If we see inflation move higher, it
really calls into question people's willingness to say rate cuts still are
coming. It wouldn't take much, I think, to push
back at least the timing of that first potential rate cut.
They're telling you if things slow down, they'll cut a lot more.
So they're trying to say that the risks around those three cuts are balanced.
It's clear that this is a Fed chair that wants to cut rates and is willing to
look through some of the hot inflation data.
And I think we w
ill end up with two cuts this year.
This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and Anne
Marie Jordan. Let's get your week started live from
New York City this morning. Good morning.
Good morning. For our audience worldwide, this is
Bloomberg Surveillance kicking off the week with yields at new highs for the
year right across the curve, two year, ten year, 30 year.
Here's the state of play right now this morning.
Yields by four basis points very close to full 45 on a ten y
ear lease
accounting to inflation later this week, year to year approaching for rates.
People are now pricing in basically two rate cuts from three rate cuts from
seven rate cuts earlier in the year. In terms of what the Fed is going to do
this year, what I'm looking at right now is how much does it matter and how much
does this really speak to concerns about inflation or a real yields narrative?
And I know it's nuanced, but this is something else.
This is basically the Fed fighting inflation in
the short term and winning
over the long term, which just gives fuel to risk assets post payrolls on
Friday through the weekend. That was a dominant phrase in all of
this outside research, non-inflationary growth.
How much of that story can we embrace going into this week?
We will find out on Wednesday with CPI. We will find out on Thursday with PIE.
We will find out as we hear about the geopolitical backdrop in terms of
tariffs and other such things. This really is the key question can this
gr
owth truly come without inflation? Is it sort of a justification for any
rate cuts at all this year? If there are no rate cuts, does that
mean that they're going to be fewer rate cuts over 2025 and 2026?
Or is the market is suggesting does that mean they'll be even more in 2025 and
2026? So.
Oh, yeah. Okay.
Risk on. You mentioned the geopolitics.
So let's take the temperature of that and we can do that in the commodity
markets. So let's bring up Brent and bring up
WTI, WTI through Friday on a si
x day winning streak.
Quite a rally last week by 4.5% This morning, Amari were lower by about 1%.
Still 90 on Brent crude. Yeah, a little bit of cooling off in the
oil market. This has to do with the fact that Israel
has taken some troops out of Gaza. But the issue is they're waiting for
potentially this strike from Iran somewhere within the region or somewhere
on Israeli foreign territory abroad. So Goldman Sachs is talking about the
fact that the rally could go 100 barrels.
Should we still hav
e that geopolitical impact continue?
But that remains to be seen at the moment.
Then you have a lot of supply constraints around the world, which
Amrita Sen talked about a lot this week. What I find fascinating was over the
weekend the notes that I read had more to do with the Saudi Arabia and break
even rate where they would actually have their positive returns on some of their
funds. And it was $85 a barrel.
So this is talking about a structurally higher rate of crude going forward,
regardless
of what happens in the Middle East.
I'm trying to work that out, too. For how long will the Saudis withhold
barrels and they're just going to sit there and let this crude move carry on.
For how long will the White House just sit there and do nothing?
We know they don't want to re filled the SPR.
Are they willing at some point to drain it?
Again, that's what I'm focused on going into the summer.
I want to ask Ellen Wald about this. How much capacity do they have to drain
this and what that means
for gasoline prices, because it has to do with
refining as well. But also Saudi Arabia, Do they have some
sort of a bone to pick here in terms of who they want to win the election and
how they want to sort of put their thumb on the scale they're going to do their
best to talk about. This has to do with supply and demand
constraints, nothing to do with politics.
But if we go into the summer, we start seeing $4 a gallon of gasoline.
We start potentially seeing $5 a gallon gasoline.
You better bel
ieve the SPR potential tap is on deck as well.
Is a lot of pressure on Riyadh. Brent crude right now, $90 in about
$0.30, WTI, $86. Let's get into the market action for
you, starting with equities on the S&P 500.
Equity futures right now just slightly softer.
We're down about 0.1% coming off the back of the biggest weekly loss since
the start of the year. Yields climbing through last week into
this morning. Your time this morning, Lisa, by four
basis points 440 so 60 on a ten yet I know that we
always say this, but this
is a massive week. I have to say.
We've got the trifecta. On one hand, you have key US inflation
data with CPI on Wednesday and on Thursday.
We also get Fed commentary as well as an ECB rate decision.
How much do we get them kicking off a potential rate cutting cycle?
Thursday we'll get some guidance. Is June still very much a go and then
earnings season kicks off and on Friday. This to me is possibly the most
interesting kind of bifurcation. What matters more central b
anks or the
earnings? Citigroup, Jp morgan, Wells Fargo, all
kicking off. We're also getting Delta earnings on
Tuesday, but I'll put that aside. How much is that going to be in the
front driving seat versus, say, some of the inflation rhetoric and questions
around Fed? I don't know.
But I can say this. I think we're all down with the Fed
speak, aren't we? I think we are.
We're done with the Fed speak and we can move on to Q1 earnings.
You really want to do that? You want to say that because some
body is
going to come out and they're going to say something and all we're going to be
talking about is that Fed speech? What would it take?
Government opponents already come out and entertain the idea of perhaps
talking about interest rate hikes later this year.
What would you need to see to make that conversation more interesting that the
neutral rate going forward is something closer to 4%?
That kind of idea would torpedo markets. To me, one of the biggest and talked
about issues is the fact
that in 2025 and 2026, rate cutting expectations are
actually greater than where they were at the beginning of the year.
This is a long term kind of structural play where people have complete faith in
the Fed. What if the Fed doesn't have complete
faith in themselves? If you want more of that, you're going
to get tons of Fed speak this week and maybe that is what you want.
Coming up this hour, Jeff, you have been why, as investors looking ahead to a
busy week of data, former White House fellow E
lliot Ackerman, as tensions
escalate between Israel and Iran and Bloomberg's undercurrent as Treasury
Secretary Janet Yellen wraps up meetings in China.
We begin with our top story, investors looking ahead to the latest CPI print
and the big banks kicking off earnings season.
Jeff, you have been y melhem writes in this while flows may remain heavily
focused on the US cross asset price action last week suggests that not all
will be rosy for risk appetite. Markets are vulnerable to surprise
outcom
es in policy and data amid positioning volatility and shifting
correlations. Jeff, I'm pleased to say, joins us now.
Jeff, let's start there in the bond market.
How much of a challenge as equals to this equity market?
Well, yield levels are a challenge, but also the pace of the moves will be an
even greater challenge for now. With a bit of my hat on, sometimes it's
not about levels, it's about the speed at which you get to certain levels.
If I compare the move know from 4 to 4 and a half right n
ow, the ten year
somewhat slower compared to the rounds of Bear steepening that we had last
year. But if this accelerates, that tightens
financial conditions much more quickly than markets are already for, then you
get the volatility. As you mentioned yourselves, if earnings
do not meet lofty expectations, that generates volatility as well.
And finally, we've got the geopolitics. So that's why I said it's not it's not
all rosy out there. Well, Jeff, let's start with the data
and we'll run with p
ayrolls from Friday. You've got to learn something from the
data and how the market responds to it. Are we learning the good news is
actually good news based on what happened on Friday?
Well, we actually had this discussion internally today.
And let's just say no longer are we saying absolutely not slam dunk.
No good news is going to be good news. At what point do we trigger that round
of bear steepening such that good news starts to shift into bad news?
So especially given all of the investment
that's going into the U.S.
right now, not just asset allocation, but looking at the headlines from this
morning and last week and last seven days, I count $50 billion in investment
by direct or subsidies by Asian chip manufacturers into the US, and that can
be inflation. We know given the value added components
to the US economy. So how do you offset that?
And this should be good news on the corporate front, but if that translates
into higher yields and tighter financial conditions, it might no
t be good news
either. Jeff, just to put some numbers on this,
I'm looking at real yields, inflation adjusted yields in the U.S.
And so that typically is what triggers a lot of concern in the risk environment.
This is not inflation driven and we're now north of 2% once again in terms of
real yields in the ten year, that is the highest level going back to the end of
last year. Why do you think this is happening?
Is this basically a belief that the Fed is going to hold rates higher for a much
long
er period of time, or is this just idiosyncratic selling from a particular
cohort that don't believe that the tenure is any longer, the balance to the
Haven type of asset? I would say it's a combination of
factors. And if you look at the productivity
element, if you are actually anticipating a stronger productivity
gains in the US than in real terms, real wages should be higher and then
consequentially a real interest rate. So should be able to reflect that
because at the end of the day, you kno
w what deflator to use to use a normal PC
one or CPI one or what you actually use earnings and what level of real yields
you want to reflect the underlying conditions in the US.
