Skirting a Recession? | Bloomberg Surveillance 02/22/2023
They've probably been very fundamentally different in thing inflation and interest rate shock. I'm blessed by both. They know the economy's going to stay strong in the first half of this year. Property into Q3. You know, the consumer in the US is
still in a good place. More broadly, we haven't seen a recession. We put consumption filled, grow, growing very strongly, very robust. I think we've described the recession this winter. We will agree that Fed is going to raise
rates. That's not the issue. The issue is how long will they stay up? This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. You want to do the football here or later on? I'll do it later. Okay. Go, Vinnie. Moderates and Benson.
Man, I was just a clinic that was beautiful. It was very good from New York City is very emotional. Good morning. Good morning. I had goose first on a fifth go. I teared up to this is Bloomberg Surveillance Tom Keene, Lisa Abramowicz and Jonathan Ferro features right now in the S&P totally unchanged. It was yesterday closing at a new high
for this hiking cycle at a two year. We haven't seen this level going all the way back to 2007 at the close yesterday for 72. We pull back about three or four basis points this morning, but T.K. Fed minutes a little bit later. These are the most stale dated. Yes, Fed minutes that we've seen for a long, long time.
Absolutely. Things are moving so, so quickly across equities, bonds, across currencies, even talking to a more yesterday. Well, I never heard Ed Moore's as ambiguous as I heard him yesterday. The Jain from Citigroup. But, John, things are moving and moving
fast to start with, Jeff. You was just fabulous. The 30 year mortgage in America to year bond. David, check that you and I are going to do here. John. Just a short moment here.
A mortgage, six point five, one percent to six point ninety six percent. Dare I say let's round that up to 7 percent. Who's going to come out? Sound at home and take on that new mortgage? If they're locked in at three percent, two and a half, three, four percent, whatever that might be.
The pandemic has completely destroyed the mortgage market. Everyone's locked in on these very, very low fixed rates. They're not going to move. You saw it in housing yesterday and I can't remember the year over year. But off the top of my head, it was 35 percent down from a year ago. And the number of starts or whatever that we had yesterday. That's how it falls.
Right. If all this fancy talk falls right into it. People are living right now. We've got a big question. Does the February data confirm what we
saw in January, the boom that we saw in payrolls and retail sales with a three handle? Does it? Well, we got a hit yesterday. The PMI, the PMI come again at an eight month high. So I think that really shook things up a little bit more. The data has continued to come in hot period, Foster. There has been no indication that the data in January was a one off. It seems like not only has a warmer
winter, but a reopening of China has changed the narrative. So what do you get if you have higher growth, faster growth, a better economy, its term also. Right. That's a good thing. But inflation, it's also higher than expected. This is a conundrum wrapped in an enigma. Oh, right.
Okay. It's basically. Is that the smoke? No, I just start off here. I will say, though, that that's basically the conclusion from all of the notes that I've been reading. The Barclay's said it in the last week or so, the price for better growth is high. And that's ultimately the discussion. So Guy Johnson two years I've never been on a good morning squawk box meeting or a research meeting or, you know, you go out with the big go three levels up from you and you're at the steakhouse.
You know, like don't have that third drink. They're going, you know, this is a conundrum. You've got to make every effort, basically a conversation over equity futures look like there's this morning. Good morning to you. Totally unchanged on the S&P 500 in the bond market.
Lots to talk about your tenure. Not too much today, but look at that. We're getting so close to 4, 3, 94, 87 on a 10 year. Tom mentioned crude. We got to talk about it. I believe this is a six day losing streak on WTI where negative again by about 1 percent or WTI at some 75, 60 to one over. Think here. You know, I think as Lisa framed and it is so good to have Edwards home and with us today with Evercore ISI because he's modeling out sub 3 percent inflation. There's a panic right now, John.
Just you talked about the minutes being so still there's a real panic out there about O M G good growth. We're getting the Elizabeth Warren economy, good growth, jobs, fully employed. Oh, gee, this is terrible. We're all going to die. I always think twice that the Senator Warren accountable.
Bernie Sanders wants a four day workweek. Right. I'll take that typewriter, right? Yeah. So my bed still work, OK. I brought it up at our morning meeting and I said Sanders and his book release, Lisa can do day five solar. How does that work? That's really, really all I can say is that the four day workweek has been put into an experimental phase in the UK and most companies are not going back, just saying it sort of RTX sticking around a little bit longer than expected.
Here's what I'm watching. And actually more than the idea of stronger growth, which is a good thing. What I'm really watching is the geopolitics of it all. 845 AM President Biden is going to be
meeting with the leaders of the Bucharest 9, which is the entire eastern flank of NATO, as well as NATO's secretary general, Jens Stoltenberg. Same time, China's top diplomat, Wang Yi, is also meeting with Russian Foreign Minister Sergey Sergei Lavrov. To me, the juxtaposition here is really tangible. Are we seeing an ongoing hardening in the lines here, an ongoing really ratcheting up of the tensions? And this to me is the biggest health risk right now that I keep monitoring. At 2 p.m. We do get those Fed meeting minutes. You should read them, Tom, because, yes, they perhaps are stale, but yes, they can massage them. People were talking about how they're
going to massage the meeting minutes to give us sort of sense of how they could take a Fed funds rate if you take a look at the six month table yield. It is now at a new post, 2007 high fully above 5 percent and only climbing as people start to expect not only two, but three more 25 basis point rate hikes before June. To me, this is going to be really tugged at five thirty p.m.. New York Fed President John Williams is speaking in a fireside chat titled Taming Inflation.
So here is the being issue. Going to the Mohamed El-Erian point, John, that you spoke about with him a couple days ago. How much is this Federal Reserve willing to allow inflation to run harder for longer? If you take a look at inflation expectations baked into the markets, it is well above 2 percent. It is near two and a half percent over the next 10 years.
