'Bloomberg Surveillance Simulcast' Full Show 01/09/2023

'Bloomberg Surveillance Simulcast' Full Show 01/09/2023

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The Fed is going to be late. I think that the Fed is imposing a severe swelling on the economy. They'll pause if inflation is declining, but they won't be able to. If they're not achieving their inflation objectives, they're looking for slower inflation, but still lower in their target. The Fed as well as every other central bank, got it wrong. Oh, transitory, transitory, transitory. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz from New York City this morning.

Good morning. Good morning for audience worldwide. This is Bloomberg Surveillance alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity futures up four tenths of one per cent on the S&P. I know we do this every single Monday morning. But forgive me, T.K., what are we coming up? What are we coming up at as inflation report? That's standard Senate answer. But I want to go back to Friday, John,

in our opening cohorts, folks, as well as you saw big little when we're getting ready, particularly on a Monday, because we're talking about what happened over the weekend. I think the Zakk guys got it wrong over the weekend. They're talking about a good jobs report, blah, blah, blah. And there was an, I assume, report that you mentioned which really showed a slowing economy out there somewhere.

One equities. I'm with you on the boom. Payrolls got all the credit for the move in Friday session. I just don't this all the reporting over the weekend. The ESM that we print that came up about 90 minutes after the payrolls report. That's what really drove the front end of the yield curve in America. Much, much lower, 20 basis points lower at the front end.

So there was this feeling in the employment report that perhaps you've got a Goldilocks scenario or a soft landing where wages are coming in, even though there's a strong report. And then the ESM seems to give that a double whammy punch in, basically saying, look, you're going to have weakness. It's going to soften enough to bring some of the focus off the Fed, whether that's enough to stick through the CPI report on Thursday and then banker earnings on Friday this week. Very another chairman, Powers speaking tomorrow come off the back of all this data. One of those curious moments in the

global economy for the U.S. economy. More specifically, we've got the ISE salmon manufacturing and services in contraction and a Fed reserve that set to hike interest rates again, some in the next couple of weeks through this recession frenzy. Here we got the earnings coming out as well. But overarching this is not the Goldman Sachs story.

We'll have that a couple times here this morning. And there are layoffs. But, Joe, what I would really focus on is the dovetail here of not so much China, but on this Monday, the Pacific Rim signals its opening up. We go into that later. But I would overlay that on the things we'll hear from chairman. Let's if we can talk about NASA. Number one, China reopening.

So they've dismantled that fabled barrier to entry into the Chinese economy, to the country. You can enter Tom now without quarantine. Want to. We're reporting here at Bloomberg that they're at least considering wider budget deficits that fuels the reopening. But some have you seen a move in emerging market equities in a bull market? That's a 20 percent move off the October La IBEX, a monster move in E.M. equity.

My litmus paper, folks, is the ADX Why the J.P. Morgan series, which is the currency pairs of the Pacific Rim, X Tokyo X Japan. And that's you know, it's not back up to where it was in 2019, but it's a nice move down. And that spike up like equities equity futures right now up four tenths of one per cent. Let's wait for the price actually fully when the S&P 500 and beyond. We snapped a weekly losing streak last

week on Friday with a big move higher. That move continues up four tenths of one per cent. Michael Barr Morgan Stanley. Thirty nine hundred, some easy sell. That's the note that comes from Mike this morning. Dani Burger.

Yeah, well, they're up there. They're confirmed. And this is again, as you make clear, this is not macro babble. It's off of earnings and such. And I believe on Friday we dive into the

year with much lower on Friday session, just a little bit higher this morning, Lisa were up by 3 or 4 basis points on a 10 year 359 67 Mark Gurman. How much of that weakness that we saw are the softness, yields going down, a price going up. So perhaps strength in the actual price. How much has really driven by Europe? And I have to ask that, especially as we saw lower than expected CPI prints from Europe, but also this incredible rally in the boot. By some metrics, the strongest first

week of the year going back to before 1990. Today we get a sense of central bank speak ahead of their power tomorrow. Atlanta Fed President Rafael Bostic at twelve thirty PM. Bank of England chief economist Chip Hill at five thirty PM in New York. I'm curious to see both sides of the Atlantic and how they're dovetailing with perhaps a better than feared winter is where the energy prices as a pressure off. Also, just want to mention that Austan

Goolsbee officially becomes today the Chicago Fed president today. Also, the Three Amigos Summit is planning to start. U.S. President Joe Biden is planning to meet with Address Manuel Lopez Obrador of Mexico and Justin Trudeau of Canada for this North American leaders summit in Mexico City. How much is really some of the immigration going to be at one of the contentious, especially after the controversy that President Biden has been fending off with some of the biggest numbers of apprehensions and encounters by Customs and Border Patrol going back several decades and aftermarket kicking off the earnings release system and over those holiday of bank earnings that we're going to. Getting Jeffries Q for how much they give a sense of what we're expecting to hear from JP Morgan, Bank of America, Citigroup, Wells Fargo all coming out on Friday after a tumultuous year.

And John, some of the worst returns when it came to profits from banking from their bread and butter. Going back to 2009. Lisa, thank you. Joining us now is Laurie Canvassing, the head of U.S. equity strategy, RBC Capital Markets.

Laurie, let's start there. Well, Lisa finished the bank earnings this week. What are you looking for from the likes of JP Morgan and others to get a broader read on what's happening here? Well, I always love hearing the comment from the banks about what's going on in terms of consumer deposits. We also like hearing, you know, a lot about what's going on with our corporate clients.

So that's really, you know, frankly, I care a little bit less about the actual bank earnings and I care more about those macro tidbits that we're going to get. But I have to tell you, John, I pulled up this morning just looking at my Bloomberg about one sector performance over the past month. Financials have actually done pretty well on a relative basis. And I never liked that set up when financials have outperformed heading into a reporting season because there's usually not that great of a set up. But we'll see what happens on Friday.

