'Bloomberg Surveillance Simulcast' Full Show 11/14/2022
My best case has the U.S. economy slowing flirting with recession. We think at a minimum. Fed Funds gets to form three quarters of 5 percent. The Fed needs to see more to say we can
decelerate down from 50 to under 25 and ultimately pause at some point. There is no Fed member that wants to go down in history as losing the fight and inflation. We might actually have a scenario where we could have a soft landing because we are now seeing invasion begin to come down. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz. Here we go again live from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Lisa Abramowicz. Some Jonathan Ferro Tom Keene is gonna be back in a couple of days time in the equity market were down four tenths of one per cent. Happening right now, a meeting between the president of the United States and President Xi Joel Weber. Yes.
Talking about the red lines and figuring out where they are and what they can do is this Asian paying that is more conciliatory with respect to creating a better relationship with the US, given some of the moves overnight or not. We're really going to take a hard line and create a bit more of tension going forward. Looking for a news conference from the president that should commence around 830 Eastern side.
So that's two hours and 30 minutes from now. Also need to talk about the outlooks. Finally, someone had the courage to press send and to go on the Bloomberg Daybreak.
The outlook for 2023 is so difficult to publish anything right now. Jason Kelly the year of yield that has interest rates. He gets Emily. He was the brave one that you just said
that press the button and they will just say that I took off on Friday and the market managed to rally tremendously. So there you go. I should take off and I guess they'd let everything go. How much are we talking about pick dollar? Morgan Stanley was talking about that. We also saw that from Deutsche Bank,
George Soros fellows talking about peak dollar and how much are we talking about ongoing yields and the search for yield and people going into some of the bonds that are most beaten up this year. Michael Barr talked about a volatile path to thirty nine hundred thirty nine hundred is basically where we are right now. He's looking for huge downside in the first quarter to discount the earnings risk for the year ahead, then ultimately to rally from there quite aggressively and to year end, but from point to point year and 2023 to year end, which is where we are right now, he's basically looking for a flat market in the S&P Mark Gurman under the surface. What does that mean? What does that mean with tech leadership? What does that mean with small caps? How much do small caps keep getting a boost given that the dollar is expected to peak out? How much do you see a rotation into energy given how much you've already seen the outperformance year to date? These are some of the questions that really the calm of ESFS Bly so cold a bear market rally can continue. Your equity market right now down four tenths of one per cent on the S&P 500 coming off the back of the biggest week of gains on the S&P since June. On the Nasdaq, the NASDAQ 100 last week
up almost 9 percent at biggest week of gains come back to November 2020. The Treasury market reopens. Yields are higher by 7 basis points. We'll talk about the governor. Want to push back in just a moment. Your tenure, 388 18 and brammer some dollar strength coming back after a weaker dollar weakness. Euro dollar one to two, 93 were down a
half of 1 percent. So, John, I'm sure that you read the same notes that dated about peak dollar and that you already seen it. How much do you actually think that there was credence behind the moves that we saw, given the bond market was closed on Friday, given some of the lack of liquidity in some of these markets and that there has been so much chop? I mean, do you buy this idea that we saw some sort of picking out that there is something substantive behind the incredible weakening that we saw over the past couple of Sasha comes down to CPI? Downside surprise. That's what sparked it. You've got to ask yourself, okay, do we continue falling in the right direction? I think most people assume we do. At what pace? Still unknown to what destination? I have no idea.
How much damage do we do in the economy and between the global economy for that matter, not just the US and that all the questions you've got to ask to come to any kind of conclusion as to whether this continues. And if you think I've got the answers, I don't have the answers. Why I'm sitting here and we book the good gas to go through those kind of things. And as you've hinted at, a lot of people
have now come out with their outlooks for next year because perhaps nobody really has that crystal box for. Mike was at Morgan Stanley. All right. So today, eight thirty a.m. that is the expected around about time. President Biden will be giving a speech and taking questions from Bali, Indonesia, after his meeting. Where Xi Jinping, how much do we get a sense of what those red lines are? How much do we get a sense of how much Xi Jinping is trying to lure American business back? There was an article over the weekend that I thought was interesting about how banks were retrenching from China quietly, also seeing how much BlackRock is closing at the Bond ETF today. We also hear from Fed vice chair Lael Brainard, who's going to be joining Bloomberg's Peggy Collins for a discussion.
How much has she reiterate? We heard from Chris Waller. Also at 630 p.m. tonight, Fed President John Williams is talking with a with a discussion at the New York Economic Club. Then this evening, the Bloomberg New Economy Forum kicking off in Singapore. Dr Henry Kissinger, former US secretary of State and National Security Adviser Catherine Tie, U.S. trade representative among the first speakers and particularly interest here at CAC FTSE Joe Weisenthal.
Looking forward to that. It's going to be a big event a little bit later through the week. A statement Laurie Campesina had a U.S. equity strategy, RBC Capital. It's Laurie Mike Wilson of Morgan Stanley talking about the volatile path back to thirty nine hundred after maybe testing something like three K in the first quarter. Laurie, earnings risk, can you walk us through where you see the earnings risk in the economy right now for corporate America and where you expect that to land? Sure, it's a great question, John. And let me let me say, look, I don't think we're out of the woods on earnings yet. That being said, I do think it's
possible that markets put in the ultimate low in October because three to six months before you get the final earnings downgrades is typically when the stock market bottoms and big short challenged periods. But just kind of backing up from that. I think we're at to a wait for next year on earnings. I think the consensus is still tracking around, say, two thirty two to thirty three.
