Bloomberg Surveillance 07/27/2022 Fed Day
>> THE CONSUMER IS NOT AS RESILIENT AS THEY HAVE BEEN IN THE PAST AND MORE SENSITIVE TO PRICES. >> STAGFLATION IS A CONDITION FOR A GROWTH RECESSION. >> THE WORLD IS CHANGING, ECONOMIC VOLATILITY IS SO MUCH HIGHER. >> COMPLETELY AWAY FROM INFLATION CONCERNS. >> FOR MOST PEOPLE, IT LOOKS AND FEELS LIKE A RECESSION. >> THIS IS "BLOOMBERG SURVEILLANCE," WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN:
IT IS FED DAY. FROM NEW YORK CITY TO OUR AUDIENCE WORLDWIDE, GOOD MORNING, GOOD MORNING, THIS IS "BLOOMBERG SURVEILLANCE," ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I AM JONATHAN FERRO. TOM: YESTERDAY WAS NUTS AND TODAY WAS NUTSIER. I CANNOT CONVEY THE FRIENDS YOU SEE ON THE SCREEN. IT IS AT 2:30, CHAIRMAN POWELL WILL TRY TO MAINTAIN CONTROL OF THE DIALOGUE. JONATHAN: EXPECTED TO RAISE RATES 75
BASIS POINTS. WHAT ARE YOU LOOKING FOR? . TOM: OVER AT EVERCORE, HE SAID ARE WE GOING TO CA VOLKER RAJ -- ARE WE GOING TO CA HAWKISH TILT? I WONDER IF HE WILL SURPRISE AND WALK AWAY FROM THAT. JONATHAN: SEPTEMBER FEELS LIKE A LONG TIME AWAY AT THIS POINT. LISA: THE DATA IS MOVING SO QUICKLY AND THESE EARNINGS HAVE BEEN INCONSISTENT. NOT REALLY SHOWING A REAL PICTURE THAT GOES ONE WAY OR THE OTHER. HOW MUCH DOES THE FED CHAIR RECOGNIZE SOME NEGATIVE DATA WE HAVE SEEN? HOW MUCH DOES HE GIVE A NOD TO THAT VERSUS INFLATION IS OUR NUMBER ONE CONCERN? JONATHAN: WE TALKED ABOUT THE DATA POINT THAT IS GOOGLE AD REVENUE.
RESILIENCE, NOT RECESSION. THAT WAS TRUE OF MICROSOFT AND GOOGLE. LISA: THAT SEEMS TO BE THE THEME. EVEN THOUGH THEY TALK ABOUT CAUTION, EVEN THOUGH THEY BOTH MISSED ON A NUMBER OF DIFFERENT ITEMS, BOTH CAME OUT WITH PROJECTIONS THAT REALLY DEFIED SOME OF THE WORST CASES. TOM: I WAS REALLY UPSET ABOUT THE GLOOM COVERAGE. TO ME, THEY ARE DOING FINE. WHAT YOU DID WITH FOREIGN-EXCHANGE ADJUSTMENTS? . STRONG DOLLAR AFFECTS -- SO
WHAT? YOU MOVE ON. JONATHAN: THERE IS MORE THAN JUST FX. READ THE MICROSOFT PRESS RELEASE. EXTENDED SHUTDOWNS IN CHINA. . THE ONGOING WAR IN UKRAINE ISSUES WITH RUSSIA, TAKE YOUR PICK. TOM:
AND THE RED SOX ARE IN LAST PLACE. THERE ARE MANY ISSUES OUT THERE. LIFE GOES ON. THESE CORPORATIONS ARE GOING TO ADJUST. THEY COME BACK. GET OVER IT AND MOVE ON.
LISA: THERE IS THIS FEELING, TO ME, THAT PERHAPS SOME OF THE BAD NEWS HAS BEEN BAKED IN. EVEN WITH ALL THE WARNING SIGNS AND YOU COULD HAVE FOUND PESSIMISM, WHAT DOES THAT SAY ABOUT THE MARKET? TOM: THE MIDDLE-CLASS CLASS IS FLAT ON THEIR BACK, THE PRESIDENT WILL ADDRESS THAT, WE HEARD FROM FORMER PRESIDENT TRUMP YESTERDAY. BASICALLY, THEY ARE KILLING IT. JONATHAN: LOUIS VUITTON. FUTURES, .9% ON THE S&P 500.
THE NASDAQ 100 UP 1.4%, A SIGH OF RELIEF FROM GOOGLE. YOU WILL BE TROUBLE TODAY, AREN'T YOU? SLIGHTLY STRONGER EURO IN THE MIX, .2%. LISA: TODAY THE MAIN EVENT IS AT 2:00 P.M., A RATE DECISION FOLLOWED BY THE 2:30 PRESS CONFERENCE WITH FED CHAIR JAY POWELL.
GUESTS INCLUDE THE FORMER PIMCO CHIEF EXECUTIVE OFFICER AND A BLOOMBERG OPINION COLUMNIST, BILL DUDLEY. THE CHIEF ECONOMIST, HOW MUCH DO WE GET A SENSE OF WHAT THE FED NEEDS TO SEE TO BACK AWAY? IS IT WEAKER JOB NUMBERS? WEAKER GENERAL DATA? WE ARE ALREADY GETTING THAT. EARNINGS CONTINUE, QUALCOMM, META AND FORD MOTOR AFTER THE BELL. GETTING A SENSE OF WHAT WE SAW
OF ALPHABET AND MICROSOFT, THE SIGH OF RELIEF CAN CONTINUE. THOSE SHARES HAVE BEEN DOING BETTER BUT THROUGHOUT THE YEAR, THEY HAVE BEEN OF ESTIMATED. QUALCOMM DOWN 18%. I AM INTERESTED IN THE HOUSING DATA.
WHAT WE HAVE SEEN CONSISTENTLY IS A REAL DRAMATIC WEAKENING, ESPECIALLY WITH THE SALES DATA WE GOT WITH NEW SALES PLUNGING THE LOWEST INTO YEARS. HOW QUICKLY IS THIS MOVING? IT IS MOVING SO QUICKLY THAT SOME PEOPLE ARE ESTIMATING YOU COULD SEE A 15% TO 20% PRICE DROP. AT WHAT POINT DOES THAT BLEED INTO CONSUMER CONFIDENCE AND HAVE A WEBSITE AFFECT? -- WHIPSAW EFFECT? TOM: KAILEY CANNOT DO THE GLOOM LIKE LISA. JONATHAN: I WILL DO A PRICE DROP IN NEW YORK ANYTIME THEY ARE READY. TOM: SERIOUSLY, WHAT WAS IMPORTANT WAS WITH BUILDING PERMITS, MULTI FAMILY EXPLODED HIGHER THAN SINGLE-FAMILY.
IT SIGNALS IT WILL BE A RENTERS 2023. JONATHAN: JOINING US IS PHIL ORLANDO. WHAT ARE YOU LOOKING FOR? PHILIP: 75 BASIS POINTS TODAY. YOU TALKED ABOUT THE IMPORTANCE OF THE PRESSER AT 2:30. WE ARE LOOKING AT JACKSON HOLE, THAT IS ONE MONTH, AUGUST 26. WHAT THAT MEETING DOES IS IT PROVIDES ANOTHER LOOK AT THE INFLATION DATA, PARTICULARLY 9.1% NOMINAL CPI NUMBER SITTING AT A 41-YEAR HIGH.
BY THE TIME WE GET THE JACKSON HOLE, THE FED WILL HAVE SEEN THE JULY INFLATION DATA, AND THAT WILL PROVIDE US WITH BETTER GUIDANCE IN TERMS OF WHAT WILL HAPPEN AT THE MEETING AND THE NOVEMBER AND DECEMBER MEETINGS TO FOLLOW. DOES THE FED STAY UBER AGGRESSIVE IN TERMS OF WITHDRAWING ACCOMMODATION OR DO THEY DOWNSHIFT TO SOMETHING A LITTLE EASIER? THAT IS A VERY MUCH OPEN QUESTION. TOM: PHIL ORLANDO, GOOD MORNING TO YOU.
I NOTICED A HANDSOME PHIL ORLANDO ABOUT 1997, AMID OUR DAILY GLOOM, STOCKS FOR LONG-TERM. WE ARE ENJOYING A DOUBT TODAY AT 32,000 PLUS OR MINUS SOME GLOOM. THERE REALLY IS NO OTHER STORY, IS THERE? PHIL: STOCKS HISTORICALLY GO UP INTO THE RIGHT. THE U.S. ECONOMY IS THE GREATEST ECONOMY IN THE WORLD. CORPORATE EARNINGS ARE POSITIVE AND STOCKS REFLECT CORPORATE EARNINGS. THE LONGER-TERM STORY IS STILL POSITIVE.
WE THOUGHT 2022 WOULD BE A DIFFICULT YEAR BECAUSE OF INFLATION, POLICY, DECLINE IN EARNINGS, PRICE-EARNINGS RATIOS AND SO FAR THAT IS PLAYING OUT IN SPADES AND WE THINK THERE IS MORE TO THAT. LISA: WE HAVE SEEN SO FAR, RESILIENCE. IF YOU TAKE A LOOK AT THE OVERALL AVERAGES, IT HAS NOT BEEN THAT GREAT. HOW MUCH DO YOU GET A POSITIVE SIGNAL FROM THE EARNINGS WE HAVE SEEN SO FAR? PHIL: I AM DISAPPOINTED IN EARNINGS, LISA. WELCOME BACK, BY THE WAY. LISA: THANK YOU. PHIL: WE WERE EXPECTING A 4.5% NUMBER. EARNINGS ARE DOWN 3.5% SO FAR. THE DOWNWARD GUIDANCE THAT WALMART GAVE US YESTERDAY, CONSISTENT WITH THE DOWNWARD GUIDANCE TARGET GAVE US A MONTH AGO. THE TRENDS COMPANIES ARE
TALKING ABOUT, TOO MUCH INVENTORY, MARGINS ARE SHRINKING, COMMODITY COSTS ARE UP, WORKER PRODUCTIVITY HAS NOT BEEN THIS BAD IN SOMETHING LIKE 70 OR 80 YEARS. THE NEAR TERM TRENDS ARE NOT GOOD. THIRD-QUARTER LIKELY TO BE WORSE. WE ARE STRUGGLING RIGHT NOW AND
STOCKS ARE TRYING TO REPRICE THEMSELVES BASED ON WHAT SHOULD BE LOWER CORPORATE EARNINGS ESTIMATES. JONATHAN: THAT WAS A DISAPPOINTING FINISH, I HAVE TO SAY. PHIL ORLANDO. LISA: I THOUGHT IT WAS GREAT. JONATHAN: I AM DISAPPOINTED. LISA: [LAUGHTER] JONATHAN: LOOKING AT ALPHABET THIS MORNING, STOCKS UP 3.7%. AS LISA INDICATED, WE WILL TALK ABOUT FACEBOOK LATER.