Does the Fed allow that? Is that OK? Are they even really to sort of encourage a sort of softer landing, even at the expense of a longer term, higher inflationary perspective? Lisa, thank you. Let's talk about how stale these Fed minutes are. So that Fed meeting was at the start of February. Since then, when Chairman Powers said that disinflationary process has started, we've had payrolls at 570000, unemployment, a three point four per cent big jump in the ISE service index for the month of January. CPI not dropping as quickly as people
hoped for people delivering an upside surprise retail sales with a three handle. And then we got a first look at February where the PMI yesterday improvement as well. Jeff joins us right now. Ben, why Mellon and Jeff? I guess I'm going to leave with a question I've already answered. Just how standard these minutes are they all folks? They will not just be domestic standards, but in the international sense as well, because what's going on globally? Services PMI was wrong in the U.K., in the Eurozone when enforcer Jeremy Hunt, the chancellor. So I'll be going to look at fiscal
stimulus in Europe. And that's one trade side which the U.S. is exposed to. What's over China? So now not just domestic side are strong for the U.S. economy. You're looking at an external list as well. So go back to the point I made earlier. So higher rates, the price growth would have to be a price wise and it's something to celebrate. Jeff, you look at this and you're a
student of history on this as well. Oh, em gee rates higher inflation if not higher, at least inflation or disinflation sustained in the basic simplistic thought is the world will come to an end as we know it. There will not be revenues. There will not be earnings. Life won't go on. And yet history says the complete opposite. How do we calm people down that life
will go on? Well well, I think they're going to need to look at the margins. They're going to have to look at earnings of maybe a couple of weeks ago and the spin off losses in the tech sector. Let's talk about the margin recession. Bit more top line. But again, that's just look about underlying demand. Look at the 80 receipts in the UK and Europe. They are rising. People are spending on the continent normally, but people are savers.
They are starting to spend to see their energy bills starting to come down. They saved the very high energy bills in oil above 100, but now it's not come to that. So maybe they can boost in their purse strings again. So let's look at the earnings upside surprises that would not be calling people down. Jeff, if you take the John Farrell view of the world and you create your hero ahead, outlook on March 30, first, how would you reshape it right now based on what people were going into the year, feeling that there could be some sort of softness the first half, then a real strength in the back half.
Now people have adjusted to real weakness in the first real strength in the first half and weakness in the second half. Where do you land? So I would still land on no recession, and we were skeptical that there was going to be a chance of having a recession in the first place and certainly at a higher level for longer. Probably not in the camp of oh, let's think about above 6 percent or something wild along those lines is trend growth in the US will globally higher than where we were 15 to 20 years ago? Absolutely not. So, you know, gravity will come to play a role at some point, but we have to land in a place where it's higher real rates or longer an asset allocation. We'll have to follow it when I'm following right now.
Also, cash on the sidelines. Money has to be put at work. Where's it going to go? I still don't think it's going to be in the dollar because most people own that already. Jeff, let's put it all together. I said that Barclays, it set that higher yields, higher rates at a price to pay for better growth.
And you said, why is that a price? That's something we should celebrate. How do you celebrate it? Well, if you put Europe, for example, if you look a place like Switzerland. Right. Which has struggled with low rates, some for a long time, and we discussed this a couple of months ago, you know, suddenly the financial services industry that will be able to offer yields and that actually to keep money on shore as well.
So this is going to change the flow dynamic whereby everyone blindly chasing yield sometimes not all the dubious credit policy, I might add. You can now look for the best of Jens out that state onshore in particular. These savings have these economies and that domestic productivity because higher yields means they're all the higher returns domestically to generate that as well. So I would see this as a good thing. But asset allocation, they need to just go with a new playbook.
I'm a simple man. Does that mean by banks? Well, if we look at iPhone customer flows, financials, both in emerging markets and developed markets, financials, the most solid sector globally. Full stop. Right. And that's what's telling me is we have
high front and yields, high funding costs, but there's no loan demand out there. That's the missing link. Right. Go back to Tom ISE. Talk about the velocity of money that has not picked up because people are still scared. But if we see a consumer demand and
further down like industrial demand out, that than banks can start to lend, that will be a margin. But that is why the opportunity is going to be given. Give me about setting we've seen today, Jeff. This was fun, as always.
It's good to hatch out. Jeff, you there? A senior market strategist over at Ben White Man. And better news for you. A little bit earlier this morning, we heard from China's top top diplomat, Wang Yi, speaking to his Russian counterpart, describing relations with Russia solid as a rock and were stunned. The trials of the changing international situation, we've heard from the Russian leader just months ago, Vladimir Putin saying that Russia time and China and the relations between the two are reaching new milestones. Something to be familiar with as yet were new with his work at Georgetown years ago. This is a guy fluent in obviously
Chinese, in English, in Japanese. How many people can say that China is truly fluent in Japanese, English and Chinese? And this is the new face of China diplomacy? Wang Yi and I think we'll be seeing more of him. China won't be pressured by a third party. China is willing to deepen ties with Russia. This coming at a time when the United States is increasingly worried about China providing direct support to Russia's war effort in Ukraine. This is incredibly complicated because it's also ahead of Xi Jinping making a trip over to visit Putin and Vladimir Putin of Russia and the perspective of them orchestrating peace talks. Is that really what's going on or is it
more of what the U.S. is nudging a consideration of, perhaps providing more assistance? We'll catch up with Anne-Marie next. Looking forward to that conversation from New York City this morning. Good morning to all futures. Doing nothing. This is blowing back. Keeping you up to date with news from
around the world with the first word. I'm Lisa Mateo. White House aides say President Biden's trip to Poland underscored the massive miscalculations by Vladimir Putin in Ukraine. They say it also highlighted the costly investment in democracy that the U.S.
and its allies have made. The president told a crowd of about 30000 that Ukraine will never be a victory for Russia. And as you've heard here on surveillance, China's top diplomat calls relations with Russia solid as a rock. The remarks by Wang Yi come as Beijing is trying to portray itself as a neutral actor that can broker peace in Ukraine.