All right. I'm fascinated by the interviews we have away from your expertise, talking about buy quality, which means Apple and three other stocks. Are there quality, small caps? I mean, if somebody says a big cap area, I want quality. Can Lori Covid seen as say that in midcaps and small caps? You can. It's on a relative basis and you don't necessarily have the ability to come in and make the argument, say your top quality small cap is better than kind of your top 20 percent quality of large caps. But within the small cap space, you see

generally tend to find that stocks with better or at least positive earnings tend to outperform over time. You really kind of have two different worlds within the small cap index as you have the teeny tiny micro caps that have no liquidity. Nobody trades that. Nobody pays attention to them. And they have that kind of upper echelon that does have some pretty good quality. Now, those typically get to be pretty

crowded by small cap managers and typically get to be pretty expensive. But one of the reasons I love small caps right now is that upper echelon of market cap is actually pretty reasonably valued and we don't get an opportunity to buy those high quality small caps like this. All right. Lori, how concerned were you, though, by

the ESM print that we got on Friday? The services component, supposedly the strongest one coming in in contraction. Look what whether or not this is a recession, something close to it, something that kind of smells like it, but isn't quite this one, whatever it is, we need to go ahead and get it done. We need to go ahead and get it started from an equity market perspective.

And obviously there's a human cost to that and we're not being disrespectful of that. But from a market pricing perspective. Markets typically actually do well in negative GDP years and don't do well in sluggish GDP years. And that's historically because markets really can't handle that well. We want what we want. We just want to know they just want to rip off the Band-Aid and get back to business. I think that certain parts of the equity

market, like small caps, have been pricing in a plunge. And I have some manufacturing for quite some time. The services side, though, is really what's been kind of feeding, you know, kind of the inflationary fears. And so I do think we needed to see some

damage there really to kind of get this inflation narrative under control once and for all. So we talk about what's priced in. Right. That's been a sort of one of the big question marks for a lot of the analyst reports we've been reading.

And you took a look at how tech, consumer discretionary and communication services stocks accounted for 95 percent of the decline last year on the S&P. But tech is still overvalued by some measures. So at what point how much more damage is necessary in that sector to become appealing to you? So I think that tech is an area if we do get another bout of market volatility in the first quarter. And I do think that we're probably going to see that once reporting season sets. And I do think that tech is going to have a problem, because I do think that that's where some of the earnings expectations do still need to be pulled down. And typically, we really want to buy

tech as a recovery story. So we need to put that market bottom in before we can really get to a point where you want to buy the tech sector. But then we go back to this quality issue recent, because if I take a look at all the S&P 500 sectors and rank them in terms of quality, that classic tech sector, software, semi hardware, that component that really ranks as the highest quality part of the S&P 500. So you might not necessarily get super cheap valuations before investors will move back in.

You probably need to get better valuations or at least more certainty around valuations from what you've got right now before you'll really see sustainable virus come back. Lawrence spent the weekend trying to calibrate the gloom and economics. We're seeing a lot of gloom. Are you seeing an investment in its linkage over to finance? Are you seeing a lot of gloom from RBC Capital clients? We do. I mean, I spent a lot of time in December overseas talking to non U.S. based investors. And I wouldn't say what was surprising to me is that the sense of Paul Allen was probably not as dire as I would have expected and not quite as dire as what I would have seen just from talking to U.S.

based investors, still pretty low. But I got the sense that talking to non U.S. based investors, they were starting to sense operates these out of the U.S. And so they were still concerned generally that the U.S. was overvalued. But I was hearing actually sort of a benign discussion coming out of European based clients in particular. And that was something that surprised me. It felt like maybe we had in certain

corners of this market really saw that will start to recede just a little bit. And that is something you do tend to want to look for at market bottom. You can feel this hope, can't you, for 23 that this is the year that you get that international outperformance told me to satisfy 12, 12 months ago. We said it motors all day before that. I know, Larry, thank you. Just fantastic, Larry canvassing of RBC Capital Markets.

Big week ahead. CPI later this week. J.P. Morgan earnings on Friday. Chairman Pound tomorrow. Speaking of the gloom, gloom on Goldman

Sachs trading floor. Some shorts on this morning. Our latest reporting indicating thirty two hundred jobs could go. I was unaware of this, but they stat in our reporting, 34 percent headcount was up 34 percent since the end of 2018. Some at Goldman was a different thing. Tech is a different. We're talking about where the excess is and where the excess needs to be removed and taken the world to finance. Right now, I think hand-in-hand on that front.

Forty nine thousand employees, three is what, seven, eight percent, 6 percent or so normal this time of year, a three or four percent clearer. That's just healthy for the industry. Peter Garrett, terrorists, that a great chart out this morning showing the differences between the major banks holding it together in other more entrepreneurial shops like Goldman Sachs, really, you know, off the mark. And that's why you're seeing this this morning. You mentioned that normal, clear and Sonali Basak join us later in the hour to talk about this.

Goldman haven't have that normal clear out in the pandemic is avoided, Lisa. And I think that's why a lot of people think this number is larger, because you've got to account for what didn't happen in the previous few years, the calling of the ranks sort of trying to get the quality. It's interesting that more than a third of those cuts are going to be from the court trading division, though. This is a broad based kind of not just the consumer banking. Roman surveillance is going to have a one third reduction. What you can with this.