TOMORROW, WE WILL GET AMAZON AND APPLE. TOM: THERE IS A BRASS PLAQUE ON THE GROUND IN FRONT OF THE LIVERPOOL STATION IN LOVELY LONDON NEAR HOTEL. OUTSIDE IS WHERE JON FERRO AND I STOOD IN LINE TO GO TO THE MCDONALD'S AT LIVERPOOL STATION. BBC JUSTIN, MCDONALD'S PUTS UP THE PRICE OF A CHEESEBURGER IN LONDON FOR THE FIRST TIME IN 14 YEARS. THIS WILL BE A MORE EXPENSIVE
LUNCH THAN. IT WILL BE YEARS AGO. JONATHAN: CAN I SHARE WITH THE AUDIENCE WHAT TIME THAT VISIT WAS? [LAUGHTER] JONATHAN: THE WORLD'S BIGGEST CONSUMER NAMES WITH SOARING PRICE INCREASES. TOM: IT IS A DISCRIMINATION OF INDIVIDUAL STOCKS. AS I SUGGESTED YESTERDAY, INDIVIDUAL SECTORS. JONATHAN: LOOKING FORWARD TO CATCHING UP WITH BINKY LATER. WAGE AND PRICING POWER, WHO HAS
THE PRICING POWER? LISA: I AM WONDERING IF THE TYPES OF NAMES WE ARE HEARING ARE INDICATIVE OF WHERE WE ARE IN THE CYCLE. COCA-COLA, MCDONALD'S, CHIPOTLE, THE LOWER COST FAST FOOD TYPES OF PLACES. HOW MUCH ARE PEOPLE RATCHETING DOWN IN TERMS OF HOW MUCH THEY ARE SPENDING AND GOING MORE TO THESE OTHER PLACES, GIVING THEM GREATER PRICING POWER? THIS IS SOMETHING PEOPLE ARE TALKING ABOUT. JONATHAN: FUTURES UP .9%. GOOD MORNING TO YOU ALL. IF YOU ARE NOT ENJOYING THIS, I AM SORRY. WE HAVE 10 MORE HOURS. LISA: [LAUGHTER] JONATHAN: LOOKING FOR ASSISTANCE AND SUPPORT. FUTURES UP .9% ON THE S&P.
FROM NEW YORK, THIS IS A BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD WITH THE FIRST RUDE NEWS. THE WORLD RESERVE IS EXPECTED TO RAISE INTEREST RATES BY ANOTHER 75 BASIS POINTS TODAY. THE CENTRAL BANK IS LIKELY TO ACKNOWLEDGE THERE HAVE BEEN RECENT SIGNS THE ECONOMY IS WEAKENING. CREDIT SUISSE HAS TAPPED A VETERAN BANK TO BE ITS NEW CHIEF EXEC -- CHIEF EXECUTIVE OFFICER. THE SWISS BANK WILL CONDUCT A STRATEGIC REVIEW.
>> WE WILL TURN OUR INVESTMENT BANK INTO A HIGHLY PRODUCTIVE INVESTMENT BANK. THIS IS WORK WITH PROGRESS. >> CREDIT SUISSE POSTED A LARGER THAN EXPECTED SECOND-QUARTER. PRESIDENT JOE BIDEN WILL SPEAK WITH CHINA'S XI TOMORROW.
HOUSE SPEAKER NANCY PELOSI SAID SHE WILL VISIT TAIWAN NEXT MONTH. BEIJING CONSIDERS TAIWAN PART OF ITS TERRITORY. FOR THE SECOND NIGHT IN A ROW, THE TWO CONSERVATIVE CANDIDATES TO SUCCEED BORIS JOHNSON HAD A TELEVISED DEBATE. THE TALKED ABOUT THE ECONOMY AND ACCUSED EACH OTHER OF POLICIES THAT WERE MORALLY WRONG. THE DEBATE WAS CUT SHORT WHEN THE PRESENTER -- GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES.
THIS IS BLOOMBERG. >> WE SEE THERE IS URGENCY IN THE ECONOMY RIGHT NOW BETWEEN SENTIMENT AND SPENDING BEHAVIOR. WE ARE MOTIVATED TO TRY TO BRING PRICES DOWN BECAUSE IT IS HITTING FAMILIES.
BRINGING GAS PRICES DOWN IS AN IMPORTANT PART OF TRYING TO BRING RELIEF ECONOMICALLY AND IN TERMS OF CONSUMER OUTLOOK. JONATHAN: YEAH MINISTRATION IS TYING ITSELF IN KNOTS. THE NATIONAL ECONOMIC COUNCIL DIRECTOR. FROM NEW YORK CITY THIS MORNING, TOM KEENE, LISA ABRAMOWICZ, JONATHAN FERRO. FUTURES UP .9% ON THE S&P. NASDAQ 100 FUTURES UP 1.4%. FOR ONCE, NO DRAMA WITH THE EURO DOLLAR. TOM:
I WOULD STILL WATCH CURRENCY. A .97 HANDLE, THAT STRONGER SWISS FRANC, IT IS AN INTERESTING CURRENCY. JONATHAN: THE STORY IS NOT OVER FOR EUROPE BY ANY STRETCH. I THINK THAT WILL BECOME BASE CASE QUICKLY. TOM:
THERE IS A PHOTOGRAPH OF DWIGHT DAVID EISENHOWER WALKING AND IT IS A DIPLOMATIC EISENHOWER. NELSON ROCKEFELLER ATTENDED THE FUNERAL. I BELIEVE IN THE MIDDLE 1970'S. IT WAS A MOMENT MY GRANDPARENTS TALKED ABOUT IN 1943 WHERE SHE SPOKE BEFORE CONGRESS. IT WAS A STATEMENT ON THE
INDEPENDENCE OF TAIWAN. ANNMARIE HORDERN JOINS US NOW, OUR BLOOMBERG WASHINGTON CORRESPONDENT, ON A MINOR AFFAIR THAT I DO NOT THINK IS MINOR. THE SPEAKER OF THE HOUSE, AM I CORRECT, WILL VISIT TAIWAN? ANNMARIE: YOU ARE NOT CORRECT THAT WE DO NOT HAVE A FIRM CONFIRMATION THAT SHE WILL MAKE THE STOP TO TAIWAN BUT SHE IS PLANNING A TRIP TO ASIA EARLY AUGUST. SHE IS MAKING PREPARATION TO STOP IN JAPAN. THEY WILL TALK ABOUT SECURITY
CONCERNS. THERE HAS NOT BEEN AN ANNOUNCEMENT ON THE TAIWAN TRIP BUT IT SEEMS THAT IS. THE DIRECTION OF TRAVEL SHE WAS SUPPOSED TO GO IN APRIL BUT SHE GOT COVID. IT HAS BECOME A DIFFICULT MOMENT. THE PRESIDENT WAS VERY DIRECT, SAYING THE MILITARY SAYING IT IS NOT A GOOD TIME TO VISIT TAIWAN. SHE IS BEING PUSHED TO GO BY HER REPUBLICAN COLLEAGUES.
KEVIN MCCARTHY SAID WE SHOULD MAKE IT A BIPARTISAN TRIP. CHINA SAID THEY ARE STRONGLY AGAINST IT AND MAKING PREPARATIONS FOR IT. TOM: IS THIS AD HOC? IS THIS HER ALONE PLANNING THIS TRIP? ANNMARIE: WE DO NOT KNOW WHO SHE WOULD BE TRAVELING WITH BUT SHE WOULD BE THE MOST SENIOR MEMBER GOING. IT IS A SPEAKER PELOSI TRIP TO ASIA. JONATHAN: HOW DOES THIS CAT UP THE CALL
WITH THE PRESIDENT OF THE UNITED STATES AND -- HOW DOES THIS SET UP THE CALL WITH THE PRESIDENT OF THE U.S. AND XI ? ANNMARIE: THIS IS SOMETHING THAT WILL IRK G JINPING. THERE COULD BE A LOT OF DEFLECTION ABOUT TAIWAN BECAUSE OF THE PRESSURE XI IS UNDER AT HOME. LOOK AT THE NEWS OUT OF CHINA. THERE IS A DISTRICT OFF OF WUHAN, ONE MILLION PEOPLE LOCKED DOWN. THEY HAVE NOT MOVED ON FROM MARCH 2020 AND THE REST OF THE WORLD HAS.
IT HAS CRIPPLED THEIR ECONOMY. INDIVIDUALS COMING OUT OF COLLEGE HAVE LIMITED JOB PROSPECTS. IT SETS UP A LOT OF TENSION FOR THE CALL ON THURSDAY. IT IS HAPPENING TOMORROW.
THE OTHER BIG TOPIC WILL BE TARIFFS, SOMETHING -- LISA: HOW DO WE DOVETAIL A HARD-LINE MESSAGE NANCY PELOSI IS TRYING TO SEND WITH ROLLING BACK TARIFFS FROM THE TRUMP ERA? ANNMARIE: WE DO NOT KNOW IF THEY WILL ROLLBACK THOSE TARIFFS. THEY HAVE BEEN DEBATING IT FOR MONTHS. THERE ARE A NUMBER OF FACTORS AT PLAY AS THE PRESIDENT MAKE THIS DECISION. THEY SAID THEY WILL USE ANY TOOL IN THE TOOLBOX TO BRING DOWN INFLATION. THE SECOND IS THE NATIONAL SECURITY TEAM. YOU HAVE THOSE IN THE TRADE
WORLD THAT SAY WE SHOULD NOT GIVE CHINA AN INCH. THE THIRD IS THE UNION, THE LABOR UNIONS. THEY DO NOT WANT TARIFFS LIFTED ON CHINA.
THIS IS A PRESIDENT WHO TALKS ABOUT AND CONSTANTLY SPEAKS TO LABOR UNIONS. IT IS A DIFFICULT MOMENT FOR THEM TO DECIDE ON WHAT TO DO WITH THE TARIFFS BUT IT IS SOMETHING XI WANTS TO SEE OUT OF WASHINGTON. JONATHAN: WILL WE HEAR FROM SECRETARY YELLEN? ANNMARIE: WE WILL. I IMAGINE SHE WILL EXPLAIN WHAT A RECESSION IS TO THE AMERICAN PEOPLE.
YESTERDAY, BRIAN SAID CONSECUTIVE QUARTERS WITH NEGATIVE GROWTH IS NOT A TECHNICAL RECESSION. I WOULD LIKE TO HEAR WHAT THE TREASURY SECRETARY HAS TO SAY. JONATHAN: LOOKING FORWARD TO IT. LOOKING FORWARD TO CATCHING UP WITH ANDREW HOLLENHORST. THEY REALLY ARE TYING THEMSELVES IN
KNOTS. LISA: THEY ARE TRYING THEMSELVES -- THEY ARE TYING THEMSELVES IN KNOTS REPEATEDLY. HE HAS BEEN COMING OUT WITH THE SAME MESSAGE AGAIN AND AGAIN.
WE CAN PINPOINT WHAT IT IS. IT IS NOT WORKING. THE "R" WORD IS STILL VERY MUCH PREVALENT IN PEOPLES PSYCHES. IT IS BRINGING DOWN CONSUMER CONFIDENCE. JONATHAN: IT IS A POSITIVE STATISTIC. THERE ARE A NUMBER OF BANKS.
TOM: HOW COME WHEN I THROW MY HANDS UP, YOU DO NOT SAY ANYTHING? JONATHAN: LISA IS MORE EMPHATIC ABOUT THROWING HER HANDS UP. WHO ARE YOU APOLOGIZING TO? TOM: ROMAN. I AM LOOKING FORWARD TO ANDREW HOLLENHORST. THIS IS MUST, MUST, MUST-LISTEN. A 5% TERMINAL RATE. THAT WAS STUNNING. JONATHAN: 4%, 75 BASIS POINTS. HE HAD CHANGED TO 100 AND THEN FLIPPED IT BACK TO 75.
THE NASDAQ 100 UP BY 1.4%. THE EARNINGS WHEN IT CAME TO ALPHABET AND GOOGLE AD REVENUE, RESILIENT. TOM: AT LEAST WE ARE NOT CONFLATING IT WITH SHOP. JONATHAN: IF YOU ARE LOOKING FROM RESILIENCE AND DEFENSIVENESS FROM MICROSOFT, I THINK THAT IS WHAT YOU GOT FROM THE NUMBERS YESTERDAY WHICH MIGHT HAVE GIVEN YOU MORE CONFIDENCE. TOM: MICROSOFT, THEY ARE STRUGGLING. THE FREE CASH FLOW MODEL, $67 BILLION. THEY ARE STRUGGLING.