Wang was in Moscow to meet with Russian Foreign Minister Sergei Lavrov. Meanwhile, the Wall Street Journal says China's President Xi Jinping is preparing to visit Moscow. We may get a sense of how many Fed policymakers saw the case for larger interest rate hike increase at their last meeting. The central bank will publish minutes of that gathering at 2:00 p.m. New York time. They may also show whether Fed officials anticipated the need to take rates higher than previously thought to tame inflation in the UK. Nurses have suspended further strikes. They say they've entered intensive talks
with ministers in a move to resolve a dispute over pay hikes. Still, the government suggests it has limited ability to raise wages in the next fiscal year. And Microsoft has made it clear that there will be no 69 billion dollar deal to buy Activision Blizzard unless it comes with the blockbuster game Call of Duty. Microsoft President Brad Smith spoke after a closed door hearing in Brussels with EU regulators earlier this month. British regulators suggested Microsoft may need to divest call a duty to get the deal approved. Global news powered by more than twenty seven hundred journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg.
President Prudence Craven lust for land and power will fail and the Ukrainian people's love for their country will prevail. Democracies of the world will stand guard over freedom today, tomorrow and forever. That's what it is. That's what's at stake here. Freedom, the president of the United States on his tour of Europe in the last 24 hours, addressing the people of Poland and the people of the world for that matter as well.
On the relationship between the United States and Russia. While there isn't much if one between Russia and China. Take a listen to this. This is from Wang Yi, China's top diplomat, describing ties between the two countries as solid as a rock and will stand the trials of the changing international situation. A headline from China's top diplomat in just the last couple of moments.
Some say that China is willing to deepen ties with Russia. I think this is exactly what the United States is concerned about, someone who knows more than we do. Ben Hodges, he is a general of the United States Army, retired, was serious work on the eastern front. And John, I really don't know what wisdom to give you between Ben Hargis tweet last night and the new Eastern Front or what we're hearing from General Austin, Secretary of Defense Austin about the Philippines and the new axis relationship between Russia and China. I don't know if I'm back in the 50s, the
early 60s, the leader 60s, somewhere in the 70s. I don't remember if it was extreme to ask this question some, but at the same time, I think we have to. How close are we to a proxy war between the United States and China? I'm not qualified to answer that otherwise. I think it's over right at this time. I think common sense will prevail. That's usually what's happened, you know, after George Kennan and in post-World War Two, diplomacy, common sense steps in. You'd hope so.
We will have to see. We need a briefing right now. Annmarie Horden as our chief Washington correspondent with the president in Warsaw and joins us today. Emory, we could go on literally this morning for one hour. Let me start with the video from Moscow
of Mr. Putin and Mr. Wang. How does a president of the United States adapt and adjust to the images from Moscow? Well, I really think you've seen the administration on the offensive already before these images were coming out. You had Secretary of State Anthony Blinken over the weekend putting really China on guard for the potential, what they see of Beijing, supporting Russia in a deeper way.
Their concerns are with sending lethal materials to Russia. But really, what is going on? Is this quite historic split screen. What we are seeing between what's happening in Moscow, what's happening in Warsaw, Jonathan brought you those comments from Wang Yi talking about Beijing and Moscow's relations being solid as a rock. He was talking to Nikolai, had Khrushchev, and then today he's sitting down with President Putin. At the same time, the president last night was talking about that the United States commitment to NATO is, quote, rock solid. And he is going to bring that message today to the Bucharest Nine. So what you are seeing is just a
deepening of ties that last year. What was it? No limits relationship from Xi Jinping and Putin. And this year, they're talking about the deepening of that relationship vs. the deepening of the relationship. The president wants to at least symbolize between the United States and Western Europe, eastern your memories. You know, you're a real student of this. I give you a month's credit for that.
The overreach and I believe it was 2008 at the Belgrade meetings, Condoleezza Rice and Robert Gates, and a huge decision about how far do we reach. Does Mr. Putin look at the Bucharest Nine as a threat and he doesn't have a common turn to push against it? Well, of course he does. I mean, he's been he's been saying this the Bucharest 9 is made up of former Soviet Union states or those that were part of the now dissolved Warsaw Pact. These are this is Estonia. This is hungry. This is obviously Poland. This is the same group of countries that met the day after Putin decided to invade Ukraine on February 24th. They met February 25th because obviously
their concern was who will be next? This group was also started, of course, after Putin's aggression and his annexation of Crimea. So this group started in Romania. It was between the Romanian leadership and President Duda here in Poland because of Putin's aggressiveness to Ukraine and most notably, that annexation of Crimea in 2014.
