'Bloomberg Surveillance Simulcast' (02/23/2023)
Well, I'm following why not also cash on the sidelines? Money to be put at work. You're looking at an environment where the state does need to be tighter. If I was them, I would pause and see what they've gotten done so far. We do think that the economy will slow, slow from here. I think that inflation can come down even if the economy doesn't land. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz, the longest losing streak in a year on the S&P. Martin losses and yesterday was just about positive this morning. Good morning. Good morning to you.
The Federal Open Market Committee and the Board of Governors. Are you reading? The ministry said owe him an apology? Oh, you do? Yes, I owe Tom Keene an apology because yesterday of that meeting minutes would be interesting and maybe not very interesting. And they weren't very new ISE. They felt kind of stale. So I just want to offer up an apology. Let's get my single up just quickly. Let's restart the show through New York
City this morning. It's not a good money for our audience worldwide. This is Bloomberg Surveillance on TV and radio with Tom Keene, who's written the minutes currently alongside Lisa Abramowicz, who read them when they came out. I'm Jonathan Ferro features a four tenths of one per cent footnotes tick.
I've got to say, those minutes were pretty bizarre for a lot of people. Some Mohamed El-Erian came out after news conference. He wrote a piece in the Financial Times and he turned around and he said and he counts it. Thank you, Mohammed, for doing that. Disinflation was mentioned eleven times in that news conference. Think a lot of people went to control f had a quick search of that document for disinflation. It's not mentioned anywhere in the
minutes. It's a different story. And I think the overlay here and we're going to get it with the second view of Q4 GDP is it's all about inflation, it's all about that overlay. But this is an economy that just refuses to slow. And I wonder how people are adjusting their Q1 now. I mean, the Powell in the minutes, they want the economy to slow.
They want unemployment up. It's not happening. I think it was pantheon of macroeconomics. Ian Shepherdson over there who said nobody at the Fed wants to stop hiking. And I think that's been a communication since the minutes. And arguably because of the data, the DAX has just been so resilient.
So there are two things that these minutes were still they couldn't massage him enough to make them hawkish, really, truly hawkish to change the market's perception or two. They were so dovish that they just stripped out disinflation and they were left with something where basically people were still willing to hike. These are the kinds of discussions. Basically, people were primed for some sort of hawkish there stemming from these meeting minutes. But, you know, what can they do with the sort of feeling that they had before of disinflation? It was a strange performance from Chairman Pound in that news conference.
I think we all felt that at the time, didn't we? We did. And then he said, read the minutes. We read the minutes. And it was like, OK, did you read this part about financial conditions? It was like, they're there. I thought, Emma Chandra, thank you. I thought of you when he said when he said read the minutes, it was in response to a question about whether they had discussed they Paul Allen. So like we read the minutes and there's no discussion of a pause. It was weird.
Let's move on futures. There's sunny S&P positive, a half of 1 per cent on the S&P 500 trying to bounce from the longest losing streak of the year so far. Were down about four days over the last four days on the S&P were positive this morning. Yields are up again. Got to talk about it. Some up another 2 basis points approaching 395 on a 10 year, 395 minutes sooner to 396. And of course, on the watch for 4 percent there. And what's important here as you
continue to see some form of yield curve lift, which I think again goes to the idea of some form of persistent disinflation in what's unspoken here is a growth in this that everyone's been wrong on. Hello, 1 0 5 under Eurodollar. That's a change. DAX 1 0 5 for the first time in the last 24 hours, Lisa, since the first week of this year. As people bring forward the potential for more Fed rate hikes. Interesting that just a couple of weeks ago when you were asking China about the prospect for euro, for Europe, for ECB to raise rates more than the Fed, everyone said yes.
And yet here we are. Perhaps it's all priced in. Here's what we're looking at today, 830 AM. We get us initial jobless claims as well as a second print of the fourth quarter GDP, initial jobless claims. It has just been shocking to see them flatline. Basically, people are not filing for unemployment benefits and you can make a lot of technical arguments for this. But the labor market still is tight. And what we're looking at right now is the margin compression in companies that are dealing with a tight labor market and forced to pay up.
And that is a persistent trend that's going to be a really big issue for this Federal Reserve. At 12 p.m., U.S. Commerce Secretary Gina Raimondo is delivering a speech about the CHIPS Act, as well as a longer term vision for technological leadership of the U.S.. I'm curious what she has to say about about ticktock, about some of these other issues, about what we see with respect to China giving a sort of a little bit more dominance over certain aspects of the technology, technological sphere and how much that plays into some sort of look forward. Today, we also get a host of Fed speak, including Atlanta Fed President Rafael Bostic at 10, 15 a.m. and San Francisco's Fed's Mary Daly at 2 p.m.. What more can they say?
John, I mean, honestly, every single person is basically saying we're gonna get back to 2 percent. Like John Williams said last. We're going to keep going. What more are we looking for? I mean, honestly, I'm kind of at a loss because they can't tell us anything that we don't know. The data is what it is.
And it is very unclear. March 10th payroll. Lisa, thanks for that. March 10th payrolls, Tom. That's what we're waiting for. Will that confirm the boom we saw in
January? Well, we have the similar, similar backdrop for the labor market in February. And then on the CPI report, we don't have time now to go into it. But across the show today, we've got to talk about the disinflation crew, including the conversation yesterday with Ed Hyman, Citigroup riding out of London in the last 24 hours and true disinflation in the United Kingdom. These are lonely voices. Let's pick up on a year today moves. We pulled back just a little bit yesterday and the S&P up around 4 percent on the NASDAQ up close to 10 percent.