You know, what we really have baked in is moderating inflation, which is really tanking our revenue. No, it doesn't really end up helping margins. We find that margins are really more of a function of wages. We've still got some wage growth baked in and things like productivity pricing. I think as inflation moderates, that
hurts pricing power as well. So we've really got a ratcheting down of earnings and kind of flattish to slightly down levels with what we saw last year in the S&P 500. This is very similar in our minds to the 2015 2016 backdrop where we just kind of don't really go anywhere on earnings for a few years. But I think honestly, John, I don't think the street really has a good understanding of how much moderating inflation is going to hurt earnings because of that link to revenues. How much are we going to see the leadership change, Laurie, in a sustainable way over the next year? So I think this is a great question, listen, I think this is probably one of the bigger challenges to figure out for next year, frankly. Typically, when you are in a sluggish
economic growth backdrop, growth stocks outperformed, that would point you to things like technology, communication services, consumer discretionary. And one of the things our economists have been talking about is that if you when you kind of get out of this short, shallow recession, we're going to see pretty sluggish GDP for a while. I do think, though, that there is a big leadership change a foot here. So be very, very selective and looking at some of those grumpy parts of the market. We like tech, but we don't like the others.
If you think, though, about kind of the value oriented sectors, we're starting to hear some people make a growth case for them, things like energy, things like industrials. And you're starting to see some pretty good outperformance in sectors like that over the past month or so. Frankly, energy's been doing great all year, but now we're starting to see that broaden out to some of the other value oriented sectors. So I would say stay pretty balanced, have a little bit of growth, have some value exposure. I think that's going to work better in the near term anyway, be balanced and try to be more selective within those buckets as opposed to just leaning into one big bucket for the longer term.
Laura, you brought up something about how you are leaning into big tech potentially. And this is one of the big questions over the past week with a tremendous rally. Does it have legs? Can it reassert itself? Are you really in the camp that it can? In terms of the rally, you know, look, I would say I probably share Wilson's view that we're going to be volatile for a bit longer. I'm one of the things we pointed out is
that markets in 2022 are really trading on the 2002 path. And if you look at, you know, sort of what happened back then, we had a January peak, a summer low, a big October low. We rallied back pretty fiercely into Thanksgiving and then we turned around and gave most of it back, going into a new low in March. And so on the one hand, I do see the potential for the rally to continue a little bit in the longer term. I think, frankly, on things like the election that's already baked in. You know, I think there's a lot of people who think the Fed moves have been exaggerated.
We can say that for another segment. But I do think that we're going to shop around. And I think, you know, whether or not you think the rally can continue. Sure.
I think I can continue a bit in the short term. But I do think there's a tremendous risk that we do get a lot of it back in the first quarter. We won't save it for another segment. You can't forget the Fed and not talk about the Fed. All right. Let's talk about it now. Janice, Monica, The New York Times yesterday was life blocking governor.
Want a speech down in Australia? And this is what Governor Wallace had to say. The market seems to have gotten way out in front. We're going to need to see a continued run of this kind of behavior before we really start to think about taking our foot off the brake. Laurie, is the Fed still in charge of
where this market goes and how far this rally can go to the upside? Well, look, I think I think it was really interesting, you know, we said in our weekly, John, that, you know, we liked what we saw on the CPI print. But the thing we didn't like is we knew the Fed was going to come out and try to quash it with harsh rhetoric. And that's exactly what we ended up getting with Waller. And look, I think that, you know, to some extent, maybe they are losing a little bit of control.
I think that they are trying their best to clamp down on the enthusiasm. But I'll tell you, John, I don't think the peak inflation peak fed narrative ever really went away. I think that those people just got really, really quiet over the last month or so because they were tired of having their heads ripped off with a loud. And so I think when we say, yeah, we're allowed now, because when we saw that CPI print came out, there was a massive sigh of relief. There was a massive sort of unclear line of enthusiasm. And I sympathize with those who say the
market went too far. But at the same time, having talked to a lot of investors that had been doing work on used car prices, another all the all these other components of inflation coming down, you know, I understand the release that happened. I understand that relief valve that occurred. Larry, final question. What do you tell clients about what's happening in crypto and what it means for them, even if they're not in the asset class? Yeah. So it's a great question, John, you know, I don't cover it. We saw a lead back to other people at
the firm, but one of the things we have talked about is the extent to which the average retail investor, you know, is involved. And I know I saw Good Morning Consult poll recently that said about 19 percent of those that they surveyed owned crypto. Which tells me that perhaps it's not as pervasive as some fear in terms of the impact to the average investor. We're going to have to see.
We're getting a lot of information right now. But as I've talked to some of my friends sort of in the wealth management community, remember, I speak mostly with institutions. But as I've talked to some of my friends in the wealth management community over the past year or so, I've heard things like, well, my clients aren't really involved in crypto. Their kids and grandkids have tried to get them involved, but they've said no. So, you know, for the moment, I still
view this as a contained implosion. But we do have to watch it. There is a tremendous correlation between the S&P and Bitcoin, and we do view Bitcoin as a risk barometer for stocks. Stocks have been sort of defined the carnage that we've seen in that space recently. But we'll have to keep an eye on, you know, frankly, just just see how bad this is. Something we've got to watch. Larry, put into catch up, as always,
let's talk before year end. Laurie Carver, senior of RBC Capital Markets. Fran, what do you think the Thanksgiving conversations will be a little bit different around the crypto story? Do you think it's the grandparents time of the kids now? What's what? As opposed to the case of the grandparents? I suspect it won't get rotten brought up too much. Or perhaps it will with a bit of tongue in cheek, a bit of a ha. How do you think about that now? But at what point is that really have a broader effect? And at what point would we really be talking about this at all if it weren't for free money that could have pumped it up to start with.