I think people are looking at productivity gains, all the investment
going to the US and that's benefiting earnings accordingly.
But again, how long can this be maintained because one sector may be
doing well and continue to generate productivity gains, but that's going to
come at the expense of other sectors as well.
So
I think it's going to be a delicate balancing act.
But markets are not questioning the Fed, at least not yet.
When you say is good news, good news. And that was a question that John asked.
I wonder for what rate is good news becoming bad news maybe for Bonds, but
still pretty good news for stocks. That might also face off with a pretty
positive Q1 earnings season. Is that basically your view?
Well, I think you're right. Now it's you need to be in the US
market. So perhaps there's good news for
U.S.
stocks because there are no alternatives elsewhere.
Let's look at the guidance from the ECB this week.
I think this week is actually a live meeting as far as these fees.
Concern, though, probably June is more likely when they're going to come first.
There's no good news coming out of Asia, according to our data or clients.
So every single currency almost is short right now amongst our client base.
So you're almost forced into US markets, be it bonds or cash or equities.
So in that sense. As
long as the US keeps on surprising or
even meeting expectations, then it is good news.
But then the bar just gets set higher and higher.
And then the moment that you see forward expectations on the earnings side start
to disappoint, that's when the correlations begin to crack.
So I think that's what we need to look out for in Q2.
H.f. back up, I heard about 1% of what you
just said and then I was thinking about just that and ignore the other 99.
Life meeting Thursday, ACP Jeff, what does that m
ean?
Well, going back to my a parity call in terms of euro dollar, which is in fact
it's not too not super far from where we are right now.
You will get voices and you're calling now is the time to act.
If I look at wage growth in euro zone, if I look at near where the PMI is, we
need to distinguish in Europe at least. So less bad from a very, very bad
environment. You know, it doesn't mean things are
getting better. Right.
And if we actually do get energy prices going, the supply constraints as
well,
that I think is going to be negative, you know, for European growth as a
whole. But the hawks on the Governing Council
could then again argue over inflation expectations going up.
Again, we're worried about a price spiral.
Let's keep rates where we are. So that totally different reading of
where the eurozone economy is right now between the dovish camps and the hawkish
camps, I think that's going to come out, warns the Open.
So the decision itself is probably going to be on hold like all
the other seven
central banks due to decide this week. But I think you are going to see much
more two way dialogue and at the very least there will be calls, I expect, for
cuts as well. So it just won't be as they should not
be true. Are you sticking with that parity call
on euro dollar, basically? Absolutely.
How much pushback can you getting from clients regarding that?
So I would say the sympathy with the view right now and the broader client
consensus is euro lower perhaps parity at this poi
nt is one of the more
aggressive targets right now if you look at options on pricing.
So sympathy with the direction pushback perhaps against the target interest
then, Jeff, wonderful to catch up this a fantastic call that just to have a
discussion on euro parity call this year.
Jeff you have been why Mel and Jeff, thank you.
Just getting some breaking headlines. Jamie Diamond's 2023 letter to
shareholders just drop in from what you see.
Well, first of all, he talks about his macro call, which i
s what everybody
finds interesting from a lot of these letters.
These markets seem to be pricing in a 70 to 80% chance of a soft landing.
I believe the odds are a lot lower than that.
So speaking to that, of course, we'll see earnings when he probably produces
another record gain. So we'll get that sentence.
He does talk about artificial intelligence and about how over time it
could be potentially revolutionary akin to the Internet that has the potential
to augment virtually every job. And then
he talks just generally about
the government deficit and printing a lot of money and how basically what we
have seen is an economy fueled by government deficit spending and past
stimulus. So, okay, Treasury Secretary Jamie
Dimon, let's hear what you have to say. Inflation may be stickier, Rates might
be higher than expected. I think you've touched on the important
topic here. Is this a man in the risk management
seat? Is this a man making a call on the
economy? Is this a man who's sort of leanin
g
towards Treasury in Washington, D.C. over the next five years?
What is it? This is the House of Dimon, led by Dimon
with Diamond in the front seat, trying to give off his larger than life kind of
message, which he does pretty much every year.
You can speculate on his tax, trade or whatever else you want to do.
But the bottom line is some of what he's talking about, he has talked about
before it, others talk about the similar time.
There's a lot of questions swirling in Washington after he made
those comments.
But former President Trump in Davos and then recently, who's at the White House,
having lunch with VP Kamala Harris and someone in the White House quipped to
me, the days of Davos are long forgotten.
They've moved past it. One line that stands out to this letter
the staggering inability of the government to draft and pass a proper
budget causes deep and unnecessary damage to our growth.
We've been hearing a lot about this on this program and what this means for the
Treasury mark
et. And yet here we are talking about the
economy that remains resilient. Even with that, even with that
dysfunction down in Washington, best economy in the world right now relative
to Europe and everything that's taking place there.
Michaels's put out a piece for Morgan Stanley talking about how the deficit is
going to grow with either Republicans or Democrats, probably more under
Republicans and Democrats. But it won't matter because people can
still chug along. This is the bottom line, right?
How long before it matters? And right now people can scream about
all they want. People can care about the auctions.
Doesn't mean anybody else is going to care about them.
The latest from JPMorgan's Jamie Dimon. You'll hear more from him on Friday when
we get earnings from JP. Equities Right now, equity futures look
like this. We're down by 0.1% on the S&P 500.
With some stories elsewhere. You're plenty for a bank.
With us is Dani Burger. Hey, Danny.
Hey, john. Chip maker TSMC is going to be re
ceiving
$6.6 billion in grants. They also get as much as $5 billion in
loans from the US to build factories in Arizona.
It's a prelim agreement and the company will build a new factory in Phoenix.
Adding to the two facilities already has in the state.
Production is expected to begin in 2025 and 28.
The newest factory will be building next gen two nanometer chips.
Those are essential to building emerging tech, including AI and military
applications to David Ellison is closing in on Paramount.
The
movie producer and tech heir has a month to seal a definitive agreement.
But first it needs to sell Paramount's board on the merger with his production
company, Skydance Media. Ellison would serve as the CEO of the
combined company, and that's according to people familiar who asked not to be
identified due to the sensitive nature of those negotiations.
His father, Larry, the co-founder of Oracle, is one of several names being
floated for the role of chair. And for a few fleeting moments today,
Americans will turn their gaze towards the sun as the path of a total eclipse
tracks across cities from towns from Texas to Maine.
The entire event will last for several hours, but the main spectacle where the
date turns tonight is the moon obscures. The sun is expected to last for only
about 4 minutes. So get outside, get your glasses.
The event has been sparked a tourist boom with areas along the path fully
booked. Buffalo called it their Taylor Swift,
their Super Bowl. Meanwhile, the US will
lose more than 30
gigawatts of solar energy as sunlight is blocked during prime generating hours.
That's roughly the output of 30 nuclear reactors.
And that's your Bloomberg brief. John Amazing.
Danny Thank you. Guess who came in this morning prepared
with glasses? Guess who I am.
And I brought one for each of you. Thank you.
I have. I have.
And we do. And agree.
Excited to integrate this session. Is that what we're doing?
Yeah. You can't say no.
Then I'll be here. You don't.
You're not going to
. To watch?
No. Well, I don't have time.
Isn't it 2 p.m., 3 p.m., Something like that.
Can I just say don't look at the sun if you don't have the glasses.
I've lectured my kids time and time again.
Is this the lecture for the kids this morning?
If you're watching kids, please. I'm telling you, you will get to
remember former President Donald Trump standing at the summit.
I do remember that. Don't do that.
Please don't do that. Up next on this program, Israel
preparing for Rafah. We have been inc
reasingly frustrated.
And again, that was a core message that the president delivered to Prime
Minister Netanyahu in their phone call this week, this past week, that if
they've got to do more, they've got to make changes.
That conversation. Up next, live from New York City this
morning. Good morning. Just for the record, I thought she
bought the Sun Eclipse glasses. They're actually the 3D glasses for the
movie. I'm not being very careful about this
memory. Yeah, about people.
I am sending this
stuff on the streets of Manhattan.
It's free. 3D glasses, real face.
Equities right now, the S&P 500 that no -0.1% even to high by three or four
basis points your ten year for 4399. And this event is this morning.
Israel preparing for Rafah. We have been increasingly frustrated and
again, that was a core message that the president delivered to Prime Minister
Netanyahu in their phone call this week, this past week, that if they've got to
do more, they've got to make changes. Now, the prime minist
er assured the
president that he would do that. We've seen some announcements in those
early hours. That's welcome.
We got to see more. We've got to see it over time.