Which one of us is about to say, you know, is there something you don't really make that we get? I think the police do collaborate. Take maybe in the break. Okay. That's me coming up next. Now, unless you're the longest senior portfolio manager at Invesco Solutions, he'll be here. One of us might not be features up for tents. This is blowing back. Keeping you up today with news around

the world with the first word. I'm Lisa Matteo. The capital of Brazil is recovering from an insurrection by thousands of supporters of former president Jaguar, both Renato. Rioters ransacked Congress, the presidential palace and the top court in Brasilia on Sunday. It took hours for security forces to regain control. New President Luis Ignacio Lula da Silva is vowing to prosecute the rioters in El Paso, Texas. A confrontation between President Biden and Governor Greg Abbott.

Abbott handed the president a letter demanding that he act immediately to stop unauthorized immigration since President Biden took office. The U.S. has experienced a large increase of migrants trying to cross the southwest border in the UK. British Prime Minister Ricci's soon act meets today with union leaders behind the strikes that of hobble the country soon.

AK is trying to avert further walkouts by rail, health and other workers. Unions want immediate pay hikes, according to The Guardian. Soon, CAC may be open to a one time payment to workers. China is trying to change the narrative that nationwide protests prompted President Xi Jinping to abandon the Covid zero policy, according to a timeline published by the official news agency.

The leadership started relaxing Covid restrictions before the protests began on Sunday. China reopened borders that were largely shut for almost three years, and Goldman Sachs set for one of its biggest rounds of job cuts ever. Bloomberg's learned that Goldman is expected to eliminate about thirty two hundred jobs starting midweek. More than a third of those will likely come within its core trading and banking units. Global news 24 hours a day on air and on

Bloomberg Quicktake. I'm Lisa Matteo. This is Bloomberg. The weekend's riots is ransacking Brazil's capital.

Thousands of supporters of ex-president shape ISE scenario storming the presidential palace and top court in Brasilia, testing the leadership of President de Silva just a week after he took office. Take a just phenomenal seats over the weekend. They really were. The imagery was really extraordinary. And I would suggest it's a story still unfolding. What I did find interesting in the reporting, John, is how many of the boss in our crew, the leaders seem to be in Florida. There seem to be in the United States. Just you wonder about the convenience

has shown to be very clear here, though, that the former president actually denounced this came out. Yes. And did not like what he was saying and said that peaceful protest is one thing, but going after the institutions and breaking down is quite another. Bloomberg with a huge contingent down in Brazil and we'll have reporting on that through the day. No other.

No. No question about that. It's a story moving by the hour right now. She is moving to Mexico City. Joining us now. Annmarie Horden travelling with the president and our Bloomberg Washington correspondent. I'm going to cut to the Chase and Murray and decide that the sweat over immigration, the sweat over migrants and all that is local. And what the people of Texas or Arizona

would say is President Biden here from Delaware. We're on one study. They had a count of 30000 unauthorized immigrants in Texas, had one point six million.

How does this president deal with the local focus of this issue of immigration? Well, immigration will be top of the agenda as the president meets with Andre's manual, Lopez Obrador, the Mexican leader known. Very much so locally as low as well as with Canada's Justin Trudeau. But the president is on the heels of, of course, visiting El Paso. He got off the plane. And who was he greeted by? Governor Abbott. A handwritten letter saying that the president is 20 billion dollars too short and two years too late. This has been the constant criticism of

the Republican Party that Biden has not put. This is a central focus. His administration does seem to be doing that not just with the El Paso visit, but also coming to Mexico on the heels of a new immigration plan, which I have to say is getting criticism from both sides, not just Republicans, that it doesn't go far enough. But Democrats who also say it is just inhumane and human rights groups, because under this plan, thirty thousand more a month can come from four countries where we've seen high levels of immigration, like Venezuela, Nicaragua, Haiti. But at the same time, if they do not go

through the proper channels that the U.S. administration is outlining and they just go to the border, they will be sent out. And human rights groups say that that just undercuts asylum laws. And this has to do with the extension of Title 42, the controversial law that was put into place under former President Trump and the question of who to expel. There is an issue of the need for

workers. They do wonder how much that is sort of in the conversations that president that President Biden is talking about with his car parts from Mexico and from Canada. How much is that a focus? Well, it is a big focus because you've had the top three business communities from Canada, from Mexico, from the United States, putting out a statement saying that this is what we actually need in terms of also seeing the electrification of the grid. When you want electric vehicles, so much of these components are coming from Mexico. When you think of a critical resource, a

raw material like lithium that really China has the control over in terms of the global stockpile. Some of that can come from Canada. So you have these groups coming out and say we need to move past some disputes. Part of the trade agreement. The US MCI to work out huge on the agenda is going to be an energy dispute between the United States and Mexico.

Also, when it comes to electricity, Canada has taken issue with it. They say that Low has these nationalist provisions on energy policies in Mexico. There's also potentially protectionist issues with the dairy industry in Canada. So these are disputes that are going to

come up when you look at trade and potentially the workers that could be needed amongst these three countries. It is huge. And trade specifically. I read it was about three million dollars worth of goods a minute that is being traded between North America, Canada and Mexico. Lisa, I know you asked about an employment that is going to be more of the immigration story between all these three countries. But a lot of that also has to do with

the fact that these three countries are so intertwined when it comes to their economies and possibly more so. Anne-Marie, how much the discussion moving toward near shoring or friends sharing some of the questions that people have to move some of the trade away from the Pacific Rim? It is huge. Mexico has really taken a bite out of this idea of near shore and the fact that the United States wants to also diversify companies, supply chains away from Asia and Mexico feels like they are in a top position to do that, especially when it comes to components for I said like automobile mobiles. But also last year alone, boats were up two hundred sixty six percent going from Mexico to the United States. And all this has to do with near shoring.