Governor Wallace has some advice for everybody. Everybody should just take a deep breath. Calm down. We have a ways to go yet.
Governor Wallace speaking in Australia yesterday evening. Coming up, 7 o'clock in the next hour. Misread the head of global race strategy. A TV securities equity futures down four tenths of one percent. From New York with Lisa Tom Keene away Jonathan Ferro, this is Bloomberg. Keeping you up today with news around the world with the first word. I'm Lisa Mateo.
Well, President Biden and China's Xi Jinping are having their first ever in-person meeting. They shook hands before sitting down at a hotel in Bali, Indonesia. The city is the site of the Group of 20 summit. The president told G. The two have a responsibility to show that China and the US can prevent competition from turning into conflict. In Turkey, authorities say Kurdish
militant group P.K. K. and his U.S. backed affiliates in Syria were behind a deadly bomb attack in Istanbul. The explosion killed at least six people and wounded 81 in the city's tourist district. Turkey says says. The suspect has been captured and
identified her as a Syrian national in the UK chancellor of the Exchequer. Jeremy Hunt is expected to delay much of the 65 billion spending cuts and tax hikes until after the next election. That would both protect the economy and shore up support for the Conservative Party as the country heads into recession. Bloomberg's learn the bulk of the
savings would be delivered in the final years of the five year forecast. Roche says a long awaited experimental drug for Alzheimer's disease failed in a pair of large studies. The drug didn't slow clinical decline in people with early Alzheimer's. It's another disappointment in research field that's been marred with failures. And shares of Japan's Softbank have plunged today. The company failed to announce a widely expected stock buyback. Plus, Softbank Core Vision Fund posted a
seven point two billion dollar loss in the July through September quarter. Sliding startup valuations have forced the world's biggest technology investor to go into defensive mode and virtually halt investments. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Mateo. This is Bloomberg. Life in New York City this morning. Good morning to you all. Let's get you a flavor of the price action this morning.
Equity futures are down four tenths of one per percent on the S&P 500. The pushback coming from Governor Wallace as we get the trading week underway. And Governor Wallace sending yields much higher 2s out to Governor Wallace saying take a deep breath. Take a deep breath, Brammer. He feels like there's a risk of July all over again. The premature easing of financial
conditions off the back of one major downside surprise on CPI. This goes back to a question you've asked repeatedly. How much will the Fed reserve allow this market to rally? How much is there a sort of a Fed cap and how far stocks can go? It is that basically what Fed Governor Chris Waller is saying, hey, guys, we don't like this or we're gonna job on this down and to keep raising rates to stop it. His language wasn't a million miles away from what you just said. It was actually quite simple, pretty informal. Yeah, pretty direct.
And I imagine more Fed speakers this week will say the same thing. They don't want to signal or they're going to back away any time soon. But if you're in the market right now, you're not in the business of working out what they're going to second or what they're not going to second guess what they're going to do and where inflation is going to land.
And people believe that's the start of a trend back down towards dejection. Mark Gurman how much of their grasp towards target, rather. I mean, did you actually dig out of the data and see some of the, for example, the healthcare price crash that people were looking at and they were saying it could be tactical? I mean, there are reasons why people might say it's perhaps overly stating the deceleration. And the Fed is very worried about getting over their skis with saying, OK, we've reached it. Hallelujah, pictures in.
Let's go to some kind of weakening trajectory and then go back to the 1970s that actually fed conversation out with let's deal with the Jihye Lee when I say we're not done. We'll talk about it later on the sidelines of the G 20. Before that gets underway, President Xi and President Biden meeting shaking hands.
Apparently, that's a headline. No fist bump this time around. Well, this is what the president had to say. We share responsibility, in my view, to show that China and the United States can manage our differences on the ground. Bloomberg's Amari joins us right now. AMH was top of mind is this meeting is ongoing and is set to conclude in the next couple of hours. The president will speak at 830 Eastern Time.
Yeah, that's right, Jonathan, waiting for it to wrap up and what the president has to say to reporters about this meeting because there won't be a joint statement. There really are no deliverables or announcements that these two countries are going to make out of this meeting. Well, we've heard from officials that they want to set the floor on how they deal with Beijing and really setting the guardrails.
Three of the biggest issues that are likely going to come up in the most contentious are going to be Putin's war and invasion of Ukraine. Of course, we know that Xi Jinping is only really friendly. Ally in the big international stage is Xi Jinping. And they met news Pakistan. And Putin even said to Xi, we know you have some questions and concerns. The second, of course, would be is what's going on in the technology and chip chip sector.
