'Bloomberg The Open' Full Show (03/07/2023)
Chairman Power testimony about 60 minutes away. Live from New York City this morning. Good morning. Good morning. Equity futures positive by about a tenth
of 1 percent. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with
Jonathan Ferro. Live from New York, counting gap champ, how facing down. The Senate Banking Committee. China pushing back as the U.S. seeks to contain Beijing and up gearing up for thousands more job cuts. We begin with a big issue. The Fed chair on Capitol Hill. We have Jay Powell testimony against Congress.
We're going to hear from Chair Powell today, tomorrow. Senate banking on Tuesday and the House financial services on Wednesday. Everybody is going to be going through this with a fine tooth comb. Is he moving in a more hawkish direction? Is he going to move more toward what the terminal rate is now being priced into markets? I think they'll stick to the script.
He will underscore the fact that inflation continues to be there. Their main objective. But the real problem is what the Fed is looking for is the data. How is isn't going to have the data.
You've got key data coming up, the payrolls report on the 10th. It's certainly all beholden to the data at this point. The proof is going to be in the pudding. What actually happens in terms of the questioning of power is another thing. Fifty nine minutes away in the countdown starts right now with Morgan Stanley's Lisa Shannon and new things, Brian NIKKEI. Lisa, first to you. We hear from the chairman in about an hour.
Do you expect him to validate market pricing? Yes, I do. I think he's going to talk about the fact that the bond market appears to be moving in the right direction, which is acknowledging the Fed's conviction in a higher terminal rate. And the reality that we are not seeing cooling in the real economy yet and we're not seeing enough progress on inflation again. You know, I think for the average American, which is what the folks in Congress are going to care about, they're going to focus on the headline inflation. And that's still over 6 percent. And that's it, as we know, three times their target. You looking for the same thing? Yeah, I think one thing that the Fed has accomplished are really allowed the data to accomplish for it is sort of goading the market up to where the Fed's own forecasts were.
At least as of December, they're likely to go a little bit higher in March. Terms of the terminal rate. But four weeks ago, Chair Pell was unable to get markets to tighten up in response to that last FOMC meeting. It was really the subsequent data, the payrolls number from January as well as the CPI data in a couple of consumer spending reports that have really gotten the market's attention and alerted investors to the fact that rates are going to have to go higher, perhaps to as high as five and a half percent, or some economists think quite a bit higher than that. And right now, as you've just pointed out, the markets about the fact we've gone from the market below the Fed to above the Fed, and I'm trying to work out when they sit around and put together an adult floor, Brian, at the end of March on the 22nd, which I spent that dot plus going to look like. I think the average terminal rate is going to rise.
I think it's going to be more in line with the market. I think the Fed probably is pretty happy with where things are. It would prefer to deliver double surprises than awkward surprises. I guess at the margin, getting the market to price it at five and a half percent terminal rate makes more sense. There could be a lot of dots above five and a half percent, but my guess is that that median DAX going to be somewhere in that that five and three eighths range, at least a super tricky for the Fed charts to navigate this, because this conversation, of course, could completely change on Friday with the payrolls report, could change again on the 14th with the CPI report. And that CPI report comes on a 14th in the quiet period before the Fed may think on the 22nd.
I would go back to some comments he made in the last news conference when he said the disinflationary process had started. Lisa, Charlotte, you said he'll validate market pricing. Will he deemphasize that phrase he used early on this year? No, I don't think he will.
I think he will stick to his guns on this idea that the disinflationary process has started, and I do think he can lean on the data in that regard. I think the key is going to be the questions that he gets from from congressmen who, as we know, you know, they're there to represent their constituents. They're just going to go right for it. And they're going to say, do you feel that you're making progress quickly enough? Can you execute a soft landing, et cetera? And I think that that the chair is going to try to continue to suggest that that is their intent. He's going to take a victory lap on the fact that the labor market is still so strong. But I do think he's going to have to
continue to say that inflation is still too high. Brian, we always tease to take this up as a bit of a grilling, a face down, a showdown between the chairman and officials on Capitol Hill. And then it gets down and just turns into a YouTube clip that's being made by a politician to send out to that constituency.
Should we expect anything different today? I'd say less of a showdown, more just to show the congressmen are there also to get their point across. I think Paul is gonna get a lot of pushback from Democrats on the unemployment forecasts, which the Fed has not had a chance to update since September and December. I assume they're going to go down in March, but they're gonna be asking him, why do you think unemployment needs to be four and a half point six percent by the end of this year? And is getting inflation down to two or two and a half percent really gonna be worse than he's going to need an answer for that? And that's going to be able to explain how it is that higher interest rates getting to five and a half or even six percent is going to bring down inflation in a way that going from zero to five so far hasn't managed to do my the down that in Washington, head of all of this might NIKKEI when he focused on. Well, exactly that. How do they get to where they're going and what are the impacts? If you take a look at the chart that shows where inflation and unemployment are right now, you can see the Fed's dilemma.