Consumer discretionary yesterday is up 13 percent on the S&P. That's a run to talk about at his Christmas Ranji Cosi I a Gabelli Funds. Chris, wonderful to catch up. Can we just start with something broad? What about the rally so far? Yet today, understand that recently we've pulled back. But what about the rally so far yet
today? Do you think it's going to be a little bit more durable than some people think? I think that for the year, the market doesn't do a whole lot, I mean, see, we came into the year of a very difficult 2022. We saw a very typical January effect with most of the big losers up the those that we saw. Obviously a better inflation data which got people thinking about what could go.
Right. Whether that's a pivot, a soft landing, China reopening, etc. And then more recently, we're refocused on rates staying higher for longer. And I think that's the question. It's not so much what's the terminal rate, but how long do we stay there? And obviously that's that's caused people to rethink some of their earnings outlooks, rethink the discounts on stocks and much of this bit about pullback. Chris Gabelli, Equity Trust and this is
one of my themes for this year is active managers scramble. You have a legitimate active managed portfolio, GHB. And folks, full disclosure, years ago I owned a truckload of this GHB as an R squared off point for 9 5. We have active managers that look like index funds. Is this a year for active management or
is this a year for the pseudo active managers that have our squares of point 9 9? Well, you know, for years, obviously, we've been saying active management still works and this could be the year that we actually do see some real alpha generation. When you look at the indices obviously heavily weighted toward some of the big tech driven companies and the issues that they have, many of them idiosyncratic, I think there really is opportunity for active managers to outperform by really doing the work on individual stocks and figuring out how this new world is going to impact them. John reads Barron's at 6 a.m. every Saturday morning, he sits down at the coffee table with a T. Not a car. Not coffee.
His tea, Chris. And he reads Barron's cover to cover Marios in there. You're in there. Which sectors which stocks are part of that active management for this year? Well, certainly we know we are bottom up and focus on a select group of industries. One of our core competencies is is in media. Telecom is the worst sector. Communications services down 40 percent last year.
Now that was driven by Google and Medicare name. I mean, no one's watching Chris come out. Give me a name here in media telecom flat on her back.
Who is it so? Well, up year to date, a lot, but still very cheap. No wonder about this discovery which reports after the close and Paramount, two of the old media companies that have been in the midst of massive transitions from the old model of dual revenue stream advertising and subscription to as direct to consumer. And there's a lot of pain that's happened. There's probably still more pain to come for, but run a path to rationalization of those costs and eventually some sustainable profits.
When you're deciding which companies to buy, which seem appealing to you, how much you looking at the size of their workforce and whether or not they have what to cut or whether they have to be raising wages like what we saw from Home Depot and Wal-Mart. Well, nirvana for us is companies that have pricing power that can pass along price, but they can leverage clauses have very fixed cost bases. Think about some of the waste companies. Some of the broadband companies doesn't cost really any more just to send more bits over their wires now than it did a few years ago. But, you know, when we look at some of the big tech companies, for example, they were hired clearly and they have a lot of room to cut and a lot of room to support margins. As advertising decelerates, it is come down. So certainly a factor we look at.
Does that make big tech appealing? No, no, no. We have not been big orders of better and in historically we do on some of them. They look statistically cheap today. Again, more pain to come in the ad market. There are some secular issues that have to be sorted out around A.I., etc. I think that's mostly noise. Yeah, they look pretty interesting
today. Chris, this was great. It always says. Chris Mayer, anchor of Gabelli Funds. Chris, thank you, sir. T.K., too close to the truth. The good people at Dow Jones, its parents and The Wall Street Journal on a Saturday morning with a monkey off of te lemon, a ginger was about to say what kind of lemon in front of the football know. You know, read through the papers, flip through them.
And, yeah, you know, I can bring the dogs every verbal and Kindle Fire over and there's no way to get that off the afternoon. You told them about what they did to your Christmas tree. Just. That's true. Yvonne Man. When we lived in the same building, he
was never land. Come down to mine. I have maps always when I did. That's actually not surprising because I made a mess. What he said there about mad, it was interesting because he basically was trying to say yeah, they haven't technically like this, but it's more interesting that has been in years. This comes after there was an announcement of more layoffs, even more after saying that they were page done in November.
I mean, I can't say enough about Mario Gabelli, his heritage in securities analysis and media. John Warner Brothers discovery was a train wreck off the enthusiasms of a year and a half ago, down 62 percent. It's bounced up 66 percent. You know the math on that. To get back to where it was, it's got to go up another 62 percent from here. That's what Gabel is betting on, the paramount.
Yet today up 38 percent a year. Today, 17 percent. And to your point, son, they had such ugly years, the likes of that idea with Paul Sweeney every day at 9:00 worldwide on radio. Paul's expert on this. I think Tom says, I think Paul Dale was with you. Well, the findings in Paul Paul Sweeney, just as he's never seen this, where's the profit? That's all it comes down to where they were chasing the growth, weren't they? The questions changed when you say that the questions changed when it comes to streaming over at Disney, it was all about chasing growth, chasing subscribers, and now it's about where's the profit? And they're making tough strategic decisions. I need to, you know, and you know, and other things ones a consolidation happen. And it's great to talk to worrying about
that. They're courageous. This was great. Janine Emmanuel joining us in the next hour from Evercore ISI. Looking forward to that to build on the
work from at home. The call yesterday. Listen to that. Great conversation, guys. We did. It was brilliant. It was fantastic. I told you we'd listen to that. He was great. Then asked me what he said.
