Fed Goes Big | Bloomberg Surveillance 9/22/2022

Fed Goes Big | Bloomberg Surveillance 9/22/2022

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Chairman Powell is not one mission that to do with inflation. The Fed continues to be really focused on the emerging data. The Fed is trying to get the economy in a position where inflation comes down and then it can take its foot off the brake a little bit and goes through the tightening spells and easing spells and causes.

A soft landing is actually still likely. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Here come the Hawks. Live from New York City for our audience worldwide. Good morning.

Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro the equity markets a snooze. It's unchanged on the S&P T.K. the affects market anything but get out the history books and make the history forward. Here to what is it John. 7 a.m.

this morning Wall Street time. Will the Bank of England intervene to protect Sterling. I mean it's not going to happen. But guess what. We're thinking about it. The dollar yen what 43. T.K. can you imagine. Finish in the Dan dollar went unchanged. Yeah. With this yen strength.

Yeah. You know it's pretty elegant is all I can say. I did a very fancy study. You can only do it on the Bloomberg terminal. That's why people buy the terminal every day. And John we had an absolutely perfect 50 percent Fibonacci retracement strong and under a 142 level. And now what.

The now what. In every case is this will fade away over time into a non event for the Bank of Japan. You can talk. You can never laser.

At the end of the day you've got to talk about the underlying policy issues. Yeah I've got to say how much money are they spending to really embrace this fiction of yield curve control. I mean I just I'm going to throw this out there. But they came out hard overnight. They it's reality though. I mean they came out overnight. They reiterated their yield curve control.

They've been buying bonds at an incredible pace. I think they bought more than two trillion yen worth of bonds to keep that cap. And now they're going to intervene on the other side. How much money are they spending to try to fight a market that does not want to be thought. Spare a thought for the S&P this morning from a Swiss National Bank. How big was that hike and what did that currency do.

OK. Well this is the interesting thing. 75 basis points right. They actually are leaving at the negative rate regime for the first time in eight years. And the franc fell the most in real 15 versus the dollar. And this really goes to the whole thing that we saw from the BRICS bank.

Right. With the with what we saw just based on this idea that it's not enough anymore. You have to. This is a surprise to the upside. John has Justin Trudeau brain folks Americans misses completely. John explain the history of the Swedish

bank of being OUTFRONT. It's a European thing that we don't study and it's a big deal. But it's the original gangster. That's why I said yesterday the world's oldest central bank out with a 100 basis point hike to Ramos point. Not enough to prop up the currency because the S&P doing the same thing this morning. Tom I wonder what that means for governor. I mean this Bank of England if he's looking at what the S&P did this morning. Well the Rick Bank today and what has

not happened is they sent fax and bring it over to the guard. And the weakness in euro that we saw yesterday point nine eight five. Right now what I would say John and this has been the hallmark of Bloomberg Surveillance for too many years I'm afraid dimension from Mondale to Frankel. We never spoke to Rudy Dawn Bush who died so tragically and early his iconic paper of 1980. This stuff matters to all of our listeners. All of our viewers affects matters. And we're going to lead on it.

Chairman Powell causing some problems. Futures down a tenth of 1 percent on the S&P 500 on the NASDAQ was down about a quarter of one per cent in the bond market. Yields shaping up as follows higher by a basis. Point 354 on a 10 year two year gets our attention in the last 24 hours to be honest with you.

Turn our attention for the last couple of weeks four point one per cent on a two year yield Lisa higher by five basis points today. So now it's over to the Bank of England. It's over to the rest of the world. And it seems like based on what we saw overnight from the Swiss National Bank. It is going to be hard to surprise at a hawkish direction after yesterday's proclamations from the Federal Reserve. I would argue it was not the 75 basis point rate hike. It was the change in the projections the

change in the outlook in at 7am. The Bank of England has a very difficult situation. They're probably going to raise rates for the seventh consecutive time. The expectation was for maybe 50 basis points. But right now the market seems to be thinking that there's going to be some sort of outsized surprise because of that British pound and the incredible weakness that we have continued to see.

This is between a rock and a hard place for Governor Bailey. They have one of the most difficult jobs. He has been out front with being honest. How low are some of the projections for the economy in the years ahead. Eight. Thirty a.m. U.S. initial jobless claims. I actually think this is going to take

on more and more importance especially after what we heard from Fed Chair Jay Powell yesterday. They want to see the unemployment rate go up. And I go back to what Neil Dutta said. The faster the unemployment rate goes up in a perverse way the better for risk assets because it would mean that the Fed can back away from some of their aggressive rate hiking cycle. So far we have not seen that. We've seen on the unemployment claims that really fall off they've actually not gone up. And the unemployment rate is still

historically low at three point seven percent. An aftermarket chart. I would say that this is actually becoming more and more important as well. The earnings especially from some of the bellwether companies FedEx and Costco reporting after the bell and FedEx came out with that report earlier in the past couple of weeks warning about some of the fast moving macroeconomic backdrop that caused them to revise downward their estimates. All right. Let's see what they put out there now. Cost. Similarly especially with the margin

story and with respect of who is coming to their stores are we seeing more wealthier individuals going to more classically cost cutting companies. That's what we saw with Michael Barr. Are we going to see that with Costco as well. Lisa thank you. Few things to watch for today and into the close as well. Justin CAC is joining us now the head of U.S.