The Fed is looking at the yellow line, which is PCI e inflation still too high. The white line is where the Fed is now. The dotted white line is where their December 14th dot plot suggests they may go. And the blue line is where unemployment is and what would happen if they went higher. And that's a little corner of the chart over on the right hand side is what all the argument is going to be about today. Powell is going to, as you guys were talking about, say they are really committed to bringing inflation down to 2 percent because everybody suffers.
Yes, people might lose jobs, but everybody suffers from inflation. That's too high. And there may be some pain involved in that. But they want to be cautious raising
rates from here. He'll probably say something along the lines of we're looking at very small moves. Maybe he'll say 25 a default, but he will promise to go over that. They'll go to 50 if they need to. If the data still yet to come suggests
that the Fed is behind the curve. And then as you were talking about it, Lisa was talking about a lot of questions, a lot of pushback from the Hill today. Is the 2 percent inflation target still justifiable? Could you do three? Would it make a difference how many people will have to lose their jobs if they go to four point six percent unemployment as they forecast in December? That's a million and a half jobs gone. Will there be a recession? When or how bad did the Biden administration cause the inflation? That's the Republican question.
And are Republicans threatening debt ceiling disaster? That's the Democrat question. So there will be, I think Brian put it very well, a show, whether it's a showdown or not. We don't know and whether we get a whole lot out of it.
We don't know. But Jay Powell will tell them what most people already know. Him spent two hours today trying to avoid the politics to ask tomorrow trying to avoid the politics, Mike.
He's also got to navigate a tricky point. And you and I have talked about it. This is ahead of payrolls. It's a how of CPI? How much two way risk do you think the reason that tied to how how was he going to approach all of that? Well, this is such a weird time. We don't know how much risk there is.
But the assumption is there's a lot of to weigh risk in their payrolls. We're seen as driven by seasonal factors and some unusual post pandemics, statistical situations in January. So there's a feeling they're going to come down. But how far do they come down? And then in terms of inflation, we were making progress. We bumped up again in January. Do we start to go back down again? The Fed sees disinflation in a lot of categories.
Do we get the disinflation the Fed is looking for? So Paul can't go too far out on a limb without knowing those numbers. I'm I'm okay. Thank you. We get those comments from the Fed chair and about 52 minutes from now.
Lisa, Shana, Brian NIKKEI. Back with us, Lisa Shannon. We've got to take this framework, all this Fed speak, all this good stuff and plug it into markets. Number of months ago, you said there was a massive disconnect between the bond market and equities. What does that disconnect look like now? It's gotten more severe. I mean, I think that that's probably the biggest thing that concerns us, is that equity investors are behaving in an extraordinarily complacent way during a period of time when the risks and as Michael Barr of the two weigh risk we see is is extraordinarily high. I don't think I had a mentor, you know, in the beginning of my career. Michael Goldstein used to say nobody
knows nothing. And that's where we are at the minute. You've got the New York Fed, you know, forecasting or the Atlanta Fed forecasting and now cast for GDP for for the first quarter close to two and a half. And you've got the St. Louis Fed saying, you know, it's going to be a recessionary quarter. I mean, nobody knows what's going on. There's a lot of crosscurrents.
And that's what's not priced into the equity market. There seems to be this belief among equity investors that companies are, quote unquote, going to make the numbers no matter what. Is that an argument to sit in bonds or sit in cash? For me, I'd rather get paid to wait. I don't want to take the risk for, you know, the market's already up 5 1/2, 6 percent year to date. I don't want to take the risk right here for an incremental 2 to 3 percent when I could easily have 10 or 15 percent downside.
