'Bloomberg Surveillance Simulcast' Full Show 11/25/2022
We're expecting a mild recession just slightly more likely than a soft landing. We're pretty confident that the peak isn't too far off in the US, despite the fact that official still sounding hawkish, the Fed will likely, you know, do it 50 to 75 in December. The Fed will be early to pause. We think the last Fed hike is in January. What happens between now and next spring? That path is highly uncertain.
This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It's countdown to 2:00 p.m.. Good morning, Mrs. Bloomberg Surveillance. I'm Bloomberg Television and Bloomberg Radio. Tom Keene Jonathan Ferro Lisa Abramowicz.
Tom and John are both off. Coincidentally, just happens to be on a day when England and the U.S. are playing the World Cup KO figure with a coincidence. I am so glad. Damien Sass our is joining ISE because first of all, I cannot talk about the World Cup if I do. People start throwing things at the screen, but second of all, you always bring a host of knowledge on a day of a real reset. Heading into 2012, three World Cup.
You watching a charlatan? What a CAC. Did you see that bicycle? CAC was a made on believable kick. Yeah. OK, so I actually could watch the talk. So you know, Tom Keene is gonna be home right now like you. Come on. It's gonna go on.
You think it's an accident that he's off? All right. So we're also seeing the markets close at 2 p.m. and we are getting this sort of reset of where we go. The year is ending in two weeks. What's been the main theme that you've felt from all of the sort of outlook notes safe and feeling? Well, the narrative is shift back to the Fed pivot, right? I mean, everyone's calling for the pen pivot again. I think the market is pretty much grown too accustomed to the fact that Europe is definitely gonna head into recession next year. The U.S.
not so sure. And so for me, it's this Pettiford Fed pivot. It's Lael Brainard basically getting more dovish. It's Chair Powell holding on to his
hawkish rhetoric and the fact that U.S. trade I mean, we are P.C. next week, we have payrolls. Next week we get a lot of data coming through. We're gonna see if the Fed can hold the line. In the meantime, a lot of people were
hoping that this optimism will be fueled by the sense that China would be reopening. And overnight, I think this is actually incredibly important. I was reading about the shutdowns in Beijing, sort of reinstated cases and they case numbers that are surging to record highs. How much does that shape your view in a
different way heading into next year, based on all the optimism out of all of the shops around emerging markets, around global growth, around supply chains normalizing for that economy to open up, it's going to take time. And I think it's more of a second half of 2023 story. And certainly everything that I'm reading over the weekend, everybody's come out with their outlooks and looking for China to kind of muddle through the first step. But then the second half we see the real rebound. Look, we're gonna see fourth quarter GDP this year on something, the order of three point nine 4 percent in China, but it's a PBS C rate cut. I mean, look, we were expecting, you
know, 50 before the end of the year. They only delivered 25. So, yes, while they're injecting liquidity, it's not going to be enough here to basically offset that declining pyramid that's going on there. The property credit, we're going to talk about that coming up with a host of incredible guests that we have on the show. We have former Fed economist Claudia Sams, who's at 630. We have Christine Miller Glassman of Goldman Sachs, an incredible voice, 745 AM, Jordan Rochester of Nomura at 8:00 a.m.
We also have Luke Kawa. We have so many. Great. Yes. Yeah, I know. He's got to come back and we can't wait for that move. Becca, before we go through markets and the brief, which is gonna be so brief, it's we're all looking for 2:00 p.m.
when the markets closed in the World Cup happens where the U.S. versus England. What were the hottest topics here? Thanksgiving dinner? Well, God, it has to be the fact that the Jets are going to make way to quarterback. I mean, there is a I mean, look, the fact that they're benching Zach Wilson is a pretty big. No, I'm kidding. I think I think reality was you know, I think the turkey was a little dry, maybe the stuffing, maybe a little bit overcooked. OK. I don't know if that had anything to do
with the actual turkey itself or, you know, my cooking. But nevertheless, you know, I think that was a lot of the treatment. I do love KURTZ Ridiculous. That was one of the conversations. You don't like Turkey for Chinese food? No. We actually had fish. But I mean, I do think that there is this feeling that, you know, do the dos and don'ts.
The turkey is sort of not the main course. It's the trimmings and the turkey is dry. So you can kind of put it with whatever you see. I will say right now in markets, a very quiet tape.
We're looking at the S&P that's basically meandering between gains and losses. S&P up about a tenth of a percent. You know, nothing's happening. The euro dollar unchanged. You've got 10 year yields up just a fraction, all three point seven percent. Amazing to see the round trip. They're down. I think what Dow Jones are like down 15 basis points or something on the weak and crude, marginally higher, although some of the outlook there and we'll get into this later on, perhaps not as bright in terms of just the international to man. Joining us now is somebody who thought that it was going to be a great day. You know, I might as well join them
because it's going to be so great here. And instead, he's sequestered in a corner because it's so bright in his room. Kit Jukes, chief ethics charges that Societe Generale. Thank you so much for being with us. Kate, you talk about that.
It's not a Black Friday so much as a gray one, not perhaps in your room, but generally. How so? Well, it's a day when I'm not sure there's that much optimism around in the global economy this morning, and I'm not sure that there's much going on. But but it is this sense of, you know, even in the US slowing economy across Europe minutes.
How do you go running out on all these cheap prices to buy things when you're worried about energy costs? Worried about mortgage payments and so on. So, you know, the global economy is clearly slowing. And that's the backdrop that the shocker. You mentioned it, but it's how much yields have fallen, how much the market has priced back. Fed expectations since Jay Powell gave that press conference and told us that rates had to be higher for longer than the market was pricing just then.
