What Does the Data Say? | Bloomberg Surveillance 03/03/2023
We're certainly all beholden to the data at this point. We're in unprecedented times in terms of the volatility of the economic data. We're sort of stuck in this range and the market continues to kind of grind sideways between all these levels of resistance support. I see evidence of labor market softening. Everywhere I look, except for in the economic data, we're not going back to where we were. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz. Let's get you to the weekend live from New York City this morning. Good morning. Good morning for our audience worldwide on TV and radio. This is Bloomberg Surveillance alongside some keen and Lisa Abramowicz, some Jonathan Ferro equity futures positive two tenths of one percent on the S&P T.K.
for once, the bond market behaving, yields pulling back from yesterday. When we got our fear yesterday, we started behaving. I mean, you see yields doing a little bit better here under the 4 percent level in the 30 year. But to me, the big thing, John, was the moonshot list in the Nasdaq yesterday. Bottom the top not complete was a 2
percent equity move. Given the gloom out there that got my attention. You can thank the man from Atlanta for them. I believe so. President Bostick began saying he hoped for a pause in late summer. Let's just pause on that just for a moment.
This market's already priced in a peak in September. I read it twice. So to state the obvious and say you're hoping for a pause in late summer, I will just say this and I'm going to editorialize. This made no sense. He basically came out saying if the data comes in hot, he could go more. He does support 25 basis point rate hike and then full stop.
That's what people stopped. And then they just basically rallied because they felt maybe he was dovish. I don't hear dovish ness in this. Governor Wallace said the same thing overnight in a speech. Ultimately, if the February data confirms the strength of January, they'll have to do more. If it doesn't go 5.1 to 5.5 percent and it doesn't change much. It actually was relatively hawkish.
Perhaps people were, you know, shrugging off that speech because it wasn't allowed to be held in full in paternity. A question and answer question session. But I am wondering, oh, why the market is reading this as dovish when it is. Absolutely not. You can't go there without going there.
All right. Let's go there. I'll go there. Okay. So the program that was hosting the speech with Governor Wilder said it was the victim of a teleconferencing or Xoom hijacking. The Fed just said this. There are technical difficulties with Governor Wallace version. Also, they fired the president of Zoom.
Is that well, no. How is this different displayed than a graphic content that was visible to whether or not funny to whether VIX. No, funny if you the Fed trying to deliver a a serious speech. Funny. This is the new technology. And, you know, people get run over. The three of us live in mortal fear of
this every single day. You know that you are showing how you imagine, like if our signal went out under commercial breaks, I dunno what we'd have a shelf life. I say certainly that's not something I'm in mortal fear of. Not every single one.
I mean, look, honestly, it's really disrespectful to a body of the government. Nobody of this administration. That's really important. However, it is kind of funny. I mean, come on. It's like a little bit funny that that they had to shut. The whole place is funny. That's what's bad. Let's show you something.
Let me take the small ISE. You know, I'm not going to, you know, try to pretend to have the high moral ground to know what I thought. It was funny to think that. Yes, although to deliver a speech and
then didn't have to do it anymore, I'd be so happy. Although I will say this, I wish that he had had a chance to elaborate a little bit on his thoughts, so maybe people wouldn't have taken what otherwise is a basically status quo at the margins, hawkish as somehow dovish rhetoric for some of them get a second chance. I know you're going to go through the Fed speak in just a moment. Let me wish for the price action for you. Equities are positive by quarter of 1 percent on the S&P 500. Will the February data confirm the January boom? We've got a little bit more economic data coming out later. That's a big yields pullback in by 5
basis points Tom Keene a 10 year still just about holding on to 4 percent. How many guests have told US RSM Services at 10 a.m.? John, this is something you follow. What's a driver to this, I assume?
And two days ago, I assume that was manufacturing. So this is it shows this is service as a services, as the inflation angst that we feel and what we saw, any manufacturing rate that was perfect. Lisa, as you saw the prices paid component, the manufacturing story that spooked this market. Do we get a similar kind of read from the prices paid the ISE some services index that we get at today a.m.
but also, do we get the same kind of strength that we saw last months of people wondering if the January boom that we saw that huge spike up in the services in DAX, whether that's stickier, whether that was some sort of distortion, if it is sticky, it will confirm this feel that we saw poor Fed funds rates, the expectations for peak rates to 5.5 percent yesterday and possibly even higher. We have some people gaming out 6 percent as well. Today, we also watch U.S.
President Joe Biden and German chancellor all I've sold to our meeting at the White House. Very curious to hear what the next steps are on Ukraine, whether there's any discussion about bringing Ukraine in a curtailed format into the EU, what path there is to exit this conflict that otherwise seems like a quagmire that just doesn't end and continues to take so many lives and say the Fed speak we talking about that includes Dallas Fed President Laura Logan, a reprisal perhaps of Atlanta Fed President Rafael Bostic, who can clarify whether or not that was actually done. Considering the fact that he basically is saying what everybody is saying and confirming the market view and bank governor Michelle Bowman. Curious to see what the terminal rate is and what the key issue. Are that they're watching what we heard from Chris Waller, as well as Rafael BOVESPA, is really the key focus on the labor market. If we get a hot read on the jobs figure that could push the terminal rate, expectation subsided substantially higher.
And I do agree with you, John, for the fireworks, the fireworks and the dot plot are going to get away already. She's fired up today. That's the promo. That's the promo for fête day. You're going to miss, unfortunately. You won't miss March 10th, though, which is payrolls Friday. And you won't miss March 14th, I believe, which is the next CPI print some. And those two dates, pretty key for Governor Wallace, the company.