It's just not a good risk adjusted return for me from that. Would you take the other side of that? I would not agree with Lisa that unfortunate I think a lot of the gains that we're going to see in 2023 may already be in on the equity side. On the fixed income side, if I'm looking at an alternative to equities, are probably not looking at cash or government bonds are probably looking more at things like high yield where you can get paid 8 9 percent for below investment grade exposure in fixed income trades more like equities. But at least you're getting the yield which you're not getting provided with the equity market and the economy holds up relatively well. But profit margins get squeezed, which I
gather is sort of the Fed's goal here in bringing down inflation. And it's possible you're going to see outperformance across fixed income compared to equities over the balance of this year. The problem with the spread of three nights on high yield, what do you make of that? Yeah. It's come down pretty aggressively. I think what we've seen. I think one thing and we've seen in common between the stock market of the bond market this year is that a recession risks have gotten priced out of these imminent recession rates have gotten priced out pretty aggressively. So you've seen that yield curve even kind of uninvite a little bit for certain terms. You've certainly seen the 10 year a
little bit better supported and you've seen the stock market valuations, better support. I think all that goes to the likelihood of a recession is receding a bit, and that is also consistent with the decline we've seen in the spreads. But we still prefer less rate risk and the wider spread you're getting with high yield compared to the higher quality, but the lower spread in the more interest rate sensitivity with investment grade. Least you said you don't want to take on the downside risk in the equity market. What about the high yield market? You know, we've been cautious there as well. You know, our sense is that those
spreads are just too, too tight. We think that the canary in the coal mine is going to come in the credit markets. You know, thus far markets have held extraordinarily well. Cash flows have remained resilient and we've been able to cover. But our best guess is that as we're starting to see these little, little pieces of news coming out of the commercial real estate markets and on some selective defaults, that that's really where you're going to start getting some warning signals. And, you know, we'd prefer when you look at the spread between, you know, high yield and investment grade, that's pretty tight, too. So, you know, I'd rather play quality
here, you know, versus an incremental 30 or 40 basis points of yield, at least if there's a phrase you'll hear a lot of it in the equity market. People would say things like valuations fall. Here's a question worth asking later. At what point you would look through
that, look past all of that? When is that point? Yeah. So, you know, for us and you know, I knew you read a lot of work from the team at Morgan Stanley. You know, what we have said very clearly is we're looking for an equity risk premium to expand by about 200 basis points.
We're looking for a price earnings ratio that's a lot closer to 15 to 16 times forward. Look, we can get there in a variety of ways, but we need to just see better valuation here before being interested. Well, clearly, right now, this equity market, you don't believe that at the moment. Equity futures are just about negative 10 and positive. Briefly, let's call it flat on the S&P 500, on the Nasdaq with positive by a tenth of 1 percent. Lisa Schmidt and Brian NIKKEI there. This from Mark Gurman.
It should J.P. Morgan, who put this out just yesterday, said this was the day to day interplay of investors, speculators, the options market, systematic investors, etc. can produce strong rallies. We maintain that risk assets are in a bear market and will not bottom until central banks start cutting rates. We'll pick up on those comments around the open and find it just a moment. As I say, about 60 minutes away, equity futures on the S&P totally unchanged. Yields in a couple of basis points year to year for 87. We topped out last week north of full
ninety your 10 year above 4 percent last week. In fact, the whole curve tease out to 30s, full plus percent throughout much of last week. Your 10 year back below that level to three. Ninety five on a 30 year, three, 88.
So we get some moves ahead of the open about it. Do that. He's happy. Hey, John. But let's take a look at a stock that is popping. That, of course, is metal. Shares are up nearly 2 percent on a Bloomberg exclusive reporting that the company is said to be cutting thousands of jobs this week.
This is on top of that 13 percent reduction back in November that equaled about 11000 jobs cut. That was the first big layoff ever. The goal, of course, is efficiency. So investors liking the possibility that it is going to help the bottom line. What stands out to me the most about this stock, John, on the year into today, up 53 percent. We're obviously only about two months into the year.
That, of course, though, follows a greater than 60 percent decline last year. ISE for one stock plunging on the day. We, of course, have carrot therapeutics down 25 percent. The biotech company, their fourth quarter revenue as they put up a wider loss than expected. This is stoking concerns about demand
for their kidney disease drug. J.P. Morgan sticking with their overweight. There is a 12 percent bear short interest on this stock. The range for this stock over the last roughly nine years, Don, between four dollars to thirty dollars. This binary trading the worst day today since April 20 21. Abbi, thank you. Coming up on this program, Congress
looking to crack down on six. 12 senators, six Republicans, six Democrats are cosponsoring this legislation gives the Commerce Department a new set of tools to take on up to banning tick tock, as well as other hardware, software, mobile apps. That conversation next. They are collecting data. Many of those folks are young people.