This is something Mexico wants to bring at the top of the agenda. They think this is a place where they can become more of a top spot for American businesses that would normally look to Asian markets and really want to talk about the border. And this is, I think, for all of our listeners and viewers, the thing of most interests and maybe it's a twenty third congressional district, or maybe it's how well Mr Biden did in the election against Mr. Trump on the border. Other Republicans making inroads. Is Mr Abbott making inroads on the

border as we move to the next election? Well, let's let's say that Republicans at the moment, in terms of they've been very critical of the Biden administration, but they've also said they are happy that he's finally went to the border. This is the first time the president has visited the border of his administration. I believe the last time the president was there when he was campaigning at one point here, though, he did say send, of course, Vice President Kamala Harris. So the Republicans say that they he gave me he made inroads by going. But again, they say it is too short. And it doesn't go far enough.

And they think that this administration needs to go further and needs to be more of a hard line administration. I love going back to some of the Trump era policies that the Biden administration and many of them were scrapped on day one. Also talking about obviously over the weekend, there was big news in Congress. We finally have a speaker of the House,

Kevin McCarthy, one of their first agenda items of the budget, the Republicans of the House, is to potentially impeach Homeland Security secretary. ALEXANDRA, my orcas. So this is going to be a huge fight going into 2023. And so much of it has to do with the president election of 2024, because for Republicans, this is ground zero. On issue number one, when they are campaigning, they made great work. We'll catch up with you in the next hour. Looking forward to it.

Annmarie Horden from Mexico City. We have a speaker of the House. And Lisa, I mentioned it a couple of months. We'll be talking about exactly what you want to talk about, which is the debt ceiling risk around all of this, the example of the last week or so really undermining underscoring the fact that we've got division between parties and division within parties, which is going to make it very, very difficult later this year to come to an agreement. Did you read all of some of the provisions that were put in there to weaken Kevin McCarthy for him to win? What was it? The 15th vote.

The 14th vote in order to become speaker of the House? Basically, anyone can up and his leadership in just one vote. So there's this question. We don't even know when the debt ceiling debate will really come to a floor. Some projections are said July is will run out of money under the current projections. But others say it probably is sooner than that. So where is the leadership to get some sort of deal done? Given how weakened Carol Massar Goldman put out a note at the end of last year, Tilghman indicated that the earliest July at the latest May be October.

So crunch time is going deeper into summer. It's crunch times there. To Lisa's point, a lab in Boston, her job, Sutton, has been actually I think she's been dead on about this time is different. We've heard that before, but simply this time is different after the concessions the speaker gave. Is the market response to it any different? No. Typically only by Treasury change. And the guy writes a change on a dime. Well, if you if you actually that that

note from Goldman talking about pointed out that perhaps we won't see the move in treasuries, that perhaps we will see this is in growth and that growth will get impeded as uncertainty starts to bleed into spending programs and into public programs that need to be financed in an ongoing basis. And so it might not be such a dramatic move, but could progressively have some sort of weakening factor over time. And the question remains, when you start caring about it, I'll have this conversation with a couple of investors later and I'll say the same thing when you start caring about it.

I think Caroline Hyde just not right now. Exactly. Because right now it's like just exhausted by totally grew up with some of this in my household as a kid. And I'm not going to mince words. It's a moral crusade for these conservatives. They're going to you know, it's almost a

Calvinist thing. It's like being a Red Sox fan as a religion to a 2011 repeat. I'm not willing to predict that, but I'm going to say it as a moral crusade, as a moral crusade for a group of people. Now, homes support equity futures right now. Positive. A third of one percent on the S&P 500 in

the next hour. Coming up in about five or 10 minutes, actually, we'll catch up with Mike Data, macro strategist at MKM Partners and chief economist as well. Futures up a little time, up by 4 basis points on a US 10 year. Your tenure yield this morning at 360 year to year, up about three basis points year to year yield for twenty seven. Lisa Singh and Keisha. Well, you know, I watched some football,

American football yesterday show on CAC. So I you know, I watch the Lions, Packers and all that stuff that way, too. Let's go to the set up way too late. How do you know the marginal beverage? And it was great. But we should have like they do wear like to go to the Burger King ad and they still show. You know what we're doing? I mean, it's great.

It's like the Romaine Bostick where the players are getting ready for the game and you go to a commercial, but you let them the same Mohamed El-Erian million. You wouldn't be able to hear to sink or you wouldn't need it. Okay. I think throwing it at all the sudden, welcome passionately. Who's throwing things this way? That's right. Futures on the S&P.

Buy at 1 percent on the Nasdaq up also by third of 1 percent. Really strong gains. The close out last week on Friday, up by more than 2 percent on the S&P for a weekly gain snap in a weekly losing streak on the S&P 500, a weekly gain of one point five percent, actually the biggest week, again, going back to late November. You can thank not so much the payroll support, but thank some 50 services, I assume that we can discuss in just a moment in the bond market. That man yields dropped like a stone by more than 20 basis points at a front end year to year for 27 44. Trying to bounce back this morning by about two or three basis points just around things that foreign exchange for euro dollar is going to be interesting to see Chairman Powell with Rick's Bank tomorrow talking about all things the Central Bank Independence Suite and a maybe we get a little bit of ECB in the mix as well.

Tell you what you saw in euro six eighty five of one per cent in that currency. Where is inflation once those inflation ones don't? And I think it isn't it CPI Thursday, the CPI Thursday. Yeah. And then JP Morgan on Friday. Tomorrow. Let's get to this quote of Mike Wilson play Morgan Stanley this morning is thirty nine hundred and easy sell. This is what he has to say this morning. Go for it.

Morgan Stanley, the chief equity strategist, he led this with both Salim by side consensus. So aligned. And you're familiar with what that is right now. It is a big dip in a front half and a rip in a second half.