So we are we are just definitely getting the birth of the central bank collectively because we think global economies like the kit. This is really confusing, especially because in those meeting minutes, essentially Fed officials said that they expect recession is almost as likely as their base case. This is as close to capitulation from a central bank that, yes, there is going to be a downturn. And yes, we are going to keep rates high in order to curtail inflation, even if that does become the base case. Do you think that hasn't gotten enough attention? I think it gets attention. I think, yes, the difficulty with this cycle is probably true pretty much everywhere is that in most major economies we're going into a downturn at full employment. And, you know, if the last if the last
big recession was this time is different, this is different. All over again, differently. I can't remember a time when you have full employment into slowdowns and probably through quite a long time. So so the battle is between central bankers and how much they think they need to tighten and for how long to cool the labor market. At the same time as they can see economies weakening significantly different sides of the Atlantic. You have a slightly different take on
it. But I think I think that's the that's the piece. The central bankers are looking at slower and slower data and think they're looking at the labor market and thinking, how do I really get to grips with inflation without getting a higher unemployment rate? CAC, you know, it's a sleepy Friday here in November. And for me, you know, it's not always been that way. If you think about the year in turn, if
you think about cross currency basis swap spreads, they've really behaved rather well. Given all of the tightening and the liquidity pressure, we would've expected to see into year end. Are you surprised by any of this? Well, they were behaving so badly six weeks ago that everyone got themselves into a into a state about them. And I think and I think people started dealing with it very early. So we had a we had a longer lead through. I still worry that they'll come back in the last week of December and ruin my life. But that's just that's what we're paid
to do is to worry about things like that. But, you know, I think that what we made that there's a possibility that I mean, particularly in the foreign exchange market that, you know, from the war in the Ukraine, the Fed hiking first, the energy crisis, the fact that the US benefits from terms of trade as the world's second biggest energy producer never had that before. And in an energy crisis, in modern times, that old like lines of, you know, ridden the dollar rally for months and months. And by and large, that they, you know,
let's close up the term, let's shut everything down. Let's quieten down and start getting ready for Christmas. Well, Kate, we're also seeing tentative signs of investors re engaging with non dollar asset classes here as we approach your end. So I'm just going to ask the elephant in the room has the dollar, Pete. ISE Pete King. I think it's one of the description it's
not a Matterhorn, Pete, but a dolomite speak. If that works for Americans, but it's it's going to be a series of jagged peaks because you know, the other elephant in the room. The crisis in Ukraine can now we're all downplaying the tail risk from that.
It can come back in a flash. So we've got we've got things we can get concerned about. Clearly, if things escalate and you think things get worse in China, that can make us worried. But but, yes, the dollar is going to be significantly weaker by the end of next year. We may see.
I think there's a real chance that we may see the dollar quite a lot weaker by the end of this year and then stronger in January just to blow up every outlook. But you're right, just because positions come off. I'm glad you talk about positioning. And I've got to say, when I was reading your note, I felt like it was pretty gloomy and I thought, you know, OK, I wonder what your pushback is. I get accused of being gloomy all the time.
How much do you buy into this argument that there's already so much gloom that there's no room to be gloomy or that stocks have to rally, that the dollar has to weaken just because people have already baked in all of the bear cases that could potentially happen? I hear that from from our equity people and our credit people, for example, you know, in the season of outlooks, if the first one I saw from anybody said, you know, next year is the year of yield, which sounds pretty gloomy if you fall, you're supposed to do is to buy bonds the next you know that the view that we would have is, is that credit spreads look as if that better able to cope with the kind of downturn we'll get then than equities in some ways, but that the equity problem is maybe more in small companies than big ones, which are small ones which can't cope with the volatility we've had in sort of events that affect them. But yeah, I think there's a lot of there's a lot of negativity for the way that this will play out priced in. I think in the foreign exchange market, part of it is that I view it slightly differently when people start looking at a soft landing and they say, you know, growth is going to slow, we're going to manage soft landing, that seems likely. The Fed's done soon. They sell the dollar because we get to the the the ideal point of the smile where ECB still raising rates. The Fed's said stop where it's all priced in and so on. I still worry that the bigger problem
could be later. Now, we don't think we're really going to get a recession in the United States or 2024. The danger with this labor market and with the Fed hiking the way they've been is, is that if the labor market so tight and going into a recession, the hammer that you need to break the knot of inflation might have to be hit really hard and you may get later harder landings rather than earlier softer ones. But kind of you.
So it may well be that you get no equities do reasonably well in the first half of next year and then we have to rethink it. But for now that everybody everybody is believing that you can soft land the global economy, despite this unique combination of zero unemployment at the beginning of a recession could use lending. Societe Generale. Thank you so much for joining us, Ken. I hope you enjoy the beautiful sunshine outside, despite the gloom of what we're talking about. And I do think that it would be an incredible band name. What is it? The special place in a smile. Yes, that's smart.
But that was smirk, smile, smile to smirk. Have you ever heard seen less conviction, indifferent? You're ahead. Forecast. We've had this year. Last year. No, I'm kidding. I definitely agree with you. Last year, the year before and the year before.
Right now in markets, not a lot going on. It is the Friday after Thanksgiving. A lot of people are home watching the game. Wow. There's a little bit of euro weakness. A little bit of dollars, right? Not really. It's basically flat.
Coming up with that, Luke Covid, director of investment solutions at UBS Asset Management. This is. Keeping you up today with news from around the world with the first word. I'm Lisa Matteo. Retailers in the U.S. are bracing for a slower than normal Black Friday. High inflation and sagging consumer sentiment are hurting Americans demand for material goods. According to S&P global market
intelligence, seasonal sales are likely to fall one point two percent after adjusting for inflation. That would be the first decline since 2009. In China, the central bank has taken another step to boost the economy. It's cut the amount of cash that banks must hold in reserve for the second time this year.