They are also. This is an enormous propaganda tool. The Chinese Communist Party can direct what type of videos you're seeing on tick talk. So I think what our bill does gives the Commerce Department a new set of tools to take on up to banning tick tock as well as a host of other new domains. We're gonna see foreign technologies, I believe pose national security concerns. Washington inching closer to ban the Chinese video sharing gap. Tick tock. Democratic Senator Mark Warner gearing up to unveil the bill, which the White House is poised to support. President Xi rallied the nation today,
saying that China has been grappling with, quote, comprehensive containment and suppression by Western countries led by the US. The foreign minister adding to those remarks. The United States is so-called competition aims to contain and suppress China in all respects. It is a reckless gamble with the stakes being the fundamental interests of the two peoples and even the future of humanity. Let's get down to D.C.
with Amiri and make some strong words there. Yeah. Tensions rising, Jonathan, between Washington and Beijing. And yet another bill it doesn't name. Tick tock in name, but is another bill that can go after tick tock. That will be hitting Congress as soon as today. And what we've heard from Senator Warner, he is one of the co-sponsors of this bill. He says it has bipartisan support with
six Democrats, six Republicans, is that this would give the Commerce Department more tools to mitigate these concerns when it comes to technology that they're worried about national security concerns. So this could be to go as far as prohibiting apps like Tick Tock, but also software, hard hardware, A.I., computing technology, all of this. And it really is an expansion of an executive order that was from the Trump administration given to the Commerce Department. What's interesting about this bill, when you look at a handful of these bills, is that it does seem to be that this has White House backing. But, of course, as you just read out, we heard from Chen Gong, the foreign minister of China, whether ISE Xi Jinping calling out the United States directly recently. This is just going to add to these
tensions and the acrimony between Beijing and Washington. Ray, do you think the rhetoric matches what you see in the bill, within the bill and many of these bills, if you've pointed out ticktock is not named directly. And as you've pointed out also, this would give the government, the administration the ability to pursue banning the app if they wanted to, but if they truly believe that this is a tool for propaganda, that there is an intelligence risk associated with this. Why is there even a conversation right now? Well, there is another conversation that is going on that doesn't always get the front page headlines. First, I would say we need to read the
text of this bill, which hopefully this afternoon we will have in our hands. But there is another conversation between the executives at Ticktock and CPS and the US government. Tick Tock maintains that they can still operate safely in the United States because they would be able to isolate the data. This is going to cost them a ton of money. And it's called Project Texas. They're using a similar format and dealing with the European Union is also concerned. So potentially, if you look at the
intelligence of it in the community, they may say that at the end of the day, if they were able to isolate this data, this is something that can happen and that they would be comfortable with. The other issue, Jonathan, we talked this in surveillance is that this might not bode well for under 30 voters. Tick Tock is incredibly popular. The younger the youth, the youth get. This is where they are getting their news. This is why, though, you have Republicans, the Democrats concern that China could potentially rejig the algorithms. But this is not going to make lawmakers in Washington popular.
Yeah, that shouldn't be a consideration if they're truly worried about intelligence risk. But I'm not going to go into politics. I get it. I get it. Last week, you and I talked about BlackRock.
Companies like that getting squeezed between blue and red states over fossil fuels. This development right here makes you think it's one of the biggest economic stories potentially for our future. Just a breakdown across this country between what red states want from corporate America and what blue states won. And in the last 24 hours, California looking to ban business with Walgreens. You saw the tweet from Governor Newsome who said California won't be doing business with Walgreens or any company that carries to the extremists and puts women's lives at risk. We're done now. And just briefly, I don't know how much space does the state of California does with Walgreens? What do they send back to this? Well, John, this comes down to the abortion pill, which is the flashpoint of partisan politics since we saw the overturning of Roe v.
Wade. Yes, last week we talked about ESG, but this is a medical issue. And what you see is the state of California taking aim at Walgreens, because what Walgreens had said previously, which is that they will not sell this pill in 20 states, but those 20 say that they can't sell those pills because those attorney generals say they're going to get sued. Very complicated story and difficult for Walgreens right now. And something I imagine you and I will keep talking about. Emory down in Washington, AMH, always
appreciate it. Thank you. Up next, the money calls in later. JP Morgan's Tom Kennedy looking for a 10 year Treasury yield to get to eighty five year rent.
Forty minutes away from the equity market, open futures totally unchanged. Let's go to some Monaco's briefly. First up, Evercore upgrading down to to outperform expected the ally to benefit from China's reopening. Your second call. North Coast research upgrading Costco to buy, saying quarterly results have set the stage for a strong second half.
And finally, Marcus upgrading draft kings to buy seeing upside as more states legalize online sports betting that stock is up two point six percent. Up next, Tom Kennedy of J.P. Morgan looking for a big move in this bond market. Chairman Powell fed chair 30 minutes away on Capitol Hill. Your equity market doing absolutely nothing. Gone into the open and our futures unchanged on the S&P and the Nasdaq unchanged as well. On the Russell unchanged as well.
To see a theme emerging as we wait for Chairman Palin, his comments to open and down, switch on the board and get to the bond market yields. Not too much. I think that basically totally unchanged on a 10 year 395 58 in the ethics market.