I think the economic data here in just to there, John, this is important to me. You rewrite your 270 day outlook for March 31 this weekend. But this weekend, you really got to think about what's your belief, what's your conviction? And also, can Ferrari beat you, catch up with Steppin? I mean, that's a key point. This a story Sunday maybe is what Leclerc is going to do. You know, just doing it crossed. Let's see what kind of car we've got.
Let's under the clear Jonathan stuff. Let's talk about your conviction, said the equity strategist over a barrel back. Jonathan, I know you like eurozone banks.
So let's talk about them off the lows of last year. That index euro banks are up more than 60 per cent, yet today they're up more than 20. Jonathan, what's going on with those names have been left for dead for so long.
Yeah, I think some of the context is interesting that it's not just eurozone banks, there is also eurozone equities. If you look at Europe broadly against the US, locally in dollar terms and the same story for banks, you seen outperformance last year, 2022 and also this year, year to date in very different market conditions. So you have to go back many, many years to get consecutive years of about performance for both Europe against us and also for the region's banks. And obviously that's closely tied together. Very broadly.
I mean, we've been like bank since the end of 2020 and we still like banks because valuation is supportive. Balance sheets are supportive. And they say they obviously have positive gearing to higher rates when much of the market has negative gearing. So there are three sort of ongoing support for the bank sector. We still like the sector Dani Burger
Jonathan Ferro moveable feast for me and I want to focus on the banks. Was Joan Ferro absolutely nailed over the last number of months and Jonathan stores? What I would suggest is BNP Paribas has a reduced book value to the American banks. At the same time, the dividend yield is shockingly on American. BNP Paribas are clocking in with a dividend yield of six point zero five percent. Translate the future for a bank like BNP Paribas with a payout like that. I mean, this is a key discussion. It goes back to a lot of the work we've done under a series called Brave New World and his big picture down to this, a single single, Stocks.
We've clearly left the post financial crisis free money era behind when interest rates were nothing too negative, obviously not greatly to running a banking business. When this brave new world where we have more political geopolitical risk, more fiscal, higher inflation, higher rates, and that's clearly bad news for the banks generally, but also in this brave new world. Valuation matters much more and income matters much more than in the free money area where it's all about capital return. So any any source of income, including some single stock banks, are able to deliver income at an elevated level and are able to grow that income. They become actually much more valuable assets for investors. In this brave new world, if we are
indeed higher for longer. So a lot of the European banks tick, tick those boxes very well. US banks tick those boxes reasonably well, but they're starting off, as you say, from a much lower income base. The rally that we've seen has been incredible in European banks so far this year. Time for talking a lot about that. We've seen the move that you're talking about, people coming to your view pretty dramatically. How do you know after a 20 percent rally in European banks so far this year, whether we've seen it all peaked in.
So we did a report a couple of weeks ago looking at cyclicals against defensives and read across the banks here. So cyclicals have also performed very well relative to defensives. The macro and valuation signals middle of last year telling investors to take a strong positions in cyclicals against defense is important. The valuation signal there has now
neutralized. So if you track these signals, you're now pulling exposure back from cyclicals. But that cyclical discussion doesn't include banks. And when you look at banks against defensives as a portfolio decision, banks continue to look extremely cheap and still have valuation on their side, relative defenses and then have the other supports I mentioned earlier. So capital balance sheet and also this positive gearing to rates which in the US and Europe are going higher still over the coming quarters.
Jonathan, just to state the obvious and finish with this one. High rates are good for banks until then. And the not best the piece I'm interested in. Is there a point at which you say this is probably going to slam the brakes on the eurozone economy? I don't belong there sector anymore.
Yes, but I think or concerns they would be more tilted to the US again. I mean, the U.S. yield curve, we all know very well as a signal signaling force, not great sense of risk on. One of the things that interests me almost most of all as a strategy is when I look at the nominal growth, the GDP plus inflation forecasts from economists into 2024, which is a recovery year. Economists are expecting that that recovery year global and U.S. nominal growth to slow substantially.
That has never happened before. There's a conundrum there. But the concerns about rates being this aggressive brake on economic growth is much more a challenge, I think, in the US than it did in Europe. Rates are going higher and there's a tipping point in Europe as well.
So I think we still have a bit more wriggle room and the European economy is looking set to actually outperform the U.S. this year and next year for the first time in many, many, many years. I didn't see that coming. Jonathan Stubbs, sir, thank you. A Bamberg on the latest. Quite a German to ESPN and where it is now one year ago.
Twelve months ago, negative 73 basis points right now, pushing 326. I want ECB official added a bit earlier on this morning, talking up a 4 per cent rate over the ECB as a potential. Just absolutely unreal what's been developing later in the bond market. And it's such a short term.
It's also longer term, this idea. It's not just two years. It's also 10 years. People are leaving out what longer inflation looks like at a time when we have not seen anything like that in decades. I know we've got to get through this morning tea cake, but shall we tee up Monday? Just a flavor of Monday this weekend. George now will join us.
And a Monday, it won't be George Clooney, although he is the George George Clooney F1 paddock. Christian Horner of Red Bull. Jonathan Ferro will this. Because, listen, I know I'm going to be watching Drive to survive literally every day. Watch the race over the weekend. Well, time is going to be an expert by
my guy. Friends go for a stroll down the road from Canada's trying to buy the sport. He's going to sound like an expert DAX anyway. Christine Horner, the Red Bull old F1 team principal, coming up on Monday. Looking forward to that conversation, 630 Eastern Time. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo.