The adjustment to the reserve requirement ratio takes effect December 5th. It will inject 70 billion of liquidity into the Chinese economy. In Ukraine, half of the capital's residents are still without power following a barrage of Russian missiles.
The mayor of Key warns that limits on electricity will continue. President Vladimir Zelinsky says the situation with power is difficult across the whole country. In the UK, nurses plan to stage their first ever nationwide strike for two days next month. It's an historic sign of defiance in a dispute over pay. The British government has said that calls for pay hikes 5 percent above inflation are not affordable. 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 Mateo. This is Bloomberg. You could think about 2022 as really being an environment in which the second largest economy in the world, the largest commodity consumer in the world, was hibernating. That was Jeff Curry, global head of commodities research at Goldman Sachs. And of course, he was talking about what we see in China when it comes back online. A big question. It looks like it's further away from
that, then closer. And we've been looking at the potential and what looks like the reality of Beijing, the main city of the mainland being locked down with cases surging to record highs. Joining us now to really pass through what's going on is Bloomberg's Tom Mackenzie. Tom, I am curious, as we look at the situation in terms of the social response of one of the biggest cities in the world, getting lockdown after a time when the pandemic in other places is over. Yeah.
And for the context, Beijing, the capital, has never been locked down throughout this whole this whole period. Now, the authorities are not saying it's locked down now, but that's essentially what's happening. Compound by compound, things are being closed down. I've been in contact with people on the ground this morning. They've been telling me there is visceral anger now in the lines, lining up for an hour, an hour plus to get these tests that people have to get on almost daily basis to get into anywhere. Visceral anger on the ground.
There's challenges around getting food into your home, that delivery apps are under pressure. So this is a concern is a deep challenge for officials. They put out this plan a couple of weeks ago. It's kind of walk away from Covid Zero
that has collided with the reality that they're now facing record levels of infection. And it isn't just in Beijing, capital city. Twenty six million population is also in a city like Chongqing, where they've got an effective lockdown as well. The population, by the way, they're 30 million more than the size of Australia. This is in major cities around China. The loop closed loop system for
manufacturers and producers is also being challenged. We're seeing that play out at Foxconn. So, yes, how they respond, how officials respond to this emerging dynamic is going to be consequential. They wanted to move away from this. The reality on the ground is it's only getting worse. So, Tom, how are they going to deal with this from the social perspective? Are you actually seeing the images go out on social media in a way that is new? That is different than the past two years of a very different tone.
I was just checking my wheelchair account and I posted or saw images. I wasn't posting. I saw images people had posted online. People being taken away to these central quarantine centers where the conditions are appalling. Overflowing toilets, not enough beds.
Dirt on the floors. There is that anger and that is being shared online. The authorities are going to respond, as they do, always with a rapid clamp down on the sharing of this kind of information. Those kind of images will not be up for long. There will be protests, continue protests. You can expect that there'll be further unrest. Is it a real direct challenge to the
authorities in Beijing? I think we're a long, long way from that. They have incredible control, particularly around the surveillance state that they built up the infrastructure in these major cities. It will be, though, deeply concerning. The number one priority is social stability. You'll seeing that now starting to fray at the edges. Yeah. Tom, you mentioned Chongqing.
I look at Shin Jang. I mean, overnight we had a fire there and 10 people passed away because, you know, the firefighters were slow to react due to obviously the containment measures. Right. And social media is up in arms about it in China. You know, but I want to shift gears. I want to talk about the PBS CEO. I want to talk about the rate cut overnight. Obviously, widely anticipated people
were looking for it. Is it enough? Is it enough? Probably not. If you listen to the economists out there in the mirror, for example, they've downgraded their forecasts for China's economy for next year, 2 to 4 percent, which in the context, of course, is relatively weak when you expect and many people expect some of these measures to ease, to bite by 2023. We'll see if that indeed happens. Will it be enough?
No, probably not. So you had a triple lock. This is the reserve ratios within the banking system cut by about a quarter of a percent. But it is building on these efforts by officials to try and put a floor under this economy is going to release about 70 billion into the banking system. The key question really is whether they can actually shift those funds to businesses at a time when so many parts of this economy are closed off. Can they actually get that funding into the real economy? That is really something to watch. It's the second time they've cut reserve ratios this year.
They've cut the benchmark lending rate as well twice this year. And they've unveiled a package to try and support the beleaguered property sector as well as this step by step plan to have a more targeted approach around Covid zero. We've just been talking about how badly that is going. So, yeah, the challenges that they're trying to get more liquidity in the system, whether or not the banks are prepared to lend it out, whether or not the businesses are prepared to take on that liquidity. I think it's another question time. I mean, you hit the nail on the head there, right? It's about bank lending. It's about demand for housing.