Fingers up by half of one percent. S&P, that's done testing me. They test me. I figure on everything. It was three basis points on a 10 year, let's call it three ninety five equities up. This is Bloomberg. Keeping you up to date with News My Round the World with the first word. I'm Lisa Mateo. Core inflation in the Eurozone set a
record last month that probably cements the European Central Bank's plan to raise interest rates by another half percentage point in March. Now core prices gains reached five point three percent in January. Headline inflation, which includes food and power, was up to eight point six percent. The minutes from the latest Fed policymakers policymakers meeting shows that the central bank is inclined toward more interest rate hikes to curb inflation. Still, almost all officials back slowing the pace of increases.
The market indicates that 25 basis point hikes are likely coming in the March, May and June meetings. President Joe Biden says Vladimir Putin has made the world less safe by suspending participation in the New START nuclear treaty. Still, he told ABC News he doesn't believe that means Russia will use nuclear weapons.
The treaty seeks to limit the deployment of intercontinental range nuclear weapons. India is hosting the G 20 finance chiefs meeting this week. And Bloomberg's learn that officials there want to avoid the use of the word war and any joint statement referring to Russia's attack on Ukraine. Instead, the word crisis would be more acceptable. That would be a change from the consensus reached by the G. 20 leaders last November. And shares of Nvidia are higher in premarket trading.
The company came out with a bullish revenue outlook, suggesting that its push into artificial intelligence computing chips is paying off. The video also announced it's starting its own A.I. cloud service Global News, powered by more than twenty seven hundred journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg.
I have not seen anything we've seen where it is a change in its posture and what they're doing. The idea that somehow this means they're thinking of using nuclear weapons international. There there's no evidence of that. The president of the United States, Joe
Biden, on ABC in the last 24 hours from New York City. Let's get some price action briefly in your equity market. The S&P 500, we look a little something like this, up four tenths of one per cent. Equities up by 15 points on the S&P, their four day losing streak on the last four days as the longest losing streak of the year so far in the bond market. It was approaching new highs for the
year, again, just short of three. Ninety five at the moment, 3 9 449 up three basis points. And that dollar strength, we just slowly keep milking at some dollar strength. Euro dollar one to five ninety three in the last 24 hours had a look at a one to five handle for the first time since the start of the year. Were negative there by about a tenth of 1 per cent had some CPI data out of the eurozone a little bit earlier this morning. You can now include the German CPI data.
What is it, five point three per cent up from the initial rate of 5.2. So that's the final rate of CPI in the eurozone. Headline takes up to eight point six per cent. So they've got a problem on the core rate, haven't they? And oh, to me, this ECB is going to have to do more. You'll get some Fed speak a little bit later.
We had some before we speak is that I think we get a call. It suggests some Bank of England talk from Catherine Mann, good friend of this program over the years. I believe the more tightening is needed. Well, and caution that a pivot is not imminent. This is from the hawk on the MPC. Really, really important.
This is someone who is not only once but twice truly expert in international economics. Catherine Mann is absolutely associated with the US China dysfunction. She's put it in co-dependency. And you wonder what the co-dependency here. And the continent of Europe is with the Bank of England as they sustain inflation. My answer is everybody's going to stand up, extend out their x axis. Transitory is going to become even less
transient. They're pushing out for Shery Ahn. Even if you get home and disinflation, you're still going to push out a blended inflation rate and other economy. We came into 23 in the same way that we came into 23 with Europe discussing the potential for it for recession in the UK. Now we're talking about scarce and get and how many people lined up to throw mud at the British economy in the last few months. And that's a real conversation about maybe escaping that downturn. Simone Foxman least is the growth in us that's out there that we're going to see in second view fourth quarter today.
Although you have to wonder whether this is just delayed because of the, you know, light of facts, which I know you love talking about the light effects, long confederate, but long a variable just much longer than some people. Muslims never have super long right now. What we're going to do here is we look back 364 days to speak with Mark Champion, our international affairs senior reporter for Bloomberg News and truly expert and synthesizing all of these emotions and realities for the continent of Europe. Mark, Max, certain and see more of the FTSE today.
Write up a big take and they talk about Ukraine and they really talk about Putin. It's heavily reported. And one of their sources says that Mr. Lavrov, I quote, Putin has three advisors. This according to Lavrov. Ivan the Terrible. Peter the Great. And Catherine the Great. Okay. That's Putin looking back to the past to rationalize what he's doing.
What does Putin see in the present? That's you know, that's a really good question. So if you listened carefully to his speech the other day, he kind of began and ended on this idea of of history that these are historic lands that we are now gathering back now. And it is really important. And I think we all know, including policymakers in the West are overlooked what how much he was becoming obsessed by history, really. And in 2021, in the middle of 2021, he wrote five, six thousand words in an essay about Ukraine and about its history. And it's a pretty skewed version of history, but he believes it. He sent that piece of that document out
with the troops. They had, you know, officers had it in their hands when they went to fight. So, you know, the present for him is the past in a lot of ways. Do we have a Ukraine that can attack right now? I understand it's horrific wars and the new slow mark in Washington and New York has been just appalling about a trench warfare almost. I'm using that as an amateur.
Does Ukraine have the ability to attack? You know that at the moment they are really just trying to survive a Russian attack and they don't really quite understand yet how much the Russians will be able to bring to bear that they haven't already. But the Russians have just been sort of ramping up in all the areas where they've been fighting for several months along the eastern front. And they're just ramping up, putting more and more pressure on the Ukrainians. And the Ukrainian strategy at the moment is really to just try and let the Russians come at them, grind down, exhaust their troops.
This work from them last summer was very difficult for the Ukrainians. They lost a lot of people, too. But by the time the Russians had gained a few towns at the end of the summer in the Donbass region, it left them undermanned, exposed. And the Ukrainians were able to counterattack. And I think that is the plan for the Ukrainians. Now they're talking about the spring once they've got their tanks from the west, the first of those.