Eurodollar dollar not giving me much down about a third of 1 percent. 1 ISE 650. Amazing to hear some of the comments from Holzman. The National Central Bank governor of Austria in yesterday's session teeing up, pushing for four more 50 basis point hikes from the ECB. I get it.
He's not like he's super hawkish. But the fact is that's going to be part of the conversation on the Governing Council later this month with him pushing his agenda. My question is, no, go 50. Okay. Will they you up and commit to another 50 basis point hike at the St. Thomas St. Louis done to forward guidance. The whole thing's ridiculous.
Crude right now holding on to a T with four tenths of one percent WTI. Eighty dollars and about 14 cents. We are 40 seconds into the session. Your equity market opens up like this on the S&P. That slap on the NASDAQ unchanged. That's the theme right now as we wait
for Chairman Pound. Twenty nine minutes away. One stock to watch at the open, Dick's Sporting Goods. The company's forecast topping estimates and sounding confident it has resolved its supply chain issues. The CEO said this as planned. We continue to address targeted inventory overcharges and as a result, inventory is in great shape as we start 2023.
Abby has more happy. Hey, John. Well, shareholders really rewarding the stock right now. DAX is popping more than 5 percent, the best day of the year since last December. And of course, it does have to do with that outlook. They also put up a solid quarter. They saw a second quarter of same store sales growth. That after two quarters of declines last year.
And that, of course, had to do with those inventory issues. And perhaps also the macro around the idea that last year there was expectations for a big recession, consumer slowdown. But up 5.5 percent in the fiscal fourth quarter that ended in January. As for the quarter, that was not surprisingly, they beat top and bottom line estimates, not by a huge margin, but there was a beat really reiterating the idea that demand for sporting goods items.
Well, it is in place. And that outlook, as you mentioned, they raised it. They also more than doubled the dividend. So good things here for Dick's Sporting Goods. As for the stock on the year, it is
outperforming right now. It's after today's actually. This is the one year view, up 42 percent. Now, Hibbert, a smaller competitor, is a little bit higher and Big 5 is down.
But on the year, Dick's Sporting Goods is beating these other two stores, really blowing away the competition, especially after these results John. Thanks for that. We're also watching the airlines as well. JetBlue spirit said to be facing an
antitrust suit from the DOJ as early as today. JetBlue responding in an e-mail to Bloomberg writing this. We believe there is a high likelihood of a complaint from the DOJ this week. We have always accounted for that in our timeline to close the transaction in the first half of 24. CAC has more.
Hi, Candy. Hey, John. Yeah. So they anticipated a bit of regulatory pushback here. That isn't to say, though, that investors weren't a bit surprised by this. You saw that reaction really yesterday when Spirit shares were down the better part of 9 percent. But here at the open, a little bit of a
rebound taking shape now up about one point three percent in the first few minutes of trading. JetBlue, for its part, is up by about half of 1 percent. I would note that this isn't just about the Department of Justice filing suit against the three point eight billion dollar takeover that they are expected to file that in federal court this week, alleging that the elimination of spirit would increase ticket prices and decrease options for travelers. But also, the Department of Transportation is expected to begin a parallel proceeding to block the transfer of Spirit's operating certificate as incompatible with public interest that is largely unprecedented in the modern era.
John, we haven't seen the D.A. use its authority to block the transfer of a significant like that since 1978, all the way back when the airline industry was deregulated. So this is really significant here. And again, it all comes back to the availability of discount flights or cheaper flights for consumers on different routes. All of that said, though, even if JetBlue spirit ultimately succeed in combining, they will still make JetBlue only the fifth, fifth largest U.S.
carrier based on domestic traffic. So it is still smaller than the likes of American. But nonetheless, the cockpit, the merger here of these two could give JetBlue more pricing power that will ultimately impact how the major airlines, the other major airlines have to change their prices as well. John?
Candy, thanks for that. Once a watch, you'll be covering it, no doubt. That stock is up by a little more than 1 percent. One cool time, a look at Evercore, a grunting Delta to outperform, seeing an improving backdrop for the airlines. The analysts had this to say. Fuel prices aren't behaving. China's reopening is a positive development.
And recent pilot contract negotiations has lowered doubts. Its cost outlook. Uncertainty. Stocks flying yet today, excuse the pun. Up another one point nine per cent in today's session as well, from airlines to automobiles, rebellion shares under pressure after announcing plans to raise more than 1 billion dollars through the sale of green convertible bonds. That stock is down seven point six per cent. The blow has more ahead.