Right. I mean, demand fallen off a cliff. Also, I mean, talk to me about some of these measures and how it's going to impact China's property sector. We know the pain that's going on there. You know, demand from households for housing, banks, willingness to lend to property developers. Talk to us about that. Can we expect that to change in the months in year ahead? Yeah, for the context, the property sector makes up about 20 percent of China's GDP. When you tie in all the linkages from
the property sector, about 20 percent of GDP. So they've come out belatedly. Many would argue with this package of measures to support the property sector. They've done things like they've
corralled the biggest lenders, the biggest banks, got them into one room with some of the major developers and said, look, work out some of your differences in terms of addressing some of these loans. They're going to be focused on the developers that they think ultimately can go through and survive. They don't still don't want excessive borrowing within the real estate sector. That key concern with making sure the
properties and developments get finished, that those people who put deposits down on houses get into those properties and that that doesn't trigger further social unrest. But in terms of the excesses around the bubble and the build up of credit liquidity within the real estate system, they want to see that avoid it is a very, very difficult balance and very, very difficult and fine needle. So thread. But most people do you think this package as it should be enough to at least put a floor under that property sector? Tom Mackenzie, thank you so much for all of the reporting throughout the day. I am curious, Damien, why are people so bullish on China if this is the end, what we're looking at on the ground? Well, I think what we've learned in the last few weeks is China has I mean, Chinese equities are up 25 percent in the last month. Really. I think what we've learned is that while, you know, China, a lot of people aren't buying what China's selling, you just can't have zero exposure to China any longer, because when you have a low liquidity environment like this, it doesn't take a lot to move the needle, 25 percent.
And if you miss that move as a fund manager, as an investor, it's something to be mindful of. I get how this could be a short term positioning type of reach as people look to the year end and try to salvage their performance. But when you look at the outlooks, that is one of the consensus calls that China will outperform next year. As we look at this real tension around lockdowns and inability to move away in a constructive moment, I mean, honestly, it's hard to see how we get there. So what do you make of why? I think on a relative basis, if you look at the beta regime, which is one that's shifting from interest rate risk inflation to growth concerns i.e. recession risk, I mean, you're not going to buy equities, at least U.S. equities in that environment
necessarily. So where you gonna get that bit exposure? You may have to turn to emerging markets, which are effectively China. Now, look, I agree with you. You know, China has proven in terms of their respect for property rights for investors. I have to say, I mean, I understand the right to be bearish, but again, from a diversified portfolio manager perspective, to ignore China and have zero exposure all together is probably not the right move. And this is also one of the question marks around oil prices and how we deal with the lack of demand coming from China. Right.
So if you believe that China is going to come back online, you could see why some people remain pretty bullish on oil. If you believe that the lockdowns and what we've seen in terms of demand falling off cliff from China is truly the case. You get what we've seen, which is an incredible sell off in oil prices. And so this to me is one of the pivotal
underpinnings of everything that happens next year. Well, absolutely. Jeff Curie, I think Goldman Sachs Scarlet Fu four hundred fifteen dollars by the end of next year. Look, it's not about where it prices go. Prices will go to 115. They can go to 140. It doesn't matter. It's where will they be sticky? Where will they stay and what will the average price be over the next year? It's really about this transition and data regimes and how quickly it happens. People talk about inflation at the
Thanksgiving table a little bit. Yeah, they talk about using expensive turkey this year. Is that what they talk about? Really expensive turkey. Did they talk about this? Don't want to give you the number. How expensive? I can tell you it's embarrassing. It's in back. Really? Yeah.
I think we overpaid. What we got to Turkey. We have. It was an ISE turkey. Sure. She's a. Yeah. Okay. We'll talk about Damien's turkey. Want to talk about coming up, glorious out founder of Simon Consulting and former economist.
This is Bloomberg. This is Bloomberg Surveillance Tom Keene Jonathan Ferro Lisa Abramowicz and angina off suspiciously on the same day that the U.S. is playing England in the World Cup and looking right now at Berger's Smokehouse, her career smoked a whole turkey that went for one hundred and fifty nine dollars currently on Amazon.com with lots of good deals. Damian Sasaki and with me, so I can tell you all of the good deals that could potentially get in Turkey. I love a big TAM. Yeah, it was a great party. I think Turkey again, clearly. Maybe I should have ordered Chinese food.
Looking at markets that are very quiet. This post is giving day. Not a lot of action, but a real reset. And I think that the story of the week, Damien, has really been how much yields have come in. This feeling of a Fed pivot, the idea that the end terminal rate will be lower than what people thought just a week ago. Somehow a rebuttal of everything that Fed Chair Jay Paul Sweeney has meeting.
Yeah, and you're finally seeing it. You're seeing people push out on the curve. They're taking more duration risk into their portfolios. The asymmetry in fixed income has improved materially just in the last week alone. So, look, we were long calling here a beehive for a rally in fixed income and we're gonna see it here in 2023. Well, you don't think you really think
we're going to get along? You think so? And this is really the issue is that the people think we're heading into weakness. And yet today's Black Friday, a lot of people are going to be shopping. A lot of people already shopped. A lot of people aren't going to shop because they're going to see so many deals in a week. Coming up, more promotions. I mean, how much do you actually see that resilience of a consumer as a bad thing or do you see it diminishing? Well, what's interesting is this is going to be the first time in three years where you actually have physically people going to a store to purchase things as opposed to doing it online.