Fed policymakers are warning they may need to lift interest rates to a higher peak. Governor Christopher Waller said that the key would be whether payroll and inflation data cool off after being stronger than expected in January. Atlanta Fed President Rafael Bostic says he's open to raising rates higher than he had envisioned. If the economy remains robust. Germany's Chancellor Orloff Schulz may be put on the defensive today when he meets with President Biden at the White House. Schultz could come under pressure over the struggle to produce enough ammunition for Ukraine.
The two leaders are likely to discuss ways to step up manufacturing. The Biden administration has imposed export restrictions for dozens of Chinese companies. The U.S. cited activities contrary to U.S. national security. Among the companies on the list, computer server maker Inspire and CPM maker Long Song. They're considered two key key to
China's effort to replace foreign made technology. In Hong Kong, fire raced through a 42 storey hotel being built near the waterfront. It took hours for it to be put under control. There were no casualties. The Kimpton in Hong Kong is a four hundred ninety two room luxury hotel that will be operated by Intercontinental Hotels Group Global News Power by more than twenty seven hundred journalists and analysts and over 120 countries. I'm Lisa Mateo and this is Bloomberg.
What we're worried about is Chinese backed company is being on, you know, tens of millions of American phones, including members of the military and privacy concerns, data concerns, misinformation, concerns. That doesn't just apply to technology. So the question is, if you are concerned, what are you going to do about it? Gina Raimondo, that the U.S. commerce secretary on ticktock conversation about the potential bad restrictions around that story. Lisa, the last administration talked about this. The current administration is talking about this.
And what has happened? Not much. Well, ticktock is trying to get ahead of it with a PR move, saying they're going to limit the time for people who are under the age of 89. Tick tock by 60 minutes. And I can only imagine that everyone out
there who is under the age of 18, I'm just going to six suggest we'll be lying about their age, number one and number two. Coming up with different accounts. I mean, this is basically lip service ahead of the hearings that we're expecting in Washington.
One day a guy that moves terminals worldwide said the exact words my August father once said about television. He called it the idiot box. Why is Tic TAC now any different than our parents? Parents railing against the idiot box 50 years. Let's be honest with you. I think I've gone down the rabbit hole of the wrong conversation. Let's go through Raymond's comments again and why she's concerned tens of millions of American phones, including members of the military, the China privacy concerns, data concerns, misinformation, concerns. That doesn't just apply to ticktock. That's not about social media routing the brain to block and use.
It is. But that's not what this is about. It goes beyond that. Some it does. Thank you, Jim, for getting them back on the rails. And the answer is. Show us the proof. The moment there is evidence that China's pulling our data value, this story changes. Has it changed yet? I don't think so. Well, it's also the idea that these
social media networks are the curators of the news feeds, of the awareness of the social surroundings for a lot of people, especially impressionable young people. So if they are actively manipulated in a certain direction, it raises a lot of questions and potential security issues. So the news today is around Chancellor Schulz, the German chancellor, visiting the White House today. We're leading with our reporting that maybe he might face some heat from President Biden, some over providing ammunition to Ukraine. A whole lot more. I think it's hugely complex. And my history on this, John, is to read
that it's always complex for visiting German authorities. Domestically, he's going to be playing, I assume, to his domestic German population just as much as he's playing to the president. The United States is going to brief on this. Annmarie Horden joins us. She is, of course, our Bloomberg
Germanic correspondent. Emery, does he get a state dinner? How does that chosen? How does how do we choose a state honored as Mr Shaw's good to state dinner? No, this this trip is incredibly under the radar. I mean, they'll probably be a small, private, small pool spray at the top, so we'll see them both in the Oval Office before these two individuals bite it and should spend a lot of time together. But he's not making the rounds in terms of a big fanfare meeting. There's not going to be a joint press
conference, but there's two things really to focus on when you look at Schultz's visit, one year on. I think this time last year, he gave this huge speech to the Bundestag and it was called in German. The turning point and this was huge for Germany.
This was really a massive shift in terms of energy as well as defense. And he is facing some criticism now. And there's a lot of pushback on European allies in general because there is an issue that does LINSKY government is confronting right now, and that's to do with ammunition. And I go back to what Dimitri Labor, the Ukrainian foreign minister, said at the Munich Security Conference, which was with the first year of the war, was about weapons and the nonstop supply of weapons.
We need more weapons. Now, it's about making sure that they get these shells and ammunitions at a sustainable basis. And the European Union at this moment and I spoke to the Polish about this, about a procurement of ammunition and potentially this is what these two will discuss. Simone Foxman first on this. I'm not embarrassed to ask this question.
It's a delicate question. Do we play the French or the Germans and the Germans after the French does? Does what you do do that? I'm not sure I want to comment exactly on that. I don't think it would be fair. I think what you've seen over the course
of the past twelve months is that the US kind of has a two prong approach. We're dealing with Europe. One, they definitely consult and she's expected to come here as well very soon. Ursula von der Leyen as this leader of
the entire group. But then, of course, behind the scenes, they are each consulting both of the every country's leaders and those officials in all those countries. What I would say more is that the divide is not France and Germany, though. The issue you have in the Estonian parliament, prime minister had a conversation about this with the Financial Times overnight. The issue is more the east and west. So you have the likes of Estonia, Lithuania, Latvia. They have been putting the pressure on France and Germany even before this war about the concerns they had about Moscow's overreach and their concerns about prior incursions from Putin before the mass scale invasion of last year.
So I would say Germany and France are a little bit more easier to align. It's really more of an east west divide when you look at Europe as a whole in a lot of people are focused on the weapons provisions to Ukraine and what the alliance is kind of agreeing to and actually producing. There's also a question of how does this end and what is the end game at a time when it's very clear that Vladimir Putin is not giving up. He is going to double down even at the loss of a lot of Russian soldiers. What's the thinking in terms of a road map, a framework to end this? Well, this is the question everyone's been asking this time last year, the headlines were Keith was going to fall in hours or if not hours, days.