Yeah. Good morning, John. The downward pressure on the stock reflecting that issuing convertible bonds can potentially have a dilutive impact on the shares outstanding. As our colleague Joe Levinson and Bloomberg Intelligence points out, this kind of shores up the liquidity story around revision, which ended the fourth quarter with around 12 billion dollars of cash, cash equivalents and unrestricted cash on its balance sheet. But investors have had concern about the
rate of burn that this company is going through as it ramps up production. The green angle also interesting, of course. This is a maker of electric vehicles with longer term broader ambitions around the transition to clean energy. But it does add to an existing debt pile. These convertible green convertible
bonds due in 20 29. The issue of converts is kind of interesting to me, right? For investors, this is an opportunity to get an interest payment with the right, but no obligation to convert to to shares for revision. This is taking advantage of a cheaper means of raising funds amid higher interest rates. But look to the equity story right in that share performance on a 12 month basis or more, you kind of get why they might do this, John, instead of just going dry rapidly to the equity markets. An interesting situation for revision and they're kind of following others in this space.
Something, of course, of Lew said they look to the same mechanism. Looking forward to coverage on the tax show later. And I just wanted to squeeze one in. Just a follow up to our conversation earlier this week. The price cuts again at Tesla.
How people respond in this time around. Yeah. Look, I earlier price cuts in the air, unlocked pockets of demand. What I would say about the Model S and Model X is very low volume production, 100000 units just out of Fremont and they're still very expensive. There's an interesting debate about the rationale behind it, given that they're still outside the scope in some sense of the ISE Ray tax credits.
But you know, this is a letter that Tesla is using. Other automakers are following suit and the outperformance of the shares year to date to some pears suggests that unless industry see it as a useful mechanism to add to find those pockets of demand, particularly here in North America, tough year last year, massive year to date gains this morning, down about 1 percent. And thank you, sir. As always, the broader market looks like there's 7 minutes in unchanged on the S&P. Slightly firmer, stronger, higher
positive on the NASDAQ, up two tenths of 1 percent. Tom Kennedy, J.P. Morgan has this to say on the bond market. We expect the Fed to keep hiking rates by 25 basis points until payroll growth slows materially to less than 100k monthly payroll gains. We expect that criteria to be met as we
approach mid-year. Tom, I'm pleased to say, joins us right now. Tom, great to catch up with you, sir, as always. Twenty three minutes away from Chairman Powell. If I looked at the January data alone
reported in February, I'd look at that and say, we are not sufficiently restrictive. When you look at the complete picture, Tom, our we. Good morning, John. Yeah. Do you think we are restrictive?
Powell has used this words the disinflationary process and to some degree on the market just said, well, this is the immaculate disinflation we've been expecting, really, when I hear Powell talk about that, I think he's really describing the road to recession is about half way paved. What am I mean by that is we're getting every indication that rates are restrictive in America and the things that I look at. Number one is the housing market. You have this rare situation where construction completions are higher than construction starts. And you can imagine if you're a builder and you're completing 10, 10 jobs and you're only rolling crews over to maybe eight jobs, layoffs will happen. Second is in the capital investment or corporate CapEx space capital availability is quite low and suggests CapEx will continue to deteriorate. And then lastly, you're finally starting
to see auto and credit card delinquencies pick up, albeit very low levels, John. But there's good reason to believe that disinflation process is well underway because we're getting firm evidence that higher interest rates are restrictive here. So tell me, when you look at a dance, Danson anticipating what is the three days depth, duration dispersion. Can we just deal with the third day that dispersion? Are you seeing that weakness spread as the months go by? I think you think there's this this road to recession or really road to layoffs. John is is nonlinear when the Fed is tightening rates. Housing and tech are very quote unquote,
interest rate sensitive. Construction and housing, I think is obvious when you have a short mortgage cycle. But for tech, we had a decades long equity availability of capital and that's been shut down by the Fed as well. So those are going to feel the impacts first. But John Tucker sitting and Powell and team at the Fed, what do they really want? They want more broad based layoffs.
I think the sectors we should be looking most that are construction, manufacturing and unfortunately finance jobs to see evidence of progress along that that roadway claims, as you know one night, say the last jobs report, 570000. Unemployment, three point four percent. The estimate for this coming Friday. I've got the estimate right now at 24 in our survey. That's a moving target. Of course, that's the estimate. I said I so far more estimates will come
in. But let's go with the two twenty four. You're looking for someone hundred K in your words as we approach Mitt yet. Tom, what is it about the glide path that you say what's important about mid-year? I think what's important about mid-year is you'll have a long duration period, almost a year of positive real interest rates and restrictive financial conditions that take time to move through the economy. John, this week expecting 200000 jobs added is really a continuation of the the slowdown in job growth we saw in the back half of last year. It does suggest, Jan, was the anomaly. I think there's good reason to think that, too.
