'Bloomberg Surveillance Simulcast' (03/01/2023)
Monetary tightening is not taking a bite out of the economy. This is bad news for inflation and bad news for the markets. At some point in the future, we will see inflation coming back down target. We think that headline inflation is going to fall back to around possibly just under three and a half cent by mid-year.
There's no sector of the economy that really is hurting. This is an environment with very heightened macro and market volatility. We have to change our views very quickly. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. February, go, March.
Live from New York City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz, some Jonathan Ferro. Let's get straight to this market up by about a third of one per cent on the S&P 500 as we get this morning started, T.K..
I think we have to begin in China upside, surprise after upside, surprise in Chinese data. Our latest reporting this morning suggesting that Chinese leaders are surprised by how well things are going. Comments that we open our economy with, John.
This has happened 14 times before. I'm going to say back to 1968. But let's go back to 1978. It's all about property. They can't look property collapse. And what I saw was in the reporting of Bloomberg today is it that there's going to be a property bailout, but they're going to move forward. And that's where you come to the 6 percent GDP estimate. We keep hearing on Bloomberg Daybreak
the economy after a pandemic in the 70s. Is that what happened? I think that their solution is the only investment they have is property. And the bottom line is everything's said and done. Property can't fail. You saw way late at the opening of the center of BlackRock, at least looking for 6 percent GDP growth this year.
And then Lisa, ultimately looking for that to slide towards the 3s in the following years. And that's going to be the story. That's the tug of war. And that's really what I wanted to highlight, that perhaps are the authorities in China are celebrating this incredible data. Look at the reopening.
But how much is this a messaging exercise at the same time that you have companies moving out of China? If they can and really you're hearing about that more and more, especially with what we saw in Washington, D.C. yesterday. So data good in China under the radar, hardly being discussed today in China, which Xi Lukashenko of Belarus tum it Russia. But you're right, it's an afterthought. So you're in this market. Good decision to make.
Is great. I want to be invested in China directly or do I want it go through China proxies and trying to avoid basically this tension between the United States and China at the moment because of what's happening with Russia in this war in Ukraine? Yeah, I go with that. But I would also say the traditional way to invest in China is through multinationals. And the optimists out there looking at the glass half full are saying, we're going to get through this. We're going to get new data. We're going to get disinflation. And we're going to get, you know, some
form of life goes on. And that will be multinationals like Apple doing business with China. That's the China data. We get some U.S. data a little bit later on this morning. Leaks is going to go through the day ahead.
And just a moment, your market looks like this up a third of 1 percent on the S&P 500, a lift after the losses of last month in February on both NASDAQ and on the S&P 500 outside of the equity market. Yields are a little bit higher, 393 on a 10 year term. We've just been sitting here in and around 390 staring down the barrel of 4 percent over the last couple of weeks. George, surveillance at Deutsche Bank.
Oh, yes, on foreign exchange. But writing a more legit note this morning and just saying the next two weeks are absolutely critical. And you see that in the spread market, what the pros watch, Jan 2 yields and the difference between them. I walk in this morning.
I mean, I know you get it later. You get into 552 or whatever it is. But the bottom line is I come in today and we go to essentially a record vanilla 2s 10 spreads. We share the true story. I'm approaching the entrance of Bloomberg this morning, shout outs of some shouts out, don't do it, don't go in, don't do it, don't do it. And I think a patched in before you by about 10 seconds anyway, that whatever features a positive move up a third of one percent. A ton of data coming up a little bit later. So that's basically the goal to get in just before the other person, but not early enough that you can get there when I get there.
Just saying retail earnings continue today. We get calls. It lowers and Dollar Tree before the bell, American Eagle after the bell. Of course, Macy's and Costco all on deck
later in the week. How much do we start to see a resurrection of some of the names that have done really badly this year, this month, year to date? There has been a lot of positive gains, calls up 11 percent. But last month, in the past 30 days, you've seen it down about 15 percent. The volatility has been incredible.
At 8:00 a.m., this to me might be the most important data point of the day. German CPI for the month of February coming out at a time when you have the Bundesbank saying they expect inflation to average 6 to 7 percent over the entirety of this year and possibly not get back down to 2 percent next year or even a year after it had at a time when they want to accelerate how much the balance sheet gets wound down. These are some of the debates that could be potentially turbocharged by the data that we get out today with the two year yield over in Germany at the highest levels going back to 2008. At 10:00 a.m., we get the other most important data point of the day, which
is the U.S. ISE and manufacturing data for the month of February, as well as prices paid for these manufacturers. Do we see any increase in some of the momentum in the manufacturing sector? Afterward, a lot of people thought was a manufacturing recession job. This is the conundrum for the market. What if you get some sort of recovery in manufacturing just as you start to make progress in diminishing some of the inflation stemming from the services side of the. And this is the push pull of an asynchronous recovery.
Lisa, set, as always, Lisa, thank you. The day ahead with Brammer there. Let's get straight to it with Jeremy Stretch, the head of G10 Effect Strategy at CIBC. Jemele, so we're just going through the data that comes out a little bit later. I think I want to start with the ICM
manufacturing in the United States. We have this robust read on the US economy in January. Big question we've all got is whether February confirms just some of that. Do you expect it will? Well, I think we all get to see a modest improvement in terms of that manufacturing ISE and printed, but I'm not sure necessarily going to be getting back to an expansionary environment just yet. So I think we still have some headwinds and I think we will be not only watching that headline number, but also looking at those particular components in terms of price status as underlined and also the employment market, because, of course, employment isn't coming out this week.