As we see this split screen, as you described it so well, and Murray, this idea of the meeting happening in Moscow and the meeting happening where you are in Warsaw, there is a question about the business ramifications. There was news overnight about Chinese authorities encouraging its state owned enterprises to avoid the big four auditing firms to avoid possibly leaking information. At what point do you see a willingness on the part of Western nations to sort of harden the business lines, aside from just the rhetoric internationally with respect to what those trade ties will look like between the Western world and China? Why I think you're already seeing that happen when it comes to what the United States is doing. Obviously, there's these export controls on high and sensitive technology. And not only was the US enacting them
from the Commerce Department, they're also getting on board Japan and the Netherlands. What comes next remains to be seen. But I think it's quite obvious that there is a push in Washington to not just enact these rules against China, but also make sure they are doing it in these multilateral approach, which really is the difference between the Trump administration and the Biden administration. Are taking the same exact approach and making sure that because they have similar concerns about China. But this administration really wants to
make sure they're getting the likes of Amsterdam and Tokyo on board when they do this. And really, it's so hard to pass through the signal from the noise, especially when you talk about diplomatic rhetoric. How much have the lines really hardened between the West and China over the past couple of weeks? Well, I think what you see is the war of words and the acrimony because of the alleged Chinese spy balloon. Right. That obviously put a huge spanner in the works because Secretary of State Anthony Blinken was set to make this historic trip to Beijing. The likes of what we have not seen from the icy trip former Secretary State Mike Pompeo had made.
Obviously, then at the Munich Security Conference, they were able to have this discussion and there is going to be talks of Blinken going over to China. But obviously, this isn't just happening as symbolism in the world behind the scenes. These are serious concerns with the Biden administration and also the U.S. Congress. They just created a new committee to really look at the concerns and warnings on China. And this committee is going to be giving their opinions and what they think is the best plastic approach to combat China. And you're likely going to see more of those bills comes to the floor. And just to finish, what's Chancellor
Schultz in the last week could cost you. Yeah, Chancellor Schultz in the last week. Well, obviously, he was at the Munich Security Conference. He is not here in Warsaw, but he was at the Munich Security Conference. And besides that, I'm not sure who areas today. I imagine he's back in Berlin, but there's been a lot of questions regarding him, especially when you when you're here in Poland, you're talking to Polish officials.
One, there's obviously concerns that they want those leopards, a sap delivered. And they also need the parts, other countries that have the leopard tanks need the spare parts from Germany can only get them in Germany. So they're putting on pressure for the Germans to speed that up. And the second, of course, is there's, I
think some a little bit of debate about Germany talking about the fact that they're no longer getting Russian crude. It's coming from Kazakhstan. But when you talk to some people, there are these concerns that is it really Kazakh oil or is it potentially labeled Kazakh oil, but actually Urals? These are some of the questions that are swirling around. When you talk to countries of the eastern flank, Emory, this was great. As always, I'm a chimp pardon today. Emory will catch up a little bit later. Alisa, how Germany chooses to banish somebody says she's tremendously complex. It was a great question that you asked because honestly, they are, as you've pointed out many times, the weak link.
Right. We're talking about a nation that is highly dependent on China that really will see its economy go into a deep recession if it causes some sort of more substantial fissure between the two nations. And a lot of the optimism around European growth has been due to the China reopening this year. So how do you then deal with this? And that's the reason why I think this is a really interesting question, not only geopolitically, but also for markets. And also historically, your question was brilliant, John, and completely insensitive.
His only John Farrow can do because the historical baggage here is huge. The unspoken ness and shoals was busy last week. He's not there. The president of the United States is there. But there are allusions here to the past that I'm not eloquent on, but there's allusions here.
Well, we have to frame the last couple of days as well. The president has flown into Europe, gone into Ukraine, into a war zone without an active American military presence. Gone to Poland, dressed the whole world about ultimately defeating Russia's war effort. And what we've seen this morning is a diplomatic gut punch for the U.S. administration, for the Chinese Communist Party. And officials from that government turn
around and say ties with Russia are rock solid. So we are features right now unchanged. This is Bloomberg. Yesterday. Worst day yet for U.S.
equity markets, down 2 percent on S&P 500, a day down, aggressive, sent me an e-mail or was a. When I was going through the markets yesterday watching a game that was top of my mind. Some of the Dow yesterday. The Dow. Yeah, right. NASDAQ negative a tenth of 1 percent right now. Just a bit softer this morning.
Three day losing streak on the. Longest of the month of February. So far, equities have itself in the face. It s in the bond market. What happens at a breakdown of the correlation between equities and bonds? Yesterday, just equities down, bonds down. It was up aggressively like up 10 basis points plus across the whole curve. The two year comes in a bit today by 4 basis points 468 after delivering a close about 470 in yesterday's session.
We're getting close to home. I know you're on. Look out for this. Close to fall on a 10 year, 394 on a 10 year. Right now, let's get out front of Edwards home in this morning. Joining us here with a call for real
disinflation. And John, I'm going to suggest we went from Stanley Fischer as ultra accommodative to some form of accommodation, dominant, constant, maybe the first one dimensional, restrictive and super restrictive were there and now is when the heavy lifting starts. And that's what we're all living and we're milking out some dollar strength as well. Take a look. Based on your dollar, so euro dollar right now, one ISE 633 Harvey year one tenth 33. You know, when it came the day before
payrolls, the day after the last Fed meeting, and then the data dropped and everything changed. So when we got into Fed minutes a little bit later, what are these Fed minutes actually worth at 2:00 p.m. Eastern time? We said first where we are. You promised about five times you would read them. So now you going to say, oh, OK, I'll give it to Tom Keene skin? Well, the chairman said the chairman was asked in the news conference if they discussed the pause and he said no. And he did.
What's your impression of shame upon that news conference? Something like poetry. And then he said, look to the Fed and something that Casey said looked at the Fed minutes for the discussion of the Fed. Pause. Now, I think a lot of people are going to get through the Fed. Fed minutes as part of a scenario analysis.
What will they do if this data picks up aggressively? And is there any insight whatsoever in those minutes that come out later? Although to Tom's point, it's kind of ridiculous because the reaction range changes every week, it seems like. So there is this question of, OK, we can game out what they're going to do, but ultimately they're going to do what they want to do. That said, they can give more of an impression from the minutes that perhaps they can. Your suggestion? They can massaged things a bit. I am not the only one. They can emphasize certain points.