JONATHAN: I KNEW YOU WOULD BE ON A RANT ABOUT THIS TODAY, I KNEW IT. IT IS FED DECISION DAY. JONATHAN: SO FAR, SO GOOD THIS MORNING. I WAS CHARACTERIZING OUR RELATIONSHIP SO FAR THIS MORNING. THE NASDAQ 100 UP 1.4%. TWO NAMES YOU NEED TO KNOW, MICROSOFT AND ALPHABET, THEY LOOK RESILIENT.
RESILIENT KEEPS TO BE THE WORD I AM HEARING AGAIN AND AGAIN. MICROSOFT UP 3.85%. YIELDS HAVE COME IN. TWO YEAR BACK TO 3%, 10% SUB 2.8%.
THE EQUITY MARKET BOTTOMED THE DAY AFTER THE LAST FED MEETING AND WE HAVE PICKED UP SPEED. I THINK THIS IS IMPORTANT. THE MORE THE MARKET BELIEVES THE FED WILL REVERSE COURSE, THE LESS EFFECTIVE IT WILL BE IN MODERATING INFLATION AND THE MORE THE FED WILL HAVE TO RAISE INTEREST RATES. TOM: IT WILL BE INTERESTING. WE WILL DIVE INTO OUR FED COVERAGE. ANDREW HOLLENHORST IS REALLY OUT FRONT AND HAS BEEN SAYING THE FED IS BEHIND, LET'S GO. ANDREW, THE FINANCIAL TIMES WITH AN ABSOLUTE TOUR DE FORCE, SHE SAID THE PHILLIPS CURVE DOES NOT WORK, STANDARD UCLA ECONOMICS DOES NOT WORK.
CORE INFLATION IS DUE TO DEMAND. THERE IS NO INCREASE IN THE UNEMPLOYMENT RATE THAT WOULD PRODUCE MICROCHIPS FOR NEW CARS AND CHINA'S LOCKDOWNS, DEFEAT LEADING RECRUITIN -- VLADIMIR PUTIN. ANDREW: I THINK IT IS A VERY DIFFICULT SITUATION FOR THE FED AND THE ECONOMY. IT MIGHT BE TRUE THAT A LOT OF WHAT HAS GOING ON WITH INFLATION IS DUE TO ISSUES ON THE SUPPLY-SIDE BUT IT IS ALWAYS SUPPLY AND DEMAND TOGETHER. THOSE TWO FORCES HAVE WORKED TOGETHER. IF YOU CANNOT CREATE MORE SEMI CONDUCTORS, IF YOU CANNOT FILL MORE AUTOS, THE ONLY WAY TO BRING DOWN PRICES IS TO DAMPEN DEMAND. IT IS NOT AN OUTCOME ANYONE IS
PLEASED ARE DEALING WITH. STANDARD MACROECONOMICS. I AM SURPRISED WITH THE ECONOMISTS COMING OUT AND SAYING THERE IS NOTHING THE FED CAN DO. TOM: IF WE GET TO A HOLLENHO RST 4%, A STUNNING ESSAY UP TO 5%, WAS -- WHAT DOES THAT DUE TO TO THE INFLATION RATE? DOES THAT DRIVE US BACK TO JOHN TAYLOR'S 2%? DOES IT GET US BACK TO A TAYLOR 2% ORGANIST HALFWAY BACK? ANDREW: I AM VAGUELY AWARE OF THAT SCHOOL. THE ISSUE HERE IS YOU GET INTEREST RATES HIGHER, YOU TIGHTEN FINANCIAL CONDITIONS, SLOW DOWN THE ECONOMY AND YOU SEE HOW POWERFUL THE RELATIONSHIP IS.
THAT IS WHAT WE DO NOT HAVE A GOOD SENSE OF. THE CURVE DOES NOT FUNCTION THE WAY IT USED TO. IF THE PHILLIPS CURVE -- IT COULD BE HARD TO BRING INFLATION BACK DOWN TO 2%. TOM: WE DID THIS AS A VIDEO FOR THIS AFTERNOON. GET ONE OF THE INTERNS ON IT. GET THE INTERN FROM UCLA TO MAKE THE VIDEO OF WHAT HE JUST SAID. JONATHAN:
HOW WILL CHAIRMAN POWELL NAVIGATE SOME OF THE STUFF? HOW DO YOU EXPECT THEM TO ACKNOWLEDGE SOME OF THE WEAKER DATA POINTS WE HAVE ALREADY SEEN? ANDREW: TOMORROW, WE MIGHT GETQ2 GDP, IT COULD BE SLIGHTLY POSITIVE, IT COULD BE NEGATIVE. ON FRIDAY, WE WILL GET THE EMPLOYMENT COST INDEX WHICH WILL PROBABLY SHOW STRONG WAGE PRESSURE. WE HAVE AN INFLATION SITUATION THAT LOOKS MORE PROBLEMATIC. YOU HAVE GROWTH THAT IS SLOWING. IT GOES BACK TO WHAT WE WERE TALKING ABOUT INITIALLY.
IT IS PAINFUL TO BRING INFLATION DOWN ONCE YOU HAVE TOO HIGH INFLATION. I DO NOT THINK HE WILL COMPLETELY STICK TO THE HAWKISH MESSAGE FROM JUNE. PEAK HAWKISH NOTICE FROM JUNE. I THINK THERE WILL BE ACKNOWLEDGMENT OF THE DATA FROM JUNE THAT COULD BE DOVISH. JONATHAN: LET'S TALK ABOUT THE DOVISH DETAILER. DO YOU THINK THE EASING OF FINANCIAL CONDITIONS WILL BECOME PROBLEMATIC? ANDREW: I THINK THAT IS WHAT THE FED IS TRYING TO FIGURE OUT FED REALLY, IT TAKES TIME FOR THE FINANCIAL CONDITIONS TO WORK THEIR WAY INTO THE ECONOMY, SLOW DOWN DEMAND AND EVENTUALLY AFFECT INFLATION. THE IDEA YOU WILL SEE FINANCIAL
CONDITIONS TIGHTEN AND IN THE NEXT REPORT HAVE AN EFFECT, -- IF FINANCIAL CONDITIONS HAVE EASED WHEN THEY TIGHTENED BEFORE, IT IS A REASON FOR THE FED TO TAKE A BREATHER AT THIS MEETING AND NOT PUSH FURTHER IN THE HAWKISH DIRECTION. EVENTUALLY, THEY WILL NEED TO WHAT I DO NOT THINK THEY WILL BE PARTICULAR CONCERN THAT FINANCIAL CONDITIONS HAVE EASED SINCE THE LAST MEETING. LISA: IT IS DIFFICULT FOR THE FED AT A TIME WHEN PEOPLE CANNOT PREDICT THE FUTURE AND PEOPLE ARE SPLIT ON WHERE IT IS GOING.
UNDERSTANDING THE PARAMETERS OF RISK. IS THE RISK OF THEM TIGHTENING TOO QUICKLY NOW AND HAVING TO CUT RATES BIGGER OR SMALLER THAN SLOWLY AND STEADILY RAISING RATES? IT SEEMS TO BE UNDERPINNING A BIG DEBATE THE MARKET HAS WEIGHTED IN ON, THEY WILL CUT RATES NEXT YEAR AND IT WILL BE BENEFICIAL FOR MARKETS. ANDREW: MARKETS ARE THINKING THE FED WILL HAVE SOME KIND OF PIVOT.
I DO NOT THINK WE WILL SEE THE PIVOT FROM THE FED. WE HAVE TO THINK ABOUT THE FED'S REACTION FUNCTION. IF I TAKE CHAIR POWELL SERIOUSLY, THE RHETORIC WAS INFLATION IS THE NUMBER ONE ISSUE THIS FED IS TRYING TO ADDRESS AND THAT POWELL IS WILLING TO DO THE DIFFICULT THING LIKE THE FORMER CHAIR DID TO BRING INFLATION DOWN.
IT IS THAT COMMITMENT TO BRINGING INFLATION DOWN THE DOES BRING IT DOWN. THIS IS A FED THAT IS NOT COMMITTED TO BRING DOWN INFLATION, IT COULD PIVOT TO A MORE DOVISH POLICY BEFORE YOU BROUGHT INFLATION DOWN. THAT IS A REAL ISSUE FOR THE FED . THE NEED TO GET AHEAD OF THAT. DO THEY DO THAT AT THIS MEETING? DO THEY WAIT FOR JACKSON HOLE? THAT IS WHERE THE TACTICS COME IN. LISA: THIS IS HINGED ON THE BELIEF THAT SEEMS TO BE THE CONSENSUS IN MARKETS, THAT THE BIGGER RISK IS THE FED NOT RAISING RATES QUICKLY ENOUGH AND ALLOWING EXPECTATIONS TO COME UNHINGED. EVERCORE SAID IT IS THE
OPPOSITE, IT IS THE BIGGER RISK. IF THE FED RAISES TOO QUICKLY AND HAS TO CUT NEXT YEAR, IT WILL CAUSE INFLATIONS EXPECTATIONS -- ANDREW: THE RISK OF THE FED IS NOT HIKING FAST ENOUGH. IF YOU DO NOT HIKE FAST ENOUGH, YOU GET HIGHER INFLATION THAT BECOMES EMBEDDED IN THE ECONOMY AND BECOMES THAT MUCH MORE DIFFICULT TO BRING IT DOWN AND YOU MIGHT NEED A HIGHER UNEMPLOYMENT RATE TO BRING IT DOWN. THE RIGHT THING TO DO IS ADDRESS INFLATION HAD ON. THIS IS A LESSON FROM THE 1970'S. WE HAD VARIOUS SCENARIOS WHERE FED OFFICIALS THOUGHT THE ECONOMY HAD SLOWED DOWN ENOUGH, TOOK THEIR FOOT OFF OF THE GAS PEDAL OR THE BRAKE IN TERMS OF THE ECONOMY AND YOU SAW INFLATION PICK UP AND BECOME MORE AND MORE EMBEDDED. JONATHAN: QUICKLY, IS IT THE FINAL 75 BASIS POINT HIKE OF THIS CYCLE? ANDREW: I DO NOT THINK SO.
I THINK WE WILL SEE STRONG ENOUGH INFLATION FOR THEM TO GO 75 AGAIN IN SEPTEMBER. JONATHAN: WOW. ANDREW: IF YOU LOOK AT WHERE THE FED WANTS TO GET TO, I THINK IT IS SIGNIFICANTLY HIGHER. JONATHAN: INTERESTING. ANDREW, INTERESTING TO CATCH UP. THAT SEPTEMBER CALL IS WHERE THE TENSION IS. A GOOD FRIEND OF THIS PROGRAM SAID THIS COMING INTO TODAY. THE FED IS BOXED INTO A 75
BASIS POINT HIKE. THINGS WILL CHANGE BY SEPTEMBER, HE SAYS, CHAIR POWELL CANNOT CLAIM VICTORY. TOM: THAT WAS BRILLIANT WITH ANDREW. HE IS A VERY DIFFERENT YALE ECONOMIST. THE ATTACHMENT HERE, YES, THEY WILL RAISE RATES, AND
THEN WHAT? BOTH OF THEM ARE SAYING THEY ARE RESTRICTED FROM CRUSHING THIS ECONOMY IN THEIR OWN WAYS. JONATHAN: DO YOU THINK THERE IS SOME POLITICS BAKED INTO THE ANALYSIS? TOM: THERE ALWAYS IS. JONATHAN: SENATOR WARREN WAS DOING THE SAME THING IN THE WALL STREET JOURNAL. TOM:
I THINK IT IS NAIVE TO THINK THERE IS NOT. I WILL BE HONEST, THE BRITISH DO THIS WAY BETTER THAN THE AMERICANS. IN BRITAIN, THERE IS AN OVERT POLITICS WITH THE BANK OF ENGLAND DISCUSSION, INCLUDING A FOREIGNER SITTING ON THE BOARD, WHICH IS REALLY COOL.