So we have to wait another week or slightly more than another week until we get the non-farm report. So I think we can and should see some sort of stabilization in terms of the manufacturing backdrop, but I'm not sure necessarily we're going to see enough momentum despite that payrolls blow out from January to point towards an uptick in terms of manufacturing sentiment just yet. Jeremy, I am very interested from your purview of foreign exchange. What do you think of the bond market and what the spread market, an inversion signal? Did they signal crisis where we go disjoint or have jump conditions or did they signal some form of normality? Well, that's a very good question. I think certainly when you look at the history of those curves, you can you can signal this will see this significant degree of innovation.
But again, in that you ask carbon whether you think that is signaling a real dislocation in terms of economic activity ahead or whether you think the markets are perhaps becoming a little. I've got a little bit ahead of themselves in that particular context. And I think it's the degree of inversion probably does overstate the downside risks in terms of the macro outlook.
We're cautiously of the view that the market is perhaps pricing in a little too much for the Fed because of the you know, there's sort of the resilience we've seen into the turn of the year and we may not see that being maintained, that we see some of those inflationary pressures not to diminish. But I think in the context of the upcoming data releases, I'm going back to where Lisa was underlining the key events of the day. Well, I think that, you know, that German yield curve, I think is going to be very instructive because we aren't going to see further inflationary pressures. And that's going to keep eurozone summer
rates well supported from an ethics perspective, probably keep the euro dollar well underpinned as well. So let's talk about that. That's exactly why I wanted to go. What the market is pricing in right now is significant, a 4 percent ECB terminal rate at a time when you have inflation running at the fastest pace in decades in modern history in Europe.
How much are we priced in the upside surprises that could potentially come from today's CPI data, tomorrow's eurozone broader read? Well, I think if you go back to yesterday and we saw the read from both French and Spanish, HSBC, those were both the both of these releases came in on the top side in the Spanish numbers, particularly disappointing in the context of the reduction in administered prices that we've seen. So it does look as though to all roads are pointing towards a higher German prince than the market's anticipating and probably also in terms of the eurozone metrics tomorrow. I think most importantly, we should look beyond just the headline read, but also focus much more on the core number. Well, I think that's going to be something which is much more relevant. The ECB policy narrative going forward. We saw some comments from Philip Lane
earlier in the week regarding the importance of core prices. When you strip out strip out food and energy and those are already cyclical highs. If we were to see another uptick or a move higher in some the core prices, then that's going to only amplify the degree of pressure on the ECB to tighten policy further on. Of course, that potentially starts to raise issues in particular uncomfortable issues in terms of the context of the ECB in terms of those fragmentation concerns once again. So, Jeremy, this is where it stands. We've had about 300 basis points of hikes from the ECB. They were at negative 50 on the deposit rate.
They're now at sea 50. Goldman Sachs came out a little bit early this morning and they now think that the terminal rate, the peak rate at this hiking cycle will be 375 at the ECB. Is that where you're at, 375 pushing for? Well, well, put it this way. We our I adjusted are a rate assumption
back in December to 350 for this year. But my presumption of 350 is proving to be increasingly challenged by virtue of these inflationary dynamics. I think particularly if we do see ISE and say those core prices remaining relatively sticky, then I think the prospect of 375 or higher continues to build. And so accordingly, that underpins our
structural bias for a higher valuation of Eurodollar through the course of the next six to 12 months. And so that's why we're here. We're looking for a euro dollar to be trading back into the low to mid teens by the end of the year. Well, euro stronger right now, one of six pushing eight, nine tenths of one per cent higher on euro dollar. Jeremy, thank you, sir. Jeremy, stretch there. A S.I. B.C., the latest from Goulburn.
Then looking for a terminal rate on the deposit rate ECB of three 75 leases. Friend the Bank of France governor was out a little bit earlier this morning to say that's CAC. Yes, I did. I was waiting for you to bring them up. Ten ran a 70 to get to the peak rate by September. Just trying to work out what that peak rate will be. CAC.
I like that you said, my friend, rather than trying to. And then I said the Bank of France trying to say bad dicarlo. But you wait a. I always say it slightly differently. But there is a question about what that terminal is. If you want to get there by September, that means that March is not the last. And I think that is really instructive at a time when the rate is already higher than many people thought they could get to.
And so you do wonder, especially with the peripheral spreads controlled, have we seen the worst of it in terms of being priced into the market? Let's talk about the journey. So 50 basis points this month. That's what most people are looking for. That's what the ECB guided us towards. Goldman says another 50 basis points in May time and then in June you have a lift to 325, 375 rather got bullied. And you here in what's interesting is we
we're now talking about the speed to get there. And I would suggest September. I don't care what the central bank is in central bank talk. September's basically tomorrow.
And this is part of it. A lot of people talking about jump conditions that we're seeing right now in yields and some of it's a gloom crew. But the answer is, all of a sudden, we're talking about getting there fast. Meanwhile, ECB is a vacuum needle saying he won't speculate on when it may be reached. So there you go. She knows herself when the peak rate will be raised. It's the same place, the same. She doesn't want to basically double
down. I think he wants to get there fast, given that he's from the Bundesbank and money by buying and basically all of the above. Okay. Next now. Emma Chandra going to weigh in on this.
Change someone's life. Just kidding. This ECB still can't wait. Looking forward to that conversation a little bit later this morning. That's about 50 minutes away. Futures right now up a third of 1 percent.
This is pulling back. Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. In China, the economy is showing signs of a stronger rebound after Kogan restrictions were abandoned. Manufacturing posted its biggest improvement in more than a decade last month.