The foot traffic is going to be the key indicator, going to be very interested in seeing know people getting out of bed and actually going to the store and actually touching and feeling and buying. You know, I don't know. I mean, the verdict is still out for me. I probably am a little bit pessimistic on that and how the holiday periods is going to be from a sales perspective. But know a lot of people are looking forward to good things. So let's head over to the ground and see
whether people are shopping and doing things. Bloomberg Markets Gupta is out there toasty and warm. New York's Herald Square, thank you so much for being with us. Credit, what is the scene? Are there a lot of people out there actually shopping or is it kind of sleepy? You know, there were a lot of people shopping, we had an amazing line and then 6 a.m. hit and they all kind of flooded
straight into Macy's and now you have an empty Herald Square tube. Damien's point after that, a lot of people aren't necessarily shopping in person. But there was a good turnout. I think what's really key here is the idea that they are looking for that in-person experience. A lot of people here specifically are
gonna be tourists. So that kind of try and close on looking at perfume, looking at jewelry in person. Those kind of things are experiences that they want ahead of the holiday season. But I think, look, really crucial takeaway that this is really becoming a litmus test for a lot of these retailers. Can they get rid of the inventories fast
enough at those higher markdowns while still being able to kind of maintain their bottom line? This is gonna be a really crucial kind of moment for a lot of these retailers. Say, are we ready for the holidays? Are we ready to accept new shipments of credit? You're in for the Macy's. You're on the west side. You're in the 30s. You know, talk to me about not just Macy's. I mean, people are obviously trading
down to, you know, other brands. Talk to us about what you're seeing, you know, in on Broadway in that in that area. I mean, are you seeing, you know, is it just Macy's that people are waiting in line for? You see people seeing people, you know, kind of crowding to other places. What's what's the vibe? Well, look, I'm just a few blocks away from Times Square. Here you do have Macy's, which of course, cater to a more higher income clientele, were right next to Macy's, by the way, is an ancient ATM.
An ancient ATM is fairly not in the same category. I would say as Macy's as you are actually not seeing the same lines. So I wonder how much of this is going to be more of a story of this divergence. You're starting to see between different income brackets. Remember, this is something you're hearing on an earnings basis as well.
The idea that Macy's actually said, well, we're actually OK with higher inflationary pressures because we do have a higher income client that can absorb that. That is something that not a lot of other brands and retailers are really saying you sell it would target. You even saw that with Nordstrom arguably at the wealth effect is going to be far more evident here as you get to see those divergence between a lot of the retailers. Dana Telsey, I believe on surveillance last week actually said that, hey, look at Abercrombie and Fitch, look at Anthropologie. Even the kind of bid from your teenage
shoppers isn't as prevalent as it was a couple of years ago. Well, Chris, I mean, the big theme here has been, you know, clearing of excess inventory. Right. And that's still a big one for retailers. You know, talk to me about, you know, skinny ties and slim fitting suits for men, men, men, small. You know, I mean, Jonathan is just
typing in here. He's looking for some skinny ties. I mean, what are you seeing there? Any inventory on on the racks? Yeah, he IBD me and said this there's colors I want go in Macy's and reserve them before you start doing your head. But this is interesting when you talk about the inventories because like this is the real Achilles heel for a lot of these companies. If you're looking at it from a stock price perspective, Damian Lazar, you know, the markets now, they're getting rewarded if they're able to clear their inventories.
But if you look at it from a profit point of view, from their balance sheet point of view, that's really where they get hit because you have higher markdowns, higher promotions. At the end of the day, you're not making as much on per unit item. And that's going to be the Achilles heel for a lot of these retailers. Even if they are rewarded for getting
rid of that inventory in the stock market, it's going to be a really crucial balance going into 2023. Critic Gupta. Thank you so much. And we will be hearing from you throughout the day. We are looking for seasonal sales potentially falling one point two percent. This according to S&P, which would be the first decline since 2009.
After you adjust for inflation. Joining us now is someone who's really passed through the fate of the consumer amid inflation before it might even get to some of the underlying data that the Fed looks really gauge inflation. Claudia Sam, founder of SOM Consulting and former Federal Reserve economist.
Claudia, thank you so much for being with us on this post Thanksgiving Friday. How much are you looking to this holiday shopping season as a gauge of consumer spending? I'm really optimistic. Consumers have delivered it. This year we have had a very steady pace in terms of overall spending and the labor market is great. I work with the Fed over a decade focusing on consumer spending, our forecast or analysis. People when they have income, they spend it.
Americans have income, these jobs. It's true of some of the spending now is going to be at the higher end. But you know what? Those people that work at Macy's, they need to keep their paychecks.
They need people to come in and spend. I we have everything for another good holiday season. Even after inflation adjusted. So I see a really good path forward. And honestly, I'm not too worried about some of these businesses. The big businesses take them a little bit less in profit. They've been doing pretty well.
But you've got to look big picture here. But, Claudia, on the flip side, you could say that that resilience, that spending is exactly what's causing a problem for the Federal Reserve, because it's the reason there is still momentum, the reason that inflation can last longer than many of the lower income families can stand it. How does this really cohere with this idea that the Fed should be somewhat careful rather than just keep going with a sledgehammer? The Fed needs to back off.
It is absolutely clear and it's become clear over time. A lot of that inflation is coming from disruptions on the supply side, disruptions from Covid, disruptions from the war in Ukraine. We have seen a lot of encouraging signs even in the last consumer price index numbers that things are turning over. We're seeing things work themselves out.
Yeah, it's going to take time to show up in consumer prices for whatever reason. The Fed has decided they've got to see it there, even though we see it in producer prices, import prices. Brands are turning over. I think we have all the signs that relief is coming to consumers. And if the Fed does too much, they're going to undo that relief and overdo it. Claudia, the Sam rule has been it's a widely regarded indicator of recession. You know this. You created it.
My colleagues at Bloomberg Intelligence are calling for a 100 percent probability of a recession in the US over the next 12 months. What are your thoughts on that? So, respectfully, I I disagree with them. And frankly, as the data are coming in, particularly on the inflation side, I am more and more encouraged that we could skirt the recession. I think if we see one, it's almost absolutely going to be of a mild variety, at least given what we know right now. Other bad things could happen in that forecast could change. But we have again, there's a lot of
encouraging signs. The labor market is good. You don't the sound was based on the unemployment rate rising. And it's really not. Things look really good in the labor market. You know, we're getting back to a more
normal, sustainable pace. So I don't I don't see it unless unless I'm seeing it. But, you know, I have been wrong multiple times. This economy is upside down and backwards. And we keep having really bad luck in terms of bad things happening in the world.