It's the latest this morning. Israel pulling some troops out of
southern Gaza, preparing for an operation in Rafah despite growing
pressure from western allies. Prime Minister Benjamin Netanyahu saying
Israel is one step closer to victory, but reiterating there will be no cease
fire until the hostages are released. And he.
Akerman,
the former White House fellow, joins us now for more.
And a difficult question, I guess, but are you clear on the US Israel policy
after the events of the last week? No, I'm certainly not 100% clear.
And and I think the U.S. really is running the risk of sounding
pretty hypocritical and its warnings to Israel about civilian casualties, given
the number of civilian casualties the U.S.
has inflicted over the past decade. But even if you look all the way back to
the history of the United States an
d what we've been willing to do in terms
of attacking civilian targets in wars that have been really existential to our
survival. When you look at potentially not being
clear, we heard from Admiral Kirby there and he says that what Israel is doing in
Gaza with some troops coming out, he says this has to do indirect
consequences of their conversations. Yet you hear from Democratic Senator
Coons talking about the fact that he actually thinks is tactical.
Israel wants potentially have a reset or po
tentially maybe move some troops to
the north if they're going to have an issue with Lebanese Hezbollah.
What do you make of this specific move Israel made over the weekend?
You know, what we're seeing is is Israel's 90th division is moving out of
Khan Yunis in the south. And, you know, the question is, you
know, why is it moving out? And the Israelis have announced an
operation in Rafa, you know, for some time they've been telegraphing that
move. So it would seem that this is tactical,
that you
obviously you have to withdraw troops to send them into combat
elsewhere. And the 90th Division has been in combat
for about four months now. So they probably do need to rest and
refit. I mean, all of that being said, though,
you know, tactical troop movements can be used to serve as strategic cover if
at a certain point the Israelis decide that they're not going to go into Iraq
or that they're going to make that type of a concession.
So I think we just have to wait and see what this means.
If
Israel is going to Rafa, the United States is talking about potential
consequences. At the same time, we had hostage
negotiations over the weekend. Are they just now for show for public
optics? I think it's it's not inconsistent to
have two parallel tracks of action going on at the same time.
You can have hostage negotiation simultaneously as Israel is re posturing
itself for an offensive that may or may not take place based off of the outcome
of those negotiations around hostages or even around
a ceasefire.
So I think we know right now we're at a point of really, you know, a lot of
uncertainty in the war and a lot of multi-dimensional aspects of the war,
from negotiations to intonation, negotiations around a ceasefire to
tactical operations, the potential of a new offensive.
What message you take, Eliot, from the fact that we have not seen an Iranian
retaliation yet from the killing of their senior military officials.
Well, these things take time. I think we will see that retaliation
because just like the United States or any other nation, the Iranians have a
domestic intelligence constituency and they have to retaliate in order to show
strength to their constituency. But what shape that retaliation takes
and how effective it is is yet to be seen.
So I think the Iranians will certainly at some point claim that they have
retaliated. I guess that the way the market is
treating this is that, especially with the withdrawal of troops by Israel, the
fact that we haven't seen yet a
retaliation from Iran, that there's a
softening in the proposition of a potential escalation to a broader
regional conflict. Do you think that that is an accurate
way of reading the events over the weekend?
I think it potentially is. You know, whenever you're in a conflict
like this, there are always these off ramps.
And, you know, both sides can choose whether or not they take the off ramp.
So, you know, at this moment, Iranian retaliation, you know, it could be
something very, very minor. And
they claim that they retaliate and
that creates an off ramp to begin negotiating.
I would point out that if the Iranian retaliation is extreme, that that makes
it very difficult for Israel to come to the negotiation table.
So we're just going to watch and see how this plays out.
That conversation is certainly the epicenter of the crude market this
morning. $19 and Brent were down about 0.8%.
And always wonderful to catch up with you.
I mean, Ackerman and the former White House fellow and co-aut
hor of 2050 for a
novel If the Next World War, Lacey writes, pointed out Iranian
confrontation with Israel. How that plays out, if at all, is going
to be key to where we go in crude this week.
The fact that we saw the increase in crude prices and a lot of people are
pointing to the potential for Iranian escalation that we heard about jammed
GPS signals in Israel as people really hunkered down in Iran, really talking in
hard words about targeting the U.S. as well, the fact that nothing has
happen
ed and that troops are being removed from certain areas of Gaza seem
to have taken some of the temperature down, whether that last.
So really remains to be seen. Again, as Eliot was saying, you can't
game this out, which is a reason why it's difficult for people who are trying
to Iran will go to the Security Council and weigh the options of what they want
to do. Is this going to be something
potentially in the Red Sea, in the Indian Ocean?
Is this going to be things potentially in Israel or are
they going to go to
other foreign countries? We've seen this before, reports Georgia,
India, Thailand in the past that Iran has tried to use to target Israeli
officials. And I think we need to wait and see like
the gaps that Israel was talking about that was getting spun out of control
because they wanted to try to make sure that no drones could attack.
We need to look at what the US and Israel say, what embassies to avoid and
what places to avoid. And potentially that's what they're
concerned a
bout for now, at least some of the heat coming out of this commodity
market. WTI is down about 0.8% crude this
morning, 86 on WTI, Brent crude, $90 and about $0.40.
Coming up on this program, Bloomberg's undercurrent as Treasury Secretary Janet
Yellen wraps up her latest trip to China.
If you are just joining US, equities in Tibet.
Okay, down about a 10th of 1% on the S&P 500, but starting the week with new
highs for the year on ten year, two year and 30 year bond yields, yields are
higher by ab
out four basis points. From New York, this is Bloomberg. Live from New York City.
Welcome to the program. Equity futures on the S&P 500 negative
here by 0.06%, totally unchanged on the NASDAQ, 100 weaker losses last week,
biggest weekly loss since the start of the year.
Still only the fifth week of losses since the end of October.
The underperformance last week. Interesting name.
We can talk about this through this morning.
Small caps, worst week since the start of the year as well.
Really under
performed, Lisa, completely tied to the bond market as you saw
yields go higher with the expectation that the Fed would not have the
justification to cut. I would just want to point this out,
though, about how rare it has been to see any kind of decline whatsoever this
year, that the S&P hasn't had a to a down 2% day since February of 2023.
This is the 12th longest streak since 1928.
That according to Citigroup's Stuart Kizer.
As amazing as it is that it's been that good.
That's how strong this
rally has been since the end of October.
The reasons for that rally have shifted quite a bit and we could talk about that
too. In the bond market, it was look like
there's a two year, ten year, 30 year. Last week we had sub 422 start the week
on a ten year and we finished it north of full 40.
And then this morning we had some wait to that by three or four basis points.
A ten year yield, a full 4359 yields up by a couple of basis points and getting
closer to 480 on a two year lease a full 7739.
S
o this question in question also came from Stuart Kaiser.
This week. On Wednesday we get CPI and a lot of
people view that as maybe the moment that we find out whether the bump idea
is just the same as transitory was a couple of years ago, to quote Priya
misra. But is an in-line report a beat?
Is that how the market treats it? Is it basically the threshold of saying
at least inflation did not surprise to the upside?
Because that seems to be the big fear that's been baked into the rates market
ov
er the past couple of years. Can I say yes and just say yes a few
times? Inline has got to be seen as a B at the
moment, overwhelmingly on the street, the consensus view is non-inflationary
growth. That's the story.
Most people look at payrolls from Friday, really, really strong payrolls
growth. And then you look at everything else.
Wage growth comes in line. People are taken a little bit of
confidence from that. So if you get inflation data coming in
line as well, they can just embrace that sup
ply side story, I guess even more.
Is it a good enough reason to buy the long end?
The longer? It has been a mystery to me and I sort
of goes to the Jamie Dimon existential angst of the deficit in this question
about interest rates longer term, that has been the most volatile area and one
that is most of a mystery to me because what is the reaction function if you do
think that the Fed is going to hold rates higher for longer, is that
positive for the long end? Or if you get the sense that they'
re
going to do these prophylactic cuts, does that mean that you could see that
kind of priced into that longer term benchmark rate?
And for me, some of this will be what happens here if you switch at the board
and just roll forward to Brent Crude and WTI, we've had a big move higher in
crude, a move of something like four and a half percent last week to the highs
that we haven't seen since October on both Brent and WTI, which is pulling
back a touch there. But what happens here is going to be
cr
itical to that conversation around inflation going forward and the Fed's
tolerance of it. And that's how I think things develop at
the long end off the back of that. And it's not just commodities.