We have the Commerce Department with these sweeping curbs that China really needs this technology. This is something that has drawn the ire of Beijing. And then finally, in the most contentious is going to be, of course, the Taiwan Strait. And this really came to the forefront this summer when Speaker Pelosi made that visit to Taiwan. Beijing came out cutting off ties with
nine states on a number of fronts when it came to communication and Kentucky conducting military drills. This first Xi Jinping is really a red line. And we want to see what the president has to say, because, as you know, there has been a number of occasions where he said the U.S. would defend Taiwan. Some people might call this the appetizer for the G 20. I think it's in reverse. It's the main event. And if the no deliverable was available for either leader going into this meeting, can we get a communique at the G 20? It's a great question. Jonathan, we're just off the heels of a
multi national summit in Cambodia and there was no G 20 communique, and that is because Russia said they could not sign their name to something in terms of the language that they say the United States was pressuring other countries to sign. Clearly, that language would have been regarding the war in Ukraine, calling it Putin's invasion of Ukraine, actually calling it a war. This is something Russia will not be able to sign up to. They continue to say this is a, quote, special military operation. So you could see the divergence we are seeing amongst countries. And it really puts countries like India,
like China, in very difficult positions because at the same time, they want to maintain good relations with Russia. Even though a US official said it to us, there is probably some embarrassment in Beijing about what is going on in terms of Putin's invasion of Ukraine in re coming into this G 20 meeting. President Biden actually gained his Senate back from the brink of a lot of rumors. People think there was going to be a red
wave. There wasn't. How much more energy does that really give him or more of a mandate to go out there and pursue an agenda that is his. And what does that mean? What is he going to do with that? Biden said yesterday in Cambodia he feels strong going into this summit because of the fact the Democrats were able to retain control of the Senate and Tina Fordham said it on this program last week, said she thinks Biden is going to be walking into this Xi Jinping meeting with a bit of swagger in his step because of the fact that it wasn't a red wave. This just gives Biden his team more
momentum to pursue this agenda abroad, especially when it comes to foreign policy. But we've talked about this a lot when it comes to China. In Washington, there is bipartisan support to take a more hawkish approach. And you are seeing that now with this administration. We should also note over the weekend, they really were shoring up what the allies, their allies think of what's going on with China, most notably Australia, Japan, South Korea. And one notable aspect they wanted, it seemed President Biden to bring to the table was really in terms of North Korea.
And it seems pretty clear that the United States is going to say to Xi Jinping, you either rein in North Korea or expect a broader U.S. military presence in the Asia-Pacific. I'm not gonna pretend anyone at the G. 20 has any swagger about you. BREMMER If any of those leaders have got swagger, I'm going to let it. Go ahead.
Well, I just did. Thank you, Emery. Wonderful, as always, to your point. You were both talking about it. Certainly both leaders right now emboldened by domestic events. One Democratic, the other not so much. But that's really the story over the
last couple of weeks. How much, though, is Xi Jinping truly emboldened based on an economy flat on its back? And you could see that with some of the easing measures overnight. How much do you feel the urgency of putting the economy as more of a priority than, say, what he said in his speech at the Chinese party Congress? I wonder this, especially if you see all of Shultz coming out and warning German businesses that the time is now to diversify away from China. Can you make sense of that for me, based on Chancellor Schultz's recent visit to Beijing alongside corporate Germany? Can you make sense of that for me? Because I don't understand those comments. So I'll bring this to you. I can't. But I'll bring this to you. Basically avoiding overreliance on China
in particular in certain areas. He called for areas, including raw materials and critical technologies. We wanted to see a scaling back of risky, one sided dependencies, trying to avoid a redux of what happened in Russia. To your point, how does that cohere with the meeting that they just had over in China? Do you think that's a message for the German companies or for for America, American leadership that we're on the same page you're going to need us to do? Well, it's interesting this coming at the same time as President Biden meets with Xi Jinping. How much is that exactly playing lip service to what the U.S. is trying to do, but how much to business is moving the other way? We've talked about this for a while.
So much swagger at the G 20 defined swagger. You might just go swagger, handshakes, AMH, fist bumps. Is that swagger? Look how she's going to show us some swagger later on. Equity futures down four tenths.
From New York, this is Bloomberg. Coming off the back of the biggest week of gains on the S&P 500 since June. This is the price action this Monday morning. Good morning to you all. Equity futures are negative, have been negative throughout most of this morning, down about four tenths of one per cent on the S&P on the NASDAQ 100 were down seven tenths of 1 percent on the Nasdaq last week, biggest week of gains since November 20 20 in the bond market. Two stents and thirties look like
there's the two year, the 10 year, the 30 year took Friday off. But the two year over the previous four days, Monday through Thursday, was down 33 basis points on the week. Right now, 438 yields a bit higher, up five basis points off the back of Governor Wallace. Comments yesterday evening in Australia. Basically, take a deep breath. We've got a long, long way to go outside of the bond market in foreign exchange.
Huge moves, monster moves in effects. Last week, Euro Dollar had its best week going back two years. Sterling, the same dollar, again, was negative 5 per cent last week. It's the biggest weekly mood, Lisa, going back to October 2008, except October 2008 was risk often.
Last week was risk. Yes. So makes sense of how the yen has behaved over the year so far. Looking for dollar, weakening for some sort of reprieve.
And basically that was what they got. How long this can last, though? And you have a bunch of notes that came out with people gaming out both sides of the story. How much does this really give a reprieve to highly unconventional monetary experiment over in Japan, especially given that we have not gotten below seven point seven percent CPI inflation, which is still a very hard number, as Chris Waller reminded us of a number one question in the commercial breaks when we speak to guests who are about to come up. I've asked at least has asked that once you 2023 outlook coming out, I think we're all reflecting on that over the last week. Who on earth wants to press send on that thing? Morgan Stanley.
I've done it. I know overnight. But come on, 2023. That's a difficult year to forecast. How often have we heard basically? Can we just go into a bunker, put our head under a pillow and just wake up next year and have it be flat and just miss all the volatility in between? I always say wait until March, takes about three months to work out what you were wrong about, and that's when you get the new forecasts. That's when they start around March
time. It's like, yeah. We didn't get that right. Okay. We're going to bring him a new forecast for year round. And if next year's like this year, around April, May is when they revised that and give the next year a head outlook, because basically it's been a year every month or so as the game on Wall Street right now. Justin CAC is gonna to play it ahead of US macro strategy.
