'Bloomberg Surveillance Simulcast' Full Show 10/05/2022

'Bloomberg Surveillance Simulcast' Full Show 10/05/2022

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Inpatients. Not one authority until inflation is under control monetary policy will still have to chase inflation trying to cap it. I think central banks will still be hawkish. Inflation will still be stronger than they want. Markets in general are looking for signs of maybe such a long time. Well high above.

All right. But they don't count volatility out now even though we're kind of dropping back 20 and a level. There's a global shift towards a higher returns environment but you can't get there all in one go. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz life from New York City front audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and

radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro futures down by about one full percentage point T.K. following the biggest two day pop on the S&P since April 2012. Anybody believe it if I'm out there searching for eating disorder drugs. I love the phrase I don't even know to give a citation to.

It's a decidedly well it's just a decidedly Wednesday. I mean that's all there is to it. It's decidedly defensive and that's where we are. The U.N.

has complained about Federal Reserve policy. Rameau equity market polls have complained about Fed Reserve policy and now the WTO is complaining about central bank policy basically saying they are risking an overshoot they're going to cause. Recessions are talking about some of the exact Janessa issues. They're also talking about food insecurity debt distress.

How much is this the rest of the world's problem and not the United States's problem. We've been talking about this. The narrative of this week in Marcus is the Fed will blink and that'll be good for risk assets. We've heard a lot of pushback to that. And we will continue to hear pushback to that if we continue to get the data that we have which is deteriorating seemingly. No one's told the Fed because the Fed doesn't know that yet.

That's not what I hear from the Fed speak. And then job openings yesterday job openings yesterday. I just feel this idea that we can in the that there's a soft landing without a doubt drop him by more than a million. That was a real move. Lower Mark Gurman. It was the biggest move lower the biggest drop going back to 2020 also. So you know if you start to see this perhaps this is a perfect scenario for the Fed where you start to see companies unnecessarily lay people off but reduce the openings that they have.

All that said to your point John Fed officials still coming out and saying we're not going to blink just quit it. We have to raise rates more and just you guys have to believe in us. Janet what does the WTO just don't matter. Because they nailed it last time by the

growth story front. So everyone's saying I'm sorry it's slower than you think. There's a number of headlines here but two point three percent. The rule of thumb on global growth folks

is 3 percent. So 2.5 percent a recession mass like a collapse not NBER. It's not this is not there. But I'm sorry this statistic is ugly. Would you like to squeeze in some Twitter. Please. No thanks. Later this morning.

Okay. Is that the extent of the conversation this morning. It's a good vehicle for talking about the tarts Alix Steel. What is going on here with the airline.

To just beneath the offer in the free market at 51 73. So he comes out he says 54 20. Back on. Let's go. What this makes me think about is all those banks that committed to financing in April when the financing costs were incredibly cheaper relative to where they are now. Are they going to be on the hook for those losses the mark to market losses as they try to offload this. What kind of disruptive effect does it

have on the rest of credit markets changed so much since April. On the equity side some of the debt side Sophie Kamaruddin. There's going to be fun here going into the jobs report on Friday. Neiman Marcus. How much is he paying up. All you need to do is go to the BQ screen in the terminal. Boom. Twitter is over.

Double the valuation and price to sales of Facebook and snap. I've never used it. No I had to use it. Snaps down about 70 percent from the April highs. That gives you an idea of how much some of these social media companies to correct it when this deal was done at this price.

And it was still thought to be overpriced at that time. And now how much evaluations changed. And again I keep going back to the debt financing because that has a broader more systemic reach than just the valuation of one tied company. Tension on the debt coming through.

It's like an engine on that made. That's the question. I'm going to catch up with that. Ludlow a little bit later this morning is going to pop into the studio. It down just a little bit and a half of one per cent in the premarket. Your broader equity market shaping up as

follows. The S&P 500 biggest two day poppy. S&P going all the way back to April 2020. We fight that this morning. We're down nine tenths of one percent. More recently you've seen a bid come into the bond market 373 60 988 yields up just a little bit this morning on the session up six or seven basis points.

We saw some dollar weakness. The dollar strength returns euro dollar ninety nine 24 euro dollar negative six tenths of one per cent. And there is a big big conversation Lisa about some big big output cuts to OPEC plus crude 86 29 call it 86 30 were down two tenths of one per cent Joel Weber. This to me matters. OPEC plus meeting for the first time in person. Going back to the pandemic potentially cutting by 2 million barrels the production of OPEC plus nations.

This comes at a time when a lot of the Western nations still want to see lower prices. This is the offset to inflation. This goes against that. We're already hearing about potential pushback from President Biden's administration what they could potentially do to offset the reduction in some of the production. Try to wrap your head around this. Nonetheless the brand has really fallen so much. Do we see a path back to the high 90s like a lot of people are expecting. We get a bunch of central bank speak

perhaps who will come out and say OK markets you guys are right were wrong. I doubt it. Fed speakers include however the Scope Fed President Mary Daly who yesterday was adamant about the effect of inflation on lower income households. How punitive it is. She reiterated the point that you need to have price stability before you have a steady labor economy. ATLANTA FED PRESIDENT Ralph our basic and there is an ECB non monetary policy meeting in Cyprus. Do they talk at all about the potential ramifications of the rapid tightening.