It's very rare historically to see 500000 jobs added in a month. I think you just we naturally all should have a statistical asterix on there. But I think the deterioration is just a continued roll through of slow CapEx and companies do billions of dollars like JP Morgan, billions of dollars of CapEx every every year. If we're slowing our CapEx, revenues for
others are starting to slow. We're in Step 3 already. This is step three of the roadmap. And what am I really describing is a world where earnings deteriorate Q4 of last year. Average S&P 500 earnings are down 5 percent. This is underway. I think it will just take more time.
And then step four is where you actually see businesses defend their margins. I'm expecting that around mid-year, John. But this resiliency piece that you're you're highlighting may push that out a little bit, but doesn't mean it doesn't happen. We're having a conversation about recession at the same time. David Sullivan speaking at an event over at Goldman Sachs.
It's an RTS conference. The Goldman Sachs CEO says it sounds to his self lending is meaningfully higher. Tell me you have to confront both sides of the debate. Each and every time you have to look at
the menu and fixed income at the moment to set to 30s and make a point that you want to advocate for purchasing somewhere across the CAC some as you put it all together. The debate arguments on either side, look to that to 30s, what you like on that yield curve right now. I like I like to have some sort of duration for my clients because John, first and foremost, they don't have much of it. I want them to be adding and locking in yields here because I do see those rates as restrictive. And by definition, if they are restrictive, they'll go down in the future. It's a simple conversation with a client, John.
It starts like this. Do you think a 5 percent T bill is attractive for your portfolio? Unanimously. I say yes. Okay.
Well, why wouldn't you want to lock that in for, say, five years? And it's just a way to start to engage them. How do you what do you want your money to do for you? And finally, John, for the first time in 15 years, we can help clients reach their portfolio goes with less risk. So ultimately, I want them to be adding duration and it on in our community at J.P. Morgan, it ends up looking like a five year municipal or investment grade bond and maybe even looking for two eighty five on a 10 year by year end.
So let me take that argument. Full bonds. Tell me if that's an argument for a 10 year. Is that an argument against equities? I don't know that it's necessarily. So, John, let me say no. You can have equities for your
appreciation and bonds for your confidence in your your portfolio, total returns so you can own both. I think for the marginal dollar spent here, it's fixed income far and away. The earnings yield on the S&P 500 is about the same as a 12 month table. When you show that to a client, well, the S&P has some risk and Tebow really has negligible risk. So how can it be marginal dollar spent in this risk bucket? So I just think you have to give people this. What's in the price concept. Yeah.
And let them see the value for themselves. Tom, just a final one. The chairman in about 17 minutes time, members of Congress to watch this program. And if someone from the Senate Banking Committee is watching right now, or maybe a member of the House Financial Services Committee for tomorrow. What's the question you'd like them to ask? I'd want them to know. I want them to have a show. I want Congress to ask the question about confidence in the progress.
And I would like to see Powell really emphasize this disinflationary process being underway as progress towards the layoff cycle, not progress towards. Immaculate disinflation politically. Let's see how that argument goes. KENNEDY Thank you, buddy. I've at J.P. Morgan. Appreciate it as always. About 50 minutes away from hearing from Chairman Powell. Coming up on this program, another round of tech layoffs focusing on the bottom line, creating efficiencies. Those are value company fix needs to
create shareholder value. And I think that's what that is being forced to. But overwhelmingly, the tech sector is over hired. There's probably more redundancies
coming from big cut. Mazza is gearing up to make another move. That conversation next. This is Bloomberg's The Open. I'm Lisa Mateo, live in the principal room. Coming up, Jeremy, we're vigorous CEO. That's at 130 p.m. in New York. This is Bloomberg.
Companies, the stock market rewarded them for growing, attracting users, not generating profit necessarily, and I think Facebook or Twitter has acknowledged now that it's more of a company than a growth company and focusing on the bottom line, creating efficiencies. Those are value company tax to create shareholder value. And I think that's what matters being forced to.
But overwhelmingly, the tech sector is over hired basically to achieve that growth. The market was rewarding. There's probably more redundancies coming from big cap tech or medicine planning a fresh round of layoffs. Bloomberg reported the company is looking to cut thousands as soon as this week. This coming on top of a 13 percent reduction to its workforce back in November. The CEO Mark Zuckerberg saying at the time, I view layoffs as a last resort.