Obviously now everyone is settling in for a long, protracted war. Remember before this war, there was fighting in eastern Ukraine following 2014, Orange Revolution and annexation of Crimea. This is not something new to Ukrainians. Obviously, the scale is much different.
But the fact that this is a protracted, prolonged conflict publicly, what you hear from officials is that they will stay by Ukraine till the end, including until Russia leaves as well. Crimea. So far, it doesn't look like Zelinsky has been pushed, even though potentially there would. There are conversations potential in the background about, you know, at what point do you go to a peace negotiation? But so far, he has not been pushed into that. So this is the question everyone is asking, and that's the reason why you have the likes of the Ukrainian foreign minister saying to officials, we need sustainability when it comes to this ammunition.
Let's get to the elephant in the room. It's China. Olive Schultz visited Beijing back in November. This administration is very concerned that Beijing will provide lethal aid assistance to Russia to engage in this war. How will that play out in this meeting today? Well, Schulz addressed this yesterday to lower house of parliament, and he warned China one for not condemning outright the invasion and said that China should be using its power and muster to put pressure on Moscow to withdraw Russian troops. And then did say that there would be consequences if there if China were to provide lethal aid. What the U.S. has been doing is talking to their
allies about making sure that if this was to happen, if China was to cross this line, there would be some sort of consensus to really make sure that they put some sort of penalties on China. But, of course, this is going to be a major discussion point when the two meet, because this is concerning everyone. Also, Schultz mentioned yesterday because we have the G 20 foreign ministers meeting in India, he said that he was very disappointed that China last year was able to sign up to this communique. And they're now starting to backpedal on the latest in Washington. We'll catch up with Emery in the next
hour. Keep talking about these consequences, don't we? Lisa, what consequences? We'll have to see. I mean, we did see some potential sanctions on a number of other non tech DAX companies overnight from the U.S. export bans. There is a question, though, what real tangible consequences? Certainly the market's not feeling any harm. What do you do if you're in this market right now? I've asked that a few times around May 10. Geopolitical risk.
There's always something in geopolitics to worry about. Right. There's always some kind of geopolitical risk. What did Lukoil say yesterday? This is a reason why we like it, because this is the reason why people aren't going more into Chinese stocks and actually for the first time in a month.
Investors were net buyers of Chinese equities thing over the past week. So just give you a sense. People are saying, you see, opportunity here was at the heart. They know over bank. Yes. I still got to read that.
What did he say? Tedi Securities. Also, interesting thing, but he was basically saying cash is a legitimate alternative to stocks and will be for a while. Well, it is when you can get 5 percent on a six month TEPCO and 4 percent on a 10 year. Right now. Trying to snap a three week losing streak on a S&P 500 poised to squeeze out a weekly gain. Futures adding some weight to yesterday's move, up a third of 1 percent on the S&P 500 and the Nasdaq up four tenths of one per cent in the bond market.
We hit new highs, multi-year highs at front end in yesterday's session and we retreated just a little bit down about 2 basis points through 490. Back through it again for 85, 85 on a 10 year, clinging to 4 per cent, down 5 basis points on the session. Your next stop is the data. A little bit later, the ISE in the United States of America will keep going back to the same question with the February data confirm the January boom that's really important to this fat for this ECB as well. We had one ECB speak about a little bit later, a little bit earlier, rather, from the Belgian central bank. That governor talked up 4 per cent and said this looking at rates of 4 per cent would not be excluded. That gets your attention. Euro dollar if can have a brief look.
One of six twelve on euro dollar positive, about a tenth of 1 per cent. Let's get to the Fed speak. What a weaker Fed speak. What a day. It wraps up with Logan Bostic, barman following hawkish comments from Waldron Bostic, the Atlanta Fed president saying, quote, I want to be completely clear. There is a case to be made that we need to go higher.
Jobs have come in stronger than we expect in inflation is remaining stubborn, elevated levels. Consumer spending is strong. Labor markets remain quite tight. That, of course, was not the quote that did the rounds yesterday because that didn't fit the price action. And Lisa, exactly to your point, there was more there than the IV.
And just I hope that we pause in summer, although I do think that the market reaction is really telling Joel Weber this market wants to rally this market wants to look past any potential hysteria around inflation and say, we're going to get past this. It's gonna be okay. Let's see where the opportunities are. I do think that's the takeaway because otherwise there was nothing in that speech that to me really struck me as does it. I would frame it is that environment. And so, by the way, Senator Warren could have written the same statement as Mr. Bostic, but that's a separate story. The reader can with no real ISE. It's Friday. Leave me alone.
I would suggest that what we're seeing here is a recalibration of nominal GDP and what that means for corporate revenues. And beneath it all, people are gone. Wait a minute. Are earnings flat earnings up? Is there any growth in this on the income statement of corporate America? I think that's a sub story here. Clearly, there was a correlation yesterday between post-tax comments and what happened with the market. I get that. And I think Fed speak is always relative to the market move beforehand.
And clearly we had a decent selloff in the bond market driven Lisa. He comes out, talks up a summit pause maybe that sounded unexpected to people who thought they were going to double down on this hawkish note because the data's been strong. These guys are economists. It's always on the one hand, this on the other hand, that.