Meanwhile, services activity climbed and housing market stabilized. In northeastern Greece, at least 36 people have been killed in a train crash. Eighty five others have been injured. Authorities say a passenger train collided with a freight train just before midnight. Starting a fire, the passenger train was travelling between two popular tourist destinations, Athens and Thessaloniki.
Lori Lightfoot has become the first mayor of Chicago in 40 years to lose a bid for re-election. She finished third in Tuesday's election in April 4th. Runoff will pit former Chicago schools chief Paul Vallas against Cook County Commissioner Brendan Johnson. Lightfoot was unable to overcome voter dissatisfaction with Chicago's rising crime and slow economic recovery. FBI director Christopher Ray says the
agency previously determined that the Covid virus most likely originated from a potential lab incident in one on China. Ray's comments to Fox News contradict scientific claims that the virus emerged naturally. He said the Chinese government has been trying to counter the work the U.S. is doing and that matter.
Global news powered by more than 27 hundred journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg. Equity futures on the S&P shaping up as follows are left on the S&P 500 and a third of 1 per cent the the half of what it says is that the Bond theme? Lisa, watch that first James Bond movie just six months ago won't stop talking. Absolutely not true. Every time you talk about G4S, I just think of that one. That one. You know, James Bond seen from the breaker with Joel Weber.
OK, let's move on with Richard. Charles smells great. You're really tell more than the market. The markets are open about that bond market. Let's get to it to you. Looks like this on February 2nd, the day before the payrolls report, four point zero three per cent on a US two year right now for B, 160. Yields unchanged on the session, not unchanged over the last month.
Similar move on a 10 year, 391, 43. It's unchanged on a session over the last month, materially higher. Any affects market. We shape up as follows. We had German CPI a little bit earlier. The regional stuff, the breakdown region to region in Germany, basically looking for German CPI now to come in probably unchanged in about 90 minutes from now when we get the latest rate unchanged for the previous month, year over year. And that's a problem for the ECB, which is why the likes of the ECB and Goldman Sachs and their call time is 375 on a deposit rate over at the ECB is pretty great if this hiking cycle and the speed of it. Where are we on the Bundesbank, which has had headlines out from Nagle and it's like sooner. I imagine they're going to be strategic
in the next meeting. We've got guidance of 50 basis points at the incoming meeting this march. I imagine the Hawks are going to be driving to get the same guidance for the following meeting to say how weak our 50. Again, this is a joy to do right now. And this is when you hear me talk about vector. This is where I got it. Jennifer McKeown was lucky enough to
learn economics at UCL. And the giant UCL of the Algebra of Vectors and Economics is Wendy Carlin. And if you study with Wendy Carlin at UCL, that's a good thing. Jennifer McKernan joins us this morning with Capital Economics. I'm going to go right there.
Jennifer, I think that there is a real change here in the vectors we perceive of inflation led by Europe, France, Spain and the rest. Is there disinflation in Europe? No, not really, not yet. Well, there isn't a headline figures we know everybody knows that energy inflation is coming down with the gas price coming down further lately, that that that should continue. But the core inflation figures are the most worrying is cause. And what we've seen in France and in
Spain and and in the German states, too, is service inflation picking up. And that's got to be a real worry for the ECB particular time when the labor market is still relatively tight in your world. Is there a study of goods, inflation or goods, disinflation and services, inflation like there is in America? Can you make that partition country to country in Europe? Yes. Yes, you can. And we've had a even from the granular level from the German states. We've had some data on goods and services inflation. We know that goods inflation is coming
down. Product shortages of ease pretty dramatically across the surveys and that's helping to pull goods inflation down. Shipping costs are coming down, too. But in services, things seem to be going in the other direction. I think we hope. Central banks that hope that by now they'd be clearer evidence of services, inflation easing off.
But that just doesn't seem to be happening. Jennifer, I remember about a year ago people said that the nature of inflation in Europe is very different than in the US. It's not delivered through the injection of mass fiscal stimulus, but rather it's driven by the energy shock and about the crisis in Ukraine. And now we see it stick here, even though energy prices aren't that elevated. Yes, they're higher than they were two
years ago, but not relative to they weren't where they were six months ago. How do you explain this? Yeah, I think there's some knock on effect from the energy prices so that they were high for a long time. People are feeling the squeeze on their bills. People are pushing for higher wages. It's quite a slow process in the eurozone to get to get wage growth off. And wages have been well contained for
so long that they're relatively sticky. But there is evidence now that that they seem to be picking up that workers are having some success in pushing for higher wages and also that firms are starting to push through their higher costs into the retail prices for things like services. How much, though, there's this really defy the logic that Europe is the European inflation story is so different from what we see over in the U.S. that is perhaps idiosyncratic and easier to be than the one then in the in America. I mean, that's basically been the argument at least 12 months ago. Now, has that completely changed?
Is this a similar inflation? Yes. Yes, it's similar. It's just behind. Inflation was was slower to pick up in the eurozone. Both headline inflation and core inflation picked up later than they did. And then in the US and they'll be slower to fall back to the wage bargaining processes is a bit slower. And it may even be that that because of
that, because of this stickiness in wages we get in the eurozone in particular, that core price pressures, underlying inflation pressures are more persistent than they are in the US. This is part of the reason why, Jennifer, you see the market now adapting to the idea that perhaps the ECB is terminal rate needs to be closer to the Fed's terminal rate because the inflation picture is actually quite similar to what we see over in the U.S.. Yes. Yes.