WE DO NOT DO THAT. WE ARE LIKE, THERE ARE NO POLITICS INVOLVED. MALONEY. -- BALONEY. JONATHAN: I'M NOT SURE ANYONE BELIEVES THAT. LISA: THE POLITICS ARE VERY MUCH THERE. THERE IS THIS IDEA THAT IT IS
WORSE TO TORPEDO ECONOMIC GROWTH BY RAISING RATES TOO QUICKLY VERSUS THERE IS A RISK OF NOT GOING HARD ENOUGH AND ALLOWING INFLATION EXPECTATIONS. THESE ARE THE TWO CAMPS BATTLING IT OUT AT A TIME TO FEELS UNPRECEDENTED. JONATHAN: THE POLITICAL ENVIRONMENT IN WASHINGTON AROUND THIS FED WILL GET MUCH HARDER WHEN THE DATA SHOWS MORE WEAKNESS.
IT INTRODUCES THIS BIGGER CALLED IN SEPTEMBER. THE BRAVER DECISION IS IN SEPTEMBER. LISA: THEY HAVE TO MAKE THE ARGUMENT ABOUT ENTRENCHED INFLATION BECAUSE THERE WILL BE WEAKNESS. JONATHAN: WE START TO SEE WEAKNESS IN THE LABOR MARKET. THAT IS WHEN THE BIG CHALLENGE COMES ABOUT FOR THIS FED.
FROM NEW YORK CITY THIS MORNING, GOOD MORNING, THIS IS "BLOOMBERG SURVEILLANCE." ♪ LEIGH-ANN: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE ROCK WITH THE FIRST WORD NEWS, I AM LEIGH-ANN GERRANS. BLOOMBERG HAS LEARNED THE JUSTICE DEPARTMENT IS USING A GRAND JURY TO INVESTIGATE EFFORTS BY FORMER PRESIDENT DONALD TRUMP AND HIS AIDES TO OVERTURN THE ELECTION. THE FOCUS IS ON FAKE ELECTORS. NO COMMENT FROM THE TRUMP CAMP. BLOOMBERG HAS LEARNED CHUCK
SCHUMER HAS TOLD HE DOES NOT THINK THERE ARE ENOUGH VOTES IN THE SENATE TO PASS A BIG TECH ANTITRUST BILL. THE BILL'S COSPONSORS HAVE MAINTAINED THERE ARE ENOUGH VOTES FOR PASSAGE. MERCEDES-BENZ HAS RAISED ITS OUTLOOK THANKS TO RESILIENT SLAES OF -- SALES OF HIGH-PRICED MODELS. WE SPOKE WITH THE MERCEDES CEO. >> WE ARE WATCHING INFLATION.
WE ARE WATCHING CENTRAL BANKS' REACTION TO THE INFLATION WITH INTEREST HIKES. SOMETHING WE HAVE TO BE MINDFUL ABOUT. WE HAVE NOT SEEN ANY REDUCTION IN DEMAND FOR MERCEDES. DEMAND FOR US, CURRENTLY, IS STRONG BUT IT IS SOMETHING YOU HAVE TO HAVE IN MIND AND SEE HOW THINGS DEVELOP INTO NEXT YEAR. LEIGH-ANN:
MEANWHILE, MERCEDES SAYS 7% IN THE SECOND QUARTER BECAUSE OF A LACK OF CHIPS AND OTHER LOGISTICAL ISSUES. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I AM LEIGH-ANN GERRANS. THIS IS BLOOMBERG.
>> A LOT OF THE CHALLENGES WE HAVE NOW IS THAT THE FEDERAL RESERVE'S MONETARY POLICY IS LATE IN THE FACE OF TREMENDOUS FISCAL STIMULUS. THEY SHOULD HAVE BEGAN'S DRINKING -- THEY SHOULD HAVE STARTED SHRINKING THE BALANCE SHEET. JONATHAN: THE CONGRESSMAN FROM ARKANSAS. FROM NEW YORK CITY, GOOD MORNING. LOOKING FORWARD TO FED COVERAGE, IT BEGINS AROUND 1:30. THE DECISION AT 2:00. AT 2:30, WE WILL HEAR FROM CHAIRMAN POWELL FUTURES UP 19% ON THE S&P 100. NUMBERS FROM MICROSOFT AND
ALPHABET, THOSE TWO NAMES OF 3%. I WILL NOT CALL FACEBOOK META. NO. YIELDS DOWN A BASIS POINT. 10 YEAR, 279.59. TOM: IT HAS BEEN A WONDERFUL SHOW SO FAR THIS MORNING. I CANNOT SAY ENOUGH ABOUT THE
QUALITY OF CONVERSATION, DISCOURSE WE WILL HAVE WITH OUR FED SHOW THIS AFTERNOON. WHAT WE DO IS WHEN REQUIRED, WE RIP UP THE SCRIPT. WE WILL DO THAT NOW WITH A CLINIC ON THE TOUGHEST POLITICAL ENVIRONMENT IN AMERICA. RHODE ISLAND, THE KNIVES ARE OUT, ALWAYS.
THERE ARE THREE REPUBLICANS, OTHERWISE IT IS A DEMOCRATIC WAR ZONE. . WENDY SCHILLER IS A PROFESSOR AT BROWN UNIVERSITY. SHE CARRIED THE TRAIN AT THE BROWN UNIVERSITY COMMENCEMENT. SPEAKER PELOSI SAID TO THE LIBERALS OF BROWN UNIVERSITY, HOLD ONTO YOUR HOPE. RIGHT NOW, SPEAKER PELOSI, A TOUGH GIRL OUT OF BALTIMORE, HAS TO SURVIVE TAIWAN. HOW DOES SHE DO THAT? WENDY:
SHE NAVIGATES IT THE WAY SHE TRIES TO NAVIGATE EVERYTHING ELSE. SHE TRIES TO SAY SOMETHING NOT VERY INFLAMMATORY. THERE IS PRESSURE FOR THE SPEAKER TO BREAK FROM BIDEN SYMBOLICALLY.
THIS MIGHT NOT BE THE BEST THING FOR AMERICAN FOREIGN POLICY. ESSENTIALLY FROM NOW UNTIL NOVEMBER, INCREASED SEPARATION BETWEEN THE DEMOCRATS WHO ARE OUT AND ABOUT AND THE PRESIDENT OF THE UNITED STATES. WITH HIS APPROVAL RATING, YOU HAVE TO CUT THE CORD. THIS IS A VERY PUBLIC WAY OF CUTTING THE CORD. TOM: LET'S CUT TO THE CHASE. HERE IS THE ANGLE. THE PRESIDENT IS A FOSSIL, I AM A FOSSIL AND SPEAKER PELOSI IS A FOSSIL AT 82. WAS SHE FRAGILE WHEN SHE
VISITED BROWN AND CAN SHE BE STRONG WHEN SHE VISITS TAIWAN? WENDY: SHE WAS NOT THE LEAST BIT FRAGILE. SHE WENT UP AND DOWN HILLS IN HEELS I WAS NOT WEARING. SHE IS TOUGH AND ENERGETIC. YOU ARE RAISING AN INCREDIBLY IMPORTANT POINT ABOUT POLITICS IN AMERICA.
NOT EVEN YOUNG PEOPLE, NOT EVEN 20-YEAR-OLDS BUT 40-YEAR-OLDS, THEY SEE 80-YEAR-OLDS. IT IS ONE THING TO SEE YOUR PARENTS, IT IS ANOTHER TO SEE OUR GRANDPARENTS AND YOUR GREAT UNCLES AND AUNTS RUNNING THE COUNTRY. IT CONTRIBUTES TO THE DIVIDE IN THE FUTURE IN THE LEADERSHIP OF THE COUNTRY. THERE IS TOO BIG OF A GENERATIONAL DIVIDE FOR THE PEOPLE WHO HAVE THE POWER AND THE VAST AMOUNT OF PEOPLE LIVING UNDER THE POWER. LISA: AT THE BEGINNING, YOU SAID THIS IS A PUBLIC WAY FOR NANCY PELOSI TO CREATE A DIVIDE WITH THIS CURRENT SITTING PRESIDENT AND THAT WILL BE A THEME AMONG DEMOCRATS BECAUSE OF HIS APPROVAL RATING. HOW MUCH DOES THAT UNDERMINE ANY ABILITY HE HAS HEADING INTO THIS CALL TOMORROW WITH XI TO MAKE BOLD MOVES INTERNATIONALLY OR NATIONALLY AHEAD OF ELECTIONS? WENDY: THE U.S. HAS ITS ECONOMIC POWER.
I KNOW THE ECONOMY IS STRUGGLING BUT WE ALWAYS HAVE THAT ON THE TABLE. YOU DO NOT WALK INTO A ROOM WITH NO LEVERAGE. TO SAY WE WILL PASS LEGISLATION OR TO SAY HE CAN GET CONGRESS TO DO SOMETHING, THAT IS NOT CREDIBLE. LISA: WE ARE LOOKING AT IT ECONOMIC BACKDROP. TOMORROW, JANET YELLEN WILL
GIVE A SPEECH AFTER WE GET THE GDP NUMBERS THAT COULD POINT TO A TECHNICAL RECESSION. WHAT YOU THINK ABOUT THE MESSAGING ABOUT WHATEVER SESSION IS, WHAT IT IS NOT A TECHNICAL VERSUS REAL? WENDY: I THINK VOTERS CARE ABOUT HOW MUCH IT COSTS TO FILL THE GAS TANK AND IF THEY CAN GO ON VACATION AND FILLING UP GROCERY BAGS. CONSISTENTLY ELITE MESSAGING AND CONVERSATION SEEMS TO BE FURTHER AWAY FROM WHAT PEOPLE ARE EXPERIENCING. WHAT YOU DEFINE AS A RECESSION OR NOT, IT IS MORE EXPENSIVE FOR ME TO DO THINGS AND I AM MORE ABOUT MY JOB. THAT IS WHAT MATTERS TO ME. JONATHAN: THANK YOU.
WENDY SCHILLER OF BROWN UNIVERSITY. WE HEARD A LOT IN THE LAST FEW DAYS IF YOU ARE EXPLAINING, YOU ARE LOSING, AND THEY ARE DOING A LOT OF EXPLAINING. TO A LOT OF PEOPLE, IT ALREADY FEELS LIKE WE ARE IN A RECESSION. LISA: THEY ARE IN A TRICKY SPOT. THEY SEEM TO BE SCRAMBLING AND THEY HAVE BEEN FOR THE PAST FEW MONTHS. WE HEARD THAT WITH THE GAS PRICES MESSAGING. THEY HAVE DECLINING GAS PRICES, IT IS A PERILOUS MESSAGE TO CONNECT YOURSELF TO.
I DO WONDER, THOUGH, IF THEY SAY THIS IS NOT A TECHNICAL RECESSION, IT IS A STRONGER ECONOMY IF THEY ARE BASICALLY TELLING THE FED TO GO AHEAD AND KILL IT, RAISE RATES AS MUCH AS YOU CAN. JONATHAN: WE ARE STILL ADDING 200,000, 250,000, 300,000 JOBS EVERY MONTH. WHAT WE ARE FOCUSING ON IS IF THE WEEK THIS WE ARE STARTING TO IDENTIFY, REFLECTED IN FALLING COMMODITY PRICES BECAUSE DEMAND IS COMING OFF, WHETHER THAT STARTS TO BLEED INTO THE LABOR MARKET. DOES IT START TO BLEED OUT INTO OVERALL JOB CUTS? TOM: WE ARE NOT THERE IN THE JOB MARKET.
WE NEED TO SEE THAT WITH THE LABOR REPORTS AT THE BEGINNING OF EACH MONTH. THE FIRST WEEK OF AUGUST WILL BE INTERESTING. WHAT IT ABOUT STEW IS THE PERCENT OF YOUR PAYCHECK THAT IS GOING TO THINGS INFLATED. FOR A HUGE BODY OF THE MIDDLE CLASS, THAT WAS A CHUNK THAT WAS PAINFUL BEFORE BUT NOW IT IS EVERMORE PAINFUL.