And we have seen yields on the overall Bloomberg Global Aggregate Index absolutely skyrocket versus where they were back in 2020. Sub 1 percent now north of 3 and a half percent. That is the global average. How much do you get. Actually central banks pushing back versus saying let's go. This is what we need to curb inflation. And at 10:00 a.m.

we get the U.S. ESM September Services Index. Just to point out we've gotten a lot of negative surprises. We talk about JOLTS. Yesterday we talk about ISIS

manufacturing data that came in weaker than expected. This is what the Fed wants to see. They want to see a softening. What we have seen is several steady months of negative reads. Negative surprises. And John this is interesting. Is this a positive scenario for global markets.

Are people getting comfort from their saying the economy is moving faster than perhaps the Federal Reserve is realizing. Lisa great work. Thank you. Another data point to look out for a little bit later on. A ton of Fed speak as well. That real excited about.

Christine Nelson joins us now the global CIO at Deutsche Bank Private Bank. Christine I've asked this question 70 times this year. Every time we've had a bounce a bear market rally or something more durable what is it. Well I would say it is always good that

markets also can turn upwards. So that was not the case for some time. I would still say the markets have to go through the earnings season for us and I would expect that to be a volatile environment because I think the market is fully too optimistic about the earnings from that perspective. I would say we probably see some downside from that perspective. However then I think in Q4 is inflation is probably not moving especially in the U.S. not moving much higher.

I think there could be opportunities for investors to move in. Christian noting the leadership of David forfeits land. Our Deutsche Bank is simple when the facts change. David focus land changes are the facts changing for central banks where you are not the modern cliche where they blank. But are they going to amend and adjust through October. Now first I have to defend David.

I have to say he was very early was coming up with the recession. I think he was the first in the market and we had good discussions about this. And now we see not facts of a recession. But I think there is more agreement. I would call in markets that probably go through recession and in the US it might be a mild recession to be seen. I would be at least more bullish on the US than you won't be. Everything the times in the next month could be even more let's say costing more growth depending on the weather we have right here. Question What would you be buying.

You said that at some point there will be a dip or be a first number of purchases. A lot of people talk about how it's going to be duration and we've seen that right. We've seen longer dated Treasury is really lead any of any rally. Do you get behind that kind of you. Yeah.

So certainly we think in this quarter and in the fourth quarter of the year I think fixed income has some value. We call it the No. Income is back in fixed income because we think if growth comes down which is our forecast and I think that's what the market is also thinking then the rise in youth the massive rise you've been just showing could stop at one point in time and that offers opportunity. Christine just a final question on the job openings yesterday. The JOLTS data a drop by more than a million. Pretty stunning number. That really fueled this equity market drive.

Can I ask you whether you think that's because those jobs got filled or because of economic weakness those jobs openings got taken away. I think it's not a zero one hundred. I think it's a mixture of both but at least from that perspective I thought it was a good sign that there's some reaction already. Office of Fed policy it's not only monetary policy is also that the environment is getting a bit tough. Your duty as well. So from that perspective I think that's to be seen positive. And that's why we think the Fed is not

going 75 steps into consecutive meetings. For me the next one's there and then we think and that's what the market is the world's leader agreed to that it comes down from there. It certainly wasn't. It wasn't if Alix Steel the unemployment

rate to move up. That's where we've got to wait for Friday for that. Christine thank you. Christine. Noting a Deutsche Bank private bank claims sub 200 k job openings dropping by more than a million after a more complete picture of the labor market. Lisa you've got to wait until Friday. Jason Kelly. Yeah. Although again is that going to be enough.

Right. We got some information. Pantheon Macro for example said if we get more information like the ones that we got yesterday with the JOLTS data coming in that much that will be enough for the Fed to take a pause. On the flip side inflation is still running high and you can't hire enough people and you still hear that from a lot of company. The line we've repeated all week. You can't find what you couldn't hire. Didn't I just speak to jobless claims where they aren't on why jobless claims were last week and where job openings are now. Joel Weber.

Well this goes really to the point that we were talking about earlier this week which is what if this is not a good indicator for the Federal Reserve to really track to understand how much the froth is coming out of the market and how quickly inflation could come has a recipe to dream about a soft landing all over again some CAC. And that's why you see this actually talk about a prime minister who has a dream. I'm not sure that prime minister is is living the dream right.

She's living the dream right now. The prime minister speaks in Birmingham. It is in Birmingham. Just explain to our American audience waking up in America the symbolism you see here Joe Weisenthal significant moment for this prime minister. This is not the moment that I think this prime minister dreamt about when she first got this job only a month ago. Are we going to see another U-turn here and a whole range of issues or will they double down. Now there was a conversation at this time yesterday yesterday morning as to whether that budget would be bought forward ahead of the bank giving the decision.

And we got some freezing cold water poured over over that set. The next month I think is going to be fascinating. Middle of October. Elise you know the date that's when the gilt market operation ends. November 30 is when the bank giving the meets. And then apparently you got to wait for a budget. And she's set the precedent.

If the facts change she says she changes. Well it seems like the pushback has only continued. So does her response also continue. Did the WTO weigh in on that as well. Thank you. Really. David you're. I'm at the U.N. right now. I mean clearly there are some very very

difficult complex things going on right now that is getting the attention of organizations that typically wouldn't weigh in on some of these DAX diplomatic. Well I think there are strangers. We've only just started many a features positive yesterday. We're down this morning by night since it was just sent on the S&P. This is pulling back. Keeping you up to date with news from around the world with the first word.

I'm Lisa Matteo. The European Union has backed a new set of sanctions on Russia. Bloomberg's learned it includes support for a price cap on oil sales to third countries. Now the sanctions also target a range of individuals and entities including senior Russian officials and those involved in staging the recent widely condemned referendums. OPEC and its allies may make their biggest cut in oil output since 2020. The move to stabilize prices risks cranking up tensions with the US at their meeting in Vienna today.