They aren't printing things up wholesale, but they could potentially eliminate reference to those that are voting against radon. Exuded check. If we did that was it. That was it. Or three boards. Well, if I could turn out to three point nine six and the 10 year yield I'm sorry, four point 0 0, 10 year yields a big deal, has a big chance of getting closer with their on shorter maturities since the whole curve lifting.
Does everybody understand this is not inversion dynamics or dynamics of this on radio? This looks good. The whole curve shifted here by 10 IBEX first exercise. I do. That was lovely. Let's dumped 35 pounds a lateral raises for the shell.
I don't know what they are yet, but I think that's the short circuit. Girls. The girls like it. Okay, let's do this. Where are we right now? Where are we are? My theme for this year was the great zombie roll up because its profitability. If you're not profitable, you're going to get rolling up and we'll see how that goes through the year. But the second idea maybe I would play
it too little is price down, yield up. Is anybody prepared for price to go through the October lows to review the Bloomberg Total Return Index? This is the biggest, broadest of our series on it's done 18 percent was the carnage and then the bounce was up 8 percent in price and then we went down 4 percent. And if we go down another 4 or percentage, we break through to new price lows. No yield highs. A topic for Brian Weinstein, head of fixed income, Morgan Stanley Investment Management. Brian, what's the probability, the likelihood the outcome if we breach through to low price, higher yields? Tama I mean, I think Don was talking about a couple weeks ago, but it's impossible, right? December 20, something we were about the field of on 10 year notes, call it called about three point nine percent from that ray.
You know, for the year you're going to be between 330 and for 50 or so. So that puts us out through those old your levels. I think a lot of people chase bonds a little bit too late. In retrospect, it doesn't make them a bad buy, but it means that there could be more pain to come. Oh, okay. The bonds are there. But then what is the to do list here? Are you opportune? I mean, literally on a Wednesday.
Are you opportunistic to acquire bonds? And in what way are you just waiting to find that spot? I think you're waiting to find a spot. I mean, I guess that makes you opportunistic. But if you look, you guys are just speaking about it.
The Fed doesn't even know. We don't know what to look for. I think a lot of the indicators that we've been waiting for are either lagging or a bit stale. So I think uncertainty might start to reach deep in the yield curve. We've had an amazing bout of flattening. We touched minus 90 to the morning of retail sales a couple of weeks ago. I think we're ran 75 negative right now. So, yeah, if you steep in the curve, higher forward rates, you start to buy. But there's no reason to catch the
falling knife. You need to wait for a reason for us to stop selling off. Bryan, this whole curve is a mess. You can get a six month, 5 percent to year at 468 a 7 year and north of 4 percent at 10 year at 394, a third here at 396. Try to make sense of all of that. Here's the question for you, Bryan, and I think it's a really important one. Are we facing a once in a generation
opportunity to lock in high yields or are we facing a new generation of high yields? And it's a big difference there. Because if it is the former, not the latter, I'm going to take on a 10 year and lock it in for as long as I possibly can, maybe even go longer than that. If it's the latter, then I can take the six month of 5 percent. And no, there's no real reinvestment risk down the road because this is a new world. Which one is it? I think it's closer to a generational chance to buy. In other words, I don't think we're going to have an environment.
We're going to be. I say this is the new law. We're gonna be between 6 4 percent and 6 percent on 10 year notes. I don't think that's the case. I think that there are natural reasons
that growth here is slower, that the Fed will beat inflation. It will take a while on which the curve is telling you, but they'll beat it. So let's just say tenured or turn a longer term range of far out two and a half to four and a half for five. So I do think you want to buy less from the front end is giving you a chance to park money, not worry. Too much takes an income. For now, it's going to take money away
from other markets and that will that will continue slow down the economy. I don't think we're setting a brand new regime, but I don't think we're going back to the regime where candidates can trade 50 basis points or 75 for it for a long time. So, Brian, with that in mind, as you look across the curve right now, there's sort of the optimal spot for you. What are you advocating for to lock in those rates for longer? You know, I've been there, as you guys know, in the big, big, flatter cap. I think I've said you might 80 to 100. I think we pretty much got there at 92.
So I think what you want to do now is start to put money to work out the yield curve, as I say, in the yield curve as as time goes on here. So, you know, is closer to 474 75. Maybe you get to five. And then the five year note, I think the curve can start to just invert either because we have economic strength and the forwards have to go up or because we are at the end. We're getting a little bit about
strength here before the real weakness starts and the Fed will actually have to pause and even at some point a year or so. So I'm starting my bias in the yield curve for the first time in a very long time. How do you parlay that duration call into credit at a time when people were talking about spreads being too tight and then they widened by more than 100 basis points? If you look at over in the high yield space, at least according to cut some of the the rating sectors. Do you see this as a buy opportunity now
or do you see this as possibly pointing to more risk if the curve is going to risky and especially for the front end can rally? It's not a great time for it. It's not it's not the optimal time for credit. We had the tightening since October. It was very meaningful at this point. The cycle you buy quality and you come back to riskier things later on. So how much you looking at the potential for perhaps a 6 percent bogey, 7 percent bogey and your annual returns based on this once in a generation lifetime where you are going to see higher yields, but you could lock them in and ride the whole way down? Well, first we have to stabilize, right. So there's no reason if we go down, as
Tom said, another 4 percent, but I'll put it down pretty much 4 percent for the year. If we earn our coupon back, we'll end up flat. So you're not going to find that? That's a Morgan Stanley Bond math right there. But if you if you can find some of these values and you can be patient and you can go to NIKKEI levels. Yeah, listen, hey, if you buy a six month bill close to 5 percent, you're gonna make it.