Macro Strategy MQ FTSE. George let's reflect on Chairman Power in that news conference. Do we now believe the recession is the price this Fed is willing to pay to get inflation back to 2 percent. At a minimum look at what we're dealing with an uphill battle here with what's going on with the dollar globally what's going on with U.S. interest rates. And I think you know we have not seen enough. I guess financial conditions tightening

to the Fed's liking. We got a decent amount post that the meeting with with a move in the S&P. But you know they're really going after after aggregate demand as a way to really curtail inflation. It's a massive experiment. You know it's a credibility thing. They really want to prove that they can actually corral inflation. And they're they're going at it hard. I mean it's there.

They've had they're going to have a raise. I mean the rates market's ready for it. I just think the other markets are ready for it. And it's really to make it difficult for all the other central banks that are trying to tell you at the same time that the Fed's going to win out on this one. George I did a Google search last night

of Fed Blinks and I was sort of stunned at how many items came up when do they blink and how did they blink. I mean ultimately and this is something that they're not the only thing I've been saying while others have been saying the same thing. There's something breaks in the market. And so far we haven't seen that yet. I mean even though we're seeing some pretty epic moves in macro type products it's relatively orderly and functioning. And so until something breaks or the economy breaks and we see that move I think you know Lisa's point is well taken on on the the claims data. Once you see jobs data really turn. But if all this stuff operates with a

huge lag and the real problem that I think we're facing and this is I think it will be a challenge for the next three months we enter into year end. The Fed basically wants a wrap up or get very close to the end of the cycle. But by this year. So they're massively front loading. We only have two meetings left. If they had given us these S&P DAX in June we probably would have dismissed it. But now that they're actually leaning on them after years of telling us to dismiss the thoughts they're using us for guidance.

They have two meetings to turn around. But that's not enough time. They're going to have to go to 4 percent and wait till something breaks. I want to pick up on that point. You said that there's epic macro moves right now that are going on but things are not breaking. The market is still functioning. This goes to something that Rich Clarett a former Fed vice chair who is with us yesterday was talking about.

He's not looking in the domestic market for something breaking. He's looking internationally. He's looking from those risks particularly with respect to the strong dollar.

What's that doing. Where are the nodes of concern in your mind for something breaking. Look I think in general small to medium sized enterprises they've got dollar funding globally through their local jurisdictions. Need the dollar scarcity thing is what know all central banks up are up against. And on top of that you have a hawkish fed. So I think it's really the small timid sized companies globally that you know either rely on dollars or through some sort of cross-border type activity need that sort of dollars and they're going to be running out of them.

George you represent a Japanese bank. It's improper to ask you about yen intervention. Completely inappropriate folks. But I do want to ask you I know I'm not going to go there but George I know I'm reading rude. I'm rereading Rudy during Bush's 1980 paper where he literally has charts drawn by hand off his desk at M.I.T.. Are there the rules of the game now the same as it was pre Plaza Accord. Post Plaza Accord. And frankly are the rules of the game

the same now as they were in August of 1998. I mean I think what the bottom line kind of BS feature for overall sort of like affects markets. It's all about the rate of change. And I think that's what it really central banks would react to us.

I think it's interesting to see what happened overnight obviously but now we're we're seeing the you know the yen kind of come back. And the one thing that you know historically has proven to be true if it's a unilateral move by a central bank it usually doesn't work until there's actually more of a coordinated effort. So it's too early to tell if that's actually even taking place war. But you know something that happens down the road. But the first salvo usually doesn't stop it. Right.

And so this is something it's all about the rate of change. I don't think there's a level in mind in terms of what they're looking at. But I do think that you know it's to take some time and really quite frankly it comes back to the Fed. I mean when the Fed stops hiking I think that that's will take pressure off of all these currencies.

Hey George thank you. You're a good sport because you basically talked about Japan too just in commerce that nailed them. Thank you buddy. 145 Rameau. Is that the 19th century. I mean that seems to be what happened

right. The husband bumping up against that level or bumping down against that level if you want to talk about weakness versus the dollar. And then they crossed it. And all of a sudden we heard Japanese authorities come in and say that interview intervened. So you do wonder if that's now the CAC 145. And that's 83 right now negative seven

tenths of one percent on that currency pair. One of the best takes I've seen out there in the last 24 hours or so came from at Bradford on Twitter. The Fed has become so enamored of forward guidance that their projections are no longer what they think. But what they think they need to signal some.

I think that's so important. The projections are no longer what they think but what they think they need to signal. There's a difference. I mentioned this John yesterday seeing

branch apart as dots interpretation. It's a different dot chart than any we've ever seen before. To me it was almost barbell of two views in which view will play out and the answers nobody knows including the people making the dots. This is the challenge the investors have right now. Another way of putting this Lisa is

effectively this fact is not want to see an easing of financial conditions to achieve that. They're leaning card on this signaling that we're going to be tighter for a whole lot longer. So this is where this sort of psychological aspect of the market comes into play. I feel like everyone's trying to psychoanalyze the willingness of the Federal Reserve testing how willing they will be to double down on this when the unemployment rate actually starts to go up and it becomes a political issue. That now is the question they're trying to signal. So is this just basically game theory or are they going to go through with it even as they see that pain hit real individuals. Well it makes Cantona of HSBC.

So yesterday had you when Tauzin lives seems to be this market. Right now he's down a tenth of 1 percent of the S&P. So the ELISA then expects that uplifting sexy close to each other. He up a basis point a 10 year 353 99 from New York. This is pulling back. Keeping you up to date with news from

around the world with the first word. I'm Lisa Matteo. In Japan the yen is stronger today after the country intervened in the foreign exchange market for the first time since 1998. The currency had weakened to one hundred forty five per dollar following the Bank of Japan's decision to maintain ultra low interest rates.