OPEC plus energy ministers will discuss cutting production by as much as 2 million barrels a day. Now that could lead to higher gasoline prices for U.S. drivers. The world's richest person has found a way to potentially avoid a bruising courtroom battle. Elon Musk has revived his 44 billion dollar offer to take over Twitter. Now that proposal likely eliminates the

need for a trial over whether Musk should be forced to go forward with the purchase. Bloomberg's learn that Musk's legal team sense that the case was not going well. President Biden has pledged an additional six hundred twenty five million dollars in weapons to Ukraine. The package includes long range rockets ammunition and armored vehicles. The president spoke with UK President Vladimir Zelinsky on Tuesday.

Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries. I'm Lisa Matteo. This is Bloomberg. Bases not one party unsold. Inflation is under control monetary policy will still have to chase and patient trying to cap it.

And that's where financial conditions are tight. And you can get accidents as well. So there can be no rest or financial stability until we tamed inflation side of things as well. The two are intertwined. Wonderful to hear from Jeff. You being my man in senior market strategist on the affects market at the moment. Sterling dominated much of the concerns

a couple of weeks back. Let's trust the British prime minister addressing the Conservative Party faithful in Birmingham England at the moment. One headline from that stormy days facing the UK. I understand Tom she came out to the song by MP People moving on up. Just who do you think you are.

Stop acting like some kind of star. Just who do you think you are. Take it like take it like a man. Prime Minister if that's what you are. Not sure who those lyrics were aimed at some. But the Prime Minister's address continues.

It's a symbolism thing. It's a big day on America. The song when they come out to it it's like a huge deal. Yet all the symbolism. You think that was a big deal.

And people I. You tell me. No right there. I don't know. Let's continue here and we will continue with Twitter. We're going to try to give you a sharp discussion here of the distinctions from Mr Musk for the company and for global Wall Street right now.

Edward Ludlow has filed this from the very beginning. Let me get this straight. It's at near eight times sales competitions at three or four times sales. He's grossly overpaying and he's got to sell the story to Wall Street. What will they listen for. Well you know as part of the discovery

process and through the court filings mosques only consistency was there. He wants to make big changes to the platform that could only be done if it was a private entity. And a big part of that is moving it away from a platform that is dependent on advertising.

You know he's in these kind of big thinking conversations with Jack Dorsey about Twitter's role in a global democracy. They wanted to remove outside influence in the ad market doesn't allow for it to be this kind of editorial freedom of speech without a billion dollar cash call. Sell this to. Name the firm this morning. Do they get a preferred coupon. How does this actually happen with a company that essentially makes no money. I think that the biggest risk right now. Right. It's a 44 billion dollar deal twelve point five billion dollars of debt split between. Unsecured secured bonds and a six point

five billion dollar loan in the kind of standard 500 million revolving credit line. He had all these equity financing partners lined up as well. But the world was a very different place in April. And you know I guess the question for

these co partners who are many of them well known associates of em is how much do you trust your loan going into a deal like this based on the behavior of recent weeks. Because frankly you know I don't pretend to understand the psychology of Elon Musk. We don't know why he. You turned and did this in the last 24 hours. One source tells us it's because his legal team looked at the chancery judge Covid-19 McCormick what she'd done in the pretrial hearings and conferences and said we aren't going to win.

So you know it's pretty precarious as deals go that it's happening contingent on debt finance Islamic. As we heard from the banks involved in any of this. We haven't heard from the banks but you'd imagine they're nervous. Leveraged debt is a hard sell right now. And those banks have got to go to the asset managers and say not just that this is an attractive proposition. And they'll probably the banks

themselves end up with some significant loss particularly on the unsecured portion I'd imagine. But also they've got to sell the vision for Elon Musk plans to do with Twitter in the longterm. And remember this is a man that's gone on stage and said I don't care about the economics of Twitter. I'm not doing it.

It's critical particularly the memory of deals 20 30 years ago. Are you seeing as a riskier pick on Morgan Stanley that they end up with his desk this debt under trading desk because they can't sell it to their asset managers. Right here. Institutional means. Exactly. And I think that we've done the math that there's 51 billion dollars of leveraged debt sitting around out there in a pile.

Twitter's 13 dead or 12 and a half billion dollars of that. It's a big chunk of the risk in the market. Right. Just absolutely terrible.

And Lisa you know the Citrix deal well over the last couple of weeks this is a bad bad time to be pushing this stuff. Yeah there's one estimate that there's more than 50 billion dollars of leveraged debt that banks have to sell of unsecured. And the issue is that you're not seeing that much being sold into the new issue market.

So any supply let alone 50 billion dollars of riskier securities could potentially really cause a disruption a market that's already telling us. So explain what leverage that is for mere mortals like me or like huh. OK. Basically is just debt to finance a company that has a very high relative to other companies debt to income ratio debt to equity valuation ratio. That's the inherent leverage in a company. That's why they are riskier because it

takes more years of profits to actually pay down that debt. And what you have is right now people are concerned about financing a company based on valuations of say a year ago or even four months ago. Given how much the market's moved away from it we've stripped out the twelve and a half billion margin loan component which was originally in place. Right. And he went with the more there's a higher proportion of equity financing. But even so that's why I'm saying if he's going cap in hand to partners to co fund this they'll say they'll look at the debt but they'll also look at the track record of recent weeks and say I want to be involved anyway. I don't know the deal back then.