Emma FTSE George, before we get to the outlook stuff, I know Lisa wants to talk about it. Let's talk about the move last week. Does that resonate with you the way we moved last week? Re Pushing back against that completely and I was expecting consolidation. We've got a bolt out of the blue and I think this is really just again, reflective of the 2022 to how that sort of price action that we have, where the illiquidity works on both sides in this case. We had a set up of really negative sentiment, but this exhaustion amongst investors on both sides. But the bears can only push it so far.
And you and you had potentially also there to be especially on rates. But even in equities as well. And so it's kind of this perfect setup for an overshoot in the other direction in the moves that we haven't seen in months of not ever in such a short time time frame. Those things to me are not sustainable. We should be consoled, not really like this. And then having to kind of give it all back, that's not healthy, in my opinion. And I think that the real Covid just
reflects on the sort of conditions that we're in right now, which is the illiquid period where people don't have to liquidate. When Governor Wallace says calm down what you think he means. Well, those two days or so really unwound of the financial conditions, tightening of the Fed did the month prior. And so, I mean, the Fed really needs financial conditions to stay tight.
They don't want to be loosening while they're still trying to get their arms around inflation, regardless that perhaps we've seen the peak of inflation or was heading lower. I mean, we just don't know what the trajectory looks like and how low will evolution really get. So you coming down is, hey, we're not done yet and you guys are getting ahead of this Emma Chandra. Well, that's only one side of the story.
I was reading towards Sarah Velez now from Deutsche Bank talking about how Friday was a big day. The peak in the dollar is behind us. That was the title of this. And he was saying it wasn't just that with respect to the CPI, but also because China has made noise about perhaps opening up a little bit more. And we also have seen a bit of a retreat from Russia, from Ukraine. How much do you give credence to some of these geopolitical moves as having a sustainable effect on U.S. markets? Look, I think there is hope on the margin. I think that still the cumulative effect
of Fed tightening, it would still lies ahead. I mean, we have at least two hikes, at least I think, or we could call it too hikes or three perhaps in the next quarter or two. So I think the Fed policy is still always there. And the cumulative effect of that will really be felt in Q1, Q2 of next year. I just think that we haven't really felt that the massive tightening that's happened. This is also true for global liquidity.
So even though on the margin, it's kind of good to see the news that we're seeing out of the Russia Ukraine situation and also China potentially reopening slowly. I just don't think it's going to be the equivalent of what we're anticipating or expecting, like in 2008 when China really led the charge. I think it's going to tiptoe into it like to be the same effect. It hasn't been verified. Press and on the year ahead. Says John has been talking about Andrew
Sheets did it of Morgan Stanley. He said next year will be the year of yield and said that that's really where you gonna to see an outperformance in certain credit instruments that have not done as well this year, particularly higher rated ones. You're not going to see the same kind of returns for stocks and you are going to see dollar weakness. Do you agree broadly with that kind of outlook heading into a year where you can see actual yield for the first time that we haven't seen going into a year for many, many decades? I do.
And the figures, you know, we were kind of joking around initially as well about the outlook situation and where to send our reports. Most of us, when we're creating our views, we we have the benefit of recent history and then we try to extrapolate forward and have some sort of view on the macro as well, market pricing. And that's been so hard this year. And so what ends up happening is most of those trades that you think are going to happen in the fall here happen in Q4. The buy time Q1 comes around.
You have to revise them. So I do think, yes, there has been decent if you'll pick up in that, you know, the state reports of credit makes sense. I've been I've been guilty of defensive all year. I still think, you know, you can on the margin sort of way in an average into credit. But if we are truly going to still have some sort of slowdown, I don't think we've seen the delinquencies without the false pick up enough to compensate you for us. So I still think you have moments where you'll have spread widening. We can average in even further.
So I'm not really fully on board yet. George, what do you think is more important for 2023? Is it a path to growth or the path for inflation? I would say the intersection of the two. So we're gonna see the growth slow down. That's a good cover for the Fed to pause in Q1 and it sort of maybe even a pivot in December because when we get a lot of that data still ahead of us, we have the minutes next week which we'll see how they're really their conditions on hawkishness.
But nonetheless, I think we're we're in the point of view of peaking, pivoting, and then we're going to move towards growth being a larger concern. But I don't think you catch it fast enough until the second half of the year. So I do think that inflation might still be running about 4 percent, if not higher, up until the middle of the summer. So I still think it's going to be a combination of two. But we'll be pivoting towards growth to ensure we had a conversation last week at the end of last week about sequencing. Do you think inflation is running out, that the full growth does? And how important is that when it comes to your call going into next year? I mean, think growth has been really volatile and we haven't had a decent Q3 and Q4 as of the on the weaker side Q1, so I think we're still shopping around the bottom in terms of growth.
I think it's the inclusion call still matters a lot to make sure that we are truly seeing a trend here. I mean, one number does not make a trend, but the overall kind of conditions are in a different basket. The buckets within it. Inflation are suggesting that we're heading lower enough categories. But I do think that if growth doesn't accelerate, then that's going to be a bigger problem. Right now, we're looking at markets that are pricing at a four point nine percent terminal rate for the Fed next year. It had been 5.1, 5.2 percent as of late
last week. And that's clearly reshef dead downward as a result of the CPI. Where do you think markets are wrong? Look, I think markets are wrong in terms of the longevity of how long the Fed can keep rates at these elevated levels. Anywhere between four and a half, five
percent ish we go is really ratcheted higher. If inflation were to pick up again, either way, go somewhere between 4, 4, 4.5 to 5 percent is a level of risk that the U.S. economy really could not sustain. Every time the Fed finishes the cycle, we end up breaking something. It hasn't happened yet, doesn't mean it
won't happen. And, you know, look, we did this. We struggled in Q4 of 2018 when the Fed funds was at 2.5 percent. Now we have an inflation problem and I get why the Fed is going at double that, spend that piece. But the U.S. economy and the US leverage system can take it. So, George, what do you see in the actual data that gives you confidence that the market is wrong? Well, I mean, I think the the actual slowly, Kyra, some deceleration within the auto sector, in the housing sector, of course, is taking a pretty big hit, already has much further to go with.