I mean, it's not just crude, it's also broader commodities, whether it's gold
or chocolate or a lot of other things. So this is sort of the reason why they
have to take it into effect a little bit more, especially with the driving
season, and especially given the fact that it's going to be a political
hot
potato and all of that jazz. So you train the SPR around September
time. I don't know if they have the ability to
August. I don't know if they have the ability
to. I mean, honestly, they've gotten to such
a low level. I've heard mixed things.
I know, you know, but it's better than I do.
But honestly, I've heard so many people say to be kind of bumping up against the
edge here, we are definitely well below the peak we had under the Obama
administration. But yes, they can drain it.
They can dr
ain it for a bit. It's not going to be the same levels we
saw previously under the Biden administration.
But they can make a few they can make a few moments.
And a lot of that would potentially be jawboning as well.
Brent crude back to about 90 so far this morning under Savannah is this morning a
busy week ahead. U.S.
inflation data on Wednesday. The ECB with a decision on Thursday and
the big banks kick off fintech season with jp morgan, wells fargo and Citi set
to report on Friday. So let's se
t the scene for you.
I still Apollo versus Morgan Stanley. And is that Morgan Stanley?
That data point to another inflationary expansion of the labor market and do not
alter the Fed's course to a June cup that sevens end and Morgan Stanley
historians look over Apollo the economy is re accelerating.
We're sticking to our view that the Fed will not cut interest rates this year.
That's how divided things are at the moment.
Right now I keep saying what's going to be more important?
The Fed and the m
acro are earnings. And what it all points to to me is that
there's bigger risk in bonds and there's less risk in stocks, especially if the
earnings come in better than expected. That all flips on its head of suddenly
start to get this weakness. But it just shows that there is no
consensus whatsoever on Wall Street about how to read some of this data and
what it means for the trajectory going forward.
And a lot of that. No consensus on Wall Street.
How to read the data is because it almost is a d
ifferent economy in the
sense Jay Powell talked about this. It's a bigger economy, not a tighter
one. How much is immigration playing into,
say, the jobs market and is that helping to keep a lid on wage growth, thus
inflation? And everyone is.
I'm going to be looking towards CPI because now that we have jobs out of the
way, this is potentially the next data point could really point to what the Fed
is going to do, say June or July, as Lisa mentioned, CPI on Wednesday and
bank earnings on Friday.
Getting a flavor, a preview of what
Jamie Dimon thinks about the world. In his annual letter to shareholders,
Dimon devoting a large portion of the letter to AEI, saying it may be the
biggest issue the company is dealing with.
Dimon also issuing a warning on the economy, writing, quote, These markets
seem to be pricing in at a 70% to 80% chance of a soft landing.
I believe the odds are a lot lower than that.
So how is he handling his business? Right.
We're going to find out about that hopefully
on Friday when he talks about
artificial intelligence, aside from the macro calls and sort of, you know, the
treasury secretary like that's coming to the fore, there is this issue of how
much AI is going to transform just his staffing levels, where they're hiring,
where they're cutting back, who they're putting their money into.
Those are some of the things I'd like to hear from him.
I mean, these kinds of big proclamations, he's talked before about
7%, ten year rates. At this point, it actually
looks less
farfetched than maybe a year ago. But, you know, these are some of the
things that he's come out with and with some of these warnings in the past,
doing more with less. Let's roll back two weeks.
Brian Moynihan, Bank of America I thought the conversation with him about
I was quite revealing Each additional dollar of revenue at these banks every
single year from here is going to become less and less labor intensive.
So it's not that you may say, I don't know, ten, 20,000, 30, 40, 50,0
00 people
being laid off. What you see is these companies will get
bigger and they'll do it with fewer people relative to that expansion in
revenue. That's going to be of some concern, I
think, to younger age groups coming out of college looking for jobs because the
grant schemes at these banks, which a lot of people are dependent on coming
out of high flying colleges, were very hard at their degrees, sacrificed a lot
of time. This is the career they won, the hiring
relative to the size of the b
ase. This is just not going to be the same.
That's going to be big change we could see and the grunt work that typically
people come in and they have to be sort of the assistant to a banker or someone
else and you sort of learn through all that grunt work is going to be done by a
computer, right? So at what point does that eliminate the
opportunities to learn? It's a great point.
The silver lining might be, as Brian Moynihan Moynihan said, fewer people,
but they're all paid a lot more. So maybe,
you know, they got the golden
ticket exactly right. It's just sort of getting it is the
golden ticket to be that one person that makes it on the desk.
But I think it's interesting that he almost led the letter with it.
It feels like this is what his bank is grappling with at the moment as one of
the top issues and how it transform the business.
I've got to say, I'm far more interested in the actual numbers on Friday than I
am sort of this stuff about AI in the future.
In the next. I just want t
o hear thoughts and yes,
that's what you want. Broad proclamations, that's all.
I'm sure. I'm sure that's what they want you
focused on. That's very focused on it.
Yeah. Treasury Secretary Janet Yellen wrapping
up her latest visit to China. Yellen pushing leaders on the country's
output, saying excess production and subsidies will lead to significant risks
to workers and businesses in the United States and the rest of the world.
A place to say the wank in on this with this is undercurrent of Blo
omberg at an
end there. It's almost like the self-discovery tour
of Janet Yellen, a change of thought over the last 1020 years for her.
How is this pattern? It's a policy shifts from the US
administration anytime soon. Well, look, Missy Allen certainly has
traveled a journey on the China relations story.
During her trip, it seemed to be full of both criticism and there was plenty of
cordiality as well. And a critical side, as you mentioned.
And Ms.. Yellen ruled out some of the familiar
complain
ts that we now know about, which is basically China is manufacturing too
much stuff and exporting to the rest of the world at very cheap prices.
Interestingly, she said that's not just a threat to U.S.
workers, but you mentioned global workers as well as maybe a hint they're
trying to build up a bit of a global alliance as she as she tries to beat the
drum on the overcapacity story. And then Michelle and also raised
complaints about China's support for Russia, of course.
And she made the point t
hat China needs to drum up its own domestic demand by
buying more of their own stuff than sending it overseas.
But the cordial side, the old Missy Allen, the sort of, you know, the the
the the kind of misselling that China would like in the past was also there.
It was a cruise into Pearl River Delta. And there was an exchange of gifts
between Mr. Allen and Chinese officials.
So it was in the one hand delivering the hawkish message that we've become used
to. And on the other hand, playing the old
Yellen card we know well. Also, she's talking about the cost of
steel a decade ago and that overcapacity.
We saw some from China. Many are quitting.
That's what we're seeing potentially now in the EV space.
And she says the president, I will not accept this.
They have gone out of their way to showcase that tariffs are set to come.
And do we have any timeline on when we would see these tariffs?
I don't think we have an explicit timeline yet.
Unrebutted. Obviously, Ryan, Missy Allen was
certainly
delivering a message to China that they are not happy with our
economic growth strategy and all implications out of the US.
We respond and the Shin mole responds, by the way, from Beijing, even though
there was somewhat of a cordial tone around the meetings, the Shin will hit
back and said it really Michelin has come to deliver what they considered to
be a pre-emptive warning that more tariffs or some kind of export controls
are coming down the line. So certainly China is bracing for it.
But Ch
ina also seems to be playing nice during this visit.
I mean, typically, given the amount of criticism that Mr.
Allan levelled, you would have expected a more robust rhetorical response that
doesn't seem to have been there in the state media reports that we've covered
so far. So maybe there's a feeling as well that
China expects something coming down the pipes, but they're also willing to play
the waiting game a little bit because they know what's coming up in November
is going to be the election
. And this may well be, of course, Ms..
Yellen's final trip to China as treasury secretary.
And there was a lot there to unpack. I do wonder if there is the economic
appetite to withstand some of these tariffs without retaliation on the part
of China. Is that what you're saying, that
basically they're willing to wait, just grit their teeth and bear it if there
are additional tariffs? So there's one interpretation out there
that China's economy, as we know, is not as strong as it could be.
It con
tinues to be hobbled by the real estate sector in particular,
manufacturers going strong and exports. But real estate is hitting it hard.
At the same time that the U.S. economy continues to beat all
expectations. So there is a view that China's willing
to lie low a little bit during this wave of criticism because it wants to put out
the welcome mat for FDI. It wants to get portfolio flows coming
back into China. Remember that meetings Xi Jinping had
with the U.S. CEOs only a few weeks ago?
So th
ey're clearly trying to dial down the rhetoric.
But then on to tariffs in particular. Again, China knows full well there is
the election coming up in November. There could be a potential change of
administration that could lead to even a sharper change of approach on China
policy. So I think a lot of analysts watching
this do feel there's a bit of time out and this both sides are trying to
stabilize relations. But China is more than happy just to run
down the clock and wait and see what comes ou
t of that November vote.