And on the one hand, if the February data confirms, we'll have to do more. And on the other hand, if it does and maybe we can just go with what we projected back in December, basically they don't know either. So we're not getting any information from a lot of these features. And you know what it is? I think they're very fed up looking silly, really fed up. And I don't think you're going to hear them embrace the disinflationary process in quite the same way share power debt unless we get a print on March 14th that confirms the view that the data before the new year was the trend and the data in January wasn't the start of a new one. That's the question right now, really
going into the data. I also think how do you make any definitive statements or guidance that you can't get? Mark Crumpton that is just incredibly uncertain. John Micklethwait wait for the data and what you will do this weekend as recalibrate across equities, bonds, maybe currencies, maybe commodities and you need a foundational belief based on flows. Ibrahim Gambari is expert at this is global herd of ethics analysis at Citigroup are really good briefers this morning. Ebrahim, a single sense in your report there is so much cash.
Where is the cash going? What are we going to do with so much cash across this globe? Thank you very much, Tom. And I think the role of abundant liquidity is still critical in this market set up, and we have basically two cornerstones here. Number one, we still have extremely abundant liquidity. And whether you mentioned that whether you measure that by the amount of money in money market funds or excess reserves or household deposits, there's still a lot of excess buffers in financial markets and among households.
But on the other hand, in terms of the flows, we are seeing them move more in the direction of safer assets. You mentioned earlier shorting U.S. yields being extremely high above 5 percent for someone one year securities. So there is a move towards towards safer assets. So there is this this growing drive away from from risky assets, which we think will will be increasingly important as the year goes on. The three major powers to triangulate. I guess there is a long euro edge here
right now within the stew that we're in. I get that. But to me, euro yen dynamics could speak volumes. What is the signal of stronger euro versus yen that we've seen recently? Well, I think that for a foot for euro yen, we have a very interesting dynamic because it is now also a global interest rate. So there has been so much focus on the BMJ and potential policy changes.
But meanwhile, global interest rates have gone up 100 basis points, which is beyond anything that could happen in Japan in in the short term. So as the rest of the world hikes, I think the yen will continue to be a little bit in the background. But we know something is going to change in Japan eventually, too. But for now, I think the upside in euro yen reflects that broader trend towards robust growth and persistent inflation elsewhere in the world. Abraham, when you say something's going to happen eventually in Japan, we all know.
I mean, we kind of all do know that it's just to state the obvious. My question is, what are the conditions through which something does change and are we anywhere near meeting them or we think in the near term it's almost just the choreography that needs to change because we know the conditions that were there in in December that got them to change the UK target. They're still there. So that at a minimum, they need to make a change to the financial architecture. So widen the band or raise the band. That will be to the five year. And it's really just about that
leadership handover that's standing in the way. The bigger question, of course, is simply whether Japan needs to tighten policy, whether they need to raise policy rates in a number of successive steps. And all of the signals we're seeing so far is there isn't going to be that much pressure. So for now, we think it's just leadership choreography getting you to wisely see change. I wouldn't rule out that that could even
change in a surprise fashion this coming week. Not my base case, but we don't want to rule it out down the road more open minded whether they get to a hiking cycle. But that would really be the game changer for, I think, global rates, markets and and the yen. Otherwise, it's need global interest rates that are there. The bookcase by the end, global interest rates coming back down. That is Ibrahim, I'm going to ask a stupid question. You're talking about the flows and how
flow driven everything has been in that there's a lot of cash on the sidelines. What does that mean when cash is an alternative, when cash is an asset class unto itself? We think over time that will end up being a drive on, on on risky assets. If you look at that much rate differential between interest rates, again, Treasury market rates or long term bond yields and the earnings yield or dividend yields of equities. We think what that means is when equities are not going up, the money is going to continue to be pulled into into the safest securities and that will eventually be a weight on on on risky assets. But for now, there's enough enough to go around for everybody. We're still seeing inflows. And again, the Bank of Japan, the PDC
and to a degree, what's coming out of them. Some of the facilities in the Fed is still contributing to that. So this is really the question that a lot of people have when you look at the euro versus the dollar. Which bank is going to tighten more?
Which bank has the upper hand when it comes to attracting flows at a time when people are looking for real income? Which bank has the upper hand here? Do you think that people have gotten a print out over their skis in terms of euro strength? We don't think they've gotten over their skis and packed into the end of the year, we do see that appeal or or the euro, we do think that your dollar will be above 110 in the very short term. We think that applies as well, that relative differentials probably a little bit more tilted towards the US investors. I think I'm getting more comfortable with a general idea that Fed rate rates globally have repriced enough. Inflation concerns have been addressed in this window to the end of India, end of March. But it is a question of whether rates volatility, whether risk sentiment remains orderly. So that's a critical additional variable
for euro dollar. Again, for the next couple of weeks in in in a bottom starts, we think that's the case. So there is a short term tactical case for euro dollar upside.
But we said it's a year of transition for the euro dollar. Do we see into the end of March volatile upside? Probably some back and forth and it'll end up the year stronger as well. Well, just to be clear, Abraham, a question that Lisa keeps referring back to and I want to build on and just finish. There are more hikes from the ECB, bullish or bearish the euro.
For now, we think that bullish, critically dependent on nominal growth holding up. But we think that B2B going to fourth quarter, quarter percent while the Fed goes to five and a half, 575. I think that's that's at the moment a euro dollar positive tonight. Okay. Abraham, not by the city.
Does that clear things up for you? Primer for now. For now. I mean, it's volatile until the next move into the next birth, but then ultimately I'll end up the stronger I look. A lot of people find saying there.
I think that you're asking a couple weeks ago this question of which bank is going to raise rates more? The Central Bank of Europe or the central Bank of the United States. And a lot of people, pretty much everyone you talked to said Europe. Now, the question is, who has to go further than expected? Right. Because we take that in. Okay.
The data comes out. We reassess and offset everybody as High Flyers. Sock Jan addressed this in a note last night. The mattress. Yesterday evening on the Fed side of things, at least anyway.