The Brits say that there's you know, they're few tanks, challenger tanks will arrive in a few weeks time so that these things will start appearing. The Bradleys, the minders from. From Germany. And these are pieces of equipment that allow maneuver, offense.
So you can get out of the trenches. You can start to get your your people into armored vehicles and move if you can break through at the moment, even if they were able to break through. They probably wouldn't be able to sustain that. So that the hope is that, you know, A, they'll be able to wear down the Russians as the Russians attack and B, they'll be able to move. Does China's involvement, China's potential aid to Russia, change this scenario at all for Russia? It would be absolutely dramatic if it happened.
So if the Chinese were to start supplying arms at a high level to Russia, that would change. It would really change everything on the ground. It would be very difficult, really, to be honest, to understand then how the Ukrainians would be able to break through simply because the Russians would have everything that they needed. They'd also have long range precision
missiles to constantly take out Ukrainian logistics behind the lines. So that would be a game changer. Yes. We've been hearing from the administration and the United States about the potential to release some of their evidence to make the case that China truly is seriously considering supplying ammunition to Russia. Who would the US be talking to by releasing those documents? I think, you know, I think primarily the Chinese. I think what they know that the Americans had some success really at the beginning of the war where they think they put it out into the public, all the intelligence that they had about the fact that they believe that the Russians were gearing up to invade.
And Andy, the audience there was very much the Russians, they were they were saying why was also the Ukrainians and the West? It sort of prepared them. But they they wanted the Russians to understand that, you know, they knew this was coming. They wanted to be able to get out there and say there will be serious consequences. It didn't work. And I think really with the Chinese, it will be the same.
They're to be trying to say, look, we know what you know, you may be deciding you want to do and just be aware that we know and be aware that there will be consequences. Hey, Mark. Thank you, sir. As always, Mark Champion, Olympic and London. This has got to be the number one issue on our radar right here, right now, net price. The State Department spokesperson was speaking yesterday afternoon. He said the following. We have not yet seen the PRC provide Russia with lethal aid, but we don't believe they're taken off the table either.
We're concerned. We're monitoring very vigilantly for potential violations. Lisa. Right. To bring this up, some NSA big, big issue going forward. It's a huge issue going forward. And I think it is part of the financial and market's uncertainty out there. We like to keep the war separate. It's not it's not in Europe.
It's not here. And the unknown is Algerians expert at this. The unknown unknowns here, a tangible U.N., often a proxy war with China. Well, something can just I'm sorry, no footage. Let's review the footage yesterday of
the gentleman from China directly across a table podium that could be playing Bridger or gin rummy with Werner Putin. Compare that to Putin Lavrov a year ago. You know, I remember that like a big, long table features right now at the third of one percent. Coming up, Michael Ponte of Barclays. That's next. The equity market trying to bounce this morning. Good morning to you. Equity futures up on the S&P 500 just
marginally by a third of 1 per cent on the Nasdaq, up by three quarters of one per cent over the previous four days. The S&P 500 down about three point eight per cent, a four day losing streak for the benchmark here in the United States and the bond market. Two year yields approaching highs at a year on a closing basis. Remember, just a couple of days ago, 472
26, the new closing CAI on a two year yield for this hiking cycle. Right now, 470 36 are just short of that and just short a levels we haven't seen since 2007. And the 10 year portion of this market, your 10 year note up a couple of basis points as well this morning to 394 10, the 30 year 393 18. This curve has got kinks right the way through it. Out for to be OJ March 10th. Don't forget this. Keep an eye on what's happening in the
JCB market. We're getting very close to and breaching sometimes through this week that 50 basis points threshold on a 10 year. The yield curve controller. So that's something else to watch in a bond market.
I'll finish on foreign exchange Eurodollar taking shape as follows. Eurozone CPI core comes in at a record high. Euro dollar one to five. Ninety three negative. A tenth of 1 percent. The ECB facing down an economy that might escape recession, but inflation that needs more rate hikes.
According to many officials, they're set to go another 50 basis points. We heard from the Fed yesterday, minutes showing more rate hikes on the horizon. A committee run in the following, prepare for a Fed speak. Some participants observed that restrictive policy stance would need to be maintained. And so the incoming data provide confidence. Now, you didn't say that inflation was
on a sustained downward path to 2 percent, which was likely to take some time. So in the wake of recent upside inflation data after that, we heard from the New York Fed president, John Williams, reaffirming a commitment to 2 percent. Price stability is, in fact, the foundation of economic prosperity. Without price stability. All of the other goals that we have, whether maximum employment or low and stable or low interest rates can't be accomplished. So that's an absolute imperative for us.
NASDAQ can they achieve it without causing a ton of economic pain for the mere mortals of us? Unlike Olivier Blanchard and Kenneth Rogoff, they disagree. Olivier Blanchard feels as a tendency towards John Williams lower our starred and Professor Rogoff said he's not so sure with respect to his colleague Olivier Blanchard. But Professor Rogoff says maybe we will be removed from that 2 percent level, Larry. And in Rogoff, Kemp thinks it could be sticky hat. And some people think that this is what makes a parlor game up. And there's people that are in the
trenches that have to sort this out. And one of them and truly, truly expert is Michael Pond, himself, an institution at the institution known as Barclay's, head of global inflation linked research. Michael, I want you to take your expertise in price change and how it's seeing the market. And folks, just to give you an idea of
the Greek that Michael Pond. I'm going to read this out for radio. Bring this up. Amy, if you would, here and this is Michael Pond in his research note, he's long the tea ISE February 50s versus the Tea II, February 53. I have no idea what that is, folks.