And thank you, sir. Appreciate the update and are carrying
their full impact down in Washington, D.C..
I think a lot of people on Wall Street have sort of got August, September
circled as the next move potentially from this administration.
Why do it now when you can wait until right before the campaign starts to
really pick up going into November? Yeah, And a theme I heard was
potentially that they don't want to turn this into infrastructure week.
Every week becomes tari
ff week when reporters are asking them, is it done?
Is it done? But obviously, you have an election in
November, you are going to hold your biggest arsenal until September,
October, maybe even August. So if the rhetoric on China is going to
ramp up, potentially, that's when we'll see those tariffs, when they would
matter for the domestic audience. So what's in the arsenal right now?
Trying to s.p.a around August, if you need to go forward with big business in
China, you see these tariffs on Chin
ese TVs.
The Commerce Department is also looking into connected vehicles.
This has to do with Chinese TVs as well, potentially more export controls and
some of that technology, the tariffs and the, of course, the SPR to this point,
it is not at the level that it was when Biden came into office, but they could
still drain a few millions and potentially they will help the market.
They're going to need to if we are seeing four or $5 per gallon of
gasoline, every American consumer, even if you walk,
you pass a gas station that
is a reminder of higher costs. And inflation obviously has dogged this
administration and it talks about China waiting it out, waiting it out for what
they can get out for. HU Well, that was exactly what I was
thinking at this point, given the fact that this is sort of a campaign tool, it
gives you a sense of what the temperature is and sort of the general
population and what you can expect with either administration.
More on this, a little bit lighter equity futures
right now, an S&P
negative about 0.1%. Let's get an update on stories
elsewhere. Here is your Bloomberg brief with Dani
Burger. Hey, Tony.
Hey, John. Goldman Sachs says that European stocks
are likely to outperform the US over the next year.
Sharon Bell and team cited factors like global manufacturing and a global can y
upswing in the ECB cutting rates, they say in June.
Financial, energy and consumer discretionary will be the best
performers, they wrote. Shares of Boeing and Southwest Airlines
lower in the premarket trade. The FAA announced that it's
investigating yet another in-flight incident.
This time, it was an engine cover that fell off.
It struck the wing of a Boeing 737 800 during takeoff from the Denver airport
on Sunday. Then the Houston bound flight returned
safely and the plane was just told to the gate.
Boeing is still under regulatory scrutiny after a door panel blowout on
an Alaska air flight earlier this year. The South Carolina Gamecocks are
national champions. They
defeated the Iowa Hawkeyes 8775 in
the women's NCAA title game. This is now South Carolina's third
national title in just seven seasons. It's also the 10th D1 team in history to
complete an undefeated season. But the real highlight, it was Iowa's
Caitlin Clark. She ended her career with 3951 points.
Now she leaves as the all time leading scorer in both men's and women's college
basketball. Really remarkable.
And that is your Bloomberg brief John. Hey, Tony.
Thank you. What a phenomenal athlete.
What she's done for sports, for women's sports has been absolutely incredible
over the last few weeks. People watch over a lot of male
athletes. She's been the draw.
I mean, honestly, all the jokes about going to a bar to watch women's NBA and
sort of this question of whether college basketball get anything all went out the
window. Shaquille O'Neal, I'm not watching the
boys. They his words suck.
I'm only following the girls. That's where some real incredible
athletes are. This was him the other
day on a podcast.
I can't name one. I can't name a single male athlete from
college basketball. And I'm just your average observer.
Of course. What do I know?
But that's been the story over the last month.
She's the star. So here.
Where did she go next? And what if she did something that comes
with ratings that should come with money as well as well deserved?
Up next on this program, inflation tested the Fed's patience.
What we're hearing from the Fed is patience with inflation.
But, you know,
they can only be patient for that long.
They are trying to say this is a bump in the road.
Maybe bump is the new transitory. Love that line from prayer.
That conversation coming up next. Equities on the S&P 500 negative here by
0.05%. Just a little bit softer to start the
week. Yields a bit higher of four basis points
for 44 on a US tenure. Earlier in the session new highs for the
year on a two year ten year and a 30 year crude pulling back just a touch a
negative hit by 0.7% $86 and about $0.32
under surveillance this morning.
Inflation testing the Fed's patience. What we're hearing from the Fed is
patience on inflation. But, you know, they can only be patient
for that long. They are trying to say this is a bump in
the road. Maybe a bump is the new transitory.
But what they're telling us is, you know, this is not suggesting that
inflation's not moderating, but how many months can they be patient?
If so, this disinflation doesn't continue to slow down.
I think that's where this inflati
on narrative is going to run.
Think here's the latest. Investors looking ahead to March CPI
data on Wednesday for clues about the Fed's path forward.
FS Investments chief economist Laura Rein writes in this.
Markets are on edge as the upside surprises for inflation keep coming
under the hood. The mix of inflation remains a problem.
Services prices are just too high. Does the Fed need to cut rates?
No, that's going to make some markets. She's going to scream that for us in a
moment. There is no u
rgency for a rate cut.
My forecast is for rate cuts starting possibly Q3, Q4, no lower rank.
Join this right now. For more, Larry, you can do that in a
moment. I want to start with prayer, Isra of
J.P. Morgan Asset Management, who asked the
question, maybe a bump in the road is the new transitory?
Does that resonate with you? I think that's well phrased because it's
starting to feel a little bit like déja vu month by month where pointing at just
one factor or one or two small one off sub indices
that are giving an upside
surprise and giving us a 0.3% monthly gain instead of 0.2.
Well, if you get 12 months of those, it adds up to three 3.2% inflation, not 2%
inflation. And that Whac-A-Mole sense is come back
in just like it did. It's not a massive acceleration story,
but it certainly is not pushing inflation back into that convenient 2%
lane that we occupied for so long before the pandemic.
LOW Let's dig a little deeper into that as well.
The consensus, I think, on Wall Street at the mo
ment is that you can surprise
or rather you can embrace the supply side story, that growth is not
inflationary at the moment. I think Chairman Powell shares that to a
lot of. What's the biggest challenge to that
view right now? I think the challenge is it's not just
CPI we're starting to see. It's been a month and a half now of
inflation upside surprises from producer prices, from commodity prices moving
higher. The manufacturing price Subindex hit the
highest in two and a half years. So it's no
t just consumer prices.
It's really sort of seeping and bubbling up from a lot of different places.
And listen, services prices are stickier.
I think that's the issue. And again, it's not just rent.
So, you know, you're seeing a nuanced story around inflation.
I think unlike the growth side of the economy, everyone, you know, there's
more consensus around the fact that we're in good shape on the inflation.
There's still a wide range of consensus. And what is surprising is Powell is sort
of, you
know, interested in dismissing the latest data.
Again, there's no urgency to cut rates. So the fact that he's still seems so
intent on that path, I think is causing a bunch of us to wonder what the the
conviction behind the rate cut is at this juncture.
Maybe this is a reason why, Larry. You said also not higher for longer, but
a renormalization of interest rates to the 1990s and 2000 is the ten year
retests 5% at some sometime this year. What do you think is the trigger for
that, given that eve
rything we've seen so far, we're still quite a bit a ways
from that. We're still a ways from it, Lisa, but I
think that we're on that trajectory. It's the higher inflation numbers.
It's this very strong growth numbers. It's the productivity numbers that look
fairly solid. And then I think there's this supply
side issue in treasuries that's just not going to go away no matter what.
You change with the mix of funding. At the end of the day, if we're not
going to have a recession, the yield curve s
hould normalize and it's still
deeply inverted. I see that as more of a twist.
Some surgical rate cuts later in the year, but long term rates drifting up.
And if we have a healthy economy with 3% inflation, there's no reason why long
term interest rates shouldn't align with nominal GDP.
That puts you in the 5% range. At least I don't think we should be as
worried about that as we were with the rapid rise in rates that we saw in 2022
and 23. I'm old enough to remember the last time
we got 5% ten
year yields and people were talking about something breaking
and bank failures and commercial real estate falling out of bed.
We're basically taking that off the table now and saying this is an economy
that can handle that. No, it's no problem that I am, because I
think that this time last year when we touched 5%, it was the speed at which
inflation, at which interest rates moved up so fast.
I make the comparison if somebody from warm weather moves to New York in the
middle of winter, there's go
ing to be a very unpleasant shock and you're going
to kind of freeze up. But the second winter, the third winter,
you kind of get used to it and you're out and about doing everything that you
would be doing normally. I think that's the right comparison
here. The longer that we're at these interest
rates, the more that we'll price in this into the costs of refinancing, the cost
of buying a home and the cost of M&A activity, I think all of that will
normalize. It was just the shock of the speed of
the move. We're moving there gradually now.