And what it means for bonds and why she thinks that risk is skewed asymmetrically to go in lower in yields. She said this with a sharp sell off in treasuries and repricing of hikes. The upside risk to upcoming payrolls and inflation prints are already in the price have yet. She went on to say. Hence, we continue to believe that risks
are asymmetrically skewed towards lower yields. If the data disappear like really, really important in taking an equity equation and bringing it over to a fixed income, someone that agrees with her is one premium. Ezra T.D. Securities, who has a lower yield call. And I think it is I think I could see this early conviction on that. She really feels we drive lower. Is this a reason why we saw a rally yesterday then? Right. Basically, people have believed that
we've already imagined so many rate hikes into this market and priced it in that there is an asymmetry of risk that people have gone too hawkish. The two rules in this game, you've got to argue, remember, there's a burden and ask everyone forgets that, including me. You've got to find somebody dumb enough to buy your asset when you're selling. And the other thing is with a vengeance. Markets look out and they look out six months.
What? You know, whatever you can argue about it. But the media looks now and even some of the media look past. No one does that in the real world. They all look outward looking right now to August.
A lot of people subscribe to the greater fool theory, but I love it when you say it. You've got to find someone who's dumb. You gotta find somebody, get some money to buy anything. And when you're certain, when you're sitting there with a big position in the bed walks away, I hear it's you know, it's ultimately to make it simple. We've really raised the bar going into pay rose next week, March 10th, because of the shocking numbers. I mean, we're still not over the we've responded to January as if that is the start of a new trend.
And we need to wait and see if February confirms. Can I give you the data point for the day? Please stay with CNN. Thank you. The F 1 spend per race is five point nine million dollars per car. It's stunning. I had my own ISE in each race.
They spend that you're excited for the season, aren't you? I am having some fun, folks. I know nothing about this. In honor of the Great Lake, Ken Prewitt, he used to throw cigarette butts AP. He was so angry at me and he would be so happy.
John, you've infected me with this disease. I say you're blaming me. It's your fault. I tell you the wonderful features right now.
Positive. A third of what this Bill and I were home watching is. Making driving him nuts. Used to stand so much about it, some sound so much better.
Fifty minutes away from catching up with this guy, Terry Wiseman. I was just saying we need a Tom Keene sound effect. There you go. Keeping you up today with news from around the world with the first word. I'm Lisa Matteo. The U.S. and South Korea are planning to hold
large scale military drills later this month. Those exercises are certain to anger North Korea, which has threatened to unleash an unprecedented response. U.S. and South Korean defense officials say the drills will bolster a, quote, joint defense posture in the face of North Korea's nuclear and missile threat. The U.S. is warning companies against doing
business with those trying to evade sanctions on Russia. The Commerce Department says businesses should watch for trans shipment points where goods are legally purchased, but then sent on to Russia or Belarus. Those locations include China, Macao and countries close to Russia, such as Turkey and Armenia. ECB Governing Council member Appear Wunsch says that market bets for interest rates to reach 4 percent may prove accurate. That's if the underlying price pressures
remain elevated. Wench told reporters in Brussels that if it is not clear that core inflation is going down, central bankers will have to do more. Apple, part of Foxconn, is stepping up its shift away from China. The Taiwanese company will spend about
seven hundred million dollars on a new factory in India to make parts for the iPhone. The plant will be built near the city of Bell, Bengaluru. Global News 24, powered by more than 20, 700 journalists and analysts and over wanted to 20 countries. I'm Lisa Mateo. This is Bloomberg.
We think, president, he can largely achieve some of his goals for the past three years. Those goals have been very disparate and not related to economic growth at all. It's just this a multifaceted suite of policy changes that are more pro-growth is, I think, something that makes the sales pitch a little easier this time around. The man from VIX CAC just wonderful to hear from him yesterday and his pet delicate. The doc's position on the euro got a lot of feedback about that. You may not have a single currency.
I think it's a heartwarming story. His dog's name is Maha Village, who is an iconic player for the tour on Alix Steel. This is ice hockey. Yeah.
You know. Yeah. This is ice hockey. Just to clear out for the people. Hockey Samurai has a photo of Maple Leaf Gardens.
You hold Maple Leaf Gardens, John. I stood at the top of Maple Leaf Gardens when I was 16 years old. Completely empty, completely silent. And it's like the Vatican. It was like the Leafs, like the Tottenham of ice hockey. Yes. I think it's actually very accurate. I'll let you decide.
But what the Leafs are, does he should the more he decide to win? No. They're the richest team in the world is the stereotype. So they don't have to win. Has been the rap for years. This is scarred Erik Schatzker for life. Sounds like the Cowboys. It's like the Cowboys.
To an extent. They're like. It's like religion. We can make a sham out this. This is clean. And UBS is never invited us up there with a young. And Rosenberg has an either. Then wait for that one sec. I mean, how was hockey royalty?
Let's be sure. His father was iconic at Michigan. Didn't know that. Yeah. Big time. Very cool. Sorry I keep your ice hockey. No, no. Mr. Carver.
Did a little better than Mr. King. I always ask this question. Lisa, can you imagine 6 foot 6 Tom Keene coming down the ice rink? CAC. Yeah, I'd like 20 years old barking at one. One year I was the tallest person in the end.
CWA ad hoc way. Yes. And I can point out now that there's 422 people my playing the game that much. The only thing the same as a puck. There's nothing you know, Puck still says made in Czechoslovakia. I like that they're still allowed to fight, you know, and I stayed up for this.