You know, Claudia, you've also written extensively on Fed activity during periods of wartime. Right. And historically, what we've seen, like in World War 2, for example, you saw, you know, basically the Fed not, you know, hiking rates as aggressively, providing income support and the like. You know, we just saw, Neil, roughly 70 percent of the parity we have. Not that in Ukraine yesterday. You know, the difficulties that are going on on the ground there.
What should the Fed be doing? Should they be paying attention? And how to how should they be handling that? Congress should be stepping in and the Federal Reserve is following their mandate. That's what they have to do. They're going to follow the letter of the law here in wartime. You can look back to World War 2. That was a time when the Fed worked
closely with the Congress and Treasury told them you are going to keep interest rates low. So financing the war doesn't cost American taxpayers even more than it has to. The independence of the Fed is not God given. It is Congress given. Now, that's a big step forward. And I know we've been talking about it is like, wow, if that economist is thinking about, you know, putting independents temporarily on the side, I just don't get it. I don't get why the Federal Reserve is pushing so hard. And I certainly don't understand.
The European Central Bank and the Bank of England has made very bad situation in Europe worse. Claudia Sohn, thank you so much for being with us. Claudia Saab of some consulting and former Federal Reserve economist. We didn't have a lot of time to go into Fed independence and why a lot of people say it is the preeminent concern.
But a lot of people say that that is really important. And if if Congress doesn't act, the Fed has to counteract inflation and make that their number one mandate. Yeah, but Claudia is not calling for recession. Right. So, I mean, why should the Fed go in and provide support? Why should they pump the brakes? Why should they stop tightening rates? Inflation is still an issue. I guess that is the question.
Will inflation still be an issue looking out? One, two, three months into the future? Right. A lot of people think that it's not going to be the case. I do wonder, though, as you talk about Congress. Right. This has been.
I mean, this is sort of my third rail. I'm gonna be honest. Hold on a second. Take my hand. DAX. I mean, the big failure here is that Congress did not pass certain bills and that a lot of their power, a lot of the sort of policymaking was relinquished to a Federal Reserve with these stopgap knee jerk reactions with a hammer. And that's been basically what got us
into this situation to begin with in terms of an unsustainable monetary policy with a very uncomfortable kind of reality. On the flip side. Yeah. Lack of fiscal stimulus and the same thing we're seeing in Europe and the UK.
So it's nothing new. But again, you know, I think it's not the Fed's mandate to do that. Whenever the Fed's mandate may be, whoever they think exactly where whoever they are. Exactly. Let's see who they are as they give us a lot of speeches next week. And we'll hear from all of them and
we'll be passing through. It'll be exciting coming up here to be passing through the retail results. I'm so pleased that Joe Feldman will be joining ISE, senior research analyst and assistant director of research over at Telsey. From New York, this is Bloomberg. Keeping you up to date with news from around the world with the first word. And Lisa Mateo. Shoppers may have a little more elbow
room this Black Friday as inflation weighs on their budgets and those who are willing to spend are looking for bargains and turning to less expensive stores. Consumers will also be dipping into their savings and relying more on buy now pay later services. European diplomats haven't been able to resolve their differences over a price cap on Russian oil. Poland has rejected the EU's proposed price of sixty five dollars per barrel, saying it is too soft on Moscow. Greece, a major player in the oil shipping industry, doesn't want to go below 70. Talks may resume today for the first
time ever. China's daily Covid infections have gone above 30000. Officials are struggling to contain outbreaks that have led to restrictions in some of China's largest cities.
The government wants to shift away from citywide lockdowns that have hurt the economy. But some officials are again reverting back to the Covid zero policies. A new report predicts the world economy will be as weak next year as it was in 2009 after the financial crisis. The study comes from the Institute of International Finance. Now it forecasts that global growth will slow to one point two percent in 2023.
That's largely because the conflict in Ukraine risks becoming a, quote, forever. More 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. I think this idea that inflation comes down and will finally come down in 2023, inflation was very hard to forecast in 2022. We struggled with forecasting inflation. The Fed struggled with it.
A lot of forecasters struggle with it. I think there are a lot of good reasons why inflation comes down in 2023. Perhaps that is what we're seeing right now. Certainly with all the discounts that we're seeing starting to percolate across the retail universe, interest sheets there. Chief cross asset strategist at Morgan Stanley, Lisa Brown was here with Damien Sass. Our and this really has been the theme, the cuts.
And I keep wondering, are we witnessing the end of the post Thanksgiving for the mob in shopping malls? Well, I mean, look, you know, I don't think so. I mean, I maybe in the New York Tri-State area for sure. But look, I mean, you know, let's be clear. You know, we had a travesty earlier this week in Virginia. I wonder if that's weighing on the minds and souls of people today. Are they willing to run out to a
Wal-Mart, you know, and get in line with, you know, that kind of hanging over people's head? Probably not. Yeah, well, let's see what's going on. As we tried to go on the ground and Joe Feldman in his car, going from store to store, a senior research analyst and assistant director of research over at Telsey. Joe, where are you right now? What are you seeing on the ground? Yeah. So I'm in the west, just in New York, up
in the near White Plains. And I was just going through a Best Buy. And so far this morning, it's fairly quiet out there. I don't think there's this massive rush to get in the store to grab grab a door buster. Well, how much of this how much is this, Joe, that we're just basically seeing the end of this? You know, you get in at 4:00 a.m. and you get the goods and that's for you to see people line up that that's over because of the online channels, because of the other areas of distribution. Yeah, I think that's absolutely right, Lisa, that you are seeing maybe the end of that early morning rush that need to get in for a door buster. You know, just talking to some
associates and one of the stores that I visited and they were saying, yeah, there was no major rush. The prices are basically the same that you could have had of all this past week online or even walking into the store earlier this week. So I think that if it is that that push to get you in has maybe waned. But I'm very curious to see how traffic is this afternoon, because I do think that that people will come out.