Everyone is starting to wonder how this view could be wrong. Mike goes on to say, We think it's in a magnitude to the move lower, led by much weaker earnings and a Fed committed to fighting inflation, making thirty nine hundred an easy sale at some. That's the message from Morgan Stanley coming into this week. Cautious mergers, other people pushing against that and certainly pushing us internationally as we have more often seen. And then small and mid-cap space as

well. I think all this together, we can do that with Michael Barr, who's been a wonderful supporter of what we've done for years. Chief economist, macro strategist to them came partners. Michael, I want to do a 60000 foot question. How linked is the economy to the markets right now? Are they two separate entities, as some are telling us, or is there a tight linkage? Thanks for having me on, Tom. You know, there's a tight linkage, but it's nuanced if we think about last year what happened.

You know, the economy was growing. Except interest rates were shooting up dramatically. So that compressed valuations. I think the challenge for the stock market this year is really going to be on the earnings side. We know growth is slowing.

I mean, that's frankly not even debatable at this point. But if we tip into a recession, you could have a fair amount of earnings weakness. You know, typically forward earnings estimates are 25 to 30 percent above actual realized earnings cycle peaks. So in the very short term, the falling rate structure will lift stocks. We saw that last Friday, but the earnings have to be there at the end of the day. And if that doesn't happen, the stock

market's going to run into trouble this year. Michael Barr Our surveillance research shows that ninety nine point eighty five percent of our people are indexed up. Is this a year we're being selective and active management really, really matters.

Yeah, I think this is going to be a volatile, challenging year for the equity market. If you're indexed up is it is a retail investor and you're in it for the long haul, then don't even worry about what we're saying. You just have to ride it out. But if you're going to be benchmark year to year, quarter to quarter, then I think it is going to require some foresight in maneuvering and understanding where we are in the business cycle.

To go back to that Mike Wilson quote that John was reading. I think it's very interesting this question of round the commitment the Fed has to fighting inflation paired with the move that we saw on Friday. This question of softer than expected. Let that front end drip yields lower,

putting price higher. Would this be a move that you would sell because you don't see the Fed letting up in its fight inflation even with softer than expected data on the wage front and on the in-flight the services side? Yeah, that's exactly right. It's interesting. So the Fed is actually not data dependent here. They're path dependent. They've essentially chosen a policy rate

at or just above 5 percent. And the goal is to get there and then hold that level in place for an indefinite period of time. Most likely the balance of this year unless the economy crashes or financial markets crack in order to to be assured that inflation is going to come down and stay down. That is not a setup for a soft landing. In my judgment. So what do you expect to hear from Fed Chair Jay Power? Does it matter? Because at this point, do the words not even really make an impact on markets that are going their own way? Yeah, I think they matter in the sense that the Fed is really focused on some of the stickier measures of inflation. And we did see markets respond favorably to soft wage print.

But the Fed's also focused on service sector inflation, which tends to lag the business cycle. It's a lagging indicator. And so inflation is going to be coming down this year. I think there will be good news there, just simply based on the lagged impact that the tightening the Fed has already done. But if they're really focused on slow moving variables, then you have a setup for the Fed to over tighten monetary policy in a recession to ensue.

And that is the direct message of the Treasury yield curve were inverted. Now, on every measure, the policy rate is above the two year yield. Now all the way out and a sustained deep yield curve inversion is not a soft landing story. So it's kind of interesting that, you know, Wall Street strategists were tripping over themselves on Friday to declare the soft landing based on a one day stock market rally. But I think if you read the credit markets in their you know, their their historical forward looking power, I think we have to be concerned about that story and more braced for a downturn this year. And it may not be short and shallow if the Fed wants to go to restrictive and hold. I mean, that's sort of the definition of

how you could get into a deeper downturn than what most people are talking about with this short and shallow business. I might like to through the DAX first, let's talk about the sustainability of what we saw on Friday in the Labor Market Report. Do you think it's sustainable to expect wage bus to back off with unemployment down to three point five percent and not climbing higher? Yeah, that's a good question. I mean, those wage numbers tend to be pretty volatile, but there were some other interesting aspects of the report. One is that you have aggregate hours

worked down two months in a row on a seasonally adjusted basis. And so typically before you end up with a lot of layoffs, hours worked or are cut back. So it seems like that, you know, that that's happening now. You also have temporary help, payrolls down five consecutive months. That's actually a leading indicator for overall job creation. And so I do think we are seeing signs

and you mentioned, I assume services index as well, plunging to a level that is usual, you know, only one time in history. It's history. If we seen it at current levels without a recession unfolding. So I think, you know, there is accumulating evidence of a slowdown and that's what the Fed wants. You know, they want to go to restrictive and hold it.

So growth falls below trend and a in a negative output gap is is created. I mean, that's the intended policy. And, you know, that is a policy that essentially describes a recession. So that's just where we are. You know, it's not a super positive message, but, you know, sometimes it's necessary to deliver it. Well, let's finish up with how Charmin Pound might acknowledge that tomorrow when we hear from him, there is a Cuban ISE session. So this opportunity to go in any

direction, him, Mike, as you know, without getting too deep into the Fed, speak, waits. It's all about emphasis. And I just wonder if the emphasis will be on we're not sufficiently restrictive yet or if the emphasis will be on we getting closer to being sufficiently restrictive. Yeah, I think definitely I mean, the markets know they're getting closer. Essentially, it priced in terminal rate around 5 percent. A lot of the FOMC officials have sort of said that is their figure. And so I think Paul is just going to reinforce this idea that they're slowing down now in terms of the magnitude of the rate rises, but they're not ready to stop yet.