The yen has fallen about 20 percent this year. Fed chair Jerome Powell gave his clearest signal yet that the central bank will tolerate a recession if it can regain control of inflation. Policymakers raised interest rates by 75 basis points for the third time in a row. They also forecast that rates could be raised another one and a quarter percentage points by the end of the year. Two American military veterans fighting

for Ukraine were among those released as part of a prisoner exchange brokered by Saudi Arabia and Turkey. The two were captured in June. Eight other foreign nationals were released along with more than 200 Ukrainians. Ukraine freed up pro Kremlin Ukrainian politician and fifty five Russian soldiers. President Biden and new British Prime Minister Liz Truss have pledged to work together to support Ukraine. The two held their first in-person

meeting on the sidelines of the United Nations General Assembly. The two leaders said they would also discuss unresolved issues relating to post Brexit trade and the Irish border. And Credit Suisse reportedly has drawn up plans to split its investment bank in three. That's according to the Financial Times. The Times says the latest proposals call for an advisory business a so-called bad bank to hold high risk assets that will be wound down and the rest of the business.

Credit Suisse is trying to turn itself around after losses and scandals. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than seven 700 journalists and analysts. I'm Lisa Matteo. This is Bloomberg. Please answer with a simple yes or no. Does your bank have a policy against funding new oil and gas products. Mr. Diamond. Absolutely not.

That would be the road to hell for America. Yeah that's fine. That's right sir. You know what. Everybody that got relief from student loans has a bank account with your bank should probably take out their account and calls their cattle. I'm not sure that that was the answer she was hoping for at least in those hearings just yesterday. That was gold. She was like no I'm not gonna do that.

And she was like everyone take their money out. But you know I got it. That's what this is all about right. You've got all the bank CEOs lined up on. Jamie Diamond was the one who was willing to provide that answer.

Yeah it's a John DAX NASDAQ. True. Just China. Yes. Isn't it really important. This is really important. He's the only one who steps up when it matters. Sonali Basak joins us now. Blimp up Wall Street Correspondent's finale. What did you make an exchange yesterday.

Remember Jamie Diamond was the first one this year to step up and say the US needed a Marshall Plan for energy security. So this is about energy security. It's also about inflation worries. But remember this is one of several sparring moments that he had with lawmakers about energy policy. He said the U.S.

is really not getting this right. Other lawmakers of course took different stances on this. You had Kentucky's Andy Barr really urging the bank executives here to take a measured approach not just to oil and gas but to coal companies in particular. And the point that he made to Florida's Bill Posey was this that investing in oil and gas can be good overall.

He's made that point a couple of times before. What he's really worried about here is many countries moving to coal instead. So it's a complicated issue. Obviously different ideas across state lines. But remember he's nowhere near the only one. When you look at J.P.

Morgan's investors they've taken a very similar approach. And lawmakers are split. I set an aside that stood I should say I've sat on a sidewalk in Davos. But this time I was standing on the sidewalk in Davos and we had a raging debate about what big bankers should do to show what they do socially. And a very famous American banker said

to me American bankers have absolutely failed to sell what they do for the American public every day from where you sit. They failed. It's a complicated one because from where they're sitting as well remember they're different issues for different folks here every year to leave. But she's worried about it's not just emissions. She's one stop.

She's worried about getting reelected. She's what she has been focusing on is the health of her communities whereas Andy Barr is focusing on the jobs the coal jobs in his communities. So you know if lawmakers can't get on the same page and guide the banks on where to go it's very difficult for the banks and the investors to follow the rule. John remember when we talked to Brian Moynihan in Davos as you just said we're not going to do econ 1 0 1. We're actually going to talk about what they do. And Moynihan was freaking brilliant about the social contribution of Bank of America to America.

I think these guys including Mr. Diamond are reticent to sell their value every day. Some of those CEOs tell me a little bit worried about regulation. I'd be thinking more about Wells Fargo. Wells Fargo. Yeah. I think you know Mr. Shery Ahn he may be a little bit hesitant to weigh in and join in with Jamie Diamond.

Dan RTS. Yeah that is for sure. He said those regulatory problems would last for a long time and he took a lot of heat too not just for those regulatory issues but for shrinking which is what we knew they would do in the wake of a lot of these regulatory issues. And in a tough economic environment. So he was really chastised here for cutting jobs. But I would have to say on the social front what's so interesting here is they were asked the cost of environmental social governments standards here. And Jamie Diamond also gave a more specific answer that it's the tens of millions now. It will be in the hundreds of millions

later. And every bank CEO did agree that the cost is going up for these banks. So there is a cost. How much that cost will be. Again this is a global issue. And really quickly really interesting here.

Remember these hearings have only happened since 2019. So there have been changes since these hearings have happened. But these committees may start to turn over quite a bit in the wake of the midterms. So some of the rhetoric that you're seeing today may be very different in just six months from now. One thing that these big banks could do for the average person is raise the interest rate on deposits. You know perhaps they can't do this. But why have they not. And this is a heated debate last night

over the dinner table. Why are you still earning zero on deposits if you see the two year yield at four point one percent. I mean how much is that going to become an issue of scrutiny going forward. It already is. And you saw them being asked this yesterday and you see each bank CEOs sit there and nod their head and say yes savings rates will go up. They didn't say how much.

Remember if you look at the national average you're still looking at a 17 basis point return there on a savings account. So it's not a lot to your point. But remember these banks are sitting with more than six trillion dollars in excess liquidity.