You have to do it twice a percent for the year. So you're not that far off. Yes. Duration should help at some point. That point is not now.
It takes a long time. The markets are impatient. But the Fed will well tighten too much. They will start to ease. But we're just not. That's not the story. Brian, let's finish on credit. Sit there for a couple more questions, if we can. I remember at the start of the year when
high yield spreads were tightening gun, they tightened to about 385. That was the tightest we've seen high yield spreads on a year so far. That was the morning, the same day that we got payrolls, the payrolls report for the month of January. And I was speaking to Goshen, distant thought of the lines. Bernstein and I said, this makes no sense. We've got some 50 PMI ISE and spread to tighten it wider. And he said, John, I can go one of two
ways, not just one. He said either spreads need to widen or the PMI is going to improve and the PMI have improved. They've got better. We're no longer sub 50 on the S&P Global PMI on services. Now, Brian, I wonder, good news does seem to be bad news for the equity market. What does it mean for credit? You know, I think you should take a longer term view. The credit markets are just ahead of the
of the of the data, right? That's one of the problems the Fed has, as I keep pointing at data that are lagging indicators. I think the whole market was a great indicator that things were going to bounce, that we had gotten too pessimistic. But the problem is, on a longer term basis, the Fed has one mission. They want to raise cash rates high enough that you buy a six month bill and not the high yield market. That is a tough headwind, right? It's not that they want unemployment. I mean, they will cause unemployment to
go up. They don't want the economy to crash, but they need things to slow. So I think it is a tough headwind than a good news. Bad news. I think to some extent, yes, it means that the Fed is going to be harder for them to stop raising rates if ISE imbalances at the higher market keeps widening. I think it tells you they're going to
raise rates until it hurts. Brian, is that still the game? Does it come down to that, what you just said, that this Fed wants people to buy a six month and avoid everything else? I think so. I mean, they've had every opportunity to do something different, right? You can reach deep in the yield curve. You could increase quite tame tightening by selling assets if you wanted to change the math.
The Fed could do it. You could point to a different indicator, but they haven't. They've been very simple in their MO. Maybe they've been overly nuance to times. But the idea is it takes a long time to stop inflation. It's psychological. The only way to do it is to make cash rates very attractive, invert the yield curve and wait.
And so for all the noise since October, I'm not sure that a lot has really changed. Well, cash is attractive and they just yield curve as if. That's for sure. Brian, we enjoy it. As always, the catch up with you says Ron nicely. Now, if Morgan Stanley investment management bit of a clinic that he can fixed income and some of the opportunities that one right now really, really important, John. And I can't say this enough, folks. Weinstein is hard core.
This is a Morgan Stanley tradition of looking at level of looking at individual bond versus spread. Obviously, they look at spreads because that's the way Wall Street talks. But the answer is our listeners and viewers who own a bond, maybe they look at yield when things are comfortable, but when things are a bit sweaty, all of this is Liz Goldenberg. One or two, they look at price and the joke is price down, yield up.
There's nobody worried about the three month, 30 year spread here. They're looking at their portfolio at the end of the month and go on, as Brian said there. Well, we go down 4 percent. That's a coupon for the year with the price damage last year was brutal. Oh, so a negative rating, a safe read. It was. It was great. You know, I mean, the triple leverage or cash U.P.S. fund, we were.
Why did that? How's that working out? It's working out great. The GP team functions really headed. We are two basis points off that the banks, the banks are banning it. So it's going to say J.P. Morgan doesn't like your fund that much. I think that they're banning the use of that. Do not allocate case fund has any other distribution. I mean, DHS, we've had in a bit negative agreement with the DAX cents on the S&P up. Brazil is at no three day losing streak,
only S&P 500. Will we add to that? This is pulling back on the Dow as well. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo. Today's release of Federal Reserve minutes are likely to show how much support there is for larger interest rate hikes. The question is whether more officials considered a 50 basis point hike at the last meeting, and the tone could hint at how policymakers are interpreting recent data on inflation. The European Union has slashed its
natural gas demand this winter by almost a fifth. And that beats a voluntary 15 percent goal that was aimed at helping it survive the winter with lower gas flows from Russia. Finland saw the biggest drop usage there was cut by more than half. Bloomberg's learn that JP Morgan Chase has curb its staff's use of chat JP T. The chat board has created buzz about its potential in everything from writing poems to creating stock portfolios. But there have been reports about
inappropriate interactions and errors in its results. In China, authorities have urged state owned companies to phase out using the four biggest international accounting firms. It's a sign they are still concerned about data security. The firms include PricewaterhouseCoopers, Ernst and Young, KPMG and Deloitte Touche. Vehicle prices and pent up demand prove profitable for still antis. The parent of Fiat, Chrysler and Peugeot unveiled a share buyback of as much as one point six billion dollars after forecasting another year of double digit returns.
And they're offering some relief to car buyers, too. Santos expects vehicle price increases to slow this year as chip shortages ease and production picks up. Global news power by more than twenty seven hundred journalists and analysts in over 120 countries.
I'm Lisa Mateo and this is Bloomberg. What about what happened in Europe? That's the big one for oil, really big warm weather, sharp drove gas prices down sharply, particularly in in Europe. We have, you know, drop it all the way down to forty nine euros a megawatt hour right now. Gas prices in the US collapse for nine
all the way down to two. So that lower gas price due to a warm winter put a lot of downward pressure on oil. Remember when we said we needed a meteorologist last year just to just a forecast crude gas and maybe even the equity market in Europe and the economic data as well? That was Jeff Covid of Goldman Sachs crude right now. And let's take a look at oil together. Oil is down for six straight sessions. That's the longest losing streak on WTI crude since December 2022. So it's the longest losing streak in a year so far. Crude right now.