So they really want to get to a level that squeezes the life out of a lagging indicators of inflation. And that's what financial markets in the business cycle are up against this year. Mike, this was awesome. Thank you, buddy. Mike, down to that as I'm CAC partners. Just picking up on a weakness in the jobs report on Friday, including a reduction in house work through in end and stirring up a toxic toxic brew.

We mentioned that for a while. FTSE. So the FBI sent manufacturing itself says you don't go there. And it this stuff from my dad, it isn't a loan that's been out there for one week, two weeks, three weeks or whatever and posted jobs day.

Know you wondered, does it carry into this week? I think. I'm sorry. It all hinges on inflation. Thursday, inflation first. I'm sorry. I mean, that could cut either way. I don't have a strong opinion. It's not for me to stay.

But but inflation Thursday really, really matters. We can cut up the hiking cycle three ways. One is the size of each move, every meeting. The other is just the length of the hiking cycle and then the duration you remain at the terminal rate. So let's start with the first point

first. We can get that step down again to a 25 basis point hike in early February. Looks at based on the data we've seen so far. Well, we heard that from Randy Kroszner

of the University of Chicago's Booth School on Friday, because he was basically saying this gives them the leeway to buy insurance. That's how he characterized it. Whether or not that will make it a lower high that they end up bad is a very other question. And you've got this rhetoric with a lot of people, including Michael Barr saying they still have to go pretty far and they're still committed to that. I thought the note from Alan, senator of Morgan Stanley going into the weekend is pretty interesting on this front. They're looking for that 25 basis point

move off the back, some of the dates we've seen. But I think the overall labor market resiliency may introduce the risk or raise the risk that you extend the hiking cycle. So maybe you drop down to 25 still. But ultimately, if the labor market remains, if position as has been in that staff, you would not maybe not yours at home listening to this to you. Ultimately, there is the risk that you extend the hiking cycle. Yes, that is the risk that I'll take. A lot of people have. There's people that say we're a long

ways from that. I would point out to your scenarios, I'm less worried about 25, 50 and all that. But as Mr. Gardner said, the length of time that we stay at a certain level and this harkens back we've not seen Happy New Year today right now with Dani Burger Alan Blinder in his essay in The Wall Street Journal and I believe it was Friday, maybe Thursday makes clear he said Happy New Year. And he said, look, inflation is falling dramatically from the former vice chairman of the Fed. And that's the metric we have to look

at. And that goes back to this Thursday. We've touched on the heart, the debate coming into 2023. That's having guests taking a hike maybe towards five and that state that this market where many people sit and care, trying to price in the prospect of rate cuts. I have to be careful, John, because I'm so X starting from school years ago. But to me, it's all an X axis. You push it out. That's what. Yeah. And who was good at this was Geithner.

Geithner was very, very good. And then he drove away saying all we're going to do is push this thing out. You know who's good at this? My Schumacher. Yes. Sorry. I got in the next 50 minutes away.

Looking forward to catching up with him. Equity futures up by third if 1 percent from New York this Monday morning. Good morning. This is Glenn Beck. Keeping you up to date with news around the world with the first word. I'm Lisa Mateo. Brazil's president Luisa ACL.

Lula, there's Silva, is vowing to prosecute riders who stormed the country's top government institutions on Sunday. The insurrection by thousands of supporters of ex-President Jihye Lee Bolsa Nardo follows months of protests since the conservative leader lost to Lula by a razor thin margin in election runoff. Lula is calling for a federal intervention on Capitol Hill.

New House Speaker Kevin McCarthy is rallying Republicans with promises to cut spending and strengthen border security. Still, in order to win the position, McCarthy had to give up more leverage to the party's right wing. He promised a rule change that would allow a single lawmaker to call for a vote to oust the speaker.

Russian President Vladimir Putin's plan to squeeze Europe by weaponized energy looks to be fizzling. Mild weather and efforts to reduce demand are helping. Gas reserves are still nearly full and prices have fallen to pre-war levels. Europe is likely already through the worst of the energy crisis. Richard Branson's virgin orbit says it's

on track for Britain's first ever space launch tonight. The takeoff of a modified Boeing 747 jetliner with a rocket under its wing is planned between 940 and 11:00 p.m.. The mission will deploy nine satellites for a range of customers, an Apple exporter, more than 2.5 billion dollars

of iPhone from India from April to December. And that's almost twice the previous fiscal year total. And it underscores how Apple is accelerating a shift away from China.

Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than 20, 700 journalists and analysts and more than 120 countries. I'm Lisa Mateo. This is Bloomberg. Stuff that the Fed wants fewer jobs. What they want is lower wage growth more because they're worried about persistent inflation.

Seventy two percent of all of the costs of our production in the U.S. is related to jobs and wages. So that's going up really fast. That could make it very difficult for inflation to come down. So if the wage growth on Friday throw in a sub 50 ISE salmon, apparently bad news is good news for this equity market. That was Randy Kroszner, the former Federal Reserve governor. Your equity market building on the gains of Friday on the S&P 500 up by a third of 1 percent.

You will hear from Chairman Pound tomorrow. You'll get some CPI data on Thursday and then Friday. It's all about the banks with JP Morgan kicking off bank earnings on Wall Street. Goldman Sachs, the latest from them planning to count more than 3000 jobs this week.

According to our reporting, one third in its core trading and banking units. A Bloomberg Sonali Basak spoke to the Goldman CEO David Solomon just last month. Uncertain time given what changing monetary and economic conditions very, very quickly.

And that's certainly having an impact of slowing down economic activity. And so if you're running a big financial services firm, I think you have to assume that we have some bumpy times ahead. Take a bumpy times right now. Right now, no question about it. There's an immense divide between what they're doing and Jeffries and the rest and what we're seeing from the major banks that they're always trying to compare themselves to. And ultimately, how much of this we're going to see some of the quarters ahead. Well, yeah, we're going to dive into it with the earnings season. It starts Friday, right, John?