IT HAS GONE FROM 40% TO 60% OF A GIVEN PAYCHECK, THAT IS UNACCEPTABLE. JONATHAN: LOW INCOME GROUPS, 10% OF THEIR MONTHLY SPENDING IS NOW GOING ON GAS AND GAS ALONE. TOM: FOOD WITH ALL THE SUBSTITUTION, MCDONALD'S.
TO ME, I MENTIONED THIS EARLIER, NEXT YEAR IS THE YEAR OF DEBATE ABOUT RENT, MULTI FAMILY AND THE HOUSING CRISIS IN THIS COUNTRY. WE ARE FOCUSED ON THREE ZIP CODES IN NEW YORK. I HAVE NOT BEEN TO YOUR ZIP CODE IN THREE YEARS. JONATHAN: I SAW YOU THERE A COUPLE MONTHS AGO. TOM: DO NOT RUIN THE IMAGE. COAST-TO-COAST, RENT IS WHAT IT IS ALL ABOUT. JONATHAN: IT IS CRUSHING.
IT SPEAKS TO THE STICKINESS OF INFLATION. IT SPEAKS TO A FEDERAL RESERVE -- TOM: WITH THE HOLLENHORST, YOU GO FROM 9% TO 1%. 5% IS NOT ACCEPTABLE. JONATHAN: FUTURES HIGHER BY .9%.
FROM NEW YORK, THIS IS BLOOMBERG. >> THE CONSUMER IS NOT AS RESILIENT AS THEY HAVE BEEN IN THE PAST AND THAT MORE SENSITIVE TO PRICES. >> STAGFLATION IS A PRECONDITION FOR A GROWTH INFLATION.
>> THE WORLD IS CHANGING. ECONOMIC VOLATILITY IS SO MUCH HIGHER NOW. >> THE MARKET SHIFTED COMPLETELY AWAY FROM INFLATION CONCERNS TO RECESSION CONCERNS. >> FOR MOST PEOPLE, IT LOOKS AND FEELS LIKE A RECESSION.
>> THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: HERE COMES ANOTHER FED RATE HIKE. GOOD MORNING, THIS IS "BLOOMBERG SURVEILLANCE" LIVE ON TV AND RADIO.
ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I AM JONATHAN FERRO. WE LOOK FOR ANOTHER 75. TOM: BRISTOL-MYERS SQUIBB, ADP, ALL THAT COMES DOWN TO IS IT IS BETTER THAN GOOD. YOU SEE IT WITH GOOGLE, MICROSOFT, THE WORLD COMING TO AN END AT 4:15, 4:20, YOU GET TO THE MORNING AND GUESS WHAT? THEY ARE UP. JONATHAN: RESILIENCE GIVEN WHAT WE HAVE
SEEN. TOM: I THINK THIS WRAPS AROUND WHAT CHAIRMAN POWELL WILL HAVE TO SAY TODAY. WE ARE GETTING ALONG. ARE WE IN THE CRISIS AS WE TRY TO BRING INFLATION DOWN? THE DEBATE WE ARE HAVING ON THE SHOW IS FABULOUS. JONATHAN:
THERE ARE THINGS HAPPENING BY UMOJA IN THIS FED WANTS TO SEE, MAYBE JOB OPENINGS COME DOWN, MORE DEMAND COMING OUT OF THE LABOR MARKET. WE WANT TO SEE AN ADJUSTMENT IN THE HOUSING SECTOR. GASOLINE PRICES ARE LOWER. ARE WE TICKING BOXES? LISA: THE PROBLEM IS IF THE MARKET GOES AHEAD OF THE FED, SO MUCH FURTHER THAN THE FED WOULD LIKE. PERHAPS WE ARE TICKING BOXES NOW, BUT I CAN HAPPEN IN A SOMEWHAT SUDDEN FASHION. ALL THE SUDDEN THE MARKET TURNS AND ECONOMY TURNS AND THE FED FINDS ITSELF TO TYPE. HOW MUCH -- TOO TIGHT. THERE ARE SIGNS THAT CERTAIN
ASPECTS OF INFLATION ARE SOFTENING, I.E. WALMART, WITHOUT INVENTORY GLUT, HAVING TO PRICE IT DOWN. JONATHAN: HOW DO THEY ACKNOWLEDGE THE WEAKNESS WE ARE SEEING IN THIS NEWS CONFERENCE? HOW DOES THAT TEE US UP FOR SEPTEMBER? LISA: THEY WILL LOOK AT THE WEAKNESS WE ARE SEEING AND SAY THIS IS WHAT WE NEED TO SEE BUT THE INFLATION IS STILL THERE AND THAT NEEDS TO BE HOW WE COMBAT. THIS IS WHAT PEOPLE WILL BE
LOOKING AT AFTER THE FED MEETING. AT WHAT POINT DOES THE CONVERSATION CHANGE TO HOW MUCH THE UNEMPLOYMENT RATE HAS TO RISE BEFORE THE FED TALKS ABOUT THE LABOR MARKET MANDATE. JONATHAN: AND IS IT RISING WHEN THEY GET TO SEPTEMBER? ALPHABET IS HIGHER BY 3.7%. ON THE NASDAQ 100, UP 1.4%. YIELDS ARE IN, A BASIS POINT OR SO.
THE EURO SHOWING A LITTLE BIT OF STRENGTH. CRUDE BACK TO A $96 HANDLE. LISA: NATURAL GAS PRICES IN EUROPE HAVE SURGED TO A NEW HIGH. A WEAKER EUROPE. HERE IS WHAT I'M LOOKING AT. PENDING HOME SALES. THIS HAS BEEN ONE AREA OF
ABSOLUTE DEVASTATION IF YOU LOOK AT HOW MUCH THE VOLUME HAS PLUMMETED IN THE TRANSACTION DATA. WE GOT NEW HOME SALES PLUNGING TO THE LOWEST LEVELS GOING BACK TWO YEARS. AT WHAT POINT DO WE SEE AN ONGOING WEAKENING THAT IS NOT REFLECTED IN PRICES? IT HIGHLIGHTS HOW QUICKLY THE MARKET IS RESPONDING TO WHAT THE FED IS DOING. 2:00, WE GET THE DECISION, 2:30, A PRESS CONFERENCE. WE GET TO SPEAK TO SOME WONDERFUL GUESTS STARTING AT 1:30. JOINING US TO PARSE THROUGH WHAT WE SHOULD BE LOOKING FOR AND WHAT THE FED IS TRYING TO SAY. SOME OF THESE COMMENTARIES HAVE
BEEN MORE IMMEDIATE -- MORE ACCURATE THAN THE IMMEDIATE KNEE-JERK REACTION. EARNINGS CONTINUE AFTER THE BELL. QUALCOMM, FACEBOOK AND FORD MOTOR, A COMPLETE SELLOFF. HOW MUCH HAS BEEN PRICED IN?
WE ARE NOT HEARING THE BEST NEWS? THEY ARE NOT STELLAR EARNINGS. A LOT HAVE BEEN BELOW AVERAGE IF YOU LOOK AT HISTORICAL QUARTERLY EARNINGS. AT WHAT POINT DO WE JUST SEE A MARKET SAYING, AT LEAST IT IS NOT THE WORST CASE SCENARIO? JONATHAN: FACEBOOK HAS BEEN AN UGLY STORY. BANKIM CHADHA JOINS US NOW.
ARE WE SEEING SIGNS IN THIS EARNINGS SEASON OF RISING CORPORATE RISK AVERSION? BANKIM: SO FAR, I WOULD NOT CHARACTERIZE THE EARNINGS SEASON AS SHOWING WIDESPREAD OR BROAD-BASED SIGNS OF CORPORATE RISK AVERSION. IF YOU TAKE A WIDER LOOK IF WE ARE GOING INTO A RECESSION, WHAT I WOULD ARGUE IS WE ARE DOING SO PRETTY SLOWLY. I WOULD PUT IT AS PRETTY SURELY BUT SLOWLY. AS FAR AS EARNINGS ARE CONCERNED, AS OF YESTERDAY EVENING, BELOW AVERAGE BEATS. S&P 500 EARNINGS ALWAYS BEAT BY ABOUT 5%.
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
SECTOR ANALYSIS HAS TO BE CRITICAL. HOW DO YOU CHOOSE WHICH SECTORS TO GO INTO? YOU ARE AT A TABLE WITH SOMEONE FOAMING AT THE MOUTH ABOUT A WEAK DOLLAR. FORGET ABOUT IT. THREE YEARS OUT, HOW DO YOU CHOOSE WHICH SECTORS WIN BANKIM:? BANKIM:YOU HAVE TO PLAY THE SECTORS ACCORDING TO YOUR VIEW ON WHERE YOU ARE AT IN THE CYCLE AND WHERE WE ARE GOING. THE PROBABILITIES OF RECESSION HAVE GONE UP. TOM: WHAT IS YOUR OVERWEIGHT SECTOR? BANKIM: STAPLES IN THE HEALTH CARE. TOM: UNITED HEALTH CARE HAS A DRAWDOWN OF 2%. NOBODY KNOWS THAT.
GLOOM, GLOOM, GLOOM. UNITED HEALTH CARE IS DOWN 2%. THAT IS THE RESILIENCE, RIGHT? BANKIM: IT IS, BUT YOU HAVE TO KEEP IN MIND ALSO, YOUR QUESTION WAS OVER THE NEXT THREE YEARS, I WOULD NOT KEEP IT STABLE IN TERMS OF YOUR SECTOR PREFERENCES. I THINK IT IS IMPORTANT TO KEEP IN MIND THAT EVERYTHING GOES DOWN IN A RECESSION, IT IS A QUESTION OF WHEN IN THE CYCLE. HEALTH CARE HOLDS UP BUT THEY DO GO DOWN. IF YOU LOOK AT SECTOR PERFORMANCE ACROSS RECESSIONS, THEY OUTPERFORM MODESTLY BECAUSE EVENTUALLY THEY DO SELL OFF. LISA: I WANT TO DOUBLE DOWN ON
SOMETHING YOU WERE SAYING THAT I THINK IS TRULY FASCINATING. IT WILL TAKE MORE THAN MISSES, IT WILL TAKE THAT CAUTION FROM C-SUITE TO DRIVE VALUATIONS LOWER. AT WHAT POINT DO WE KNOW WE HAVE SEEN THE CAUTION? FORD IS CUTTING JOBS, MICROSOFT, GOOGLE, EVERYONE IS BASICALLY . HIRING EXPECTATIONS AT WHAT POINT DOES THIS QUALIFY AS CAUTION? BANKIM: I WOULD TEE OFF ON A REMARK HE MADE EARLIER, THINGS CAN HAPPEN SUDDENLY. THE WAY I WOULD CHARACTERIZE IT
IS RECESSIONS ARE INHERENTLY NONLINEAR EVENTS. MANY OF THE THINGS YOU MENTIONED ARE PIECES OF CAUTIOUS NEWS AND THEY ARE PILED UP INTO ONE. THERE IS PLENTY THAT IS NEGATIVE. WE ARE DEFINITELY DRIFTING DOWN AS FAR AS THE ECONOMY IS CONCERNED. WE ARE DOING SO SLOWLY.