And we'll leave that to Barclay's to make the fees for to support Mr. Pyne. Michael, if we get Anaheim and disinflation in the United States and Benjamin Navarro and a small bank, Citigroup writing up UK disinflation today, if we get an abrupt disinflation, what does it do to your bond world? Well, I think what's really interesting in the bond market right now is that there seems to be different stories when you look at real yields and when you look at inflation expectations as priced through through tips or CPI swaps. So the bond market is priced for that. And I mean, this inflationary world where if we look beyond the next couple of quarters, the market basically priced for the Fed to be hitting their targets all the way into perpetuity. And yet really yields are quite elevated all the way out the curve as well. So we have the combination of the market pricing and relatively low inflation, but also relatively tight monetary policy. We don't think those things can exist
for very long. Clearly right now, the Fed is hawkish and they are likely to continue to tighten monetary policy. We don't put their credibility on that, but if they achieve their inflation goal, then real yields are too high, especially on a structural basis. How do you play this for mere mortals? Do you buy duration and take a bet out seven years or 10 years out? I mean, how do you play in away from Michael Pond, Greek? We think it's tough to do just straight through through normals and in fact we think it makes more sense to pit one against the other. In other words, either break evens or right. And inflation is going to come down. And therefore the Fed beyond this year needs to be quite a bit easier than the market's price or if and really yields are priced correctly and the Fed is going to remain that hawkish. It's probably because inflation is much
higher than where the market is priced. So we think it makes sense to basically be law both break evens and really yields. Is it good or bad for the Fed that the market believes in it? I mean, honestly, on one hand, it gives its the signal that perhaps inflation expectations aren't becoming unmoored. On the other hand, it creates easier financial conditions that muddy their transmission mechanism. Well, first of all, I'd say finally, ever since Jackson Hole, where we're fed chair, probably came out with a speech of keeping at it, echoing Volcker, saying that they're going to keep at it until they get their 2 percent target on inflation. The market didn't want to listen to
that. The market kept when they hear that dovish pivot. But with the data that's coming in, it's just hard to fight that Fed mantra of all of all of hawkishness, persistence. And so finally, the market's listening. And that does help out the Fed, because
one of things that Ben working against the Fed for most of this year is financial conditions. So with equity markets roaring, with bond markets rallying, that works against what the Fed is doing. So right now, the markets are doing a little bit of heavy lifting for the Fed.
Michael, you said that your long both real yields as well as the inflation expectations and where they are right now. How does that play into the view of things that we've heard from Mohamed El-Erian, from Adam Posen, for many others, that perhaps this Fed is going to have to allow inflation to be a bit stickier and a little bit higher than they'd like? Well, it depends. It's it's a difficult situation here because the Fed will lose credibility if they let inflation linger too high for too long and signal that they're comfortable with that. And therefore, it will be much more difficult to refer inflation to come back down to 2 if inflation expectations start to become D.A.. So we think that's not a great strategy and we don't think it's likely at this point.
Michael Barr The idea of inflation here and of course is talked in economic babble. And the idea is core versus top line inflation. When you look at the economics out there, including Barclays world class economics, which do you look at more? Or is there a different series you look at? Well, Tom, we look at everything. We slice and dice inflation across different metrics as much as we can. The Fed, while they're their target, is
on headline. You see, they have tended to focus as this as the market on core inflation measures, because core tends to be a better predictor of where a core is headed and monetary policy works with long and variable lag. So you can't react to where inflation spend. You need to think about where it's
going. The Fed right now is focused more on core services, ex housing, so really slicing and dicing. But the main message there is that they're not worried about inflation metrics anymore. They're worried about the labor market. Right. If the labor market remains strong, they're Phillips curve models. Tell them that inflation will remain strong and that's what they need to focus on.
What's your 10 year yield? Nominal yield the vanilla 10 year. Yo, Michael. I know you never do this. I'm I'm I'm wasting your time. But Michael Pond and where the 10 year yield is at year end, just for your time. I'll take that. I'll take that. We think it does go down to three and a half percent.
We think that eventually the Fed hiking will take hold on the economy. It's the is remaining quite strong here. But we think the Fed continues to hike, the economy slows and bond yields come down mostly through really knows what the year to two to three and a half percent. Michael, a lot of people are looking at the massive information. They've been talking about the shattered disinflationary dreams. Is there anything that we've already seen that makes you question the faith that we're going to see tenure yields go down further and that the market is right to expect the Fed achieves that goal? Well, I think any inflation forecaster that's being honest needs to be humble.
We think there's considerable uncertainty in the outlook. So take your take rates, which make up 40 percent of core CPI between rents and the owner of the privilege. Right. We think that based on private series that are coming in very soft, that by the end of the year, that portion of CPI, that 40 percent of poor CPI slows quite dramatically. But right now it has it and it it's been sticking it to the upside and that tends to trend. So it may take longer for that to come down than we in the markets expect.
And that, we believe will keep the Fed on on a hawkish path for now. And Michael, this was great to follow, to listen to. Thank you, sir. Michael Pun there of Barclays shattering disinflationary trips. Laughter. Did you come up with that on the spot? That's just brilliant.
Yeah. Got a lot of time for that. Do you want to see some deflation here? This place, real estate brokerage Redfin coming out with house prices after peaking at forty seven point seven trillion dollars in June. The total value of U.S. homes declined by two point three trillion dollars or four point nine percent in the second half of 2022. That's the largest drop in percentage terms since the 2009 housing crisis between June and December. Back then, house prices dropped by five point eight percent.