The biggest collateral that backs up with the US banking system is the real estate sector and the US bond market. Both that one which got hit pretty hard this year, which will be limping along into she wants you to with massive losses still unrealized, maybe for some, but still a pretty big hit there. And you have real estate losses. I think they're still coming down the
road. So that's going to really curtail the availability of gullibility of credit in the coming year. George. Wonderful to hear from you, buddy, as
always. George, one canister of Emily Chang on a path forward kind of dodged the question there about what's more important, the path for inflation on the path for growth and set fire with the intersection between the two when it comes to the path of inflation. Three things matter ultimately. Direction, pace, destination, direction
is a secure. I'll be rolling over now. Pace. That's the conversation we've got to have. And destination where we land next year. No clue. Cassie Barry of JP Morgan was talking about that kind of thing. I think that's what's most important to a lot of people in fixed income at the moment, which is the reason why you saw Morgan Stanley ISE associate Morgan really shifting into top rated credit.
And just like we heard just then from George, this idea that you're going to see some of the defaults pick up the growth story, the growth trajectory, really, really highlight itself in some of the underperformance of certain aspects of the market that have held in more securely this year. How much, though, have we already seen that? Know how much have we already seen some of the downward revisions? How much more can we see before all of a sudden we get the other collateral damage from this? I mean, everyone's been saying the Fed's going to raise something, raise rates until something breaks. Well, how close are we to something breaking? What does that look like in a cycle of pretty well capitalized? We've talked about the. Did you see the outlook for 2003 on inflation from Goldman? Yes. PCH at two point nine percent year round, 2023 down from 5.1 percent.
Now, three factors, the easing in supply chain constraints for the goods sector want to a peak in shouter inflation post reopening and three slower wage growth driven by the ongoing rebalancing of the labor market. I love this term that gets thrown around and this is not angry at Goldman. This is everyone. The rebalancing of the labor market. What do they actually mean by the rebalancing of the labor market? They mean millions of jobs lost. Taking the demand out. Yeah, that's what that means, that basically if you have perhaps more jobs, but you also have perhaps more workers or you have fewer jobs and you have more workers than you can pay them less, basically. But a breaking news cross in a terminal just moments ago.
This from CNN. Jeff Bezos planning to give most of his money to charity funded to give most of his money to charity. There's been questions about Jeff Bezos and his philanthropic efforts over the years repeatedly. Did you see what he gave to Dolly Parton
over the weekend? Why did he give it 100 million dollars today? That's the award. And basically, you get to decide where you give it. You can give it to any organization of her choosing. Basically, it's been a lot of years where he really has not been very present in the philanthropic scene. Interesting. These coming out now in such a bold way like this.
From CNN, Jeff Bezos planning to give most of his money to charity more and that a little bit later. And we'll catch up with Jerome Schneider at PIMCO. Looking forward to that conversation, too. Equity futures right now down a third of one per cent 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. For the first time, President Biden and China's Xi Jinping have met face to face. Their meeting took place on the sidelines of the Group of 20 summit in Bali, Indonesia. The two leaders call for reduce tensions between the world's largest economies. Taiwan has become the biggest
flashpoint. President Biden has repeatedly promised the U.S. would defend Taiwan in the event of a Chinese attack. Fed Governor Christopher Waller says
there is still a ways to go before the central bank stops raising interest rates. He told a conference in Sydney that the rates will stay high for a while until inflation gets down closer to the Fed's target. Policymakers could lower the size of the rate hikes to 50 basis points at next month's meeting. House Speaker Nancy Pelosi has signaled that Democrats will seek to extend the federal debt ceiling during the lame duck session of Congress. That avoids a potential fight with Republicans that Pelosi says could threaten the US's credit rating. Vote counting is still going on and it hasn't been decided which party will control the House next.
Major cryptocurrency is rally today after finance said it plans to set up an industry recovery fund. CEO Jingping Zyl says the goal is to reduce further negative effects from the bankruptcy of rival crypto exchange FTSE x RTX explosion wiped out about 200 billion of cryptos market value in the past week. Global news 24 hours a day on air and on Bloomberg Quicktake. I'm Lisa Matteo. This is Bloomberg.
As the leaders of our two nations, we share responsibility to show that China and the United States can manage our differences, prevent competition from becoming anything ever in the near conflict, and to find ways to work together on an urgent global issues that require mutual cooperation. The meeting between President Biden and President Xi is underway on the sidelines at the G 20. Just before that kicks off. It's still ongoing when it wraps up. We'll bring you the latest headlines and
you will hear from the president, the United States, a news conference scheduled, I stress, scheduled for 830 Eastern Time, because Rameau, often this stuff with political leaders never takes place on time. And we're expecting it to go longer because there's a lot of stuff they've got to hash there, don't they? And the current joins us right now, pulling back chief Asia economics correspondent. And we spoke to our about how this is playing out politically here in the United States and on the international stage.