IT MEANS YOU ARE VULNERABLE TO A NEGATIVE SHOCK BUT IT ALSO MEANS THE INHERENT DYNAMICS AT SOME POINT, SOME BIGGER MOVES IN TERMS OF AN EMPLOYER, IDIOSYNCRATIC SHOCK. SO FAR, IT IS SLOWING DOWN THE HIRING, MODEST LAYOFFS, IT IS NOT A BIG, NONLINEAR EVENT. EVERYTHING IS POINTING IN THE DIRECTION OF US GOING INTO A RECESSION. JONATHAN:
SLOWLY BUT SURELY, OR SURELY BUT SLOWLY. AWESOME TO CATCH UP. JUST WORKED THE NUMBERS FOR YOU. APPLE'S MARKET CAP IS FIVE TIMES BIGGER THAN UNITEDHEALTH. TOM: IT IS AMAZING. JONATHAN: THOUSAND THAT JUST DEFEAT YOUR OWN ARGUMENT -- DOESN'T THAT JUST DEFEAT YOUR OWN ARGUMENT? TOM: WHAT IS STUNNING IS UNITED HEALTH CARE HAS NOT PULLED BACK LIKE APPLE. THE 10 YEAR ANNUAL RETURN ON UNH IS A STUNNING 28%, OR APPLE IS 22%. HOW MONEY PEOPLE WATCHING TO THIS OR LISTENING TO THIS WOULD SEE A BORING HOSPITAL COMPANY WILL OUTPERFORM APPLE, APPLE, APPLE? NOBODY BELIEVES THAT OTHER THAN BANKIM CHADHA. JONATHAN:
TO BINKY 'S POINT, HIS SECTOR PICKS WERE DEFENSIVE. TOM: I AM IN THE CHADA DOW JONES INDUSTRIAL FUND. JONATHAN: FUTURES UP .75% ON THE S&P. YOU WERE MEANT TO STEP IN AND STOP THIS STUFF. LISA: I AM ENJOYING IT. JONATHAN: FACEBOOK COMING UP A LITTLE BIT LATER. APPLE AND AMAZON COMING OUT TOMORROW. FROM NEW YORK, THIS IS
BLOOMBERG. ♪ LEIGH-ANN: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE ROAD WITH THE FIRST WORD NEWS. I AM LEIGH-ANN GERRANS. THE FEDERAL RESERVE IS EXPECTED
TO RAISE INTEREST RATES BY ANOTHER 75 BASIS POINTS TODAY. LOOKING AT THE LANGUAGE OF THE FED'S STATEMENT TO SEE WHAT IT THINKS OF THE PATH AHEAD. LIKELY TO ACKNOWLEDGE THERE ARE RECENT SIGNS THE ECONOMY IS WEAKENING. PRESIDENT JOE BIDEN WILL MEET WITH CHINA'S XI TOMORROW. THE CALL WILL TAKE PLACE DURING A DIFFICULT JUNCTURE OF U.S.-CHINA RELATIONS. NANCY PELOSI COULD VISIT TAIWAN NEXT MONTH.
THE FIRST SHINY CITY TO IMPOSE A CORONAVIRUS LOCKDOWN HAS IMPOSED ANOTHER. WUHAN HAS LOCKED DOWN A DISTRICT OF ALMOST 1 MILLION PEOPLE AFTER CASES WERE FOUND. PEOPLE HAVE BEEN TOLD TO STAY IN THEIR HOMES.
FOR THE SECOND NIGHT IN A ROW, THE TWO CONSERVATIVE CANDIDATES TO SUCCEED BRITISH PRIME MINISTER BORIS JOHNSON WERE IN A TELEVISED DEBATE. THEY TALKED ABOUT THE ECONOMY AND EACH ACCUSED EACH OTHER OF PURSUING POLICIES THAT ARE MORALLY WRONG. THE DEBATE WAS CUT SHORT WHEN THE MODERATOR FAINTED.
CREDIT SUISSE HAS TAPPED A VETERAN BANKER TO BE ITS NEW CHIEF EXECUTIVE OFFICER. THERE WILL BE A STRATEGIC REVIEW OF THE BANK AND OTHER BUSINESSES. HE WILL SUCCEED THE PERSON RESIGNING AFTER TWO YEARS OF MARK MY SCANDAL AND HUGE LOSSES. GLOBAL NEWS 24 HOURS A DAY, ON
AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. >> YOU HAVE THE JOB MARKET VERY STRONG, YOU HAVE INFLATION STILL RUNNING HOT AND AT THE SAME TIME YOU HAVE GDP GROWTH STALLING OUT. THE FED HAS TO FIGURE OUT HOW HARD TO STEP ON THE BRAKE. THAT IS A MESSY PROPOSITION. JONATHAN: "MESSY" IS THE RIGHT WORD. THIS IS FED DECISION DAY. WITH TOM KEENE AND LISA ABRAMOWICZ, I AM JONATHAN FERRO. ON THE NASDAQ 100, UP 1.3%.
YIELDS UNCHANGED. EURO DOLLAR SHOWING SOME STRENGTH. OUR ATTENTION RIGHT NOW ON PRESIDENT XI. HE IS DELIVERING A SPEECH TO LOCAL GOVERNMENT OFFICIALS. XI IS SAYING THE PARTY CONGRESS HAS A MAJOR TASK FOR THE NEXT FIVE YEARS WITH THE CHALLENGES THE CHINA FACES AND THEY ARE MORE COMPLICATED THAN BEFORE. SPEAKER PELOSI'S POTENTIAL VISIT TO TAIWAN.
THIS IS FROM MITCH MCCONNELL, HE BASICALLY SAID NANCY PELOSI NOT GOING TO TAIWAN WOULD HAND CHINA A VICTORY. PRESSURE COMING FROM THE OTHER SIDE OF THE AISLE ABOUT THE SPEAKER ACTUALLY GOING. TOM: THE HEADLINE HERE IS IT IS JULY 27 FED DAY AND SHE IS SCHEDULED FOR AUGUST AT SOME POINT. WE WILL HAVE TO SEE ON THAT.
TWO THIS FED MEETING TODAY, THE DIVIDE OF THE MIDDLE CLASS IN THIS COUNTRY, FROM THE HAVES, WE SPOKE TO ANNMARIE HORDERN ON THE GREAT MIDDLE-CLASS. THE PEW RESEARCH PEOPLE SHOWED A POLL AGES AGO, MITT ROMNEY-BARACK OBAMA, A MASSIVE DIVIDE AND POLICY OF THE HAVES, THE WEALTHY, AND THE HAVE NOTS. THE HAVE NOTS ARE BEING CRUSHED BY A SET OF INFLATIONS.
DOES YOUR WASHINGTON KNEW THERE IS A MIDDLE-CLASS OUT THERE? ANNMARIE: BOTH SIDES ARE TRYING TO TALK TO THE MIDDLE CLASS. THEY SAY THEY HAVE THE BETTER POLICIES TO TRY TO MAKE SURE THEY CAN REJUVENATE AND BOOST THE MIDDLE CLASS. IT IS TRUE, THERE IS A BIGGER SOCIOECONOMIC DIVIDE. YOU REALLY SAW IT DURING COVID. IT GREW LARGER AND LARGER. THOSE THAT HAVE INVESTMENTS IN THE STOCK MARKET OR HAVE GOOD JOBS, THEY WERE SAVING EVEN MORE. THEIR WEALTH WAS RISING WHILE
OTHERS WERE LOSING JOBS, DID NOT HAVE A LOT OF MONEY IN THE STOCK MARKET AND WERE STRUGGLING. INFLATION HITS EVERYONE. EVERYONE FEELS PRICE PRESSURE, INFLATION. IT OBVIOUSLY HURTS LOWER INCOME INDIVIDUALS AND THE MIDDLE CLASS MUCH MORE. TOM: IS IT LIKE BUSH SAYING LONG AGO, IT IS THE ECONOMY, STUPID? IS THIS HOW ODD IT IS WHAT THE DEBATE OF THE MIDDLE CLASS WITH THE HAVES INSIDE THE BELTWAY? ANNMARIE: POLL AFTRE POLL, IT IS INFLATION AT THE TOP OF VOTERS' MINDS.
INDIVIDUALS USUALLY GO TO THE POLLS DEPENDING ON WHERE THEY ARE IN TERMS OF THEIR GROCERY LIST, GAS PRICES, ETC. THE VICE PRESIDENT CAME OUT TALKING ABOUT HOW GAS PRICES ARE NOW LOWER. TODAY, THE AAA AVERAGE IS $4.30. THIS ELECTION WILL BE INTERESTING BECAUSE THERE IS ANOTHER ISSUE AT HAND THAT THE DEMOCRATS WILL PUSH FORWARD AND THAT WILL AFFECT WOMEN. THAT IS OF COURSE WOMEN'S REPRODUCTIVE RIGHTS. LISA:
I WANT TO FOCUS ON THE GAS ISSUE BECAUSE WE HEARD A PROPOSAL OUT OF THE WHITE HOUSE TO POTENTIALLY OFFER GUARANTEED PURCHASES OF GASOLINE, CRUDE LATER ON AS THEY RELEASE SOME OF THE RESERVES. BASICALLY GUARANTEEING DEMAND FOR A LOT OF BIG OIL COMPANIES LATER SO THE INCREASED PRODUCTION NOW. HOW DO PEOPLE RESPOND TO THE NEW WANTING OF SOME OF THE TOOLS THIS WHITE HOUSE IS USING TO COMBAT GAS PRICES. ANNMARIE: I THINK THE MAJORITY OF AMERICANS DO NOT REALLY CARE ABOUT HOW IT IS HAPPENING.
WHAT LEVERS ARE YOU PULLING, WHO IS INCREASING PRODUCTION. IS IT THE KINGDOM? HOUSTON? THEY JUST WANT TO SEE THE PRICE GO DOWN. I THINK THAT IS BROADLY HOW AMERICANS FEEL. IT IS A DIFFICULT ONE FOR THE ADMINISTRATION BECAUSE AT THE SAME TIME, THEY WANT MORE NATURAL GAS PRODUCTION, MORE OIL PRODUCTION COMING OUT OF THE U.S. THEY WANT TO SEE IT COMING OUT
OF THE REST OF THE WORLD. THEY WANT TO MAKE SURE RUSSIAN OIL STAYS ON THE MARKET. THEY ARE ALSO PUSHING A CLEAN AGENDA. IT IS VERY HARD SOMETIMES TO GET THESE OIL AND GAS PRODUCERS TO WANT TO SIGN UP FOR INFRASTRUCTURE THAT TAKES 5, 10, 15 YEARS OF INVESTMENT WHEN WHAT THEY ARE SAYING IS WE NEED YOUR OIL TODAY BUT WE RELIGION NOT WANTED IN THE FUTURE. JONATHAN: HOW DID THIS THING ABOUT EXPLAINING WHAT IS AND IS NOT A RECESSION BEGIN? ANNMARIE: I THINK IT STARTED A FEW DAYS AGO WHEN THE WHITE HOUSE POSTED A BLOG ON THEIR WEBSITE DISCUSSING WHAT A RECESSION IS. IT IS CLEARLY NERVOUSNESS WITHIN THE WHITE HOUSE AND THE TREASURY ABOUT IF WE GET A NEGATIVE -- WHAT PEOPLE WILL SAY IS WE ARE IN A TECHNICAL RECESSION.
THAT IS NOT THE DEFINITION, BACK TO BACK CONSECUTIVE QUARTERS OF NEGATIVE GROWTH. WHAT THEY ARE WORRIED ABOUT IS HOW THIS WILL BE TALKED ABOUT IN THE PRESS AND THE MEDIA. IF YOU DO A BLOOMBERG TERMINAL SEARCH, THE WORD RECESSION IS IN THE MEDIA. THEY ARE TRYING TO GET AHEAD OF POTENTIALLY BAD NEWS BUT THE ISSUE AND THE REST THEY HAVE IS THEY MIGHT HAVE DUG THEMSELVES A WHOLE -- A HOLE.
JONATHAN: WE ARE TALKING ABOUT IT NOW. DOWN IN D.C., ANNMARIE, THANK YOU. CREDIT SUISSE IS LOOKING FOR A NEGATIVE PRINT TOMORROW BLOOMBERG ECONOMICS IS LOOKING FOR A NEGATIVE PRINT TOMORROW. YOU KEEP GOING THROUGH THE NAMES, PANTHEON, BANK OF AMERICA, THERE ARE A LOT OF NAMES LOOKING FOR IT. THERE ARE SOME NAMES OUT THERE LOOKING FOR IT. TOM: I WILL REALLY LOOK AT WHAT THE PROS ARE LOOKING AT.