I think that's right. We're expecting this terminal rate to be about three and a half percent. The markets obviously higher. But I think the risk to the upside depending a lot on what happens in the real activity data now as well. What we've seen in the eurozone surveys recently is, is some real evidence of resilience if we as we have elsewhere. So a lot depends on whether the drag
from the policy tightening we've already seen and the drag from the squeeze on real incomes feeds through much more strongly into the hard data and whether or not we see that recession that we've been expecting in the Eurozone. And a just said Jennifer's acutely important. Are you suggesting that Europe and all of Europe, 17 nations of Europe, 26 nations of Europe, that they have the same equivalent productivity and technology overlay as the United States of America? Lou Reed, equivalent to. No trend growth. Productivity growth is considerably lower in the eurozone than it is in the US. But this is critical. Then how can we affect an equivalent terminal rate? If that's the case? Well, it depends on the point in the cycle. And I think what we're seeing in the
Eurozone is it is it is more of an overheating in terms of inflation pressures, at least sort of tip it to beyond that where the ECB would would want it. The neutral rate is still relatively low. And I think ultimately we're going to be getting back to the nominal rates of one and a half, two per cent. But in the meantime, you may go significantly higher.
And it depends very much on what happens in the labour market and what happens to wage growth over the next few months. John, does anybody at ECB, with all your experience, talk about our start? I mean, I've never witnessed anyone in Europe wax philosophical about European or start because I just don't think there's an equivalency. It's one of those fuzzy concepts, Tom, that is really difficult to find. Came out to try to find another. And I haven't heard, you know, the extinguished people that I talked to. I've never heard any of them. The phrase we hear a lot in the last six months is sufficient, restrictive. What is sufficiently restrictive now?
What will be sufficient? Restrictive in Italy will be very different to what is sufficiently restrictive in German books. And that's been a story for a long time. What's the fish only get in trouble here? What's sufficiently restrictive in Mississippi is different than what's sufficiently restrictive in Montana. I mean, in the aggregate, can we some Europe and do a compare and contrast so you make the comparison to the US. And I think it's interesting because
around the eurozone debt crisis, there were some people who were thinking out loud, some about maybe reconstructing the ECB to have regional ECB presidents, instead having national presidents just to try and strip the bias out of things, because maybe the regional breakout makeup of the FOMC is probably a little bit more than a bit more effective when it comes to these issues. It is a serious concern, right. Which is what is the knock on effects economically to a rate that might make sense for Germany, but not for Italy? Not for Spain. Right. This is sort of the big concern. And you wonder and I am curious about Jennifer's take on this. Jennifer, can you weigh in? Are we looking at a much weaker Europe going forward because of the damage they have to do to the economy with rates that may be closer to equivalent the US, but are not fit for the production and the productivity that that Tom was talking about or the technology, the technological overlay of that economy? Yeah, the ECB has always had a very complicated job with the various nations and different, different structures of their economies and of course a really key issue for the Eurozone is that you don't have a single fiscal policy which can distribute the distribute government finances across the entire region.
You've got economies like Italy with very high debt where they just can't offer the kind of fiscal stimulus that would offset the effects of a policy tightening. So that's a major issue. And I think another big problem across the eurozone is that the difference in the structure of mortgages w some a much shorter term variable rates, for example, in Spain. And so you get a pass through of policy tightening relatively quickly, whereas in Germany, long rates, fixed terms that Paul Sweeney comes much more slowly. So it's extremely difficult to find a one size fits all policy. And it's clearly going to be the case that some economies suffer more than others from the policy tightening. And this conversation, another example of why we should never have done this.
Jennifer McCune of Capital Economics. That's a joke. I'm not saying that you said that. Jennifer, thank you. Carol Massar is a promise in front complaining about European Monetary Union and all that great stuff. Let me finish on this. Throw them out there and let the ECB run as pretty straightforward, isn't it? Inflation is too high everywhere. You know, it's not like things are dreadful in Italy and fantastic in Germany. It's got to work. This sounds pretty straightforward now.
But I guess you're absolutely right. That's the issue, is that they have to take a blunt tool to a serious problem that does not seem to be a beating. The issue now is what is the economic consequence and how bifurcated is it between different economies and different inputs? I would argue perhaps are not as desperate as they have been in the past based on some of the challenges that Germany has been experienced in a way that is unique. Well, Jennifer touched on it.
I think when it comes to debt, it's a very different experience right now for Italy to come with rates where they are compared to to Germany, with rates where they are Mark Gurman. That goes back to the fiscal separateness of Europe versus maybe a fiscal uniform. In the United States, I just let's make clear that there are euro optimists that think long term that Europe can do an aggregate economy better than the United States. But are we there now? I'm not sure I see things that remains to be seen.
Yeah, I saw maybe a couple of examples of governance in that direction in the pandemic, but some. Once the crisis fades, there's a war going on. I mean, you know, you got to we you know, I don't think now's the time to do a study of that.
You can talk to James RTS about if you want, he's going to join us at seven thirty Eastern Time from John, a name, the firm. And I love doing this. You've got this go on West James work for 2023. I think they're gone back to Aberdeen.