Back in April I think kind of maximum interest rate of eleven point seventy five percent. Yeah fully way for triple C that is trading about 15 percent. So compare and contrast where we are. It's the unsecured piece of this that's highly problematic for these banks especially at a time when other companies are not really selling that debt. Right. So that's the mark to market price not necessarily with fire sales of credit investors but just where things are implied. It's not necessarily tested in the new issue market because there have not been those triple C issues issuers that have come to market.

This is the big issue. People see this as a potential systemic risk not in a massive scale but at least to disrupt the credit markets. If banks are forced to sell 50 billion dollars not just Twitter but more broadly like the way we've framed it this morning here at Bloomberg Elon Musk has revived his Twitter bet. Well I'm just back to square. What precisely. Precisely. I now know precisely. I feel a real sense of deja vu.

John I'm sorry. I think a lot of people do. I think to sit here to say it's going to close it's going to close imminently. It may well do. But I think the accurate way to frame

this is the deal has been revived by Elon Musk. You know pick your framing right now. It's hard to take this too seriously. Based on all of the things that have to happen that's a reason why you are seeing that discount in markets. You do wonder who has made the most money from the arbitrage here. Where are the banks thinking right now.

Who had a sleepless night last night thinking oh my gosh how much are we going to lose. I mean really these are the tangibles of the ripple effects of this kind of announcement the moment. He did well that's for sure. Tell us. Did very well. It could catch up.

Good to see you. Thank you. Get me some headlines as well from less trust. The British prime minister who goes on to speak at the Tory Party conference in Birmingham England. The priority is to lower the U.K. tax burden. Some economic growth hasn't been strong enough in the U.K. We've heard that a few times in the last couple of weeks say the American numbers go ahead.

The Telegraph John had agreed or. Today for dummies like me of the five parts of the Conservative Party which party she is speaking to today in Birmingham Birmingham Birmingham. In that I'm proud. She's not speaking to the Sunni group certainly not the Johnson group. Maybe that's what the song was about. I don't know who she talking to. I can't figure it out. You're the pro. I'm ready. Sends going to join us on the energy

market from energy aspects in just a moment. From New York. This is Glenn Beck. Live from New York City. Good morning to you. Here's the price action worldwide kicking things off stateside with equity futures. Negative on the S&P on the NASDAQ 100 following a day to day path on the S&P the biggest since April 20 20 were down eight tenths of one per cent on the S&P on the NASDAQ were down zero point seventy seven per cent in the bond market yields. Down down down and then up again to Stanton.

Thirty two is up 3 to 4 2054. That's just the ride. A misprint explained the roller coaster brand. ISE really fell right 369 88 on a 10 year up around 6 or 7 basis points.

Still one off the highs last week 3 4 per cent last week. And we come back down again and wrapping things up in the commodity market. Can we just talk about crude. We're now talking about a two million barrel a day OPEC plus and some real pushback based on reports leaks are coming from the United States of America unhappy about the prospect of OPEC plus doing just that. There's been some rumors of possibly even releasing more from the SPRO from a strategic petroleum reserve to offset the cut in production. But this is now what they want to see

especially ahead of the mid-term and some may be even constraining exports. Yeah the recording is frankly in every country. I think it's political frankly in Russia's political there's some real nuances there. And it's what we hear from any any room.

Read a senior in a moment. Looking forward to really you know out front on that as well. We've got a man in Vienna right now. Flynn thanks. Manus Cranny a good friend. Michael from Manus Cranny. Catch up buddy.

Walk me through what we're expecting through the next couple of hours. Jonathan. Welcome to the Central Bank of Oil. Welcome to the bowels of OPEC. This is where the decision is going to be made. Yeah.

You took Sandra banking on your show all the time. Like the analogy they're going to come here they're going to talk about perhaps a monster pivot and a monster cut of up to two million barrels a day. Now is that going to really change the narrative and change the dial. Maybe in real terms it's gonna be a direction of around 900000 barrels on the market out there. But it is re grasping the narrative redefining the forward guidance by his royal highness Prince Abdullah Abdullah's. It's been summoned the Saudi oil minister. And to the point that you've just made.

They are chain like hack in the White House. Bob McNally is here from Robert in Energy in the audience in front of me. Came on the telly this morning. He said that panicking in the White House they flew to cited a fist bumped his royal highness. And what do you got. Two million barrels a day of a cut. Then Masri the Emirati oil minister with door stabbed him.

We will not use OPEC as a political organization. Recession. Recession is the risk. Recession is a moniker for this 2 million a day a cut that they're putting on the table by the way in the report. In the OPEC report. The OPEC report we're going to expect a demand growth of around two point seven million barrels a day and they're cutting into that menace. Just quickly here is the Russian energy minister there.

And how political is that. On his way. Yes it is political. But he is the oil minister not gas minister. And to a certain extent yes.

Your country has sanctioned him. The Europeans have not. This is a bite. Really. Solidarity with Russia from the whole of OPEC. That is going down like a sack quite literally. On the other side of the world maybe we're overplaying it. He's not sanctioned and therefore he is free to come here.

But you can be pretty sure of this when the next set of sanctions kick in on Russia. You're looking at what is Russia going to do whether by 2.5 two point seven million barrels a day of both oil and product. That's the start of December.

That is the next shoe to drop in terms of the supply narrative here at OPEC. The Central Bank of oil. Good morning Manus Cranny. You're the best. I miss you buddy. It's good to hear from you Manus Cranny. From Vienna on opaque plus minus.