WHAT WE ARE HEARING FROM PROS IS ESOTERIC. THE INVENTORY BUILD COULD BE THE SWING EITHER WAY. JONATHAN: UNDERLYING DEMAND, WHAT DOES IT LOOK LIKE? LISA: HOW ARE THEY GOING TO POSITION THIS? HOUSING PRICES, RENT IS CLIMBING SO SIGNIFICANTLY. PEOPLE ARE FACING BILLS THAT ARE UNAFFORDABLE BASED ON THEIR PAY. JONATHAN: BRUTAL. FUTURES UP 9% -- FUTURES UP .9% ON THE S&P.
JP MORGAN NOW SEEING A RECESSION IN THE EUROPE. JONATHAN: THIS EQUITY MARKET BOND THE DAY AFTER THE FAIR LAST-MINUTE. WE HAVE RALLIED EVER SINCE. UP .8% ON THE S&P.
THE NASDAQ UP BY 1.4%, HELPED OUT BY TWO NAMES THAT WE CAN BUILD ON IN A MOMENT. IN THE BOND MARKET, TWOS, TENS, 30'S LOOKING LIKE THIS.
I WANT TO SPEND SOME TIME ON THE EURO. JP MORGAN THE LATEST LOOK FOR A RECESSION BY YEAR-END. WE LOOK FOR A COMBINATION OF HIGHER EUROPEAN NATURAL GAS PRICES, POLITICAL RISK TO SLOW EUROZONE GDP.
WHEN IT COMES TO THE EURO. THEY ARE NOT LOOKING FOR 50 IN SEPTEMBER. TWO MORE 25 BASIS POINT RATE HIKES BY YEAR END, AND THEN WE ARE NOT. TOM: THE GUESTS AND PEOPLE HAVE COMING UP WILL LEAN TOWARD THAT ANGLE. WHAT WILL BILL DUDLEY TELL US THIS AFTERNOON? JONATHAN: BILL HAS MADE THE POINT SINCE JUNE OF LAST YEAR THAT THIS FEDERAL HAVE TO DO MORE AND GO HIGHER THAN PEOPLE THOUGHT. TOM:
I JUST CANNOT SAY ENOUGH, WHEN YOU DO A DEBATE TO INFORM PEOPLE, SO ULTIMATELY THEY CAN MAKE INVESTMENT DECISIONS ON RETIREMENT PLANS. I WAS NOT GOING TO RETIRE BUT I'M CONSIDERING IT NOW. JONATHAN: LATER, IT'S IMPORTANT TO POINT OUT, OUR FETA SHOW, BUT WE WERE SPEAKING TO PEOPLE WHO WERE RIGHT. MOHAMED EL-ERIAN, MR. DUDLEY. FUTURES POSITIVE.
A COUPLE NAMES RESPONSIBLE FOR THAT MOVE. LISA: MICROSOFT AND ALPHABET. THEY DIDN'T COME OUT AS BAD AS EXPECTED, CAME OUT WITH POSITIVE FORECASTS. MICROSOFT IS UP 3.3% AHEAD OF THE OPEN. HOW MUCH DOES THIS, THE LANDSCAPE FOR THE OTHER COMPANIES? PAYPAL HOLDINGS UP 6.6%. ELLIOTT INVESTMENT MANAGEMENT HAS AMASSED A BIG STAKE IN THE COMPANY TO ACCELERATE JOB CUTS. THAT IS THE OTHER THING THAT
I'M LOOKING FOR, HOW MANY COMPANIES TALK ABOUT JOB CUTS AS THEY LOOK AT A WEAKER POTENTIAL SCENARIO? SHOPIFY CAME OUT YESTERDAY AND SAID THEY WERE PLANNING TO CUT 10% OF THEIR STAFF, ABOUT 1000 PEOPLE. HAVES AND HAVE-NOTS. ALSO LOOKING AT SOME OF THE OTHER COMPANIES GOING TO REPORTING INCLUDING FACEBOOK, META. JONATHAN: WHY DON'T YOU LIKE IT SO MUCH? LISA: UP 2.4%.
I DON'T FIT WE SHOULD LOOK AT THE TICK BY TICK MOVEMENTS BUT WHAT HAS BEEN PRICED IN ALREADY? DOWN 50% YEAR TO DATE, SO 2.4 PERCENT IS NOT REALLY SIGNIFICANT. BUT DOES THIS INDICATE AT THE BOTTOM IS IN? AMAZON SHARES UP 1.4%. APPLE SHARES UP 0.8%. HOW MUCH DO WE SEE THE RESILIENCE IN THE PHYSICAL GOODS AT A TIME WHEN APPLE IS CUTTING PRICING? TOM: WE DID THIS EARLIER ON CHINA. APPLE ON CHINA WILL BE A COMPLETE MYSTERY. LISA: AND HOW MUCH DOES THIS
REPLICATE WHAT WE ARE SEEING ELSEWHERE OR IS THIS JUST A CHINA STORY? TOM: BOWING OUT WITH EARNINGS. NO IDEA WHAT THEY ARE OTHER THAN I CANNOT AFFORD A PLANE TICKET. THEY ARE ALL ABOUT FREE CASH FLOW.
I REMIND CAMPERS, BOEING IS DOWN 63%. IT IS NOT AIRBUS, TO SAY THE LEAST. RIGHT NOW WE WILL GO TO YIELD. BOB MILLER IS THE HEAD OF FIXED INCOME AT BLACKROCK. YOU ARE THE PERFECT WANT TO TALK TO ABOUT THE FED DEBATE, THAT THEY WILL ACT AND THEN WAIT, WATCH FOR DATA. OR THEY WILL ACT BOLDLY LIKE
PAUL VOLCKER. WHICH DO YOU THINK THEY WILL DO? BOB: TODAY, I THINK CHAIR POWELL WILL TRY TO THREAD THE NEW BETWEEN THE TWO BUT ULTIMATELY LEAN TOWARD A SLIGHTLY MORE HAWKISH, ULTIMATELY BECAUSE IT IS TOO SOON FOR THEM TO TILT THE MESSAGE IN A WAY THAT WOULD BE INTERPRETED AS DOVISH, PROVIDE RELIEF TO FINANCIAL MARKETS. BUT I DO THINK IT IS COMING. LISA: DO YOU THINK IT'S REALISTIC TO PRICE IN RATE CUTS AS SOON AS NEXT YEAR? BOB: THE MARKET IS PRICING IN 75 TODAY AND THEN ANOTHER 100 BY THE END OF THE YEAR, THEN 50 TO 60 BASIS POINT RATE HIKES LATER IN 2023. I THINK THAT IS WAY TOO CLEVER TO THINK THAT WE WILL GO TO 3.5, AND THEN BE AT SLIGHTLY BELOW THREE BY THE END OF THE YEAR.
IT IS MUCH MORE LIKELY I THAT WE DON'T GET TO 3.5 AND THE FED STOPS SOONER, BUT DOESN'T HAVE TO CUT, OR THEY HAVE TO GO BEYOND 3.5 BECAUSE INFLATION PROVES WILDLY MORE PERSISTENT. THE CURRENT CURVATURE -- WE LIKE THAT TRAIT, WE ARE TAKING THE OTHER SIDE OF IT. LISA: WHICH MEANS YOU ARE GOING SHORT DURATION AND INTO THE SHORT END. HOW IS THAT PLAYING OUT IN TERMS OF YOUR INVESTMENTS? BOB: WE ARE LONG THE VERY FRONT END OF 2023, IMPLYING A 3.5%
TERMINAL RATE, SHORT ON THE BACK END, AND THOSE CUTS YOU ARE REFERRING TO. TOM: FROM YIELD TO INFLATION, INFLATION OVER TO YIELD. IF INFLATION COMES IN, MAYBE WE GET DOWN TO SIX OR FIVE, AND WE STOP, WHAT DOES THAT DUE TO TO THE TOTAL RETURN OF FIXED INCOME? BOB: FIRST OF ALL, YEAR-OVER-YEAR NUMBERS WILL BE TRICKY OVER THE SECOND-HALF OF THIS YEAR. THERE ARE SOME BASIC FACTS THAT PUSH THEM UP THREE OR FOUR MONTHS DOWN THE ROAD, NOT PUSHING THEM LOWER AS WE BEGIN TO SEE IN THE SPRING. WE HAVE HAD THIS VIEW, AND I THINK THIS PERSISTS. WHAT THE FED WILL BE LOOKING AT, WHAT THE MARKET WILL BE LOOKING AT, IS TAKING THE ANNUALIZED MONTH OVER MONTH PRINTS. THERE HAS NOT BEEN ANY RELIEF
THERE BUT IT IS COMING. WE THINK THEY WILL DECELERATE INTO THE YEAR SUCH THAT CORE PCE, THE FED'S PREFERRED MEASURE, IS RUNNING ON A TWO OR THREE MONTHS ANNUALIZED BASIS, RUNNING CLOSER TO 3% BY THE END OF THE YEAR THAN THE CURRENT LEVEL. WE WILL HAVE TO TAKE THOSE SHORTER-TERM INDICATORS, SHORTER TIME HORIZON INDICATORS, AND ANNUALIZE THEM. THAT IS WHERE WE WILL GET
COMFORTABLE THAT INFLATION IS DECELERATING, OR WE WILL NOT GET COMFORTABLE, AS YOUR COMMENTS ABOUT OTHER SPEAKERS HAVE SUGGESTED. LISA: MEANTIME, PEOPLE PARSE THROUGH THE POSSIBLE FED SCENARIOS, INCREDIBLE PAIN IN BONDS. THEN THE WHIPSAW RALLY WE SAW IN THE LAST FEW MONTHS. YOU ARE BETTING AGAINST THAT, SAYING THAT YOU ARE SEEING A LONG AND TREASURIES SELLOFF IN A SIGNIFICANT WAY. HOW SIGNIFICANT COULD THAT BE AS WE WHIPSAW IN THE OTHER DIRECTION? BOB: I FEAR I HAVE MISPLACED MY STEEPENER VIEW.
IT IS NOT TO, TENDS OR TENDS OR 30'S. THE TREASURY CURVE OFFERS MODEST VALUE HERE. OTHER PLACES IN FIXED INCOME THAT GOT TO REASONABLE VALUE A MONTH AGO BUT HAVE SINCE RALLIED IN, LIKE SOME OF THE INVESTMENT GRADE MARKET. PART OF THE CHALLENGE FOR THIS YEAR IS VALUATIONS WERE SO RICH IN 20, 21 DUE TO THE PERSISTENCE OF EXTRAORDINARILY ACCOMMODATIVE MONETARY POLICY, THERE WAS NO PLACE FOR RETURNS TO GO BUT NEGATIVE. JUST A QUESTION OF HOW NEGATIVE THEY WOULD BE. NOW WE HAVE HAD THIS SLAUGHTER
IN THE BOND MARKET GLOBALLY, ACROSS ALL SECTORS OF FIXED INCOME. AT LEAST A MONTH AGO WE GOT VALUATIONS THAT STARTED TO LOOK REASONABLE TO US AND WE STARTED TO ADD. I THINK FIXED INCOME IS SETTING UP FOR A REASONABLY GOOD 18 MONTHS AHEAD IF WE ARE RIGHT ABOUT THAT THIS OPERATION IN LAOIS AND. NOT RAPID BUT PERSISTENT OVER THE COURSE OF THE NEXT YEAR. I THINK FIXED INCOME RETURNS ARE GOING TO BE MUCH IMPROVED. PRETTY LOW BAR, BUT MUCH
IMPROVED OVER THE NEXT 18 MONTHS. JONATHAN: BOB MILLER. PRETTY LOW BAR BECAUSE THINGS HAVE BEEN OUT OF FOR SO MANY PEOPLE. TOO SOON HE SEEMS TO BE THE TAKEAWAY. I AM SEEING IN MY INBOX, TOO
SOON TO MAKE THE PIVOT. WE HAVE TWO MORE PRINTS. WE HAVE THE AUGUST 10 PRINT ON CPI, SEPTEMBER 13, SEPTEMBER 21 FOR THE FED. LISA: IF SEPTEMBER IS THE TIME TO MAKE THE PIVOT, IS THAT TOO SOON? AT WHAT POINT DO YOU SAY THERE IS ENOUGH DATA, ESPECIALLY BECAUSE THE CONCERN OUT THERE IS THAT THE FED BACKS AWAY TOO QUICKLY AND INFLATION EXPECTATIONS GET ON MORE. TOM: HOW CAN YOU PIVOT WITHOUT A CONSTRUCTIVE WHEEL YIELD ENVIRONMENT? JONATHAN: I'M WITH YOU.