Aberdeen, are you think the. I don't remember doing this sort of like you still don't get it, pronounces the French banker. Can you imagine? Can you imagine the conversation that took place when Aberdeen Asset Management sat around the table and they had the marketing people and you just know they paid for someone to tell this? And I just thought I just remember that someone I'd love the back story to that, like the meeting. I just want to know the NIKKEI on a board and said, yes, you know what? I'm going to centre my first idiocy of this with Gerry, say the American can company. It wasn't good enough. So he did pray America to this day, I'm
not sure I know what America and what I love about situations like this is that the C suite goes away and makes this big decision for the rest of the company. And they really feel really happy with him and and the employees. They get the memo and their life. So it was an all trip, for goodness sake. Yeah. Yeah. Just speak to some people at Aberdeen
and they're like, just nope. Don't talk to me about it. But James is going to join us and we hope that's not going to cancel. He's a proxy for and he's got a Jihye Lee 730 Eastern Time, 50 minutes away from New York. Look gone. Keeping you up today with news from around the world with the first word. I'm Lisa Mateo. U.S.
businesses are set to invest billions of dollars in Northern Ireland, but that's only if the deal on post Brexit trading regulations leads to political stability in the region. British prime minister she soon that could use the prospect of international investment to help convince Northern Ireland unionists to back that deal. In the U.K., the cost of living crisis showed little sign of easing last month. Prices in British stores rose in February at their highest rate since at least 2005. The British Retail Consortium said shop price inflation hit eight point four percent. Food prices rose even faster.
Fourteen point five percent in Ukraine, President Vladimir Zelinsky said the battle in buck mood is the most difficult situation facing the country's forces. He said the intensity of fighting is increasing. Ukraine has decided to send additional troops to Iraq to try to stop the Russian offensive. China's President Xi Jinping has moved to consolidate the Communist Party's hold over the economy. In his speech today, touted plans for sweeping changes to the country's bureaucracy.
The party will also have more influence with private companies. And shares of electric vehicle make a revision are lower today. The company is forecast to produce as many as 50000 IV's this year. Well, fell short of Wall Street expectations. Revenue came up short to Vivian says supply chain issues are the main issue limiting that production. Global lose power by more than twenty
seven hundred journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg. The big event last year was not Russia. It was China.
I mean, you have global oil demand contracted 2 percent in the fourth quarter of last year. That's a recession in my book. As China comes back, we're going to lose that that that spare capacity, our base case, as we get into the fourth quarter, towards the end the year we get back above 100. My confidence that we'll see another spike in the next 12 to 18 months. That's quite high.
Still looking for triple digit crude by year end. That was Jeff Curry of Goldman Sachs flight from New York this morning. Good morning. Has the price action for you a quick
sneak peak? Crude right now, crude, softer negative on WTI by nine cents of one per cent. Call it one full percentage point lower 76 30 in the bond market yields unchanged, 391 62 in equities with a little bit of a left FTSE up a third of one per cent. Lisa went through the data that comes out a little bit later on the US side of things. China PMI is pretty decent relative to
expectations upside surprises across the board with the weakness in the Damien. Sorry to join the next hour. John Yuan's six point eighty six. You want to call that some stability there? We haven't weakened out to seven yuan per dollar of strength in the Chinese currency this morning off the back of that data. And we mentioned it a little bit earlier this morning. The surprise, according to our reporting from Chinese officials, about how wound that reopening and how good the data is. Well, we're going to do that right now
then to Curran. He's our Asia economics correspondent. But far more than that has terrific anecdotal wisdom on the Pacific Rim. And we've got a lot of serious questions. But let me go to that bridge to China from Hong Kong.
It was built in 2007 and changed everything. Is there enough of a reopening where the corridors, the western corridors from Hong Kong to the rest of China are quote unquote, normal? Well, the reopening is going better than expected, Tom. The economic data, the numbers we had say were the first decent lead we've had in the economy since reopening. And it does showed. It's better than the husband expected to PMI fifty two point six percent, not just by consumers and services, but also by the manufacturing side.
And certainly a big part of that is the southern part of China. Gong Guan Gong region next door to Hong Kong, to Hong Kong is picking up on some of that. But I think the broader back story is that the economy is now setting itself up for a much better year. And it was anticipated only, only at the back end of last year.
Remember, growth forecasts last year were heading towards 3 percent. Well, now hardly a day goes by without my inbox getting an upgrade. Yes, somebody and people people expect their growth target of 5 percent or more now. My amateur take is watch the property market. And is that true? And is it once again, Beijing is bailing out the national property market.
I think that's. I think it's quite true to keep an eye on property. Not really a bailout, though. The property actually home sales we had Dow Jones young homes has improved on year for the first time since the middle of 2021. That is significant because the slump in the housing market arguably caused more pain to the economy than Covid 0. So there are signs of a bottoming out there. There is, of course, official support
behind that. The authorities are pulling levers. You know, I wouldn't quite call it a bailout in the Western sense. They're imposing some pain there. But nonetheless, there is a turnaround
and a lot of economists are pointing it out as one of the reasons for their optimism. And is there any connection between the much better than expected economic data coming out of China and the seemingly emboldened approach in terms of China's potential willingness to engage with Russia and its allies on the war in Ukraine? Well, you'd have to say that China's economy was on its knees into the end of last year. Lisa, there's going to be a very important political meeting kicking off this Sunday and going into that with some pretty decent economic data behind them. I mean, the mood music is a lot better. As I say, it's not just the consumer
side of things. Hints of manufacturing picking up today as well. Employment indicators looking better there. All of that speaks to, you know, China getting back on track, getting on its feet. And, of course, that will bolster its position on the world stage.