Thank you very much. Brent Crude. Ninety one eighty three. WTI eighty six fifty. I think it's fair to say this could be controversial a little bit later this morning. I think it's the memory of 1986. Joining us now I'm Rita son of energy aspects as well. How much is the ghost of 1986 and Vietnam.

Rita open cut their clock cleaned in 1936. How much of the Saudis afraid of that. I I mean I wasn't around then but whatever I know of that 86 cuts I will say this much is that I don't think that's the playbook Saudis are using right now. Prince Abdulaziz has been very very clear about a few things.

And Mona said that they are talking about recession the stronger dollar. My conversations with him in particular highlight how frustrated he is and the group is about the disconnect between futures and the physical market. I do think a big part of this court remember he mentioned he'd written that big piece. It was an interview with Bloomberg where

he talked about OPEC could do anything really to close that gap. And he's trying to do exactly that. Get the shorts out of this gap to the physical market within your brilliant research note. If he goes you know if Saudi Arabia goes unilateral and if they go marginally less than two gazillion they go to something you know to appease everybody in the cartel and all that. What is the price of oil do.

What is the jump condition here from say 90 a barrel. So my understanding is obviously technicals have played a very important role in the last 20 dollar move down and therefore there will play a very important role in the move up because it hasn't been driven by fundamentals has just been fear is off various things. The backwardation of the crude curve remains extremely strong which tells you that fundamentals are still very robust.

So if Brent crosses 94 then we could be very quickly back above hundred dollars. But that's going to be a key resistance test now from Saudi Arabia's point of view. They see this move as defensive. They'd believe if they don't cut big prices could fall to 60 or 70 dollars. So regardless of what you and I think Don I think it's very much about their belief of what they are doing. Well and really just said their releases 1986. It's like you know think of Japan and central banks. It was back in the 90s which I believe

is the 2000s or Japan screwed up. That is precisely the collective memory of the royal family in Saudi Arabia. Don't do 1986. What's different this time is they have also the excuse of perhaps they don't even have the cadet capacity the spare capacity to produce more an arena. We have been hearing that as a peripheral reason for why to do this.

Cut. Now from your on the ground research how much is the move driven by an expected reduction in demand due to a downturn vs. a lack of spare capacity and trying to protect the reserves ahead of the next decade.

For sure that plays a role. Look we've been talking about the lack of affect plus back capacity for years now really it's been over a year and I think it's very clear. And this is why by the way some of these big numbers are being thrown around because even a 2 million barrels per day cut in real life is going to be about a million just under a million because of under production. And even from the GCSE point of view they need to preserve a fair amount of the capacity. So that is definitely playing a part. But again to Tom's point I don't think

Saudi Arabia or any of the OPEC members want to be in a situation in two months time. Let's assume the macroeconomic situation does worsen. They don't want to be looking back and seeing massive surpluses of oil. They want to react ahead of it. And that's I think a bigger part of it. But of course it helps to preserve their reserves as well and just kind of take it a little bit easy rather than stressing their system. Saudi Arabia's producing at 11 million barrels. But right now that's not a number

they've done sustainably in the past. And that there's a huge political overtone to this. We were talking earlier about President Biden going to Riyadh and this issue of the US and other Western nations relying on OPEC plus to produce more. What's the pushback likely and how potentially damaging is it for the US to reduce exports at a time when Europe is arguably more flat on its back when it comes to energy than the US. I mean the irony of calling Europe allies and then banning exports is going to be something I'm sure Tom and you will discuss this at some point.

But look I'm in the U.S. I've been meeting with producers for the last week or so. A U.S. production is really underperforming and nobody's talking about that.

But that's probably why even though the White House won't admit it. That's why they're going around the rest of the world asking for more production. I have also heard from producers yesterday that there have been conversations ongoing in the White House for potentially restricting exports.

It's going to backfire. But this is a global market. All it's going to do is get WTO prices down. But brands are going to skyrocket and product prices are linked to Brent. It's not going to do anything to gasoline prices at the pump in the U.S. and red cent thank you for an energy aspects on the latest.

The domestic politics here are not lost on anybody going into the midterms. Hardly original. Of course it makes sense. They want gas prices down going against the midterms and gas prices just recently starting to go. There's this on radio the wrong way. A little fancy just a little bounce. Yup I agree. And what she said there. Can you imagine.

October 20th. October 25th in oil. Brent Crude Prince 101 as we as a reader alluded to there. And gasoline prices are climbing. There is a belief among some people at

least in this oil market that by I wouldn't say exhausting the SPRO but really bringing it down aggressively. You've made the market more fragile. You've made the market more frank more fragile and more prone to the kind of things that we're talking about squeezes rallies especially if you do have a lack of spare capacity. Because that means you cannot increase production on demand. And what I'm most interested to hear from this particular meeting is how much they emphasize that versus the onset of some sort of recession. Because as I'm Rita were saying in the physical market there still is a significant amount of demand. And we've heard from analyst after analyst Paul Sankey yesterday saying they expect demand to increase next year.

People are still travelling. We still need commerce. And what happens if China comes back online which you're seeing on the margins with respect to activity. Some of these issues kind of come to this model. And when you have a lack of supplies to unleash onto the market like the SPDR that's the point about fertility. Gasoline prices don't have a five handle time on average.

They have a three handle still 380 but pushing forward again. And that starts to get uncomfortable I think for the White House. I agree. It's it's that the I don't know. It's close to the topic. It really rose. I would argue if I lived one of the issues of the year so far at the epicenter we used to be in Boulder Texas and we'd be at the sink and boulder. What would you be paying for. The gas was 95 cents.