They want to get social. And we haven't had a real true Black Friday in a couple of years. Joe, your 15 minutes for my home in Red Brick, New York there on Central Avenue, White Plains.
How indicative, how representative is that Best Buy on Central Lab of, you know, what's going on across the nation? I actually think it's fairly representative. I mean, look, it's a nice, you know, you know, solid community, middle upper middle class community around here, people that are looking to buy. And there's it's a very good retail area here in West Chester. And I do find that it has been fairly indicative. You know, when I speak to the people on my team who live all around the state area, we have some around the country, in other cities and we e-mail this morning and everybody's kind of saying the same thing. It's fairly quiet so far. So is it gonna be. I mean, is it gonna be, you know,
electronics, is it gonna be. Is it gonna be big goods? Is it gonna be, you know, durables? I mean, where do we see a lot of the sales, where we see a lot of deals, where do we see a lot of promotions taking place here? Yeah, I think we're going to see a lot of promotions, certainly in electronics. We are seeing that TV's headphones and other gift of all items. I think we're going to see special occasion where has been hot lately and I think that that will continue. We've seen beauty, even jewelry has been been decent. You know, I think people want to feel good and buy some things for themselves.
That's areas where we may see some interest. Toys are always a big, big driver for the holiday season. But I think it's going to be much more focused on one value and the value you can get in a in a gift for four members of your family or some friends. Value means it's discounted, right, Joe?
I mean, this is basically we're looking at a pretty steep discounts at a time when there are huge inventories at a number of stores, particularly those that Overstock. I'm thinking of Target. I'm thinking of a host of others, not necessarily Wal-Mart, not necessarily Macy's. How much are you seeing the optimism in stock market, perhaps in the stock market outweigh what you're seeing on the ground with all of the discounts that that retailers are having to offer, plus the fact that they're trying to remain fully staffed and not lose people that they might not be able to rehire later? Yeah, I think there there's a lot going on in the retail market right now. There is heavy inventory. There is a need to discount.
What we've noticed is that the discounts are not that steep in the sense that 30 to 50 off is fairly common this time of year. And that's what we're seeing. You know, we're not seeing these very broad, deep, you know, 40 to 60 percent, 50 to 60 percent discounts. You know, the retailers are definitely face facing cost pressures and they're spending what they need to to keep the labor force satisfied. And I think that we're going to continue to see that.
We continue to hear that from a lot of others. The big question everybody has is really heading into next year, how much pressure we're going to see on the consumer. Will we tip into a mild recession or a recession all in. And as long as the labor market is in pretty good shape, which it is right now, we're hopeful that things won't be so bad next year and that will hold up some spending levels. And then, you know, there is some room for optimism. Certainly as you get deeper into 2023 when you face easier comparisons. Joe, you're talking about overall
general numbers. How much are you sorry to see a bifurcating of stores that cater to the lower ends to worse and those that still cater to the luxury end still going strong? Yeah, witness, the bifurcation is very clear out here right now where you are seeing, you know, the more affluent consumer continuing to spend and those stores are that cater to them are doing fairly well at the other end of it. There's a lot of focus on value. There's a lot of focus on food and consumables and basics, which is why companies like Wal-Mart and the dollar stores and even Target, you know, are doing very well on the basic side of things. It's really the discretionary side at
the low end has been the big pressure point, and that's where you could see some some continued pressure this holiday season and into next year. Joe Feldman of Telsey, thank you so much. Joe Feldman, he'll be joining us throughout the morning.
You driving around to check it all out. Damien, I do wonder how much real estate falls into this. And I say this because if you have if you don't own your home, you're dealing with rents that are sky high. And if you do own your home, if you're just buying now, you don't have anything left. Because mortgage rates are not going to do it. But I wonder how much that's going to really underpin a lot of what happens with the consumer next year.
No home affordable home affordability is at its lowest in 40 years. But I just want to take you back. I mean, I'm looking for a weapon, Genesis E 435 with the sideburns. And the reason I forgot to ask for a quote on that, by either way, is because Tom likes his red meat here.
But they have the sideburns. And, you know, you could cook the pesky tour, you know, the veggies for John on the side burner because, you know, doesn't like the mix. So I need to get a quote on that. I should have asked Joe. We haven't back on later. Oh, I'm glad that you're using him as your personal shopper. Yes, it is that basically which I need to know if my wife got out of bed and get on mine, right. That's true.
I've been coming home later and it'll be all good. I'm wondering, though, you know, are you doing shopping this year? I'm Black Friday. Did you ever do that with a man who has everything? What would I need to shop for? For someone who's just him? I'm just asking myself on a Friday morning. Have you ever done anything up at 4 a.m.
to do the shopping? I've never done it. I've never gotten up early. I shop in my life ever. But I'm sure my wife has and will ask her when we get her on the line at Best Buy. One thing that I found really interesting about the earnings season is that the online sales have actually disappointed. It's because people exactly what Joe Feldman was just talking about. People want to go out there. They want to have the experience of shopping and socializing, but maybe not.
Right. I can't really blame them. Michael Barr. Yeah, exactly. But not, of course, for pretty good dad who is perfectly toasty. And right now, we're looking at markets quiescent here on a day of holidays in the United States of a tenth of a percent, four thousand thirty seven.