No, I don't think it's completely feeding into its position on Ukraine per say, but it certainly won't do the leadership any harm in terms of what we do understand on the global stage and reinforce the point that they handled Covid better than anybody else socially. Is the recovery that we're seeing so far enough to garner the support for Xi Jinping, for the leadership of China in the way among the population that they'd wish amid some actually public dissent that we've seen? That's very unusual in China. Very unusual. At least we did have some reporting this week ourselves picking up on the level of dissent on the ground, especially in the wake of those draconian Covid zero policies.
You know you know, well, it's it's difficult to be scientific about consumer or public opinion across China. But there's no doubt there is a feeling of disaffection. That was part of the reason why the authorities made the turn that they did on Covid 0. And as rapidly as they did and authorities are more than cognizant of what was going on on the ground, giving those punishing lockdowns and ongoing restrictions. And by the way, the American Chamber came out today and they're making the point that foreign companies up there are just have just are just exhausted by what's been going on over recent years. So there is this disaffection on the ground.
It's it's very hard to be precise about the extent of it. And can you speak to that directly? How has life changed for you in the last few months in a place like Hong Kong? Well, it has to be said it's night and day compared to what it was when we were doing Covid 0, John. I mean, the airport has reopened. Here was one of the world's busiest, the crossing in the shins and is reopened. That's crucial for trade like Thomas ISE
committed earlier on. And of course, on the ground, things are better. We just had that face mask rule lifted yesterday for the first time in three years. But Hong Kong, as one example, is still nowhere near what it was before the pandemic level of activity. And visitors and tourists arrives and
all that is not what it was. It has a long way to go. And it's not just Covid 0. It is a feeling that Hong Kong is caught in the middle of the geopolitical tussle between China and the U.S. It's on a geopolitical fault line, if you will. And that's really weighing on the recovery here. And do you think there are some things that have been lost to places like Singapore just forever? It will be hard to recover from.
There has to be, John, compared to what Hong Kong was a few years ago in terms of visitor arrivals, conventions, conferences, you know, events. People coming here back and forth and all of that. Some of that business has linked to Singapore, both in terms of personnel and actual business. No doubt. But China's Hong Kong business model remains that as long as Shanghai is behind the closed capital account. Well, then the Hong Kong business model remains. It is the money box for China.
It's the place to do business if you want to be with China. And that part of the equation hasn't changed. And thank you, sir, for your reporting. Great. Just fantastic, as always. Anna Coren there at a Hong Kong it take.
Hey, we had those conversations a couple of years ago here in the United States. What would change? What would remain the same? Would go back to a pre pandemic trend. We're still having them here in the U.S., but they're just beginning to happen over in Hong Kong.
They're behind on their own map. But, you know, I go to the resiliency of what they've done as Tiger Nations. And of course, a unique experiment of China is they've got a lot of other equally as big challenges over the last 20 or 30 years. I just you know, I don't want to
pontificate about a Pacific Rim resurgence, but certainly that's modeled in and I would look at the back of some of these oil reports with Jeff Curry on earlier coming into the block. And these guys are looking out a hundred dollar oil. And I would suggest the one or the two factor in that is a Pacific Rim redo. So and dimensions, supply chains, supply chains around the world all got a major stress test over the last three years. We all know that. We're not talking about undoing globalization de globalization. That process, if it does start to begin
in a major way, is going to come with a price. Lisa, we've got to work on how expensive that's going to be. Jason Kelly. This is actually one of the most salient arguments I think about more protracted inflation is if you do reverse even part of the globalization wave, even if you just don't have that globalization headwind to keep prices low, then you're going to see some higher prices, you're going to see more price pressure, you're going to see more labor issues as you try to get some of the workers if you don't have the factory to the world in the same kind of way. Did you see the anecdotal report about the airport manufacturer moving, saying that they're going to move some of their manufacturing out of China, that some of Apple's own manufacturing units are doing this? So you'll see this on the margins. I don't know if it's enough to be more than just anecdotal, but that's under my living room couch. It's it's it's life off a air.
You've got your own Foxconn. First last has a glimpse first. First, he eloquently last, whatever. There's got to be 20 pair of air pods under my living room couch. I mean, what a racket.
What do they cost? They don't let me know what they cost. What's the racket? Is it that you're about 20? You don't have a suit where they make me fish. I made it. Yeah. Depends if I'll get the light switch from Chicago or something like that. Are they made in China? Well, they're being.
And now we're gonna move the manufacturing my living room. Yeah, exactly. Under your couch. I suggest you lift the couch up. You might save yourself. Can you imagine that basically alone. Yeah. The airports. If it was if it was, his own company
would just be huge. Oh, there's some of the parts of the ISE. Scary, crazy. Most of the sell side crew won't do a legitimate some of the parts because the number is so high they don't want to be associated with it literally. I'm not a marketing from a compliance standpoint. You don't want to put that number out there.
What's the number? You can do it. I don't have it here. It's ginormous. Take services. Forget about airports. Just take the services, you know, go through your credit card statement to look at what's been spent on it. I have children. We don't go through this. You don't go through this.
I thought people would go look and they'd see that, you know, I did it. Monetary tightening is not taking a bite out of the economy. This is bad news for inflation and bad news for the markets.