TOM: WITHIN NORMAL FINANCE, FINANCE 101. WHAT IS IMPORTANT, YOU HAVE TO GENERATE SOME FORT OF NORMATIVE RATE. YOU WILL NOT DO THAT WITH A PIPIT IN SEPTEMBER. JONATHAN: WE JUST HAD A HOT CORE MONTH
OVER MONTH READ. PRETTY TOUGH ENVIRONMENT FOR THE FED TO MAKE A PAUSE, PIPIT, -- PIVOT, WHATEVER YOUR CHOICE OF WORDS. THE NASDAQ UP 1.4 ON THIS FED DAY. THIS IS BLOOMBERG.
♪ LEIGH-ANN: KEEPING YOU UP TO DATE WITH NEWS FROM AROUND THE WORLD, WITH THE FIRST WORD, I'M LEIGH-ANN GERRAN. BLOOMBERG HAS LEARNED THE JUSTICE DEPARTMENT IS USING A GRAND JURY TO INVESTIGATE EFFORTS BY FORMER PRESIDENT DONALD TRUMP AND HIS AIDES TO OVERTURN THE ELECTION. IT FOCUSES ON CREATING FAKE ELECTORS AND PRESSURING FORMER VICE PRESIDENT MIKE PENCE TO REFUSE TO CERTIFY THE BIDEN VICTORY.
NO COMMENT FROM THE TRUMP CAMP. SENATE MAJORITY LEADER CHUCK SCHUMER HAS TOLD BLOOMBERG HE DOESN'T THINK THERE ARE ENOUGH VOTES IN THE SENATE TO PASS THE BIG ANTITRUST BILL DESIGNED TO BAREBACK THE POWER OF COMPANIES SUCH AS APPLE, AMAZON, ALPHABET. COSPONSORS HAVE MAINTAINED THEY HAVE ENOUGH VOTES FOR PASSAGE. DEUTSCHE BANK WARNED IT WILL MISS A TARGET FOR THE YEAR.
A KEY PROFITABILITY GOAL WAS GETTING HARDER TO REACH. WE DID TALK WITH THE CFO. >> THE ENVIRONMENT IS WORSENING, HENCE, OUR OWN OUTLOOK FOR THE FIRM. WE DO SEE A SOFTENING OF
ECONOMIC CONDITIONS IN THE SECOND HALF OF THE YEAR, POTENTIALLY RECESSION, AT THIS POINT MODEST. THAT IS SOMETHING WE ARE PREPARING FOR. LEIGH-ANN: DEUTSCHE BANK DID BENEFIT FROM STRONG PERFORMANCE IN FIXED INCOME TRADING WHICH BEAT WALL STREET IN A VOLATILE MARKET. SHARES OF PAYPAL JUMPED IN THE
MARKET TRADING. ELLIOTT INVESTMENT MANAGEMENT IS BUILDING A STAKE IN THE PAYMENTS GIANT. ELLIOTT PLANS TO PUSH PAYPAL TO SPEED UP THOSE COST CUTS. GLOBAL NEWS 24 HOURS A DAY, ON-AIR, AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS >> WE FORECAST THAT GROWTH IN THE EURO AREA WILL SLOW DOWN TO 1.2% NEXT YEAR IN 2023, BUT WE
HIGHLIGHT THAT IN CASE THERE IS A FULL SHUTDOWN OF RUSSIAN GAS FLOWS TO EUROPE. THE DOWNGRADE COULD BE MUCH MORE SEVERE BY ANOTHER ZERO POINT EIGHT TO TWO PERCENTAGE POINT DOWNGRADE IN TERMS OF ECONOMIC ACTIVITY FOR THE AREA. JONATHAN: AT THIS POINT, ANYTHING IN POSITIVE TERRITORY SEEMS LIKE A REACH. THE GLOBAL GDP THE IMF HAS GONE FROM 4.4 PERCENT IN JANUARY TO
3.6% IN APRIL, DOWN TO 3.2% THIS YEAR. YOU CAN SEE THE DIRECTION OF TRAVEL. TOM: THEY ARE MANAGING IT. EVERYBODY IS DOING IT, NOBODY
KNOWS WHAT THE FUTURE IS. MAJOR SHOUT OUT TO WTO, 2%, 3% GLOBAL GDP. JONATHAN: FUTURES UP .8% ON THE S&P. TECH EARNINGS PRETTY DECENT RELATIVE TO WHAT WAS EXPECTED. TOM: WHEN WE TRAVEL TO MOROCCO FOR THE IMF MEETINGS. JONATHAN: IS THAT WHILE YOU PUT THAT PIECE OF SOUND IN A RUNDOWN? TOM: NASDAQ UP 1.4%. GETS MY ATTENTION IN THE HEART
OF EARNINGS SEASON. REGINA MAYOR IS WITH KPMG, GLOBAL HEAD OF ENERGY. I WANT TO GO TO THE PACIFIC RIM. YOU HAD THE JOY OF WORKING WITH THE PENTAGON. LET'S GO GLOBAL PACIFIC RIM.
YOU ARE IN THE CAMP THAT PACIFIC RIM IS ONE OF THE VARIABLES HERE. REGINA: ASIAN DEMAND WILL CONTINUE TO GROW, AND THAT IS DRIVING UP SHORT-TERM LNG SPOT PRICES. WE ARE REALLY WORRIED ABOUT A COLD WINTER AND WHAT RUSSIA IS DOING TO THE EUROPEAN CONTINENT. JONATHAN: I'M MET A KPMG SEMINAR, YOU HAVE TO GIVE ME A TIMELINE.
HELP ME OUT WITH THE X AXIS. IS IT A QUARTER OUT, THREE YEARS OUT? REGINA: I DON'T THINK IT IS THAT FAR OUT. I THINK IT IS COMING IN THE LATTER PART OF CALENDAR YEAR 2022 , AND ONE OF THE PULLBACKS AND PRICES IS A TEMPORARY REPRIEVE. THE BASIC SUPPLY DEMAND FUNDAMENTALS HAVE NOT CHANGED. OPEC IS PRODUCING UNDER CAPACITY, 3 MILLION BARRELS A DAY, AND WE WILL SEE DEMAND GO UP. I AM, IN TRIPLE DIGITS THROUGH THE END OF THE CALENDAR YEAR INTO 2023. LISA:
LET'S PAINT THIS PICTURE MORE. YOU ARE SAYING CHINESE DEMAND WILL COME BACK ONLINE EX-COVID AT THE SAME TIME THAT EUROPE COULD BE FACING A COLD WINTER WITH NOISE STREAM ONE CURTAILED OR CUT OFF COMPLETELY, BASED ON THE RECENT ACTIONS OF RUSSIA. HOW MUCH DO THESE TWO STORIES COME TOGETHER? DOES THE DEMAND FOR CRUDE REPLACING SOME OF THAT NATURAL GAS, AND THE DEMAND, AFFECTING PRICES INTO THE YEAR? REGINA: THAT IS THE STORY WE ARE TRYING TO BALANCE. WE ARE ACTUALLY BACK TO PRE-PANDEMIC LEVELS WITHOUT CHINA ENTERING THE GLOBAL MOBILITY PROCESS, AND WE CONTINUE TO HAVE RESTRICTED SUPPLY. AS I SAID BEFORE, THERE IS NO GLOBAL SPIGOT. I THINK WE ARE FINALLY REALIZING, IT IS COMING TRUE IN TERMS OF WHAT WE ARE SEEING IN THE MARKET, OPEC-PLUS DOES NOT HAVE THE EXTENSIVE SPARE CAPACITY WE THOUGHT THEY MIGHT HAVE TO HELP US GET THROUGH THIS. LISA:
WHICH GOES BACK TO DEMAND DESTRUCTION. HAVE WE LEARNED ANY LESSONS FROM THE PREVIOUS COUPLE OF MONTHS ABOUT THE PRICE POINT THAT CAUSES THAT DEMAND DESTRUCTION THAT PEOPLE ARE LOOKING FOR? REGINA: I WAS GOING TO GO TO THAT POINT. WE ARE AT THE PRICE POINT WHERE WE SHOULD SEE DEMAND DESTRUCTION. BECAUSE WE HAVE SO MUCH PENT-UP DEMAND DURING COVID, WE HAVE NOT SEEN PEOPLE STOP DRIVING AND FLYING.
SOME ECONOMISTS SAY A LOT OF THOSE TICKETS WERE PURCHASED THREE TO SIX MONTHS AGO, SO WE COULD SEE THE DIP IN DEMAND THAT COINCIDES WITH CHINESE DEMAND COMING BACK INTO THE MARKETPLACE, WHICH COULD HELP US INTO THE WINTER MONTHS. RIGHT NOW I AM WORRIED ABOUT A COLD WINTER IN BOTH EUROPE AND THE UNITED STATES. TOM: YOU ARE IN MELBOURNE, AUSTRALIA. I LOOK AT THE GAS PRICES IN PERTH VERSUS MELBOURNE. IT IS EXPENSIVE. IT IS NINE DOLLARS A GALLON FOR GAS. HOW IS AUSTRALIA DEALING WITH THAT? REGINA: I THINK THEY WERE CALCULATING IT WAS CLOSER TO 10.
IN THE U.S., WE HAD HIT RECORD HIGHS OF FIVE DOLLARS FOR A GALLON OF GASOLINE. THEY SAY THAT WOULD BE EQUIVALENT TO US AT 10. THEY ARE NOT REALLY FEELING THE BITE HERE. WE ARE DEALING WITH WEALTHIER
COUNTRIES THAT HAVE INSATIABLE ENERGY APPETITES. THEY ARE ABLE TO MOVE AROUND THE COUNTRY AND TAKE ADVANTAGE OF WHAT THEIR PROSPERITY BRINGS, ACCESS TO NATURAL RESOURCES. I AM DOWN HERE PROSELYTIZING THAT THE WORLD NEEDS MORE OIL AND GAS IN THE SHORT-TERM AS WE DRIVE DECARBONIZATION OF THE PLANET. WE CAN ACHIEVE BOTH OBJECTIVES, BUT LET'S NOT START OF THE RESOURCES WE NEED FOR SOCIETAL BENEFIT. JONATHAN: VERY IMPRESSED WITH YOUR KNOWLEDGE OF AUSTRALIAN GEOGRAPHY. PRONUNCIATION. TOM: THERE IS A HUGE DISTENTION BETWEEN PERTH, ON THE WEST OF AUSTRALIA, AND MELBOURNE.
THE WAY THE PROS LOOK AT THIS IS BAREFOOT VIBE VERSUS GROWN-UP. LISA: BASICALLY, HE SAYS ALIKE THAT AFTER TALKING TO SOMEBODY FROM AUSTRALIA. JONATHAN: FUTURES ON THE S&P UP BY .8%. THE NUMBERS OUT OF ALPHABET SUPPORTIVE OF THIS MOVE THIS MORNING. EVER BEEN TO AUSTRALIA? TOM: I WAS SUPPOSED TO GO A COUPLE OF TIMES.
I WENT TO SINGAPORE THREE T
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