by 50 percent closed next.

2021-11-24 19:29

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