That was in the hundreds of billions around 2008. And you know JP. Morgan alone has an edge in access so they have saved a lot of money. They're having this dual problem of

having a lot of savings and having trouble lending into a tough environment. But to your point that is the critical question here. The lawmakers were very angry that rates were going up and the banks were not passing it on.

Was so excited for an extra 10 points before the end of the year. Charlie thank you. Sonali Basak. Just unreal. Lisa an extra 10 basis points anyway. We'll see if that round. There is a new scapegoat. Down in D.C. it's not the bank CEOs it's Chairman Powell. The Federal Reserve right in the middle

of that news conference. You brought that up. I don't. Switzer Champ how just announced another extreme interest rate hike while forecasting higher unemployment. I've been warning that Champ House Fed would throw millions of Americans out of work at home and I fear he's already on the path to doing so. It's going to be interesting. And it goes back to Phillips curve one

or one. Nobody's got a clue on this John. I think everyone's flying blind on this. And I'm really glad you brought up Senator Warren's comments to Richard Clarett.

Yesterday I thought his answer was gracious and all. But you know we're trying to game out the parlor game here in the week as the toughest thing rather to game out is the job market. I'm looking at claims. I'm sorry. It's a fully employed America. I won't try and game out anything. I'll just go by the calendar. Lisa in early November you get a fair decision and within a week you get the midterms.

And I just wonder what that final week of campaigning looks like if we get another 75 basis point interest rate hike. So it's not really a good idea to game out anything but right now it is the Fed's designed to actually cause unemployment rates to go up or at least to hike rates aggressively until they see the unemployment rate go up. And this is becoming an increasing political issue.

We've seen the Fed have the support of politics and Phillip politicians for the first nine months of the year. But that was when inflation was the first and foremost concern. Now do we start talking about the dual mandate. Is this now the messaging heading into those midterm elections considering that the Fed is telegraphing they're going to do what they have to do to bring down inflation.

The pain would be greater if we did it. How do they communicate that Mark Gurman into year end and into next year. We saw this yesterday basically saying unless you have a stable price outlook you're not going to have a stable and strong labor market. They're trying to telegraph this right that unless you have prices at 2 percent I think Tarmacs asked a really good question to the Adam Posen point which is does the world stop at 3 percent inflation. Why is 2 percent the inflation the target. How much is that going to become increase. No question.

We're going to get you go in some chemical plants in the next. I'm off tomorrow so we can get them going all day. Okay. Futures unchanged on the S&P lot from New York on this ethics market. Ibrahim Bari of Citi joins us in just a moment. You don't miss that.

This is Bloomberg. He's just about positive light from New York. This is blowing back up a tenth of 1 percent on the S&P 500 after closing yesterday lower by one point seventy one percent. Equities unchanged on the Nasdaq. The moves in the bond market just absolutely phenomenal. Twelve months ago in the 20s something

like 21 22 basis points on a two year four point one percent. We've ended the era of subzero rates. The S&P across Europe and the front end at a yield curve ISE to adjust big time. There's an assumption John that we will all die or will all fail or will all that.

And I don't buy it. I think zombie companies have a gift for X number of years. We'll go under but everybody else will. You know we lived it before. Well we'll move on and prosper. Check out this chart. Some tense negative 57 basis points. Yvonne Man. I was 3 4 in the way back all the way back to the 80s. Lisa to see anything like this.

Yeah. So the implication here is that this is going to be not only a recession but does it sort of suggested the potential depth of one because of the work that the Fed has to do on the front end. Just shocking some of these moves. It's really hard to get my head around. And I get your point Tom. You tried to throw shade at me. Some people are saying the world's going to collapse.

I don't think that once China. We love it. I and I love you both. But I guess I'll throw shade times in my veins. Oh come.

I don't know. Sometimes you don't show any love. But you know if you could see the Brad Stone camp folks on breaks you'd know she doesn't love us. John Wayne reviews Sterling here before this meeting me. John Sterling 50 BP 75 BP. Do we. Joy 111. Some. I've got no idea. Yes. The Beutel of this away decision.

If they went 100 would this kind rally or safe. I don't know. We get lucky. We've got a guy name one of our bookers LEIGH that that is so good. He called up Bank of Japan.

He said are you guys going to intervene. We want to book a room or bar. Does it work out. And of course the banks said yes they're going to intervene. And so we are gifted this morning with Abraham Raspberry his global head of foreign exchange analysis. It's Citi and Abraham to great respect for all of you that do this day in and day out. I want to start with the monumental

Ruger Dawn Bush at M.I.T. in 1980. You and I have read the paper five times. Rudy Dawn Bush invented it a simple sentence. The essential complication arises from the link between balance of payments money growth depreciation and inflation. Are we in a currency war.

Mr. Raspberry. I would say it is great to be joining you on such a monumental day in the world of central banking and foreign exchange and I do think we are in what people refer to as a reverse currency war. But the reason for that is of course because every central bank is competing with every other to bring inflation down quickly. And that's still the central message. I think the level of the exchange rate was a symptom but the underlying illness is really very high inflation across the world. And that was what rating I think the political pressure for the Ministry of Finance to be.

And I did a fancy large chart today room that we can't talk about on Thursday but it was a plaza accord the logs slow etc.. And the bottom line is we're nowhere near Plaza Accord dynamics. And yet so many people want somebody to save the day here.

Who's going to save the day here in our present currency wars. Well I don't think there's anybody to save the day. I think you're right on point there. And in the end it seems like the only currency that will sustainably win this currency war is the dollar.