Can you tell us how this has played out domestically for this leader going into this meeting with his opposite number in the United States? President, she has a domestic audience just like any other leader in the world. John, the rhetoric coming in to the National Party Congress are treated through the Congress. Few weeks ago obviously was all about portraying. She is all powerful and enshrining China's place in the world and not taking a step backwards against any foreign powers. There hasn't really been on a dramatic
salting of the language heading into this meeting from the Chinese side either. That's why I think expectations are fairly managed on both sides, certainly on the Chinese side. I think on the U.S. and global side, in terms of what might come out of it, at the very least, China themselves probably want to put a floor under this relationship, that's for sure, and maybe see if they can eke out some concessions on the economic side of things. I don't think anyone's looking for an advance in Jiang or Taiwan or Hong Kong and those hot button human rights issues or maybe some concessions on trade tariffs. Remember those and maybe some
concessions on to a people flow as the US once more Chinese students and experts to be allowed to go work in China. And of course, the U.S. has some similar requests as well. So, look, President Xi hasn't gone into this selling himself as a dove or a peacemaker or anything like that. The language in the state press has been bold when it comes to President Xi and ambitions for China. They're not going to change, not just for one meeting. How much is the chip export from the U.S.
red line for China? It's obviously a red line. I mean, on a Haidi Lun basis, it is very restrictive for the development of of how China wants to create a world class, both advanced military, world class technology, industrial knowhow across the spectrum of things and need that access to that to those semiconductors and this technological Ohio. So it is a big blow or a strength for China's economy, is it? However, the flip side is there are those who argue it's a near-term hit and all it will do is ultimately accelerate China to push long with its own development of its own technology, which it wants to do anyway, to cut its two reliance and dependence off the rest of the world, look elsewhere with source material where it can. And so it's definitely a blow to the
Chinese economy. But there are views out there that this might actually portend to lead itself something bigger down the tracks. This has been one of the biggest questions.
And how many hits can the Chinese economy take before they start to care about the Chinese economy ahead of some of the other measures that Xi Jinping has been talking about overnight? It seems like perhaps we saw the beginning of that with an easing abroad easing of the housing sector, of the development sector in China. How much is that a shifting point for Xi Jinping in terms of re emphasizing the economy in a way that a lot of people thought that a speech at the Chinese Pirate Party Congress really didn't show? Yeah, a lot of people haven't really seen this turn coming and have been waiting for leads. What happens in the coming? It gives she a bit of a tailwind heading into those talks with Biden because the sentiment towards China's economy has definitely improved in the last few days.
We had that pivot. You can argue about the scale of it, but there was a pivot to some extent on Covid 0 last week. Then to your point, in real estate, at sixteen point plan coming out, which involves basically insuring developers can get liquidity if they needed or some assistance for anyone paying back their loans, they're allowed to get back a certain portion of good access to a certain portion of their pre sold homes, financing, etc.. So I don't see the markets taking this very positively. We had several economies, including Citigroup today calling it quite materially, in fact said it was a game changer. But the housing sector is still in a
very fragile space. Prices are declining. Defaults on mortgages are still continuing to the housing sector. Turnaround has a long way to go. Although I would say is that the broader sentiment on China has definitely improved the last few days. And if the Shi Biden meeting went somewhat well in the world of global markets, as if it was seen to put at least put a floor on the relationship, then it certainly won't do any harm towards the risk sentiment when it comes to Chinese assets. And did the people misread what's happened in China? A number of weeks ago, we were talking about a president, a leader that was emboldened by securing more power.
Reinforcing the power he already had over the country. And a lot of people thought that meant he would stick with Covid 0. And it did. We didn't. Did we all misread what ultimately took place on the ground? What's happening here? Woman's name is read. I'll pretend I can explain everything that's happening there either, John, but I think the point is that, look, on the one hand, they are pivoting on some of these measures. They are relaxing some of the restrictions around Covid 0 because they know they need to connect to the world economy again and they know it's buckling growth and consumer sentiment on the ground. We get data, by the way, tomorrow
expected to confirm that. On the other hand, though, they haven't exactly run a million miles away from Covid 0 to sell all kind all manner of restrictions in place on the ground right across China. So they are having to give up on Covid 0. We're just tweaking, though, and maybe signaling where they will be, you know, five, six months from now. Further along that process and again, same in property. Okay.
There wasn't about signaling our language from the Congress about what that might do. Whatever new to have the people on property, they have to put some kind of a floor under it. Sure. We've got these we've got these statements, though. So it's just it's kind of what was expected. But maybe the timing of it is what surprised people and are wonderful to catch up.
As always, undercurrent there of Bloomberg out of Hong Kong as this meeting between President Xi and President Biden is ongoing. As I've said repeatedly through this morning, a news conference expected by the president, the United States, 830 Eastern Time. So about one hour and a guess, 40 minutes from now. The Wall Street Journal and others reporting coming into this meeting that a senior US official said that China was uncomfortable with Russia's rhetoric and invasion of Ukraine. As these two leaders meet and you wonder how much that's going to feature in this conversation, Lisa, that's happening right now. How much is it because of what they've
seen, the economic devastation to Russia from their involvement in this as well as the loss? I mean, essentially, you can read whatever you want. There's a lot of conflicting discussion around the retreat from that region that they'd previously claimed. But how much are we basically seeing Russia concede on some small measures that they cannot win this war in the way that they thought they could win? We've avoided the worst case. This went through in Europe, big time storage levels for gas basically at capacity. The weather's turned out to be warmer. The fact that you have got signs of a I don't call it withdrawal yet, but certainly encouraging signs relative to what may be we imagined a number of months ago, better for Europe.