I can give you the new median price for U.S. home as well. The median U.S. home sale price was three hundred eighty three thousand last month. It peaked at four hundred thirty three thousand back in May. Some real change. Some real change.
I have to admit, with an all the babble, let me make clear, when Michael Pond talks, people on Wall Street just stop. He's that good at that. When people like that talk in housing. I stopped, too, and they're telling me they've never seen this. It's complicated.
I was reading through that report and you've got certain areas, particularly in the Sunbelt, where prices keep climbing. Right. And then you get, for example, Miami, where everybody's moving, right? Evidently.
And then in New York and San Francisco, the prices have fallen more substantially. It's really muddied picture Brookfield. Bruce Flatt comes out and says it's one of the best commercial real estate environments he's ever seen. Even as you have others talking about the potential for significant increases in vacancies for office space, how do you get a clear message at a time of such change? Case Shiller 20 cities is how you do it. You aggregate 20 cities. And John, we've come off my eyeball right now. I'm just doing it off. Smooth moving averages in Case Shiller
is delayed. Old day to Johns to three months behind. We've come back 80 percent from the peak. We're up 21. John, when you sold that condo downtown. Yeah, that was over 21 percent. Okay.
Right now we've gone from. 21, 22 percent down to 7 percent up, and we're on our way back, clearly on a vector back to under 5 percent. Look at the Florida gains just going through a write up of this story.
Miami total value of homes falling 20 percent year over year to four hundred sixty eight point five billion dollars in December. Lisa mentioned other places not caught. Sarasota, Florida. Knoxville, Tennessee. Charleston, South Carolina.
Annual gains above 17 percent in 2020. Take a big difference. A major difference coming up shortly. Lara, reign of F s investments futures right now inching just a little bit higher. We took that in video later, which seems to be doing better than good.
I chat. Is that what it's all about? Artificial intelligence has been outside helping out the equity market this morning. More on that still to come. This is Bloomberg. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo. U.S. Treasury Secretary Janet Yellen says the
global economy is in a better place today than many predicted months ago. In a press conference at the G 20 finance ministers meeting in Bengaluru, India, Yellen pointed to a resilient U.S. economy and moderating inflation. She also reiterated her calls for support to Ukraine as the one year anniversary of Russia's invasion approaches. British Prime Minister Ricci's soon act suggested he wants to do something the European Union has previously opposed, make changes to the Brexit treaty, and that would be part of a deal with the EU over post Brexit trade agreements to Northern Ireland. The British government says that the existing agreements hurts trade between the region and Great Britain. The value of the U.S.
housing market has shrunk by the most since 2008. As you heard here on surveillance, according to real estate brokerage Redfin, the total value of homes declined by two point three trillion dollars in the second half of 2022. Now that's a four point nine percent decline. The median U.S.
home sale price was three hundred eighty three thousand last month, down from a peak of four hundred and thirty three thousand in May. And shares of Rolls Royce surged the most in more than two years after reporting earnings that beat estimates. Its new CEO said the UK engineering firm, which makes jet engines supplied to Boeing and Airbus, has underperformed financially for years and promised higher returns. Rolls-Royce will begin a strategic review to boost returns and resume shareholder payments. Global news powered by more than 20 700 journalists and analysts in over 120 countries. I'm Lisa Matteo and this is Bloomberg.
It's fair to say that the global economy is in a better place today than many predicted just a few months ago in the fall. Many were worried about the sharp economic slowdown across the world. The challenges we face are real and the future is always uncertain. But the outlook has improved since we gathered in the fall.
Fantastic to hear from Janet Yellen, the US treasury secretary, who I wish we'd hear from a whole lot more. Yes, worth mentioning. We don't equity features, not their sunny S&P 500 Clifford a little bit higher this morning, taking a little bit higher features up by half of one per cent now on S&P on the Nasdaq, right? Eight or nine tenths of one percent. Let's steal 30 seconds from LA ROOM Yellen and the next vice chairman of the Fed. I'm sorry. Biden, the president's going to lean forward and listen to his secretary of treasury. Wall Street Journal reported yesterday Austan Goolsbee was meant to be the pick. Is currently at the Chicago Fed. Democrats providing some resistance to
that pick because he is a a man and they would like a female or a person of color. So the two names that are now linked with the job considering Janice, Emily and Karen Tynan, two candidates to be vice chair. Of course, finance professor over at Northwestern Sum and dine in an economist at Harvard University so that the two names, according to The Wall Street Journal, that were leading with at the moment for the vice chair, for those that don't keep score on this. These are two individuals with prodigious skills. I mean, they've gotten major, major chops, but as different chops and brain Brainard is really focused on the public policy of monetary theory.
And that's a little a little bit more focused on what the Fed does and maybe what they would bring to the table. They both also have political histories. Right. Which is also interesting given the fact that they've served in administrations before in other capacities, again, coming in at a real tenuous political moment, which raises the question of how much this Fed can really push back right at a time when you start to see more pain that we haven't seen yet. That might never come. But people are talking about anyway, on the shortlist for vice chairman. Laura ROOM joins us right now. Chief U.S. economist, FSA investments as well. Laura, I want to go to a great phrase
you've got on savings momentum. Any income you have said it's going to be difficult to get the recession met was that he joins us later, who has called for a longer, further out point of recession. And all of that, to me hinges on what John Farrell just mentioned, which is housing. Does housing put us into recession?
This is actually a very unique business cycle, and I am happy that we're talking about housing because it's just one example of how no business cycle ever truly repeats itself. I think something when we look at the impact of higher rates, housing is clearly ground zero in terms of activity. But when you look at GDP, when you look at the things that the Fed is really monitoring when they think about recession, employment is one of them. And we often think that when housing falls like this, you would see a lot of layoffs in the construction sector and we haven't seen that really. So it's just one small example of how the dynamics this time around are really different. The labor scarcity that you're experiencing in construction remains.