And that's again because in addition to inflation the underlying dynamic globally is the scramble to find effective hedges in a world in which there are few places to hide in asset markets. And that's another reason why foreign exchange is in focus. It's not because of what's going on between interest rates and between countries. That's what's going on in markets more

broadly where both equities and bonds continue to be under pressure. Ibrahim this raises the question of when does something break. And we keep asking this because that's what some people think would be the circuit breaker to this whole system. We were speaking with rich clarity yesterday. He's looking to the rest of the world probably going to be reflected. He didn't say that. This is me saying this in the currency market based on the fact that some of these currencies are trading like Bitcoin or like penny stocks where in the world are you looking for some sort of breakage.

Fisher serious issue. Well the places to look are relatively well known. They tend to be in bank funding markets and therefore the for the most part still look very orderly. And that speaks to the lack of urgent concern around the world and therefore the lack of a prospect for concerted intervention by the world's authorities to intervene. But it is the bank funding markets that would be the primary focus in foreign exchange markets.

The Ministry of Finance noted that there was some evidence of speculation. We don't think that there are particularly disorderly movements even though liquidity has come down relative to normal times. But we simply aren't in normal times. We are drifting towards global recession and we are in a global bear market. So Ibrahim when we're talking about drifting towards certain levels are not disorderly. It brings me to the yen. We're talking about the potential for

there to be some sort of cap at 145. Is that basically what the authorities over in Japan said overnight. So I think they were signaling and certainly there was some advance warning and now we saw the actual intervention around 145. But I don't think we are speaking of a line in the sand and that again speaks to that to the lack of control over those foreign exchange rate movements. We know historically for foreign exchange intervention to be effective. We need some combination of monetary policy to align with the affects moves and or concert that that is multilateral foreign exchange intervention. We don't see that coming back.

We think we will probably see dollar yen above 145 and maybe 150 could end up being a more relevant level over time. Mr. Rory let me go ask Stanley Fischer own you here. I just looked at the Indian rupee and they did a standard deviation study.

And it's a six standard deviation path from a negative three standard deviations. And this morning up to plus three standard deviations. Is the IMF ready for this. Do you have a confidence. International Monetary Fund can pick

four or five six troubled entities and help. So we are concerned and we we do think that we have these timely bank fund meetings in two weeks time where I think these discussions will be elevated. We do think that it's quite likely that they will be quite busy in the years to come as that combination of slowing growth and ever tightening financial conditions probably will create quite a lot of pressure on countries that have seen in particular dollar denominated debt rise quite sharply over the last decade. Those tend to be the emerging markets. I look Abraham at the moment and let's bring it back to the majors and help us with the Bank of England John helped me here 23 minutes 24 minutes 24 minutes. Yeah. It was all twenty three minutes even

with Barry. How does Sterling move off. What we're going to see from the governor this morning Mr. Farrell. I'm asking for a friend. So we think the broader trend remains intact more or less as John said earlier. No matter what the Bank of England does.

The Bank of England is between a rock and a hard place. Our house call is for a 50 basis point hikes or below market expectations. And in that case it's very clear that we should see that sterling weaken broadly not just for cable but also against the euro and other currencies. Should they high by 75 basis points we may see a knee jerk positive reaction. But over the past year whenever we saw a slight hawkish intervention by the Bank of England that was an extremely short lived lift. So we don't think it would be a trend changer.

We still think cable will fall below 110 in the months to come. And even against currencies like the euro we think that sterling will probably continue to weaken. So Abraham right now if one wants a stronger currency before they wanted a weaker one. Let's reflect on the previous currency war the reverse of this one. Do you remember that line that came out of New Zealand that they were turning up to a gunfight with a pea shooter for the currency war.

And I just wonder Ibrahim is there anything in the armoury of these central banks that can actually achieve a stronger currency given the global dynamics at the moment. We don't we don't think there's anything anything narrow or specific that central banks could do. If they can bolster growth because that's at the heart and if they can create a sustainable and solid financial backdrop then we think investors are looking for safe places to hide. That's why not only is the dollar strong but the Swiss franc is pretty strong as well. So if you can create that kind of environment but when it comes to policy actions on this day I don't think that the central banks that are under pressure have a whole lot to offer. The flipside of everything that we've just been saying Ibrahim is the dollar and how much further it has to go to strengthen amid the sea of potential recession the rest of the world.

What's your view. So we think quite significantly further. And again the main driver of dollar strength is and continues to be this global bear market environment the continued tightening of financial conditions that we think that has quite a long way further to go and was reinforced by what the Fed projected just yesterday. So we think for the dollar index we should see it go above 115.

We should see a euro dollar below 95 cents. And I mentioned already sterling even for dollar yen which we think isn't that second category of secondary safe havens if you like. We still think further upside is to come. And the turning point will be some combination of when we are on the other side of the global recession if you like. Certainly at a time when the Fed looks to ease as opposed to taking credit.

And that might not be until the end of next year maybe the year after that. Abraham. BARRIE CASSIDY At least that's what this Fed is trying to signal. Lisa it's the last 10 years in reverse

in so many ways from QE to Kuti from keeping rates at zero to take it a really really high from trying to get a weaker currency to try to get a stronger one. And on that last point is so so hard to achieve because as you know we've talked about this a million times. Even at the Bank of England came out with 100 basis points of hikes in 20 minutes time. You would have a divide on this program ahead of that decision as to whether that would lead to a stronger or weaker currency for sterling over the next several weeks.