So we decided to reign in other resources of costs before letting teammates go. Overall, this will add up to a meaningful cultural shift in how we operate. We'll roll out more cost cutting changes like this in the coming months. And here we are in the month of March at Ludlow. You have break this story. Can you help explain to us where these
job cuts are going to drop across the company? Yeah. Broadly, what we're learning from sources is that director and vice president level staff have been instructed to draw up lessons. And as you said, Jonathan, those layoffs could come in the next week as those left lists are finalized. What we know from one source is that Mark Zuckerberg himself is due to go on paternity leave. His wife is expecting their third child. The hope from those management level staff is that those lists are finalized and those layoffs conducted by the time that that happens.
There is also a financial target that we're told. And that's interesting because the context here is the blow to the pandemic error. Right. And one gauge that we've been tracking is the additional units of revenue added per additional headcount over the pandemic period.
If you stack matter alongside its mega cap, tech pairs matters pretty firmly bottom of that pile in terms of the new revenues they were able to add by growing staff in the pandemic era. We know that they've added subscription a level of scripts encryption tier for some of their products. I reported last Friday, John, that the impetus for cutting prices on the AR VR headset was simply a lack of demand. They're not able to sell any.
So there's a lot of pressure to make this happen. And what we're hearing is that it will happen soon. It will be pretty broad based. I'm told by one source, those original eleven thousand cuts at the start of the year were very forensic, very planned. What I'm told this time around is it's more of a sledgehammer approach.
They have to meet these targets. They have to meet these additional layoffs, which are separate to the 11000, separate to that management flattening. And it will be strong. What a change. What a change for this company in the last 12 months. And thank you and tremendous reporting, sir, as always. Thank you, buddy.
Think about these tax cuts. Still not shown up in the broader labour market. The moment jobless claims still in and around one 90. Looking ahead to payrolls.
If you missed that number a little bit earlier in the program, a sneak peak of payrolls Friday. The estimates so far in our survey still north of two hundred thousand two hundred and twenty four thousand. The previous number was just a blowout, 517.
This is what Chairman Power has to confront in about nine minutes time. He's going to look for the data on Friday and payrolls and then CPI and the 14th drops in the quiet period ahead of the Fed meeting on March 22nd. He's going to face two days of questioning from lawmakers on Capitol Hill, 10 a.m. in front of the Senate Banking Committee. That's about eight and a half minutes from now. Then on to tomorrow at 10:00 a.m.
Eastern time, again in front of the House Financial Services Committee. This time, Mike McKee's back with us for a final word. Mike McKee looking ahead to this one, your focal points, what you are really, really looking to narrow down on with Chairman Pound later.
What are they? I would pick one thing, John, and that is why hasn't unemployment risen even though the Fed has raised rates by so much? You talked about jobless claims not moving. Will they start to move soon? Because people who have gotten severance are no longer getting it and they can file for claims. Will companies suddenly start to lay people off? That'll be an interesting question to get Paul's answer to my NIKKEI. Looking forward to it. Eight minutes away from that testimony on Capitol Hill. We will, of course, bring you those headlines in that testimony right here, life on Bloomberg TV and on Bloomberg Radio, just like we were coming into the open, coming out the other side. Your equity market has gone nowhere.
The S&P 500 totally unchanged on the NASDAQ positive by about two tenths of 1 percent or so. Yields come in a single basis point at the front end. Your yield now for 87 on a two year, on a 10 year, just short of three, ninety five down a single basis point there at about three ninety four ish. Let's get you some sector price action is happy. Well, once again, John, we're looking at anemic volume, but the S&P 500 as it flips ever so slightly higher up for a fourth day in a row. Potentially the best streak since the middle of January. It's all about the mega cap tech sectors
that are leading today. Communication services, actually, we have utilities sneaking in there. Consumer discretionary, higher DAX, I should mention, hit a record high earlier to the downside that we have. Energy and materials. And over the last year you were mentioning those David Solomon headlines over the last month, I should say. Banks interestingly, down even though yields are sky high.
John, this collapse, something to do with banks now having to give money out and deposit. We'll see if that develops just a little bit more. Finally, getting some interest in the bond markets, some real income up next year, training Tyrie chairman pound six or seven minutes away. So these are the scores going into Chairman Power. This is how the stage is set. Equity is totally unchanged on the S&P
500, on the session on the NASDAQ positive by about a quarter of one percent in the bond market, not too different on a two year yield were down just a single basis point on a 10 year similar move as the price action. Let's get to that trading diary, top of the hour. Fed Chair Jay Powell kicks off two days of congressional testimony, ADP jobs numbers, monthly jolts that comes out tomorrow. President Biden releasing his budget proposal on Thursday.
Governor corrode his last big rate decision on Friday. And finally, the main event, payrolls coming up on Friday. Before we get there is the chairman of the Federal Reserve. Four minutes away.