A lot of these projects have long legs and maybe they were put off a couple of years ago because they couldn't even find the products to actually build these homes. That's a little bit of a cul de sac type, but it's just a way to say that, you know, in every recession we go into it thinking, you know, looking at our past prior business cycles, pulling out the playbook, and you just really have to rethink it every time. And that's why we have to think about what the Fed is trying to accomplish. That is to slow the economy down. And our economy naturally wants to grow. It needs to kind of break something to get it off those growth rails.
And we still haven't done that yet. Even with such a big hit to housing that I think we all feel. Well, the famous wrong GDP, no index. Everybody looks at that. Where's the momentum right now, Laura? I mean, are we are we going to do a Q for equivalency forward in Q1, Q2, Q3? I still it's still it's still based in consumption, an unemployment rate at three point four percent. We're going to get the personal income
and spending data later in the week. But the income data are just not going to really do so or they're not going to fall until we get some meaningful change in employment. And what's a three point four percent unemployment rate? You just don't get a recession.
They need to move the needle on employment as part of their inflation wage goals, then getting those back to 2 percent. But for now, I think you're just continuing to see that momentum coming from how from the household, from household spending, which is much more income based than wealth driven. Laura, how much do you have faith, the long and variable lags to think that perhaps we just haven't seen the effect of the rate hikes and that if the Fed doesn't hike rates further leaves them where they are, it'll be enough to bring down inflation? Well, this is one of the paradoxes. You fixed the mortgage market, which was the problem of the last business cycle, and now you kind of taken that piece away from monetary policy with homes and mortgage prices, mortgage payments locked in. You're just not going to see monetary policy had the immediate impact on spending like you did during the two thousand five rate hike cycle. So, you know, I'm not saying that a
recession is a foregone conclusion. I think the GDP outlook for twenty twenty three remains stagnant, probably zero point seven for the entire year. The first half of that, probably one point five percent growth. But at the end of the day, you know, you're really seeing an economy that is grinding along. And the Fed is going to continue to have to push against a lot of momentum that plays out over quarters. Well, this raises the specter of potentially much higher terminal rates than people expected, especially the lack of sensitivity in areas like housing. How much have you ratcheted up your
expectation from perhaps not the Phillips curve kind of models that people are talking about with 8 percent types of terminal yields, but something above that five and a half percent. The market's gaming out. I mean, at least that happens so rarely that I'm right that I have to crow and I am. But I've been saying for a long time that I think they're going to have to go above 5 percent as high as even 5 50. I think, you know, that has been something that I as been clear because, you know, while they absolutely need to slow the pace of rate hikes, they were basically raising rates with their eyes shut last year. You know, they need to now be a little more thoughtful, be more methodical.
But we just the economy had so much momentum going into it. And I think, you know, also fighting against these market expectations of rate cuts, which I think they very effectively done in the markets have I think, had to come to terms with the Fed. I think really this time around, strong sentiment that they are going to need to stay higher for longer. I think the time to change that conversation, not the Fed, speak the data from the start of the year. We've been talking about residential real estate.
Laura, can we talk about commercial real estate just briefly? We had this headline, this story in the last 24 hours that an office landlord controlled by PIMCO has defaulted on about one point seven billion dollars of mortgage notes across seven buildings. What's going on that? I real estate, commercial real estate is also interest rate sensitive, so we're going to see some of these valuations be impacted. Remember, there are just so many fewer data points and the data's lagging in that sector more than it is for the residential sector. So I think we're going to start seeing headlines like this, but it is a sector where you're seeing such stiff performance. We know that office space is going to be challenged, especially in the major metropolitan areas. But with that's why, you know, I think
for investors, we need to look in other areas. We need to look at at an industrial. We need to continue to look at, you know, the to some degree, even Sunbelt states regionally.
We need to look at multi-family. I think there are a lot of areas where we've continued to under build in this sector since the Great Recession. So there's still some there's still a lot of room for returns there. But at the end of the day, you just need to access that differently. It's not a sector that I think we're going to see as uniform move in valuations as we have seen in residential real estate.
Larry, this was great. Larry Reimer of FSS Investments. Thank you. Those buildings in San Francisco, New York, Boston, New Jersey, owned by Columbia Property Trust. Related to an article I read every single one of the articles. This is a huge deal. If you say to me, why did you change your focus on the last 90 days? I'm reading about commercial real estate every single day, 20, 30, 40 minutes a day.
A major I Lily ran into the St. John on a major, major New York commercial investor and he grilled me for 20 minutes and chitchat about class B, Class C properties. He said it's the same or worse than 07 DAX the key, though. The class B, the class C and this by vacation. But Ultimate insiders ISE and the not desirable property. And that's what I find interesting.
Cushman Wakefield put out this report saying that hybrid working will cause vacancies in offices to rise by fifty five percent versus their pre pandemic norms and by 20 to 30. And if you take a look at that, where is it going to be? It's not going to be in all commercial property. It's going to be grounded to that great article. The PIMCO challenges as it's multi city. It's not just about the show of the island of Manhattan.
It gets older. So we have geo salaries to do that. But people that come to New York, you get paid more. And if you stay at home, you live in a cheaper place. Third rail John Tucker. Can I just get paid less? That's been an issue. But I am wondering whether a change in
the economic circumstances will change the view in working in the office versus at home. There's no bias here at all. What are you loving for now? If it gets off the labor market, the anxiety is making shop in the office. Maybe that's it. The manual. I'm next. Well, I'm following right now. Also, cash on the sidelines.