And that is the conundrum. The dilemma for these central bankers hiking into weakness with no central banker wants to be doing this whole stagflation airy backdrop. You talk about how is the past couple of decades in reverse. And I wonder how difficult it is for people to get their heads around that and to truly buy into that.

And if there is sort of a stealth transitory that's been in markets and is getting beaten out of them with every CPI report and whether the Fed is saying as Rich Clarett emphasized yesterday they're really serious they're taking this seriously. They don't think it's just going to fade naturally. The same kind of way. It is a new environment that requires a new response has the market fully priced. That is something fresh pushback against a couple of times yesterday Tom this idea that every couple of weeks that this little romance with the idea for Fed pivot and they seem to be any chairman pounce come back and say no no no that's not happening.

I get the dynamics of pivots John. But is it just a five letter word for the word blink. I mean I there's a point where they're just going to have to say enough. I agree.

It's off the unemployment rate but it seems to be very far away. As we heard from vice chairman clarity yesterday features positive two tenths of one per cent. A Bank of England decision coming up in about 19 minutes. From New York this is Bloomberg. Keeping you up to date with news from around the world with the first word.

I'm Lisa Mateo. For the first time since 1998 Japan has intervened to prop up the yen that follow the Bank of Japan's decision earlier in the day to stick with its ultra low interest rates. The yen had fallen about 20 percent against the dollar this year. The Bank of England is set to raise interest rates to clamp down on inflation. Economists are forecasting a half percentage point increase in the benchmark lending rate.

Still investors see a strong chance of a three quarter point hike. Wahlberg's learn that Ukraine has seized dozens of tanks left by Russian forces fleeing the battlefield and that it's crucial weaponry at a time Ukraine needs it. One person familiar with the matter says around 200 tanks were captured but there's no word on how many of those vehicles were damaged or destroyed. A victory for the federal prosecutors in the case of the documents taken from Donald Trump's Florida state.

A federal appeals court says the Justice Department can use about 100 documents with classified markings in their criminal investigation. The judges paused a ruling by a lower court judge that barred the use of those documents while a special master reviewed the papers that were seized. Many platforms has been sued for skirting Apple privacy rules and a proposed class action lawsuit filed in San Francisco Federal Court. Two Facebook users claim the company built a secret workaround to apples 2021. Privacy rules and violated state and federal laws limiting unauthorized collection of personal data. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries.

I'm Lisa Mateo. This is Bloomberg. We have got to get inflation behind us. I wish there were a painless way to do that. There isn't. We've just move I think probably into the very very lowest level of what might be restrictive. And then certainly in my view in the

view of the committee there's there's a ways to go. Well that's about as hawkish as it gets. Chairman Powell that the Federal Reserve chair Lisa basically telling you that yes we've got a lot in the last six months but there's more to come. And one of the big. And I apologize there. But one of the biggest issues there for me is this idea that suddenly he's saying it seems very likely that really in a recession. Below trend growth is that code for

recession do you think. Do you think they like to lean on that phrase instead of just saying perhaps negative and pretty dreadful. I mean that seems to be the politically correct way to do it but they've seem to basically do away with a lot of the soft landing kinds of discussions. The language has changed him in the last six months that's for sure. The language has changed in a big way. Yeah I yes. I mean the whole thing has changed. And yesterday I thought was absolutely

fascinating. I think John were so caught up in producing it and all that we didn't even have time to realize the originality of what we heard yesterday. I like your idea John that he basically repeated Jackson Hole because his optionality is gone. He's on a path. Let's go. There was a moment at the start of that. I think he was responding to a question from Judas monarch of The New York Times where he basically said have a look at my Jackson Hole speech just in case you misunderstood what I'm about to say.

The avenue Jackson Hole speech is probably going to lean on that for the rest of this year to shoot. She asked rude questions. I don't know where she learned that probably from you at some point. Aeroplane. No if it is right now we're looking at you. And of course one forty two gives it back a little bit of the intervention moment right now. We'll brief run this with John various King Smarter questions and me with Jennifer McKeown. She's global head of economics of

Capital Economics former Bank of England economist. Jennifer I was in London. The part of London I was in was boom boom boom. And I know that's not the United

Kingdom. I did walk up high road to go up and see him play a football game a soccer game. And it was a little bit of a different England just to start the basic conversation because John's better at this than me. How flat on its back right now economically is the United Kingdom. It doesn't look like the UK economy is in a recession has recently entered a recession. And it certainly feels you know particularly difficult on the street because these problems are really falling very much on households where whereas some some benefits some businesses some energy companies may be benefiting from from high energy prices for households.

This is just a pretty awful situation inflation rates. We've we've not seen for decades. Do you think the fiscal decisions that are going to be made in the next 24 hours complicate the Bank of England decision that will be made in the next 10 minutes. Yeah absolutely. I think in some ways you know they make things a little bit easier for the Bank of England set in this price cap which has already been been announced and lowers the peak in inflation from what would have been about 14 and a half per cent to more like ten and a half. So that's that's a bit better from the Bank of England's perspective.

But of course what it's going to be concerned about is the medium and longer term inflation implications of the boost to demand that the prime minister lives trust. It is offering not only from the energy measures that you know about already but from the tax cuts that we think are to come just to build on that. Jennifer how concerned are you about the independence of the Bank of England if they have to go into sort of political rhetoric saying right now the policies are such when they're not going to say this but in all for all intents and purposes especially where the projections that that gets extrapolated out and then used against them.