Yeah. No way for you to get to him. But we can talk about ice hockey for as long as you like ice hockey, you know, on caucus. Think Undercurrent joins us now, our chief Asia economics correspondent on a Friday.
And I must ask an update on the opening of China, the opening of Hong Kong. Yeah, actually, there's a big concert on tonight looking flat for the first time since before the Cuban crisis. I believe it, Soledad. I'm getting messages, people having a good time down there.
So Hong Kong is reopening and slowly getting back to normal. But as we said before, Tom, it's still got a long way to go because of the legacy from both Covid Covid era and of course, the political backdrop here. The political backdrop is extraordinary with the Congress coming up. I thought that Bloomberg laying out the new regime of G to FTSE doing the same things, a new regime, a G. And I go back to a hugely brave article in foreign affairs. I'm going to say six months ago.
Is it just Mr. G's buddies that are going to run the economic policy of the nation? Well, the signals are he's definitely going to again, tighten control, consolidate control of the financial sector, for example. Some key allies will be appointed into key roles. Lee Chang is going to be expected to be the premier. He ran Shanghai Paul Sweeney Central
Bank Governor, Paul Sweeney securities regulator chief. So lots of really significant reshuffle on the. Yes, it would appear to be he's lining up his allies now from the outside looking in. That would be off putting to the market world, seeing the sort of removal of those Western facing globalists kind of reformer types who have held key economic and market positions in China's or China over the years with the replacement of, you know, what's what's now seen as people pretty close to Xi Jinping. The counter argument is these individuals in their own right are quite capable. I mean, Lee Chang, as I just mentioned,
from Shanghai. That in itself is one of the world's biggest cities and biggest economies noted for bringing foreign investment, for example. But, of course, he was also well known for the very brutal Shanghai lockdown from last year as well. I think that's where people are pressing pause. Sodas, two ways of looking at it. It's a regressive, backward step for
China or it's appointing key documents who will ensure that they get Xi's agenda delivered and done, this transformation when it comes to the leadership of China and certainly the hard line that's being taken. But there's also a transformation in the business community's view of China. The latest, Bloomberg is reporting that Foxconn, which produces iPhones, is building a 700 million dollar plant in India. That's their plan, at least as they diversify some of the production out of China. We've seen this from others as well.
How much is this just anecdotal at this point? How much is this something significant that's starting to gain steam? Look, it's definitely the mood music, Lisa. The American Chamber, right during the week, they said their own executives in China are exhausted by DAX 0 years and sentiment towards investing in China is the worst it's been in decades. And when you speak to multinational executives, plenty of them are based here in Hong Kong. The old say the same message. But when it comes to the rubber hitting
the road, it does become more complicated. Certainly some plants, some factories are not pulling out. They're certainly setting up expanding their base, maybe in Vietnam or in India, like you mentioned, that is happening. But is it happening on a scale yet that's really going to transform China's manufacturing sector? It's not there yet.
It's not necessarily showing up in the dollar either yet, even though, of course, FDI can be a wonky dataset when it comes to China and it does lie. But I think it's broadly fair to say there isn't any evidence of a mass scale withdrawal from China. Even the American Chamber said despite the fact that their members of fatigue, nobody is really indicating that they're going to pull out in a wholesale way. But to your point, the mood music is bad, sentiment is sour. There are people moving at the margins. And the question will be if that is going to accelerate over the coming months. And of course, under this new incoming government as well right now, the flip side tests that we saw, Tesla reporting that their sales in China actually rose, despite some of the skepticism from a Xi Jinping standpoint, the leadership of the Communist Party in China.
Do they want foreign business there or do they not? I think they do. They want the know how they want the investment. They want the capital. They want employment. They absolutely do.
But of course, they do set their terms. It's you know, it's usually a joint venture operation or some technology transfer technology sharing, as they would put it. It's not like a foreign company can just go in and set up wholesale and start eroding into Chinese competitors. There are plenty of multinationals making the point that they continue to expand in China. I had an e-mail this week from a German
business delegation going out of Hong Kong in India, next door into Guangdong to drum up business there for the manufacturing base. So there is plenty of interest still and China is welcoming and welcoming about business. But when we saw like today without export control news out of the White House, the backdrop, the mood music remains very tense politically and it's hard to see how major investment decisions will be made in that kind of climate. Dani Burger. Before I let you go, and I'm curious how that dovetails into the discussions about China potentially providing aid to China, to Russia, I should say, in their war in Ukraine. What's the view in terms of the Chinese message from the Communist Party of why this is getting out there the way it is and if what they're thinking is of what would trigger them to provide more material support to Russia? Well, I think there's been a lot of surprise among China watchers that China has has not been as definitive as the Western world wants it to be on Ukraine.
Not only have they not been definitive, but haven't condemned and they appear to be coming down broadly on the side of Russia economically, there's certainly been a boom in trade between the two parties. So any step that China takes, it isn't seen as explicitly, deliberately trying to end that war or even to acknowledge Ukraine's position in that war. I think any move that China makes will be suspicious or will be met with suspicion by the West. But China will be careful.
They don't want to get caught up and drag in the dragging of sanctions. They have been very careful about about. But so far. So whatever steps they do take will probably be pretty cautious.
And can we just finish on bankers? Some amazing stories doing the rounds. One is that the top tap banker in the country has been detained since February by the country's anti graft investigators. This according to The Wall Street Journal story this morning.
The banks in China are being told to clean up their ranks and avoid the head stick lifestyles and other Western influences. Edna, what's happening there? Well, that language is not unusual, it's been used before as used a few months ago on October, for example. But the point is there's no doubt the authorities are tone deaf when it comes to the optics of dealing with big business like fund bail, like I mentioned. I used to deal with him myself here in Hong Kong. He's been missing now for several months. The company had to put a statement at the Hong Kong exchange saying they don't know where the chief executive is.