A picture was not the sink as a bath. We'd be paying to ninety five away 50 for a pretty good job. But you bring up something connected to the Joel Weber. This is important. Drinking gas. Nothing of a road trip to Fort Collins. You just get out west. You just get in the car go a shot. You just go. And that's been the story here.

Well that's America. Welcome to 2010. But you go back above four bucks a gallon you get up to five dollars a gallon. I'm sorry. It matters across a huge one. So you look at all of us. I mean you know I mean I'm well below 50 Ninth Street in four months. Don't track me down with it you know. You know you're an elite group over there. Yeah.

Just not a part of that. That's so Tony. Chris NYSE of PIMCO is going to join us shortly. Looking forward to that. Futures right now negative on the S&P 500 on the NASDAQ to negative after a big day of gains yesterday and the day before from New York City. This is pulling back. Keeping you up to date with news from around the world with the first word.

I'm Lisa Matteo. Elon Musk's decision to revive his 44 billion dollar takeover of Twitter is great news for a number of investors. They include billionaire Carl Carl Icahn and arbitrary traders who continued to bet on the outcome of the deal through months of uncertainty. Now after much said he would move forward with the agreement at the original offer price Twitter's stock rallied as much as twenty three percent. The Biden administration is trying to keep OPEC and its allies from making the biggest cut in oil output since 2020. OPEC plus is meeting today in Vienna

where energy ministers will consider cutting production by as much as 2 million barrels a day. Bloomberg's learn that U.S. officials are making calls to counterparts in the Gulf trying to push back against the move. President Biden had a muted response to North Korea's missile launch this week. He pledged to work closely with Japan and South Korea. But in a sign of permission about a bigger breakthrough he held off promising much more. The North Korean missile was the first to fly over Japan in five years.

United Airlines will become one of a handful of major carriers to resume passenger flights to Hong Kong. Bloomberg's Learn United will start flying there as soon as January. Hong Kong has been largely cut off to the outside world since the start of the pandemic.

And in baseball Aaron judge of the New York Yankees is now the wreck in the record books. He had a 60 second home run on this season Tuesday night and that breaks a record set by Roger Maris of the Yankees in 1961. Judge set himself up for a lucrative off season. He'll be a free agent and for the season reportedly turned down a seven year. Two hundred and thirteen million dollar

offer from the Yankees. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts. I'm Lisa Mateo. This is Bloomberg. Markets in general are looking for long maybe banks are now reaching the highest level right. Maybe

he's grateful for the families they would passing by. Well we follow over for a little bit before this happened. Fantastic to catch out with Veronica Clarke there Citigroup global markets economist with Andrew Holland. Hollis looking for another big move from this Federal Reserve next month. Live from New York City this morning. Good morning. Here's the price action for you.

After two days of big gains on the S&P 500 with lower by 8 cents of one per cent were down 28 points on the S&P 500. Yields go the other way. You guess that didn't get a five or six basis points on a 10 year 369 and at dollar a stronger euro dollar ninety nine eighteen were negative seven tenths of one per cent on that. And as we anticipate potentially a big output cut at OPEC plus create some 87 17 positive three quarters of one per cent Joel Weber. Jan what matters from the WTO gas and this goes right into the fixed income market is adapts and adjusts and tries to gauge. Is merchandise true.

The animal spirit of trade out there next year goes from three point four percent to a stunning 1 percent. That is a global trade recession. They've been very bearish before and they've been lean FTSE. Typically we joke about the IMF the OED coming out and forecasts and right confirming what we already knew. I have to say that WTO came out pretty much in front most of those organizations.

There it is. And it's a backdrop. There are 1 percent again for 2023 and merchandise trade. Turning to Costanza as these numbers tattooed his brain is with PIMCO and his truly expert in short term space in the bond market. What does fixed income do Tony. Given a global recession and certainly from WTO a trade recession. And the bond markets start to think

about that possibility and these yields therefore make it a propitious time for investors in attractive period. The bond markets thinking the economies will weaken. They're not sure. So there's some risk premium you could say in prices of various assets equities particularly in particular. I think it's just the uncertainty factor that's keeping markets on edge because we're not sure about how inflation will evolve in particular. But as long as there's vigilance by central banks and there will be it seems Volcker rest style.

And in the United States for example it's highly likely that the inflation rate will decline. There will be disinflation in the bond market will look increasingly attractive to investors especially if the WTO type scenario where global trade volumes shrink as much as they expect. I mean it strangles it too. Well let's cut to the chase as PIMCO extending duration and you load the boat on our yield this morning Tony. I think has been underway duration for some time.

We've been reducing about leaving on that. We've been. We'd rather keep it closed neutral. Remember when you're thinking about duration interest rate sensitivity. You're talking about a directional strategy. If you open up the franc for BOVESPA. Fifteen hundred page book on bond

investing. You see there's a lot more to do than simply bet on the direction of interest rates. And that's what PIMCO is trying to do right now to try to stay up and quality and try to not make directional best to look for assets that we think would bend but not break in a time of recession and with sand lots of different types of economic outcomes for all that said duration under way. Slight underweight. Given the recent drop in yield slight underweight might make sense. But remember that time the Bloomberg

aggregate has a duration of six point six years meaning if yields move a percentage point that that investor would lose 60 points. So a slight underweight would be unlikely. You said something interesting a slight underweight. Does that imply a high Tony. Does that imply from your perspective that we have not yet seen peak yields. It's difficult to say. There's a wide range of scenarios but yields today are closer to their long term averages and that makes it very attractive time to be investing for one.