I don't think it's going to be as much of a problem for markets to digest.
If the economy is fine and well and good, then these surgical rate cuts, you
have about two or three priced in. Are you actually prepared to pare them
back to potentially one or none? I am.
And I've been sort of, you know, on the fence about saying that I don't think
two or three rate cuts are needed. I just think it's what the Fed seems to
have conviction they will deliver. I
think that look at markets today,
financial conditions, credit conditions. I don't think that we need these rate
cuts at the end of the day. You're looking at a world with higher
interest rates, offering a rich suite of alternative investments away from
traditional equities. I think the markets have digested these
higher interest rates just fine. Laura, can I just say that it's winter
eight or nine and no, I have not adapted.
Laura Rain Thank you. I'm at first investments.
Maybe I'm like office
vacancies in biology.
Is not what I am. Okay, so you have an adapted public
service announcement. Just say this.
Get the right equipment. You don't have the right equipment.
That's all I can say. If you've got a problem with.
Hang on a minute. This.
So grasp on Claire, please. What's wrong with the.
What's the equipment? Let's just say.
Okay, If you mean by the equipment you need to commit to the cold weather and
then get the mission, whether it's a warm jacket, whether it's warm gloves,
whether
it's a hat, commit to going out there and experiencing the winds, But
it's about embracing the experience of ugly boots.
He's got it all. I've seen it.
He's got an all moral piano. He's got.
So Claire, critical of me. I'm not critical.
I'm just saying the equipment, if you want to enjoy the winter, you have to
have the right equipment. What does that mean?
You have to have the right types of warm producing things.
Use hand warmers if you need to. Also, England's cold in the winter.
I'm not sure
you have adapted. Look, the only reason I get through in
New York is because you're promised a summer and the summer arrives and I can
live with that. In England, it's tough.
It's like this damp cold all year round that never goes away with the promise of
maybe a week or two weeks of the sun shining, sort of like two weeks max.
And every now and again it's a heatwave. It's like 24 degrees.
Damp is worse than cold. To say I totally agree.
The equipment. Okay.
Coming up next on this program, Jimm
y Shank of Rockefeller Global Family
Office. Terry needs a fancier policy.
It's a battery shaper of silk. Jan and in my inbox just drop in from
silk Jan recession delayed indefinitely. We'll have that conversation in just a
moment. Very much so.
I can't wait to hear that because that's really ultimately what people are
pricing in. Again, what does that mean for the Fed's
commitment to cutting rates this year? Because we've still heard that
commitment, even though perhaps they've tempered it just
a little bit on the
edges. And we'll check in with our guest to see
if they have the right equipment to get through the month.
I actually want to know this. I mean, it's April's per week equity
features on the S&P just about unchanged on the S&P 500 in the bond market.
Yields creeping higher right across the cap about four basis points on a ten
year for 44. From New York, this is pulling back. If we see inflation move higher, it
really calls into question people's willingness to say rate cuts s
till are
coming. It wouldn't take much, I think, to push
back at least the timing of that first potential rate cut.
They're telling you if things slow down, they'll cut a lot more.
So they're trying to say that the risks around those three cuts are balanced.
It's clear that this is a Fed chair that wants to cut rates and is willing to
look through some of the hot inflation data.
And I think we will end up with two cuts this year.
This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz
and
Annmarie Horden Hearn. Never insult the English weather again.
Brutal feedback, sort of instantaneous. How do people defend it?
I'm just curious. I would love to know as well.
And I'm about to ask and hopefully I'll get a reply for you from New York City
this morning. Good morning.
Good morning for our audience worldwide. Big week ahead, CPI on Wednesday, bank
earnings on Friday. Lots to talk about.
Let's start with the bond market on a two year, a ten year, a 30 year.
Earlier on this morni
ng, new highs for 2024 year of right now they on a ten
year for 44. And this really raises the issue that
we've been grappling with all year. At what level at what point do bond
yields create a real problem for stocks? So far, we have shrugged that question
off again and again because it's been rising for the right reasons.
Is the bond complex still losing value with yields rising for the right reasons
for stocks to keep rally? The question is when?
The answer is now, according to Jeff, you if t
hey were Madeleine, who was on
this program 60 minutes ago, will say based on Friday, really strong data
point payrolls growth really, really powerful stuff around fringe okay
non-inflationary growth that supply side story drive in equities breaking out
again and that relationship is just evolving day by day between treasuries
and stocks. And I think we're all still trying to
figure it out. It's good news, truly good news for
stocks. And a lot of that has to do with the Fed
pivot. This idea that
the Federal Reserve came
out essentially indicated they were bias to cut, whether it is just sort of
insurance cuts or, you know, beautiful cosmetics cuts, whatever you want to
call it. The question here is, are they
sufficiently challenged in that thesis and that desire to reduce benchmark
rates, given the data that's strong, but not necessarily inflationary in the same
way. And that's the reason why CPI on
Wednesday is going to be such an important day.
Is the data cooperating? Need to talk a
bout commodities to gold
recently breaking out to new all time highs silver with a big run as well over
the last week or so up again this morning by 1.3% and crude new highs for
the year, in fact, the highest since October, a move of close to 5%.
AMR last week just paring those gains this morning by 7/10 of 1%.
On Brent, we've passed to the psychological level of $90 a barrel.
Next, everyone is talking about potentially, can we get to 100?
You see Goldman, you see Bank of America.
You see a lot
of notes coming out potentially in the summer peak driving
season. These supply concerns, can we see $100 a
barrel? And this is going to be very tense given
the fact that we are in this moment right now geopolitically where we're
still waiting for Iran's response. And then you have all the supply and
demand constraint. Does that derail the happy talk at the
Federal Reserve in any way, shape or form this week, in effect, speak?
They will say no. They will say that they don't look at
oil prices. O
il prices are transitory, just as bump
might be transitory and transitory was transitory.
But there's a real question about how that feeds into some of the consumer
sentiment and consumer expectations of inflation.
We see that pretty religiously. The University of Michigan sentiment
survey I know you have issues sometimes with the fact that they haven't called
you just call John and then he'll really like the survey.
But the question that I have is, you know, at a certain point, is that going
to
feature in to some of the Fed procrastination?
I've looked into that before. Not to get the call, just the questions
they ask. Oh, yeah.
And I just I just want to speak to the people that put together that report.
You're prepared for it. You have answers to five year inflation
expectations of like ten seven. You're going to singlehandedly skew the
results. So the results are going to come out one
day and it's going to say longer term inflation expectations.
6.3% Jonathan Ferro. I walked past th
e garage the other day
and saw gasoline at like $4 and that set for me 10% from here.
Okay, That's how it works. Okay.
I understand that it's arbitrary. It's sort of an arbitrary nature.
How do you sort of survey people and have this really specific number that's
actually pretty relevant to the last month's number?
That said, it's a good gauge of sentiment and it sort of does feed into
I mean, this is one of the reasons why the Fed was concerned about inflation.
One particular Fed meeting, the F
ed moved on this once, which I thought that
was absolutely ridiculous at the time. They move the goalpost.
How many times now? How many times if they move the
goalpost, the data, the matters, the data, that doesn't matter.
We don't quit now. It's that the data that matters.
Yes, there also inflation, etc.. Can I just say I feel a little bad for
them. I feel bad, but I know you're going to
you're going to wake me up. I know floor is yours place, but this is
a difficult economy to understand. I do
n't understand exactly which pieces
are moving. So how do they communicate that in any
kind of comprehensive way? We all feel bad for them.
Equity futures right now on the S&P just about unchanged.
The price action shaping up as follows. Are you feeling bad for the Fed?
Well, I'm just saying I understand. I empathize with the challenge.
Okay. Yields up four basis points for 40 for
60 on a ten year crude, 8616. Coming up this hour, Jimmy Shank of the
Rockefeller family office ahead of a busy week
of data.
Terry Haynes of panacea policy as Congress returns to Washington as the
Patriots Emperor of Silk Jan on Wednesday CPI report.
We begin with our top story. Investors bracing for a busy week of
data. Jimmy Chang at the Rockefeller family
office weighing in on the Fed's path forward.
The case for rate cuts in 24 is low quality job growth and elevated real
rates. While the case for no cuts is what's the
rush when growth is still above trend, market's near all time highs and junk
bond sprea
ds near decade lows. I'm pleased to say that jimmy is well on
the table with us. Jimmy, you.
High. Which case is the stronger case from
your standpoint? I believe there should really no rush to
cut at this point. So you think we will get no cuts anytime
soon? I do believe I suspect there will be
probably one or two after the election for the first cut to happen.