Whether they can repeat the next winter, I've got no idea whatsoever. But certainly we were worried about this point. We're already facing maybe industry rolling blackouts shut across Germany and other places, and we're not seeing that in a major, major way. You just mentioned the two reasons other than the Federal Reserve that George Sarah Veloso put out there for the reason why he sees peak dollar it already being in and seeing ongoing dollar weakness, because we have avoided the worst case in Europe and shows we might be seeing some sort of loosening in China. I do keep going back to this old short comment from earlier today in Singapore. This idea that now the geopolitics of this come to the fore and what I really want to hear from President Biden in about an hour and a half time, if he is on time, is how much is that hardening going to continue between China and the rest of the Western world? He won't be. Maybe he will, but I doubt he will be.
Thank you for telling us do. In the next hour, we'll talk about big tank and what's happening in crypto as well. Gentlemen, could Brian Chesky of IBM be on Twitter? Of course, at the moment on Twitter, you've got no idea if that's actually Chesky. I've been beep or whatever she said it felt was like we were in a nightclub and the lights just turned off. Now, you read between the lines about what that actually means.
But this is the Warren Buffett quote when the tide rolls RTS as they get. Is that what happens in a nightclub with their. My best case has the U.S. economy slowing flirting or the
recession, we think, at a minimum. Fed Funds gets to foreign three quarters, five percent. The Fed needs to see more to say we can decelerate down from 50 down to 25 and ultimately pause at some point. There is no Fed member that wants to go down in history as losing the fight and inflation. We might actually have a scenario where
we could have a soft landing because we are now seeing invasion begin to come down. 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 to you all as we kick off a brand new trading week alongside Lisa Abramowicz some Jonathan Ferro NIKKEI back in a couple of days. Equity futures are lower. I guess if you want to blame someone, you can blame Governor Wallah Janet Australia yesterday evening.
I think that that's a fair person to blame considering that it came out and basically said suction rally too much more. Basically, calm down, breathe. Calm down, breathe the advice from a Federal Reserve official. Well, he basically is saying don't get
carried away with CPI. Basically, this isn't necessarily a downward trend with one data point. And they've been saying this for a while. But people saw suddenly a downward
surprise after so many upward surprises of inflation. Have we gotten to the point of some sort of tipping into some sort of disinflationary moment? Three ingredients to a rally last week. What was the downside surprise on CPI? The other was gridlock in Washington. We'll see about that because that's still not confirmed.
We'll discussed that a little bit later this hour. The third piece of it was China reopening. There was a meeting happening right now between President Biden and President Xi on the sidelines at the G 20. Are we looking for anything to come out of that whatsoever? No, I think the answer is no. Although there might be some sort of signaling in particular vision Ping's openness to perhaps allowing more international businesses to come in.
I do wonder, though, how much they'll take it, because you see, the story is about big businesses, banks retrenching quietly from China, laying people off. How much is it because of political risk and how much is is just because the economy is not really taking off the way that other economies are? Dani Burger news conference coming up with the president a little bit later. Brahma is going to give you the time on that. And just the moment are whipped through the price action for you and become the S&P 500 coming off the back at the biggest weekly gain on the S&P since June on the NASDAQ biggest weekly gain on the Nasdaq 100 gangbuster November 2020. Futures this morning down a third of one
per cent on the S&P and the bond market yields higher treasuries. Of course, cash treasuries closed on Friday, reopening Monday this morning, yield time by eight basis points on a 10 year to 389 12. Any affects market. The euro strength, in fact, the everything strength against the US dollar last week was phenomenal. Flip it around just a little bit this morning. Euro Dollar Brahma, one of to 82, were negative there, six tenths of one per cent. So they give you the time for that
meeting, that press conference of President Payton. Well, but it will be wrong, as he pointed out, because he will be late. Right. 830 a.m. is when the scheduled press conference is for President Biden taking questions in Bali or also going to get a host of Fed speak today. Perhaps we'll hear a similar comment from either Lael Brainard at eleven thirty a.m. with conversation with Bloomberg, Peggy
Collins or perhaps from the president, a New York Fed president, John Williams, at six thirty p.m., similar to what we heard from Chris. While basically take a deep breath, one data point does not change our ultimate path and we are headed to a more restrictive future. Does it really matter? Or are markets basically just going to go where they're going to go? And we're going to get the kicking off of the Bloomberg New Economy Forum in Singapore tonight. Speakers including Dr. Henry Kissinger, former U.S. secretary of state, National Security Adviser Catherine Tie, David Westin, U.S. trade representative to China.
I am actually very curious to hear what she has to say, John. Given that the trade aspect might be the most interesting thing that could come from these meetings, less the reopening with respect to Covid, because they're not going to make some sort of announcement here at this meeting. But do we get a sense of some sort of pulling back of some of the tariffs from the United States? Also on the chip sector, how substantially will that be curtailed or expanded based on this conversation? Well, let's start with tariffs more broadly.
How many times that they floated that over the last 12 months? Yeah. And it's not waiting for a decision on that for ages. We want to talk about the chip, specifically Japan confused by this. The Europeans confused by this. They're trying to work out what it means for them.
Sure. Because it also perhaps has a more domestic quality that keeps things in the United States and curtails other partnerships at the same time. President Biden has a new mandate, ostensibly because he did not experience the red wave that so many people were expecting. What's he going to do with that to show that he has a hard line with China, especially if that is the one bipartisan issue in the United States right now? I keep saying gridlock, gridlock, not security. It's not gridlock. Not at all. Yeah, but all. Let's see what happens with the House, because that's still not confirmed either. Right.
And people were rallying. That has not been confirmed yet. People were
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