Secondly the yields and the Bloomberg Aggregate today which is a compilation by the way for those who don't know treasuries mortgages corporates and a bunch of other securities it yields. Today the yield is four point six percent. Now how does that compare historically. Very good. It's closer to the long term averages. That's one reason why bonds look quite attractive today.

Secondly where do you think the inflation rate is headed. Bond market seems to think into the low 2s eventually so that yield high fours looks attractive. On that basis. And finally Tom alluded. If economies weaken there's a chance for capital gains and fixed income now. And so one doesn't want to miss out on that. So you have to question are you really interested in timing the diversification benefits of bonds which of course this year haven't been quite apparent. We think we'll assert themselves over

time. How much are you seeing Tony. A lot of just mom and pop investors pile into short term treasuries for the first time in a long time. How much are you seeing those cash investments really balloon in a way that feels sticky to you that will transform the rest of the markets because that is money not going to equities not going to high yield bonds. I recently took a trip to Asia Korea Singapore and Thailand. Lots of investors there.

Today I'll travel to San Francisco from New York. Traveling a lot seeing lots of clients talking to them on zoom etc. It seems like the wagons are circling. But of course as you could see by the global fund flows investors are still leery.

All that said investors seem to be willing to move into the center of what we would call the concentric circles for investing. The concentric circles would be we'd have the riskless securities treasuries at the center and the most risky securities at the perimeter. So investors are seeming to want to move toward the center of that concentric circle and will slowly work their way out when they gain confidence and take lots of things. Lots of scenarios of course you can envision that would cause it to occur. But that's not in place yet. It's only because some triple C unsecured debt for sale.

What kind of interest would you offer on a triple C social media company centered on Twitter now struggling for direct 50 percent. What you reckon they got in areas. What would that be on a concentric circle. Think of a solar system in a concentric circle. Looks like that.

That's like going way out to the outer perimeter of the system. And that's a risky gambit right now given the uncertainties about economic growth and cash flows. Because at the end of the day what a bond investor cares about is cash flow getting his or her its money back. And of course in a down down economics area it becomes uncertain. Right. Diplomatic Tony thank you sir.

Very good sense of him. Do you think that the team can stand the entire beat down in 1 800 PIMCO to see if Tony one of the good stuff they're to dial 1 800 TWD TR Equity FAA which is the financial analysis John cash flow 700 million plus 120 million plus negative 380 plus negative eight hundred fifty plus. I believe that's a trend. It would have been a tough sell back in April.

It's a much much harder sell now that's for sure. Lisa in April it was considered overpriced. Now it's considered ridiculous at least by market pricing. If you talk about where where valuations are when it looks at the debt financing again how much pushback is there going to be from the banks basically saying really really Elan now you're doing this to us heading into the year and looking forward to reporting on this. And for that matter I'm looking forward to the bank earnings because some might actually reference this without actually naming the company. But I'm looking forward to see what they

actually have to say. It's going to be the fall of hung bridge loans and that's jargon for basically debt that they have already committed to a number of different financings usually leveraged that they have to sell and they have to sell probably at prices that are lower than what they would have sell it earlier this year. Rose at this let me ask the grizzled pros what is secured with Twitter. What do you if you have secured debt what do you wish you can root against. You get a factory at the offices at the office and you get verification. You get verified. Exactly.

Get full verification. Coming up Jon Stuff is chief investment strategist at Oppenheimer Asset Management. Live from New York with futures negative this is pulling back.

Patients not one pharmacy until inflation is under control monetary policy will still have to chase inflation trying to cap it. I think central banks will still be hawkish. Inflation will still be stronger than they once. Markets in general are looking for a sign that maybe central banks are now reaching the highest level rate that they can go. Don't count volatility out now even though we're kind of dropping back to 20 and a level. There's a global shift towards a higher

returns environment but you can't get that all in one go. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Live from New York City for our audience worldwide. Good morning.

Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro features negative T.K. down seven tenths of one per cent following two big data VIX on the S&P. So it is interesting. But John I'm going to go out an hour and 40 minutes from now to the ADP report. If ADP jolts you like jolts yesterday

what are these markets do. ADP a little bit later this morning at Lisa on the payrolls on Friday. And so how much the market to Tom's point respond with a rally because that's what we saw yesterday with the jobs data coming out weaker than expected or at least coming in with a bigger drop than expected in the job openings in the United States. Is this viewed as reason to fuel this belief that the Fed cannot go as high as they basically say they're going to like a sports game isn't it football.

Yes. Well you'd have these little periods where teams soft landing starts to do better. The ISE Sam you have contractions in new orders for the third time in four months. Then you have job openings dropped by

more than a million soft landing. You dare to dream up. This is next week. Buggin me here. You know this is a third rail for me. Gamification of what we're doing here in what matters is the data as we've seen the last two days and looking forward to October 14th. I personally go back to Mohamed El-Erian

said what Mike Wilson said which is the playbook that used to work doesn't work. And that is what perhaps we should be looking at. If this is the gamification the game has different rules in an inflationary environment where that is the most pressing concern for policymakers and arguably for the economy itself. You know I'd like Mike Wilson's crystal ball just on the desk in front of us. I want to read the transcript.