They really need a unanimous decision. And I think that's difficult, too,
coming in June or even July, based on the current set of data
, you'd push it
back all the way to November of this year.
What would that mean for the stock markets so far this year?
It's handled things pretty well with priced in a ton of cuts as stocks are up
still yet tonight by something like double digits.
Do you think we can continue trading in that fashion?
I think the road ahead is more difficult, probably higher volatility
hit. Part of it is also the liquidity.
The liquidity support for the market has been extremely strong, but we're
gradually drawi
ng down the overnight reverse repo, which is the source of,
you know, the excess liquidity entering the market.
So as you continue the Q program, continue to draw down the overnight
reverse repo after the tax season, I do believe the liquidity trap gets more
challenging and this is why the Fed has signaled that they will like to start to
reduce the pace of q t fairly soon. Well, just to sort of bleed that out
into the long end of the yield curve because this has been one of the big
questions. Wh
y has that been an area that has been
so difficult to gauge? If the Fed holds rates steady until
after the election, does that lead to a rally in the long end?
Does that lead to more conviction that this Fed can get inflation and rates
back down to a level somewhat akin to what we've seen in the past?
Probably. Indeed, there's the thesis that if the
Fed were to pivot too early, that raises the fear that inflation could make a
comeback. So by staying tighter for longer, that's
probably building m
ore credibility to the market.
But a lot also depends on the supply of bonds.
I think we'll always, at the risk of just one more bad auction that can send
yields a lot higher. And then at what point you wonder at
what level is the 4.5% that starts to trigger the equity to pull back?
And it's not just this relationship between pound and equities,
it's also between bond and gold, right? Because historically, when you start to
climb higher, real raise move higher, gold prices are supposed to come d
own.
And yet we have been seeing the strong rally in gold price.
What do you make of that? Because there have been a number of
articles trying to explain it. They all disagree with one another.
What's your explanation? Things the combination of the market
from wrangling the the potential geopolitical problems in the Middle
East. Potentially stickier inflation and also
this recognition that we just have so much debt with the issue that at some
point the Fed will need to start easing aggressively
with QE.
The question is how will the Fed restart quantitative easing without bringing
interest rate down to zero? I think that's the question.
In fact, the biggest question that reporters should be asking of the Fed at
the post FOMC meeting is that the CBO actually projects that over the next ten
years the Federal Reserve will purchase $5 trillion of US Treasuries.
So that's the assumption from the CBO. Someone should be asking, Chair Powell,
what do you think? Are you going to engage in anothe
r round
of quantitative easing sometime soon? I think a lot of people are asking those
kinds of questions, and it's a really good one.
What does this mean for the traditional 6040 portfolio that basically the bond
portion is now gold and oil and maybe chocolate and not really bonds?
Well, if you believe that the secular interest rates are somewhat higher or
maybe a lot higher than what we're used to over the last decade and potentially
more volatility ahead in interest rates, then that 6040 port
folio will not work
as well. So I suspect that you will need more
diversification to get that hedging effect.
Looking into real assets, precious metals, alternative strategies.
What about foreign equities? Where do they fit in to all of that?
Foreign equities get more interesting when you have synchronized global
recovery. We're not there yet.
Foreign equities work better when the dollar is weaker.
And at this point, if we believe that the ECB is going to ease imminently and
the Fed may choose t
o stay somewhat higher for longer than the dollar
potentially will move even higher, which argues that at least in the near term,
is probably not your time to overweight overseas equities.
Help me just make sense of this. You would expect a stronger dollar and
at the same time you think we could get a break out in commodities in places
like gold? How unusual is that?
That's why it's been very interesting year today.
You see the breakout in gold. I think that's pointing to the market is
concerned
with the longer run fiscal unsustainability in Washington.
Can you just help us because we were talking earlier today about the Jamie
David letter of JPMorgan and how AI is this huge theme.
I know you focused on technology your whole career and just some of these
technological advancements. How much do you think that that's going
to reduce staffing at some of these companies?
How is it going to transform some of the financial centers, given your vast
experience in that area initially is going t
o make us more productive.
So is augmenting is increasing productivity.
But over time, companies will realize, well, if I can get more throughput per
employee, maybe I don't need as many people.
So even with the expansion plans, you may not have to hire as many additional
employees. So I do think over time that raises some
big issues about social benefits. Should there be universal basic income?
If we see more, you know, displacement caused by A.I..
So but those are probably five years out.
So b
efore we talk about universal basic income, when it comes to stock
investing, I was going to ask a stock market question, but it really does
raise some bigger social questions. Does that mean that the US benefits from
all of these things that much disproportionately just because we
haven't been the same kind of industrial center as some of these other areas,
these areas that might get sort of depopulated in terms of jobs because of
artificial intelligence, the US stock market will benefit the mo
st from some
of these advancements rather than international.
We are ahead of the rest of the world. But that said, there's also the open
source movement in A.I. and there are a lot of smart programmers
elsewhere. So.
So it is just the competition over time, and it's also how you apply A.I.
to each industry verticals is the business applications that will come out
in the coming years. At this stage we're just looking at the
infrastructure, who makes the chips, the computers, the servers, the sof
tware?
Well, the, you know, basic level infrastructure software.
But over time, it's going to be individual business verticals, and that
is new year to come. You talk about this sugar crash in 2025.
What's the catalyst for that? It's just exhausting.
All the unusually high sugar, high stimulus from the COVID era.
I mean, we're still benefiting from it. So just look at the overnight reverse
repo as a source of excess liquidity. I mean, we have been getting liquidity
net liquidity injection into t
he market in 2020, 21, 23, and so far in 24, 2022
was the only year with a net withdrawal of liquidity and that's why we had a
bear market. But I do suspect that if the Fed
continues with T and with deeply the overnight reverse repo sorry in 2025,
the liquidity backdrop will be very challenging.
At the same time, we will run out of other stimulus, such as, for example,
the resumption of the employee retention tax credit that may happen this spring.
That gives. You know, you paid out for the rema
inder
of the year. Then what do we do for an encore in
2025? And also, you're looking at a potential
debt ceiling negotiation in January of 25.
You describe a lot of messy things that could take place and just gone after
everything you've said in the last 8 minutes, statements, extortion,
potential, sticker inflation, go to precious metals later, start four rate
cuts UPI in five years. How is this Federal Reserve going to
balance financial stability and price stability, given everything you've j
ust
told us in the last 8 minutes? How are they going to do that?
I don't think anyone really knows. We're really in somewhat uncharted
waters, and this is why many of the traditional market indicators, the yield
curve, the leading economic indicators, have not work in this cycle.
Just because we have been overwhelmed by so much monetary and fiscal stimulus.
We're still benefiting from it. So I think everything may be okay into
the election, but beyond that, who is going to be in control of the
Congress
and White House? What will the policies be?
So there's just a lot of uncertainties. Do you think we could be close to this
market rejecting a policy effort from this administration or the next
administration sometime soon? Lisa's been talking about this for a
while. The prospect of a Liz Truss moment in
the Treasury market. And I think a question we phrased in the
following way, does this Treasury does Washington still have the privilege of
behaving recklessly or are we very close to th
at being challenged by fixed
income? I think ultimately it will take revolt
from the bank, you know, the bank vigilantes to push Washington to be more
fiscally responsible. Jimi, thoughtful stuff.
A lot to chew over. Thank you, sir.
Jimmy Shank, the of the Rockefeller Global Family Office equity futures
right now, totally unchanged on the S&P 500.
Let's get an update on stories house where henry shaw Bloomberg Daybreak with
Dani Burger. Hey, Danny.
Hey, John. For a fluke few fleeting moments tod
ay,
Americans will turn their gaze upwards to the sun.
Is the path of the total eclipse tracks across cities and towns from Texas to
Maine. The entire event will last several
hours, but the main skeptical is, of course, for day turns to night, with the
moon being obscured for the sun. That's only expected to last for about 4
minutes. The event has sparked a tourist boom.
Areas along the path are fully booked. Meanwhile, the US will lose about 30
gigawatts of solar energy, with the sunlight being
blocked during prime
generating hours. It's roughly the equivalent of 30
nuclear reactors. The CEO of Rolex has warned against
viewing luxury investments as luxury watches, rather as investments.
The CEO, John Frederick du Force, said, quote, I don't like it when people
compare watches with stocks. It sends the wrong message and is
dangerous. An interesting signal for someone who
wants people to buy his watches. He sees a slowdown hitting sales of
smaller watch brands the hardest. And it's a ba
ttle of the number one
seeds. UConn faces Purdue tonight in the men's
NCAA championship game. The UConn Huskies are looking for a win
in back to back national titles. The Purdue Boilermakers have a chance
now to win their first ever championship.