At some point in the future, we will see inflation coming back down to Target. We think that headline inflation is going to fall back to around possibly just under three and a half cent by mid-year. There is no sector of the economy that really is hurting. This is an environment was very heightened. Macro and market volatility will have to change our views very quickly. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Let's get the month of March started for
your life in New York City this morning. Good morning. Good morning. Audience Worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity features positive. A third of one per cent some data out of
China, Europe data and the US home. Still to account constructive lift. There is the important data or John Tucker you talk about because you care more than I am. This data. March 1 here on a delayed jobs report. I'm sorry. It's a big deal. What we're going to see at 10 o'clock. Well, let's talk about what we're going to see at 8 AM as well, about an hour from now. Could it break down a German inflation
going into the eurozone print tomorrow? So far, so bad for the European break down a CPI, Lisa, at the moment. What we're seeing from France, what we saw from Spain going in the wrong direction, we see that in Germany all of a sudden. Do you start coming out? I mean, we heard from the Bundesbank this morning talking about possibly winding down the balance sheet faster. What kind of ramification would that have at a time when we're just starting to think about a world without zero rate? We discussed also how complicating it might be to have China reopening. At the same time, we grappled with all of this. That process has only just started. We've only just started to see a real bounce in a PMI.
So bite for growth set to see later this year. That's not in commodities here. Look at crude treats flat on the year. Geoff Curry of Goldman talking to Francine early this morning.
Some talking up triple digit crude still year end. This is a really important what you just said about the time continuum. We've only just started. And the answer is, as someone said this morning, I think it was Ben Laidlaw or two months in on a 12 month year.
And, you know, we're going to reframe in May. We're going to reframe in August. And we'll talk to moan about this here in a moment. But, you know, I'm sorry, the idea of
making big views out to the end of summer, it's not long term shelter, August and going to have this long term, long term assignments and exams brave enough. Well, let's talk about the first two months of the year. There couldn't be any different. January in February. January, we're talking disinflationary process may be starting February. Cold water, freezing cold water at this Tom Keene month all over that to show you just how much this is the case.
We saw the best January performance for bonds for the aggregate index in data going back to 1990. And now we just saw the worst February performance for the aggregate index going back to data in 1990. That's a whipsaw we've seen in terms of inflation expectations of Bloomberg Quicktake. That's a blip, if I call it that. The aggregate sell products sell the product. Lisa Abramowicz. So I'm looking at it not from dodgy here, but we didn't make 50 percent back.
We went down on price. Terrible bond market last year. We came up, John, on the bounce and we came back about 40, 45 percent. This equity market did take features. China a bounce by a third of 1 percent.
Here's the price action for you. When the S&P 500 a little bit of a left wing to talk about the data you're going to get a little bit later. Lisa is going to go through that for you. The bond market unchanged, the 10 year three and ninety two and the affects market. Lisa Eurodollar, there are six sixty four. So let's talk about what we're seeing and what we're expecting to see. We talked earlier this morning about
some of the retailer earnings. We already got some of them. We got Lowe's. It basically met expectations. You're not seeing much in premarket. Kohl's just came out and they came in disappointing pretty much across the board in terms of gross margins, in terms of what we're looking at, in terms of revenue, as well as their forward forecasts are seeing a loss and those shares are lower by more than 11 percent. It highlights how hard it is to get ahead of some of these stories, the whipsaw action we've seen before.
And in terms of before and after some of these earnings has been tremendous. I mean, you're looking at may have never been to one. What happens at Coles? Well, somebody wrote in and said that everyone is just using Coles is a glorified Amazon return center.
I am not saying they use it for just you know, there is this concern if you can't identify what your role is as a sort of lower price. Well, the hope was that you'd go back, return stuff and then you'd buy things. Right. Isn't that wasn't that the hope?
You know, I went into a retailer I'm not going to mention and there was a line you walk out the door. It was a and it was you know, it was all people doing returns online, returns in the store. Our store fronts becoming return centers for what you heard.
I saw baloney. I've always hated the word omni here. It's sort of like, what's the vulgar now? A camera? What is omni channel? Omnichannel amnesty. We live in an atmosphere, of course. Let's talk about it. These are family run businesses.
Many people on sell. So I would suggest this should have been rolled rolled up years ago. They're out of Wisconsin, 35000 employees. Kohl's is venerable, venerable Midwest retailer. That's gone nowhere for 10 years. Total return per year, negative. Point two percent per year. Why are they publicly traded? It's gone somewhere now it's down eleven percent, Lisa. And we'll follow that throughout the
morning. Just quickly, we also get German CPI. We've been talking about that for the month of February at 8:00 a.m.. What is the response going to be at a time when two year yields over in Germany are three point two percent, the highest level going back to 2008 at 10 a.m., the U.S. ISAF and ISAF Manufacturing and Prices Index for the month of February. Do we see a re acceleration there, John? That's really gonna be a bit quiet. The number one question, isn't it down into payrolls on Friday? Absolutely.
Next Friday, does that confirm what we saw like eight days away? Yeah. You're gonna be around for that coming in. I'm sure that's not here. Let me just skip in the fact I'm skipping the Fed. Why are you doing that? Because children rule, okay. And they demand rule. They demanded that you skip. This is like you get like John with each kid.
You get like a window a year or two windows a year. Okay. And I'm aware because of the child, I sort of turned it down. I said, well, I actually think I should. I thought you said loving parents. And I said, I have been dating permanently. Exactly. You didn't. Perfect.
I wasn't aware that children take time off. Thanks for that, Sonali Basak. You're born into it. That's helpful. Grandma John joins us live.
And every day, senior investment strategist at Edward Jones Motor. Let's start with this equity market. You like quality growth. What is quality growth? Yeah. Hi, John. Thanks so much. You know, look, I think we started this year looking at a market that was driven by better than expected economic data. We saw a strong January jobs report.