I went through the transcript of what he told me last week in an interview last night. Just reading through the thing. And he basically said so from here. What might happen is your words may well come in and then equity markets will rally gun into earnings season kind of like the reverse of what happened in the last quarter. And then you can get smacked around the head with what happens with earnings. And here we are. Yields came in equity markets rallied

and we're going into earnings season again. So he's got a sell rally and then maybe you can back down to what steady 400 he's going to eat while on his desk turns it upside down. It spins around and shakes. He says don't don't talk to Ellen Zentner. He puts it back down. Is that what he does. Yeah sure. That's how it works. That's one of those down and one of the

choices he's gotten here. The board is much more interested in the inner workings of the investment bank sector. Morgan with Kamala Harris CAC market clownfish because for Bruce has a very different view on the world compared to the equity strategists over there. Well let's just put this in a perspective on the Mark Gurman effect.

It's very difficult. You're not leaving me with a lot of room for yourself. No. OK. Look market Kleiner Vega saying OK well

perhaps out this year our target is good but next year it will be good. It will be effective next year because it doesn't look likely this year because gosh darn the Fed. Why are you doing this while moving after target. What ever happen in IBEX. But this goes to this question of the pivot discussion. Why are people buying into this belief that this is going to save the market when the Fed is saying we need inflation to come down.

The inflation isn't coming down. We're going to keep going and people keep fighting them rather than say OK this is what they're doing. That's Mohammed's view of the world. Careful what you wish for. If you get the pivot is it for all the wrong reasons. Futures right now down seven tenths of 1 per cent A with through the price action for you. When the S&P on the Nasdaq we are negative after two big days of gains negative on equities yields are a little bit higher up five or six basis points 368 88 on a US 10 year.

And the affects market kind of the reverse of what you saw yesterday. So yields up dollar stronger euro dollar negative to ninety 923 down six tenths of one per cent sterling. Move on the trust speech and think it did a little weaker. It didn't. I don't see that. So I reckon that was on I don't know. Trust talked and they didn't look at the things move crude positive. A half of 1 per cent 86 95. Lisa got into opaque glass a little bit

later this morning. I am so interested to see what happens with OPEC. Plus they are meeting in Vienna. The meeting is supposed to be starting around now. How much they really go into this 2 million barrel cut in production at a time when this is highly political you have seen Brent crude come down dramatically. Does it pop back up. What does that do heading into a winter. Not only for Europe but also the United

States. You have heard some pushback from the Biden administration on this point today. We get a host of such a vague speech because it is a Wednesday. And why not get lots of central banks. Big speakers including Apple Tesco Fed President Mary Daley at Atlanta Fed President Rafael Bostic very curious about Mary Daly's point that she made yesterday in another speech she made where she was talking about the punitive effect of inflation and particularly on lower income individuals. So as we watch yields around the world surged to the highest levels in more than a decade.

How much is this the necessary pain that they need to see to avoid the pain that they are feeling and that they are seeing some of the lower income brackets with people really seeing huge negative real wages that at today and will get us ISE September services index data. And this comes as we get a series of negative. No surprises John this is viewed as good news for the market because people are saying OK then the central bank doesn't have to go as fast and as hard as they have been saying that they will. But to the point that we were just talking about what does that mean about how quickly this economy is moving away from companies and their earnings from consumers and their ability to spend not just policy makers and how much they are committed to bringing down inflation. Lisa thank you. Looking forward to the data later 815 for the ADP report a little bit later this morning. Joining us now is John Stoll office

chief investment strategist Oppenheimer Asset Management. John wonderful to catch up with you sir. Let's talk about the price target. Forty eight hundred on the S&P 500 year. And it's clearly been a difficult year for you. You can't get every single year right. I don't know if we get this massive rally in the next three months.

You can tell me tell me how you and a team regroup go back through the process. Look the framework and have a little think about where this equity markets go in Iran. Thanks for having me on the show. All it's great to be with you today. Covid say you know this has been an

incredibly tough tough year for the bulls. It's been a great year for the Bears. Both groups have been mauled at different points. Consider what's happened to the sharks.

Every different within different rallies. We enter rallies. We had a summer rally. We've had this recent pattern rallies that we've just gone through. But when we look at it we consider it is 48 hundred is a little bit optimistic here with thud. But 26 percent upside from there to a 40 800 target. The problem is that right now the market

really has been held hostage by technicals by sentiment by politics by geo politics software which factor into things. But we've got to wait to see what the RTX look like. And most importantly what happens tomorrow and the jobs numbers. John I'm going to cut you some slack. The amount and the timeline of your

strategy let's say you do go up 26 percent. Let's say it's to year end or somewhere out there in 2023 as well. Do you need catharsis in the market to get there. Do you need a VIX of 40 to go 20 up 26 percent somewhere. You know I think we need some support from the VIX to the more traditional sense the way we've seen with the really forceful spike to come down and that even that perhaps. I think the most important thing to remember is that we're in this situation because of overstimulation of the economy by politicians in particular in addition to emergency funding essentially by the Federal Reserve in a situation that was really unprecedented in the 21st century. And we only had one global pandemic in

the 20th century that I can recall. So not that I was around for the 1918 pandemic but what we saw when we look at it. Tom we've got to say a lot of uncertainty here but the market is telling us where it wants to go when it goes through these rally periods and what it shows. Curiously enough is a pretty responsible

barbell row for your value garp your growth. The rallies are a combination of both cyclicals and defensives with cyclicals in the lead. Yesterday pretty clearly. But it shows the battle is between the short term investors the intermediate to long term investors whose goal is beyond where we are today riding on what they see as secular opportunities. So sir. John you said held hostage by sentiment. So the implication here is that the sentiment is wrong that there is much more optimism right now in the economy which gets you to that forty eight hundred. So what are you looking for. What do you have to see to change that

to agree with the sentiment that we're headed toward recessi

2022-10-08 17:52

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