Seventy five dollars and about 50 cents touched down on the session by one per cent. I have to say, over the last six sessions. It's not a brutal, brutal amount of losses were down over the last six sessions by about 6 per cent. But certainly the losses are there for all to see. They're there to see. And we'll get to this with their
readers. But I think all you can do with. Everyone knows it's the single toughest thing to predict. I think there's a lot of good academics on that as well, is listen to smart people. And you go from Ed Morris of Citigroup yesterday to our conversation there with Dr.
Curry at that of Goldman Sachs and then Emory to center. And this is all you can do is talk to adults that actually know what they're talking about. To be clear, Jeff was talking about the retreat we've seen in commodity prices, including natural gas. But ultimately, he still sounds pretty bullish when you go through his recent comments, Tom, to Bloomberg TV suggesting the China reopening a okay. We're on. That's the core issue, isn't it?
Out of town. Mean Christian Malik, a J.P. Morgan lease is a 100 page missile a year ago. And there it is. They say it's about newer Jay Pawlowski on a new year. The hour you have the pharaoh, our J. Paul Allen, the fellowship. Thank you. And it's it's Pacific. It's a Pacific Rim region.
The Malik Morris distinction. And I think that that's really the question. How much you start to see this sort of renewables come in and reduce demand even in an economic recovery. And that, I think, is sort of the distinction between the bulls and bears right now. Let's drive it forward right now. And this is a Joy Emery to Sun, all of his strategist folks take a different view on what I love about Emery as an off of maybe Jeff Korean as microeconomics in Chicago. She really looks at the dynamics of supply and demand co-founder and head of research in Energy Aspects in London.
Amrita, just simple as I can and I don't need a central theorem lesson. But what's the correlation of your world right now to the stock and bond upset we're living. How does crude correlate? Great question, Tom Keene, as always, thank you for having me.
Always a pleasure. I mean, look, I think part of the problem is crude oil specific fundamentals are not particularly strong. We've built a ton of inventories. We've had bad weather. We've obviously had we do have right now a lot of refinery maintenance. And that's why right now crude is pretty much at the mercy of exactly like you're seeing the bonds and the equity markets. And this is why the six sessions we've seen that's been trending law and this is something we called for just recently as well, that crude is probably going to be at the mercy of macro headlines. And by the way, now even good news is
bad news. You would think a strong labor market in the US is actually really bullish for gasoline demand. But guess what? No.
Now the fears are that means the Fed's going to raise interest rates. What does it mean for the future of the U.S. economy? So it is very, very problematic for crude until fundamentals pick up. Well, the fundamentals pick up. We do have China reopening. What is your expertise on the China
reopening? Are you waiting for May? Are you waiting for May of 2024? No. To me of this year, we've got a million barrels per day baked into our numbers of Chinese demand growth. I think the problem, of course, is that China, again, just coming out of the lunar new year holidays, that it, too, has maintenance. Look, we are hearing right now of potentially very low Chinese product exports coming out in March.
We'd need to confirm that it's still very early stages will be the very first sign that, yes, domestic demand is strong. It will take a little bit of time for this to percolate through. I would say right now the oil price is actually focusing and factoring in a Western recession, and it really hasn't factored in the China reopening. Well, how much does it really factor in the fact that any kind of China increase in usage will be funneled into some of the renewables, into a lot of domestic production, whether it's wind or solar? This is what we were talking about with at Maurice, that that kind of substitution, for whatever reason, is diminishing the demand even in a stronger economic profile. Absolutely the case of the longer term, right? But right now, we know we've got more than a billion people who've been locked up for three years and we are already seeing it in the jet fuel numbers. Just China's reopening alone can lead to
400000 barrels per day of additional jet fuel demand. There is no renewables to replace that. Right. So there is an enormous amount of pent up demand. We've seen this in the West and I don't want to complicate the story.
The renewable stories absolutely there for the long term, even sales in China are skyrocketing. We have that in the numbers. But that doesn't take away from the fact that gasoline and jet, which is basically used for mobility, we're already seeing very, very strong demand. People are going to fly and you are going to see some very strong demand numbers out of the region. So good news, bad news doesn't really matter what it is, but the macro has been oil prices lower.
That seems to be sort of the trend regardless what's going to shift that and get prices above 100 dollars a barrel like you expect. I think it'd be a we have to wait really to what's kind of second quarter, end of second quarter and into the second half of the year. And for me, the fundamentals really have to tighten up. The stocks we've built will need to be drawn down, which we are expecting counts seasonally from the second quarter of this year. Not before that, I think right now. And we've got a big gathering in London
next week. All the traders and producers and consumers are coming in for ISE weeks. I think you're going to get a lot of kind of talk around this as well. So I say off to that, like you read into
Q2 Emory that we really the three of us really look forward to seeing you there. And as all hydrocarbon week for Bloomberg Surveillance, surveillance is down the list, is it? It is a done deal. You know, you can't get a drink at the oil week in London unless it has an umbrella in it. It's just the same as come a week or whatever it's called. It's like Covid, but they're spread out LME week LME. You
I get to this quote from Morgan Stanley this morning. So they cut their forecasts for crude for four Q and 2024 to about ninety five dollars a barrel from 110. And this was the quote, Amrita from them. The new estimates reflect stronger
demand, but also higher Russian supply. Now, there might be some people who aren't in this commodity market would turn around and say, well, Russian supply. Why is that affecting the market? What is that all about? Look, we've also raised our Russia supply numbers because Russia is being able to place more barrels than we had initially expected. Again, par for kind of doing forecast in
an extremely uncertain world. That's absolutely fine. However, I go back to Chinese demand growing by a million barrels per day and SPDR, we do not have a million barrels per day of SPRO hitting the market. That's a 2 million barrels, but a swing. So even if we assume Russian production is flat year on year, are you? We don't lose any Russian production. We will lose some, but just assume we don't. Which is still a much tighter market just from China and SPRO.