That's obviously not a very good look for global business at a time when China is saying that they are open for business. So it comes down to being tone deaf on the one hand and saying, well, you know, work for a business like you did at Davos. On the other hand, are smacking bankers and of course, executives are going missing. The optics are pretty terrible.
I've got to say and thank you as always and coming up late in Hong Kong. We appreciate it. And as always, gone into the weekend. Time to end this point. There's a contradiction there isn't, that we're open for business. And at same time of you're a company in
China. And you need to put out a press release that says basically, we've lost our chief executive. We don't know where he is. It's this is the conundrum. And I go back to what was the vogue, I'm afraid to say it was 20 plus years ago, joint venture. How can Western companies, the executives Bloomberg speaks to each day to any form of joint venture? Given that backdrop, what's the incentive ization issue to bring in some of the ideas to a nation that doesn't necessarily respect the ownership of those ideas? You've got to give up your had an austere lifestyle. They said, Oh yeah, I'm just complete.
Just it's too much. Coming back from a full night party and could not sleep. Yeah. And then riding a fancy car home. All of that stuff is just too much. Katie Kaminski is going to join us next from Alpha Simplex Features Positive. This is Glenn Beck.
We're certainly all beholden to the data at this point. We're in unprecedented times in terms of the volatility of the economic data. We're sort of stuck in this range and the market continues to kind of grind sideways between all these levels of resistance support. I see evidence of labor market softening. Everywhere I look, except for in the economic data, we're not going back to where we were. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz. The phrase I can't stand. Happy Friday. Yeah. Oh, yeah.
We've done this before. Yeah, I'll just do it again. It's to be Friday. Let's get to work. Happy Friday. Guess what works Friday? Friday I said 956. You'll get more work, John. You'll get more work done on Saturday at the office than you do on three days. Now, that's just Saturday. That's outside of the office Saturday
night. Yes. Want nothing to do with that? Well, welcome to America. People really look at it. People get annoyed with me when I say weekend, midday on Friday. I apologize for that. Love from New York City this morning. Yes.
Good morning. Good morning. Equities, our positive by four tenths of one percent. A little bit of economic data coming down a little bit later, T.K. and a ton of Fed speak all over again. The data I didn't think was that important. I was wrong. I stand corrected. It is ISE some services.
John, you told me services has gone away. Usually given the manufacturing and it sets us up for the further data to get to. It's not jobs day today. That's the real headline. Payrolls next week. Payroll mix and then on to CPI on March 14th and next week as well. It's kind of slipped below the radar a little bit beneath the radar.
Chairman Powell, next week, twice semi-annual testimony. I wonder if he takes the Governor Wallace script of things and just turns around and says, well, look, payrolls is on Friday that we've got a CPI print. And if it comes in and confirms a trend in January and thinks it more robust would do more. And if it doesn't, we're okay with what we've projected. It will reassess that at the end of the
month. What I'm praying is that a Congress member turns to Jerome Powell and says, do you still believe in the disinflationary process? Is it continuing or is it over? We always tee up these semi-annual testimonies like they're going to go in that direction. And you know what happens? Yes. They're basically making a YouTube video for their constituency. And they stared down the barrel of the camera, go on a rant and then like ask a question and Chairman Power goes. What do you think of ESG? I don't know.
Basically, yeah, something like that. Let's wait for the price action just for you. Briefly, leaks is going to go through the data in the morning ahead for you. A ton of Fed speak as well.
Yesterday helped down by just a couple of comments from boss. They're quite selective when it comes to those comments from the Atlanta Fed president. Just this idea that he hopes that we might pause later in the summer, that apparently. But a rocket under equities for a moment, I'm not be dramatic increase up by four tenths on the S&P in the bond market. Some yields back in a way down five basis points, just about holding onto 4 percent on a 10 year. I'm glad you said that, Jack, because we're back in a way. But at the same time, what a week for
yield and it still gets us. I mean, if this was the yield three days ago, it'd be major headlines, 4.0 0 percent and the 10 year yield. And you look at the economic data, do we get out and then do we break out to new higher yield? Our guest coming up, Olena. It was pretty remarkable, Lisa, yesterday just to see the whole curve to set to 30s all above for four plus percent. And so this really raises a question, is this a suggestion of even less accommodation, possibly some sort of balance sheet roll from the Federal Reserve? Or is this a suggestion of more prolonged inflation? And to me, that's not very clear.
Perhaps the data will give a little more clarity. We've been talking about the services index VIX data that they get. What we get out at 10 a.m. for the month of February. The key question is, was it just one month? We saw that pop in January in terms of the activity in services. Does it continue? If it does, suddenly it starts to feel a little bit stickier. And people can't dismiss this as noisy data. That's not confirmed by reality.
Today, we are tracking what we hear out of U.S. President Joe Biden and German Chancellor Olaf Schultz. They will be meeting at the White House discussing arms provisions to Ukraine. But also, how do we end this quagmire? What is the road out? I am not hearing necessarily much about what the collective willingness is to give and take in some sort of negotiation on either side. We're not talking about that anymore, which is concerning for especially people who see populations eventually losing some political will to continue to finance a war that is just profoundly sad and unfortunate and depressing. Today, if I'd speak, includes Dallas that President Laura Logan, Atlanta Fed President Rafael Bostic, Fed Governor Michelle Bowman.
Will Rafael Bostic be interpreted as dovish today, even if he says that he could potentially have to go to a higher terminal rate? I don't know. I really am curious how much they confirm the rates will be the main instrument of their tightening, John. Is it going to be simp
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