After inflation Thursday with JP Morgan. Yeah. And then I think Goldman next Tuesday. Yeah. We're going to be a lot smarter in the Wednesday, Thursday of next week on this. But, John, what I would really, really

emphasize is a fluid situation is at the heart of it is who do you want to be? Sonali Basak joins us here on this day of Goldman Sachs. Layoffs is the heart of the matter that the management of Goldman Sachs wants to be more like Bank of America and JP Morgan. There are 300 basis points per year behind them. Over the last decade, I think what's difficult to ask about a question like that is it implied that big move into consumer banking. But from the beginning, there had been a lot of doubts about how big they could really get in that kind of a business. The idea was for this moment to really

be a stable part of the bank, a stable force, as a lot of those other businesses trading banking were very cyclical. The thing is, it didn't get to scale very quickly. Right now, they're on track to lose about two billion dollars in the consumer afforded to William S. Cohen's great book on Goldman Sachs. Everything happens. Three guys, five guys, whatever. The breakfast places on Madison Avenue, they're going to go in there to a booth and three guys on Madison Avenue and they're going to sit down and say, am I right? We have a two billion dollar loss in Goldman Sachs banking. Listen, a few things.

I hope research has never happened to Goldman Sachs. Of course not, because they didn't have this unit just five years ago or really into the scalp five years ago. So at the beginning, I remember having conversations inside of Goldman and so much of the purpose was to diversify, but also lower the cost of funding for Goldman Sachs.

But the cost to do that. Marcus is still give you three thirty five on a high yield savings account. Most of the large banks have not budged. Among them, point zero one percent. So it costs a lot to get customers. And there are some actually really great reporting. And Sam as well from Liz Hoffman that showed you it wasn't all just the decisions they made. They hit a lot of hiccups along the way. One interesting one being issue with the vendor who was also an investment banking client. So I thought that was a very interesting

tension as Goldman expands. How do they expand not just to meet the consumer, but to keep their existing client happy about how much of these cuts really are? As Tom was talking about earlier, just sort of delayed attrition to lead a culling of the ranks that we didn't see during the pandemic era. A lot of that is definitely true because in the pandemic, they were making so much money. And by the way, even this coming year, they're expected, even with profits really falling off, they're expected to post their second best year by revenue. So I think we really have to quickly change this discussion because.

Yes. Thirty two hundred people is a lot of people. It is not 2008 style cuts, but more importantly, with them cutting thirty two hundred. Morgan Stanley cutting another thousand. Most other banks starting to cut by the hundreds. You have to start to ask where the capacity comes from because there's nowhere to hire out of that fire.

But there's also this issue right now of all of the people who are getting laid off. Will this bank be smaller than it was in 2018? But some of the tech companies, there's a real question of where we're retrenching to what is the level where retrenching to or is it just sort of peering around the edges to a much bigger footprint than they had prepared him? You know what? Thirty two hundred people. I don't want to say that's a small number by any means, but to the point you're making. You don't go back to 2018. They've made acquisitions in that timeframe. The headcount has grown very dramatically. They've hired a lot of people that are not just at the very top level of senior banker here because they have so much work to do.

If you were. No, even the young people, right, that brought up the cost base by a base salary rising per banker. Fifty thousand a pop. Right. So you already had fixed costs rising. And revenue is right on the precipice of joining our three guys, having breakfast, trying to recapitulation what Goldman Sachs did there years ago. With all their important conversations, a waiter came up to us as was better my hair Spanx.

Okay. This is just unloading the failed equity efforts of the last 24 months. I wanted something else to you know, you had this exuberance really getting out of the system. There are tons of people that are excited about that.

Let's be honest about this. About what the fact that the spark wave is over, the crypto boom is done. All right. This idea that maybe you might see some distressed opportunities come back. You might have some interesting credit opportunities, come back to the client base, starts to shift. Also, you touched on the work. Fine. Can we stay on that for a moment?

We all remember that story. Was it the first year analyst that came out with a PowerPoint? This is still a little tigers. Do you think it's gonna be some grit that returns to Wall Street? Because I think a lot of people that work on Wall Street the last couple of years think that things have got a little bit too soft. Yeah, maybe a little bit too soft. Do you think a bit of returns, 100 percent, the great returns. You know, I was talking to some younger bankers over the last week or so and shocked.

You know, at this point I am a decade old, RTS. But, you know, the conversation was when they talked to their friends on Wall Street. Some of them don't want to stay in the business. They're afraid. Right. Some of them are the most excited they've ever been in their career because they realize this is the time that might make their career. If you can get through this cycle, you also start to get this is a time where you're not talking to the banks for money. You're talking about private equity, ISE

for money. Those are the guys that are still lending and they have so much drive had on Saturday. Everybody. This is important. Why is Wall Street any different than any other sector? Money isn't free anymore. Well, I think that makes it harder the

matter. I think the fact that tech is also in a bit of trouble right now changes the game on Wall Street. I think for the last decade or so, the hiring managers at these big banks felt like they were competing with what was happening in big tech. And I think the reason why the analyst community had so much leverage the first year round straight out of college is because these banks couldn't offer them the upside that existed elsewhere. That's a massive, massive change in the fact that you get the return to discipline. Some 5 percent interest rates, putting tech in trouble.