So that's the crude code. I just got a message from a Bloomberg subscriber and it just says forget WTI, Natty. Just. Wow. Yeah. Can we talk about natural gas just briefly? So what's behind that move? Whether I mean, like you said, you needed a east in terms of we we need weather forecasters. But look, Europe got very lucky and of
course, in the U.S. as well. Just how warm it's been. John Fabian, even our March forecast again raised just the amount of natural gas we're backing out as a result. We think natural gas prices will have to fall to about a dollar 75 before you actually kick the shot and something. So still a little bit more to go, but yet it has just been brutally warm. What a change.
A natural gas falling below two for the first time since 2020. And racist looking for a further move lower. And Rita. This was great. Thank you. In person there.
Energy aspects. Thank you. On the weather, you want the weather. Okay. Across the continuous 48 states. January was the sixth warmest on record. The six New England states, as well as New Jersey, were warmer than ever recorded, according to the U.S. National Centers for Environmental Information, New York, Pennsylvania. Indiana had the second warmest January
and data going back to eighteen ninety five in. Somebody was on and said you could got 80 to Wyoming with no snow. Which I can't imagine. There was a genius at A.G. Edwards years ago. He was going to play for the Cardinals.
His name was Al Goldman, who came on every day and gave strategic wisdom and was very gracious. And once he said to me, Tom, the correlation of hydrocarbons is 74 percent with what the weather is, the subway stop. So we are stuck here before. I've heard that somebody some graduate student, it's OK not to go back to this, but this is the sort of conundrum wrapped in an enigma.
Here is the thing where you get low natural gas prices, lower utility bills. That gives people more discretionary spending to go out and shop. Right. So you have this sort of distortion of weather that affects everything. And at what point does it reverse or at what point can you kind of count on it as being real vs. weather induced distortions? Is it not real? Well, I guess that's the right way to phrase it. But, you know, not sustainable.
I think that probably the better way of saying it. We'll see. Always. I'm always happy to trade a cold winter for a great summer. What do we get in the summer now? Just incredible heat and humidity. I'll take that. Really? I'm fine with the humidity. Really?
I'm all right. I grew up with rain every day. We had one week of summer, so you'll get a week in July with cold weather. This is, you know, what's a medley? I'll take the heat. Some hot weather, Thomas Nice in a summer. Summer is about.
Mitt Romney has been very fundamentally and it's been easing inflation and interest rate shock. I'm blessed by both state of the economy is going to stay strong in the first half of this year, probably into Q3. You know, the consumer in the U.S. is still in a good place. More broadly, we haven't seen a recession. We see consumption build, grow, growing very, very strongly, very robust. I think we've scarred the recession this winter and we will agree that Fed is going to continue to raise rates. That's not the issue.
The issue is how long will they stay up? This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Coming off the back of the worst day of the year for U.S. equity markets, live from New York City this morning. Good morning. Good morning for our audience worldwide on TV and radio. This is Bloomberg Surveillance alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity futures right
now unchanged on the S&P. We closed at a new high for the year on a two year yield in yesterday's session and the highest level. Tom Gavin all the way back to 2007, we closed three 474 day workweek or maybe were off the radar. Here the minutes today and all that I get, John, but I'm going to suggest there's a lot going on here and it's a yield curve lift and it's a signal here of a change.
And I would suggest very few people modeled in off the back of that today. Totally unexpected. As you mentioned, T.K., the whole yield curve shifted higher by 10 basis points, plus a hold across the whole of the curve. The question we've been asking over the last couple of weeks, looking at the January boom data is whether February confirms that we got a sneak peak a little bit earlier yesterday, at least in the U.S. PMI from S&P Global. Now, I don't think it's conclusive, but certainly it's heading in the direction that it might confirm what we saw in January. Joel Weber not conclusive, but strongly suggestive of incredible strength, particularly in services. And this to me was interesting.
It climbed above the recessionary contractionary level of 50 for the first time. Going back nine months suddenly weren't expansionary territory again for services. And there was a spending survey for consumers that came out this morning that I thought was really interesting. Basically, people are taking money out of some of their basic goods items and putting it directly into flying around and staying in hotels. I mean, that's basically what you see
and it's confirmed everyday. Let's start. This is really important. I dealt with this this week and I think the two of you have dealt with it more than me. Work from home has changed all these service sector things we've talked about because people are travelling because they're not model. Now we've got to get out of here Friday at 4 p.m. or 5 p.m. dash to where they're going.
And Sunday at 12 noon, they're going to come back, John. They're taken on Friday and Monday. I know. I mean, that's. This is more Gleason was talking about the four day workweek for some. Is it three? I don't know. I think it is for me this week.
I think I'm taking off. You're taking it. They were great. Did you see that UK is going to keep a four day workweek in place? They did an experiment. All the companies are like that. We're good. We're going to keep it this way. That worst productivity's up, right? Yeah, exactly. You know, it makes sense.
We can't do it, though, because markets are open five days a week. We should lobby the exchanges to supply work for health exchanges and we'll make it work. More people will come to me and zoom in our pajamas like today's are you know, is this part of the NFL season begins right now. Okay. Let's wait for the price action for you on S&P 500.
Totally unchanged coming off the back of the worst day of the year on the S&P. Losses of more than 2 percent pretty much across the board. Three day losing streak on the S&P 500 still up on the year. Yet t