Money has to be put at work. You're looking at an environment where the shed does need to be tighter. If I was them, I would pause and see what they've gotten done so far. Do you think that the economy will when they from here? I think that inflation can come down even if the economy doesn't land. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz. Did you pull your coffee all over your terminal? No. You've done it all the time because this took you solidly thanks to Tank Zero's not too well from New York City this morning. Good morning.
Good morning. For our audience worldwide, this is Bloomberg Surveillance on TV and radio. A wise man said to us a number of weeks ago. If you're not paying attention, if
you're not confused, you're not paying attention. Yeah, that was due to a manual of Evercore. And he joins us around a table. We're going to catch up with him in just a moment. Futures up by about a half of 1 per cent on the S&P, Tom, coming off a four day losing streak and trying to bounce.
Exactly. Trying to bounce NASDAQ one hundred up nine tenths of a percent, trying to bounce. VIX comes in 23 to 21 breaches, twenty to twenty one point eighty six. But I think it's road trying is is a right. Equity energy this morning, keeping one eye on the bond market, maybe two, maybe two or wanted yields pushing Hurricane Lisa approaching highs of the year. It's not just absolute nominal yields, but you're also looking at real years, a 10 year real yields hitting the highest level of the year, basically going back to early January. At what point have we gotten the full
reset in stocks that we're feeling in bonds? Have we priced in the full pace of retaking, even with some of the recent weakness as well through these markets? It's going to leave your weight. And Gillian, just itching to speak to you. We left at home. You just let this on S&P 500 for half of 1 percent. It was coming up a couple of basis
points, 393, 91 in a U.S. 10 year and Eurodollar early this morning. If you just churn again, eurozone CPI, Lisa coming in at a record high on core and revised upward after the German military figures that they got in. Here's what we're looking at today, 830 AM, we get us initial jobless claims. That plus the second read of the fourth quarter GDP in the United States. Initial jobless claims expected to come in, still near historic lows again. Where is that loosening in the labor
market that a lot of people are asking for? It has not shown up yet. At 12 p.m., we hear from U.S. Commerce Secretary Gina Raimondo. She's talking about chips. She talking about developing more technology in the United States.
I want to hear what she says about China. Will that be in the speech or will that be the subtext that we hear are basically under a lot of the innuendo that she discusses. And today we hear some more Fed speak because we get you know, it's another day that's not a quiet period. Atlanta Fed President Rafael Bostic is speaking at 10, 15 a.m. San Francisco Fed's Mary Daly at 2:00 p.m. is Fed speak taking on less importance, John, at a time when the data is so confusing and it all is about the data, not about the nuances of which member and what voting pattern.
Without a doubt, it's the data that close the gap between the Fed's projections and where the market was at the start of the year. They can talk about not CAC and go they like. Ultimately, investors kind of understand, I say kind of understand the reaction function of the Fed and responded to that economic data.
Pay Rose retail sales, CPI, CPI. Take your pick and push the terminal rate higher. Well, the reaction function, let's be clear, has kind of shifted a little bit over time.
So there is this issue. OK, inflation is number one, but people are basically believing that the Fed will be more hawkish if the data is more aggressive and they won't be if it wasn't, period. What happened to the disinflationary process starting? I didn't see anywhere in the minute. Maybe it's already ended. It's kind of bizarre, isn't it? Usually the chairman's mints reflect the consensus, whatever that might be on the committee and the news conference.
And then if he doesn't interview somewhere or testifies, he can talk about his own thoughts on on matters that performance in a news conference. Sounds even stranger now. Covid over those minutes from yesterday, I would agree. At the same time, I wonder how much the
disinflation was his. I hear zeal, you know. Emanuel laughing But you're raising a great point. Was that the massaging to take out all the dismayed talk? Or it was that a Jay Powell issue and not necessarily a committee issue. Gillian's with us said that four times. So allegedly, we should just start with you straight away. Do that more often. You've got a line here in your research that says the path to a year and 41 50 price target is lower than higher. Why is it lower than higher?
So if you think about coming into the beginning of the year, there were three reasons the market had done as well as it had done until a week and a half ago. Number one, the positioning was incredibly bearish. We all knew that there was epic tax loss selling, which is why the stocks that were the biggest sellers, the ones that really had the weakest performance, are all the ones that rebounded. That's been neutralized.
The second thing is, as you alluded to a moment ago, is inflation. The benefits of the decline in inflation. We're now at the bumpy path. And the question is, are we plateauing? We don't think we are. But the market has discounted the benefits of the initial fall in inflation.
And then, of course, the third element here is this whole idea that the combination of the inflation reaction and the price action in the equity markets themselves have caused people to believe that the soft landing is now the base case. So back at the end of the year, December, remember, the market was falling apart. Everyone was kind of pessimistic, 80 percent chance of a recession in the next year. We think. That number is around 30. You look at New York Fed measures.
That number is closer to 57. So that to us is over discounted. Whether it happens or not, it's over discounted. And this is a probabilistic world. So we do think that the path is shifted to potentially lower before we start moving. Benjamin Navarro, Citigroup talks about United Kingdom disinflation like at home and of Evercore ISI. Talks about U.S. disinflation. What do stocks do if we get a home in
sub 3 percent disinflation? So in the long run, that's going to be extremely beneficial. But I think, again, a part of this environment is passing between the short run, the medium term and the long term with the short term having been this incredible rip in the stocks that we're most sold over the last several weeks. We would say in the medium term that a consequence of inflation starting towards that path is going to be the growth slowdown that, frankly, you know, the Fed wants, because that's how the labor market cools off. And then ultimately when we get to that po