I think changes the game on the street as well. I have to you also have to ask about the consumer, too, because of the point about Bank of America, JP Morgan, they hit a lot of trouble last year in the face of higher interest rates. This is supposed to be their time. So if you look at the rest of this year, remember, consumers still have stimulus. They still have the student loan moratorium. That's hundreds of dollars a month that they are not paying that they can use to pay down credit card debt and other things. You to be pretty bold, to be the first year analyst that does that PowerPoint presentation at the moment. Any time you can imagine, you might be

ISE. I know that's a great idea. Well, I imagine they're in the office, which is also different. I imagine they're all in the office. Nobody is in their pajamas anymore. Everybody was in suits and ties. They might get away with the Lululemon on the way to the gym. But then on the way out, they better see you mentioned. And that was the perfect segue way.

Exactly. Ali, thank you. NASDAQ there with the latest. Lisa, the latest Honolulu March impression. Yeah, exactly. You're seeing those shares plunging more than 9 percent in premarket trading because they do expect margin contraction after so many years of expansion. This is this is known as shares lower than the 11 percent moving very quickly now setting net revenue at two point sixty two point seven billion dollars vs. the estimate, which was about the same thing, but still earnings per share coming in much later. And again, how much is this a story that

is going to be a feature throughout all of the retail sector? Nike, Under Armour also lower. Yeah. You mentioned and I think some Nike down by about one point five percent off the back of some of this. Yeah, well, it's just going to happen. I mean, this is the end of the earnings season that Mike Wilson and frankly, everybody else is talking about. Now, I go back to Storm Kaiser. You mentioned Schumacher coming up, these guys. Their basic theme is it's going to be very selective.

And whether you're talking economic analysis or investment analysis, the choice that seems to be shrinking down rapidly. It's interesting, though, especially in light of a Shery Ahn was talking about, the company now expects that it will further leverage selling general and administration expenses and their basic idea here. Where are they going to cut costs? Are we going to see labor market affect the labor market being affected by margin compression as a way to address some of the potential pitfalls in profits? We're getting slammed on Lulu Nike down by about a little more than 1 percent. No real trauma in that stock. I think you said Under Armour was down as well. Yes.

Least in the free market. So retail space retail getting hammered at the moment. If you are Lululemon C CAC is the heart of this like Lululemon. I've got the license to train jogger, you know, after you've bought four pair of those. Do you need to buy if you want some, Lulu? Of course I do. The ones with the pockets, pants with

pockets. No, I don't. Have we decided that was vetoed? Vet bills like that. But I do have a license. You know, I wouldn't the likely was honest with you. I wouldn't vote for the IBEX LSC at the

longest. The senior portfolio manager at Invesco Investment is joining us, he's just my structure for Sonali Basak equities, up a third of one percent. Thank you for shouting. It's good to see it from New York.

This is pulling back. The Fed is going to be late. I think that the Fed is imposing a severe slowing on the economy. They'll pause if inflation is declining, but they won't be able to. If they're not achieving their inflation objectives, they're looking for slower inflation, but still nowhere near Target. The Fed as well as every other central bank, the world got it wrong. Is it?

Oh, transitory, transitory, transitory. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. This week, how much more do you want CPI Chairman Powell? Earnings season begins life from New York City this morning. Good morning. Good morning from audience worldwide.

This is Bloomberg Surveillance TV and Radio alongside Tom Keene and Lisa Abramowicz some Jonathan Ferro features. Adding to Friday's gains, take the S&P up a third of 1 percent. It's a nice lift and it comes off the big, big lift that we saw on Friday. I would note also, Jonathan, critically off China, reopening oil up 3 percent gets my attention.

Brent crude at eighty one dollars a barrel. Big moves we saw in the equity market on Friday. Big moves we saw in the bond market as well. Yields lower. A whole lot lower. We've got to tease out the economic data, what on earth it means at the moment. Primo and spare a thought for Chairman

Powell. He's got to respond to this tomorrow. Will it matter? Well, anything he say actually have credibility in markets because a lot of the Fed officials have been saying the same thing. They've got more work to do in this market, are saying we're seeing soft landing. We're seeing as perfect ending here with two data prints that might suggest that things aren't as strong as previous, do you think? No, sir. 50 ISE. Ms. Screams Soft landing.

People are saying you need to see that softness in services. And the reason why people say that is a soft landing, not a hard landing, is because wages are coming off, but the numbers on the headline number are still strong. So people are talking about a soft landing again. Does this matter?

It is one data print. How much does this actually indicate what's coming? Although you are seeing earnings starting to trickle out perhaps more than the Mike Wilson. That's the downside risk. Let's talk about the upside risk. China reopening the rip. We've seen in E.M. equities, emerging market equities up more than 20 per cent since the lows of October. Some big moves we're seeing here.

I'm going to go back to Blinders essay in The Wall Street Journal. The gentleman from Princeton, the former vice chairman Reese's. Look, here's the reality. China's reopening Pacific bid with the

Pacific Rim with a bid. Jonny mentioned ADX Y with a nice lift there. Lori Culver seen in the last hour talking up, we've got a killer gas must listen, must watch for Global Wall Street coming up. And this is on the optimism this year will not just be the United States. Mike Schumacher of Wells Fargo. Coming up in about 28 minutes, Alessio out the longest of Invesco. Coming up very, very shortly, Alessio, a month ago, constructive risk.

Neil Diamond International specifically will pick up on that in a moment. Equity futures right now up a third of one per cent on the S&P 500. Just a bit for the price action briefly yields a little bit higher by three or four basis points on a 10 year 359 48 Eurodollar time preaching one of seven here. One of 685 dollar dynamics, euro one really there, six point seventy eight distant from seven yuan per dollar.

The renminbi is showing strong. China's strengthen again. I'm going to take that Jay poll ask you. I know you know Jay won't get up first, folks. Full disclosure, he's got a slide in what's fair on the nine o'clock midday hour. I was fucking Tidjane Thiam months. Well, get him mad because. Because I think he's been right and he shouldn't be punished on the

2023-01-12 08:24

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