And those feelings, I just can't get over how much they've come down. Coming up, we've got Luke Carla of UBS Asset Management. This is.
We're expecting a mild recession just slightly more likely than a soft landing. We're pretty confident that the peak isn't too far off in the US, despite the fact that official still sounding hawkish, the Fed will likely, you know, do it 50 to 75 in December. The Fed will be early to pause. We think the last Fed hike is in January. What happens between now and next spring? That path is highly uncertain.
This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It's all about the consumer, and evidently the consumer is a little bit sleepy. From New York City for audience worldwide, good morning. This is Bloomberg Surveillance. I'm Bloomberg Television, Bloomberg Radio at Tom Keene Jonathan Ferro and Lisa Abramowicz Emma Chandra off suspiciously ahead of the 2 p.m. World Cup game.
Damien Sasso are very much in. I'm so glad that you're here. Not only are you expert in all things fixed income, but you can actually speak intelligently about football, about the World Cup. And I have officially been shadow banned. Oh, no. I mean, look what we need to see whether or not Raina sees the field. You know, he's got to get on the pitch for the US. I mean, Harry Kane, he was injured.
We need to see if Harry Kane, you know, is Harry Kane today. But but look, I'm optimistic that the U.S. is going to, you know, show up today and hopefully keep it competitive because, well, you know, England looked awesome. Oh, so you think that they're. I think England's a favorite. Yeah.
And one of the one of the better. OK, well, so you're trying to get in. Good head, John. I am wondering. So I did say that this is a sleepy consumer and it feels like that that's the tone that we're hearing, whether it's from critic Gupta, whether it's from Joe Feldman, that there isn't this rush to the stores. And it does sort of remain a question. As Claudius I was just talking about, are we going to see that resilience sustained at a time when a lot of people are seeing tea leaves and how that kind of flows through to earnings? And it's good that we have Gina Martin Adams coming on to guide us through that, because I think the consumer discretionary sector is the one that a lot of people are talking about in 2023 as being the performer.
Well, this is because they see the next leg of the cycle coming back next year and that possibly everything's going to get good. And it's sort of like we're fast forwarding through the bad that's going inevitably happen and then get it right to the good and saying, OK, so the Fed will do its thing and then it's undoing everything that the Fed is trying to signal to markets. How do you square that? I don't know. I guess you sell energy, right? You sell Exxon Mobil? No, I'm kidding. Now, look, I think you just have to kind of look, I personally don't think equities are going to have a great year, at least in the first half of 2023. But I think it's shaping up to what did into 2022.
It's going to be a tale of two halves. And so we'll see whether or not we actually do slide into recession in the U.S.. My thinking is earnings are going to come off, but not as much as people expect. Do you think that the narrative that
currently is the consensus will last for more than a month? No, I mean, as we met, because right now the consensus is bonds will rally next year. The dollar will weaken equities, a weakened equity. Europe's first half, the second half, they're to do well. China's stocks and bonds are emerging markets. JAGOW What virgin markets? This is the consensus. You think it's in the last month? I don't. Yeah, no, I don't think.
I think look, the one thing that is assured for me is that realized vol is going to be way higher than what markets are pricing. And we've seen that. We've seen the convexity selling does not work. So I believe we're gonna see more of the
same. I think it's going to be very jumpy. It's going to be very volatile, at least for the first few months of 2023, simply because there is no real paradigm to kind of latch onto. You know, you're transitioning from inflation to growth concerns and the market's going to have some difficulty with that. So I was writing down, you know, sort of the year ahead, encapsulated by Thanksgiving conversations, because it seems like every year it's sort of his a turning point. The inflection point last year with Bitcoin was the rage. Why haven't you invested in Bitcoin this
year? Perhaps it's that in reverse. I was thinking about inflation. How much are people talking about how expensive their turkeys are? I know. Do you want to weigh in on that? Well, I mean, my situation at home. Exactly. Now, I'll tell you this about about crypto.
You make a good point. You know, one of you to dodge the term, one of my my my niece, you know her. Somebody she's dating actually went to middle school with Sam Pinkman Freud in San Francisco. And he was like, you know, I mean, a smart guy went to Jane Street and all that stuff. But it's just amazing that this child, this kid convinced, you know, the sequoia capitals the most, you know, sophisticated investors in the world to invest all that money in him. It's just unbelievable. The unwind.
It reeks of Madoff to me. Well and well, that's a lot of people are talking about an Enron and a whole host of other fraudulent, unregulated offshore jurisdictions, shell company with the whole nine yards. When I got home to my parents last night for Thanksgiving with the family, my dad comes up to me and he says, what else don't we know? What other improprieties could we be funneling our money into without knowing it? And I wonder whether that is getting into some of the mood or if it's just my parents situation at home. Well, let's talk about that coming up. Coming up, just how we are going to have incredible conversations this morning. Christian Weller Glassman of Goldman Sachs, 745 AM Jordan Rochester at night, 8:00 a.m.
of No Mira and David Page of AXA Investment Managers at eight thirty a.m. right now. The one the only fresh shopping online. Gina Martin Adams, chief equity strategist for Bloomberg Intelligence. Gina, how closely are you watching this Black Friday? You know, I'm watching it closely for the sense of the consumer sector's outlook. It's not as important from a broader sentiment perspective. I think as many people believe as
shopping channel trends have certainly changed. As online sales have become more important, as expectations, frankly, for this year are at rock bottom levels. So I'm watching it. It matters a lot for the consumer sectors. As you were just speaking to the outlook, the consumer sectors are expected to bounce back into 2023. Consumer discretionary
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