We saw better than expected retail sales, and we certainly saw inflation at least towards the back half of last year, starting to move lower. But I think the trade into what we'd call more cyclical parts of the market probably happened too fast. Too soon. Earlier on this year. So to your question, as we get through this year, we need to see a couple of things before we can kind of revisit that recovery playbook or that cyclical playbook. We would still need to see one, of course, inflation move meaningfully lower. We'd like to see the Fed actually step
to the sidelines at some point, probably middle of this year. And then three, we are starting to see earnings being revised meaningfully lower at this point for 2020. 3. We haven't seen that bottom yet. So until those conditions are in place,
we'd say probably the market is going to take a more defensive tilt. We could see continued volatility at some point when those conditions are met. Maybe towards the back half of this year. We do think that investors should think about diversifying into those more recovery parts of the market.
That includes quality growth. That means growth. That is not a negative earnings yielding, probably not as speculative parts of the market. And then, of course, areas like cyclicals, even parts of small caps international interesting as well. So all part of our recovery playbook that could happen down the road.
Money, you've got a wonderful single sentence in your note, which I totally agree with, which extrapolation right now is very dangerous to your net worth. If it's a extrapolate free 2003, if you have a face to be in the market, how far are you reaching over to the next horizon? Are you looking out a year or dare I say, is a new extrapolation out to three years? That's interesting, John. In Tier IV, Tom's right into your point, but he can't release as well. That's a level three of you.
So I do think Windows January data, it's very dangerous, as you noted, to extrapolate the strength we saw certainly in the labor market, certainly in the consumer to the rest of the year. You know, keep in mind, the labor market does tend to be one of the lagging indicators. You know, we have leading indicators. We have coincident indicators. Then we have lagging indicators in the labor market tends not to usually be the first shoe to drop, but perhaps towards one of the last shoes to drop.
But your question on time horizon, we do still think a 12 month time horizon, although we've been talking about 12 to 24 months, because that's really when we can see this cycle go through a bottoming process and then markets can then start looking towards a recovery process. And we do think, you know, investors have a very unique opportunity in the 12 months ahead in that we know bear markets don't happen all that often, one every four to five years. But in history, the good news is every bear market has ended and every bear market has been followed by a potential bull market. So we look out 12 to 24 months. We do think investors are positioned for better opportunities ahead.
What's the leadership going to be in that next bull market? Yeah, it's a great question. And look, I think when we look at the last 10 years or so, the 10 years after the financial crisis, that was an environment that was characterized by Fed funds rate towards zero bound growth, outperformed value for much of that period because investors were pushed out the risk spectrum. We think about the next 10 year period or so. We don't necessarily see yields back at the zero bound. Certainly the Fed funds rate could go
from this five, five and a half percent back to more neutral territory. But in that environment, we do think investors have to consider a balance between value and growth and think about a more diversified picture and leadership going forward. So that's interesting for the next longer term period. I do think over the next 12 to 24 months
or so, we think we'll go from a more defensively oriented tilt to more offensively oriented tilt. As we noted earlier, that recovery playbook does come into play when we use this word defense. I discussed this yesterday. Love your insight on it being hugely valuable to me. Defense is usually just what works when
things are bad. And last year defense was energy because that's what worked when things were bad. Motorways, defense in 2023. Yeah, it's a great point because energy is not usually always the defensive part of the market, but we think more traditional defensive sectors, health care staples in particular. If we do go into any sort of economic downturn, slow down those sectors which have underperformed thus far this year, we may see some, you know, some interest and some more leadership come out of that, more traditional recession proof and even to some extent inflation proof part of the market. What's interesting, I think this time
around, defense is also your shorter duration CDE 1 to two year Treasury bond space as well. Of course, what's notably different this cycle is that cash and cash like instruments are yielding anywhere from 4 to 5 percent plus. And that is an environment where, you know, if investors do want to hang out, think about a recovery playbook. But in the meanwhile, put their money in very attractively yielding assets. That is a place that we're seeing a lot of defense right now. This was great, as always, managing the of Edward Jones Mono Mahajan on defense and basically cash and the 5 percent geos you can pick up on it.
Next on the program, I'm going to talk about China and these comments from the FBI director, Christopher Wright. He was speaking to Fox News just last night, said this. The FBI has for quite some time now assessed the origins of the pandemic are most likely a potential lab incident.
And we'll have that conversation coming up shortly 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. Bank of England Governor Andrew Bailey
is signaling that further interest rate increases may be needed to kick in to contain inflation. Now, in a statement, Bailey said that doing too little now may mean sharper rate hikes later. He said the experience of the 1970s taught that lesson. In China, the economy is showing signs of a stronger rebound after Covid restrictions were abandoned.
Manufacturing posted its biggest improvement in more than a decade last month. Meanwhile, services activity climbed and the housing market stabilized. FBI director Christopher Ray says the agency previously determined that the Covid virus most likely originated from a potential lab incident in war on China.
And Ray's comments to Fox News contradict scientific claims that the virus emerged naturally. He said the Chinese government has been trying to counter the work the U.S. is doing in that matter. Lori Lightfoot has become the first mayor of Chicago in 40 years to lose a bid for re-election. She finished third in Tuesday's election on April 4th and April 4th. Runoff will put her former Chicago schools chief Paul Vallas against Cook County Commissioner Brandon Johnson.
Now, Lightfoot was unable to overcome voter disparities, dissatisfaction with Chicago's rising crime and slow economic recovery, and Lowe's forecast annual profit that meant Wall Street s estimates. The home improvement retailer took a cautious approach in the midst of shaky conditions in the housing market. Lowe's comparable sales unexpectedly fell in its most recent quarter global news power by more than twenty seven hundred journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg. The FBI has for quite some time now assessed that