How concerned are you about that. Yeah right now I'm not particularly concerned. I think the Bank of England guards its independence very very closely. I think it's likely to respond to this fiscal stimulus with more monetary tightening than it would otherwise have gone through with. We're now expecting a peak in policy rates of 4 per cent and next year. So. So I think the bank's going to do what it can to quash sort of the demand related price pressures that are stemming from this.

But I'm slightly concerned about talk of giving the bank a new mandate or reconsidering its its mandate. And then if that did step through to some kind of government intervention in Bank of England policy then that would be a really worrying development. Jennifer a lot of discussion post Fed yesterday was about what the circuit breaker was for them to pause some of the rate hikes or even reverse them. And it really came down to the unemployment rate in addition to the inflation pace coming down well within that 2 percent target. Do we have a sense of whether it's the same for the Bank of England. Yeah.

I mean I think it's similar for all central banks really and for the Bank of England there. There were lots of similarities to the US the tightness of the labour market. It is a real issue. We've had a lot of people leave the labour market on long term sick which has made made things very tight and has led to some significant labour shortages. So we need to see how that progresses whether those people come back whether wage pressures start to fall off with a headline. Inflation comes down sharply as we're hoping it will next year. Of course what happens to gas prices.

What level does it begin to unravel for sterling. It's an unfair question. Do you get that. It's an effect strategist question. But do you have in your head where Sterling reaches a stress point. Can you give me a. District of 4 digits. No I don't have a particular number in mind but absolutely we're looking at the government's really taking a gamble here. That's the policies that it's

implementing are going to do something to to boost growth starts make the UK economy look a lot better and maybe give some support to the currency at the same time. But the real risk is that there are just serious concerns about fiscal sustainability about just how this is all going to be paid for. Whether you're serious about its fiscal targets which you mentioned Martin wrote for the FTSE on that brutal brutal in the FTSE and many other people have been as well. Just raise a question Jennifer. The willingness to do Kuti to reverse

the balance sheet at the Bank of England how complicated that's going to be. Yeah. That's complicated. We're looking for confirmation of that policy today. I think it will go through with with its plans for a very gradual reduction. But he's going to need to stand ready to to abandon those plans if they cause real stress in the gilt market at a time when when the governments presumably going to be issuing a lot of debt as well. This is a tough moment for the UK. Jennifer thank you.

Jennifer McKee on the Capital Economics. Gilts 12 months ago sub one per cent. Right now about 330 on a 10 year. We've talked a lot about how policy used to complement one another fiscal and monetary through the pandemic. Totally. And conflict now in the next 24 hours. Tom we're gonna see a big fiscal package announced potentially from this government. And at the same time we're going to see

Kutty potentially from the Bank of England conflict John Micklethwait chart of the year. Jan is nominal GDP certain U.S. dollars and basically the United Kingdom with a boom. A number of years ago you lived a john with a you know what you do would you did a Notting Hill but with after the bomb it's been flat on its back for 10 or so years. John I did some research on this you know coming out of the TARDIS. I mean you go to the Blue Code's pub you

have the Mexicans or the Mac as loud boisterous. I could barely hear myself. You've loved this experience haven't you. But you know it was I was bonding with the people of United Kingdom away from all this issue. People were you know American tourists saying oh you get a season ticket if you live there. Oh of course. Yeah. You know I mean I would I can imagine

with their cars. Are you trying to make the move. Tom that's where I'm going. No it's we are making we are we're going back goes. We've got to pack up the bramble cam and move the lovely the mini pram Moser on board for sure.

Yeah. I didn't get the play. A 100 per cent that Bill's ready to go. Go with us. Yeah they can go going to say yeah you guys can have a good time.

Jeff you have been y Manus Cranny join us for the bank having the decision. Lizzie BURDEN and from outside the Bank of England as well. That decision is up next. This is pulling back. Chairman Mao is not one mission that's to do with inflation. The Fed continues to be really focused on the emerging data. The Fed is trying to get the economy in a position where inflation comes down and then it can take its foot off the brake a little bit.

Goes through tightening spells and easing spells posits a soft landing is actually still likely. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Live from New York City for our audience worldwide.

Good morning. Good morning. This is a Bloomberg Surveillance. And here comes another rate hike from the Bank of England from one point seventy five per cent to 250 on the interest rate from one point seventy five per cent to two fifty Lisa two two two two two point twenty five rather. I've read that wrong cabinet forgive me to 225 from 175 to 225 75 basis point hike 50 basis point hike rather. Lisa clean this up completely.

Well the you know part of this is my fault because he said right before the decision what do you think. And I said definitely 75 basis points. And it said five Bank of England officials vote for a 50 basis point rate hike three four seventy 75 one for 25. That is 50 basis points. But there was dissent. And this is fascinating John at a time when so many people are trying to understand is it good or is it bad for the currency for this Bank of England to go harder. Wow. I fell back to 25 stone 75.

Forgive me. Dani Burger goes down in London over 112 86. We are now unchanged. Yeah on a session on sterling Tom Mackenzie. The way this works and Michael McKee has the same challenge as John does returning to do it in real time. And the answer is literally 40 headlines

come out at once and they're scrolling by in a blur in every once in a while. You know you see this move this headline that in you're off by a smidgen. I think John that you know it's a challenging moment for the Bank of England. And they're going to at the verbiage here is going to be fascinating including these headline kill sales as well. Lisa Gill sounds as well from the bank

giving the vote to begin act if guilt sounds from October 3rd. So that's going to be very interesting to see what the outcome of that is going to be. Well and honestly as is a hawkish under whelming a hike in basically to avoid during here as we look at the pound that still is off the earlier lows. And I think that this is interesting but falling nonetheless. And this to me is telling because what you're doing is a disappointment. Some people are hoping for a 75 basis point hike. But what is going to be the forecast and

how do they deal with gilt sales to try to also bolster their firepower as they try to combat inflation. Elizabeth is going to clean this one out for me as well. She joins us from outside the Bank of England. Let's see your take home. The bank having the right decision. Well economists got it wrong Marcus Yeah

got it right. Markets got it wrong. This is still the biggest box about cake since Black Wednesday 30 years ago but it still looks dovish. Remember the risks bankers don't 100 basis points in terms of the BOVESPA. You've got high school mine and rums and going for 75 basis points. Dhingra going for 25 basis points. So Swati Dhingra was the unknown quantity here. The new member of the committee she replaces Michael Saunders.

Interesting to see that she's voted dubiously. But you did expect man to go for a bigger hike because she's American. She's more aware of the international context and the impact of the Fed on Sterling. Also interesting to look at what they now see as the outlook for inflation. Of course they weren't meant to give an inflation forecast but the outlooks change so much because of the truss energy bailout. So now the Bank of England says it sees

inflation above 10 percent in the following few months. But I'm pretty sure I see it in one of those many headlines that Todd mentioned that it adds to medium term inflation pressure. So actually there's a risk that you have higher rates for longer because it could overheat the economy down the line within Lizzie.

It's great to see the argument at the Bank of England unlike what we see in the United States. Do we know from his headlines what Governor Bailey thinks or does that wait for the press conference. We've got to wait for the press conference. I've got to say Tom I saw the governor earlier. He loves to walk in through the front door even on Bank of England Day but he wasn't giving anything away. What we know is that the bank is still saying it's going to act forcefully on inflation.

I don't think markets would say that this is acting forcefully on inflation but perhaps the Bank of England wanted to see what comes out in the mini budget tomorrow. A big question is how much do the NPC know about the chancellor's plans for tax cuts and whether they'll be supply side reforms as well included in the announcement tomorrow. Hey Lizzie. Thank you Jeff. He is going to join us now from my man in. Jeff your reaction to this Bank of

England rate hike. I was looking for seventy five I know to be frank. I think the market would just take it in its stride for the time being. Tomorrow is far more important compared to today because they're looking at the inflationary impact now from both the energy support measures over the medium term but wants the tax cuts and national insurance cuts and any other forms of fiscal side must come through. A different story. So right now do you see this as actually stemming some of the declines. You see the sort of pound resilience

over the past 24 hours is going to stick or do you think that this just portends more weakness ahead. For the time being because of the upside inflation risk that has acknowledged that tomorrow markets are going to be looking for fiscal credibility. The fact that the Office of Budget Responsibility has not been allowed to publish its forecasts and I think that DAX has cost a little bit of a shadow over things. But ultimately these are very large numbers we're talking about on the energy support side. On top of that you've got tax cuts and limited revenue generation right now. I think the new government is counting

on breaks. It's your view so much of this is do you have the luxury of economic growth and you can go country by country to this on a blended basis. Does the United Kingdom have the luxury of economic growth to do these different experiments. I believe so growth can only be stimulated now by deregulation and lowering the fiscal burden on households and corporates and crucially with the energy support program that helps the household and consumption 70 percent of the UK economy at the end of the day if the household feels a bit better about going out and spending. Maybe we can get growth but it's still going to be a tricky environment. Give us the 2.5 percent I believe. I'm not ready on this for 2.5 percent as the hope of the trusts government pass

it out from let's say zero out to 2.5. If they get to one point two five. Does that help anybody. Starts off with what is still be considered below trend. But just having a growth number alone no

I think now that's something isn't Beijing's in the business of doing it rather than the old Old Lady of Threadneedle Street or Downing Street. Right. So I think now that has a nerve. Things are bad. I mean when we spoke them last time. These are very unmarked things right. Setting a growth target is an on markets like behavior. So that sets out uncertainty.

How are you going to try to achieve that. It remains to be seen. But again governance about unleashing the consumer and the corporate through tax cuts doing right now 113 06 pretty much honest across the arts from Forum Wall Street time this morning.

Jeff you have got to ask you about yen about Bank of Japan on this historic day. Maybe it's sterilise maybe it's not. Who cares. Maybe it's coordinated. Maybe it's not. Who cares.

Do you have any idea the impulse that they used to make this intervention. I can't figure out how much oddness of it. How much did they throw at the market to make for a momentary strong yen.

And they acted boldly and bold was the key word from the Ministry of Finance. One hundred and seventeen billion dollars equivalent in November 2011. Right. But that was buying dollars you know trying to weaken the yen. This is the other way around. Right. So it's asymmetric.

I think we're talking a mid double digit something like that to send a statement to do it consistently. That's going to be interesting. But they're not going to be alone here. I don't believe it's coordinated but now they've only to open the floodgates. The rest of Asia is going to follow China's controlling things already. I'm sure Bank of Korea and also authorities in Thailand Taiwan for example. But we'll be looking at this. Maybe the S&P can start to think about

liquidating some of its dollar assets. That's a Navy 40 percent of that is in dollars. So will this signal a turn in the dollar led by central banks. I think that's gonna be a new thing for markets coming through. But this kind of rearranges things a little bit. I mean I was asking this earlier how much money our Japanese authorities spending to preserve the fiction of yield curve control to preserve something that really goes against markets that absolutely want to tear it away.

How much can they continue to do this kind of thing. Do they have enough money or is is going to become punitively costly. Western No for Mr. Kuroda as wel

2022-09-26 08:12

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