And that is your blueprint. Brief John Porter up down for the Wrap.
Thank you. Up next on this program, Treasury
Secretary Janet Yellen's tough message to China when the global market is
flooded by artificially cheap Chinese products, the viability of A
merican and
other foreign firms is put into question.
That conversation up next live from New York this morning.
Good morning. Stocks on the S&P 500 this Monday
morning. And good morning to you.
Welcome to the program. Just about unchanged on the S&P.
Yields are up by four basis points. The ten year for 4460 under surveillance
this morning. Treasury secretary janet yellen's tough
message to China. China is now simply too large for the
rest of the world to absorb this enormous capacity.
And when
the global market is flooded by artificially cheap Chinese products, the
viability of American and other foreign firms is put into question.
Here's the latest this morning. Treasury Secretary Janet Yellen
expressing concern over China's manufacturing capacity, urging top
leaders to focus on domestic demand. A meetings were reportedly cordial.
However, China's premier advising Yellen against turning, quote, economic and
trade issues into political matters. Terry Haynes of Panacea Policy joins us
now for more. Terry, in what way aren't economic and
trade issues political matters? Well, they always are, John, of course.
And good morning, everyone. You know, the thing is, with this
administration, I think the through line is that the you know, you can judge the
ability to lecture is inversely proportional to the ability to achieve
to actually achieve the result you want. So, you know, everybody understands the
the the the drill over there yelling goes over, complains about all these
polici
es and essentially wants to tell the Chinese to to redo their entire
economic program, which they spent a couple of years coming up with.
She knows they're not going to do that. They know they're not going to do that.
They call a lot of the the charges that Yellen made groundless.
And that's, quote, when it comes to flooding the world with EVs, for
example. So, you know, everybody you know, nobody
expects a different result personally, not even nor in political nor in the
economic sphere. The re
sult seems to be tariffs.
And they've been signposting it now for months, especially from the treasury
secretary. What do you view as the timeline for
these tariffs? You know, I'm with you all.
I heard you heard your previous discussion.
I'm with you all that they try to do something closer to the election to to
produce a bigger bang for the buck. And they'll probably try to fold that in
if they can, with additional evidence of China helping Russia and Ukraine, which
everybody knows is happening
. And not just economically.
Russia is effectively a client state of China.
Okay. So what you're going to get is you're
going to get, I think, heightened and sharpened Chinese rhetoric just about
the time we go into the general election campaign, partially in the hopes that it
actually makes a difference in the election.
And I don't see that much at all, frankly.
But they do. And then what would be the tit for tat
that Washington should potentially be preparing for from Beijing?
Well, there's a
lot of things. You know, they will.
Yeah, they will. Absolutely.
Tit for tat on sanctions and a bunch of other things.
And they'll probably ramp up their, you know, their their plans to to flood the
United States market with EVs and all the rest and maybe even take additional
steps in places like the South China Sea in order to rattle the geopolitical
cage. So I think markets continue to forget
that we're in the highest geopolitical risk for 50 years.
And I think they think Taiwan has gone quiet
yet the Taiwan issue has gone
quiet. It hasn't.
It's just that China is now threatening the Philippines instead of directly
threatening Taiwan. So it seems quieter in the markets.
Well, Terry, this is exactly the reason why I found it so interesting that
President Biden is holding the first trilateral summit this week on Thursday
between Japanese prime minister and the leader of the Philippines to talk about
some sort of alliance to really counter China.
How much is this directly tied to prepar
ing for any potential retaliation
to tariffs placed on China? Oh, 100%.
You know, there are broader there there are broader geopolitical issues here.
And the idea of adding Japan to the office umbrella has been around for a
while and they're trying to move on that.
And it's not just limited to Japan either.
You know, the Biden administration has been spending a lot of time cozying up
to to India. I'm not suggesting India is about to
join office, but the idea here is that there is a
there's a pus
hback in Asia against Chinese hegemony in the region that will
continue the economic sanctions will continue to be a part of that.
But there's the broader geopolitics as well.
Not exactly an embrace of us hegemonic, though, is it, Terry?
And I just wonder to what extent the US policy has been rejected by the region.
You know, I don't think it's being rejected by the region.
But there's you know, there's a lot of tensions there.
If you're any non-aligned nation, you know, the idea of working with
the
country that's closer to you to get some immediate economic benefits always is is
tempting. And
and they're under a lot of pressure to do so.
At the same time, though, you've got a situation where China has been pushing
the Belt and Road for some years and that has very mixed results.
And because because of those very mixed results, it seems like the pendulum
today, the pendulum is moving back towards the United States and the
Western alliance when it comes to wanting to establish a more in
dependent,
less China centric position in the region for a lot of
these countries. How difficult is that kind of message?
Before the election, I narrow in on what's going on with Nippon Steel.
The president has said he doesn't want this deal to happen.
The Japanese have come out and said, well, this actually means that we are
stronger against China with this deal. And the US is using national concerted
security concerns about China to want to block the deal.
But really it's about domestic jobs.
So when I talk to officials abroad, they
sometimes feel that the US is speaking out of both sides of their mouth.
How does the US combat that? Well, you know how they ought to best
combat it is is stopping speaking out of both sides of their mouths.
But I do think this is something that gets the Biden administration in
trouble. It's not not limited to them, of course,
but they do it a lot and they do it a lot in foreign policy.
You saw this in the run up to the Ukraine war.
You're seeing it now
in Israel and Gaza. You're seeing in a lot of places what
they ought to be focusing on is whether or not it convinces anybody politically,
frankly. And, you know, I don't think it does.
You know, western Pennsylvania, for example, which is one of the big
battlegrounds of the election, they get Biden's people think they're helping
their cause by being much more pro pro-union.
But on the other hand, you know, they're engaging in LNG bans and pauses and the
like that just leave people, on balance m
ore cynical about them.
So I don't think the strategies are very well thought out either politically or
economically, frankly. You're implying there is a strategy,
Terry, and I'm not sure there is one right now.
Terry hides a fancier policy. Terry, thank you.
Just seems to me that you do one thing to try and please Pennsylvania, another
to try and please Michigan. And this is what 2024 is going to be
about. These are going into the election, which
is a reason why the real litmus test, as Anne-Ma
rie was talking about, is really
the international allies and sort of saying, okay, guys, what are you doing?
And if there is a strategy, I mean, that's kind of it.
Coming up, Jeremy Diamond out with his and your letter to shareholders with a
warning about AIG. That's next. Welcome to the program.
Equities on the S&P 500 totally unchanged on the Nasdaq as well.
Pretty flat this morning, going absolutely nowhere, trying to bounce off
of Russell. I think weaker losses for the small caps
last week.
The Russell this morning positive by
0.1%. The equity market, the S&P 500 coming
off the back of the biggest one week loss since the start of the year.
If you turn to the bond market, I'll go through some levels for you.
The high of the year on a two year this morning for 7823 just off those levels
at the moment, the height of the year on a ten year again this morning, which is
where we are right now, four 4541 yields up by Lisa five basis points on a ten
year maturity. And this is directly der
ived from the
idea that the data is not cooperating with the Federal Reserve that seems to
want to cut rates. What I find interesting is where the
yields are rising. It's not inflation expectations, it's
real yields. It's when you strip out inflation
expectations going over the next ten years, you're seeing that north of 2%.
This is the expectation the Fed's going to have to remain higher for a lot
longer. And at what point does that really start
to bleed more significantly into risk assets?
Wha
t happens when payrolls comes in at 330,000 barely talked about it.
What on earth was that number on Friday? Okay.
We also didn't get downward revisions. The amazing thing and the reason why
we're not talking about it, it was it was a perfect kind of response.
The idea that you also did not get any kind of wage growth that caused real
concerns or alarm bells. This is the sort of disinflationary
growth that's just perfect in all sort of accounts.
The question is going to be on Wednesday we get CP
I, then we get PPE.
Does that hold or suddenly do you have to rethink that thesis?
Immigration means the US can expand without overheating.
This is what Jay Powell talked about, although I caught up with acting Labor
Secretary Julie Su and she really didn't want to say it was immigration.
She did a lot of, you know, verbal gymnastics to say it was teenagers.
That is what is driving this capacity. They'll say things like bigger, not
tighter. That's what I heard from and center of
Morgan Stanley.
The economy can get bigger without the
labor market tightening. I do want that.
At least if it is all immigration, then they're going to spend money elsewhere
given the jobs they've got. And I think it's a very tricky thing for
this administration to embrace. Hence the verbal gymnastics, because
what's the message you're going to send? We've got a supply side story that we're
embracing because we've got a load of immigration coming across the southern
border and that's keeping wages down. Is tha
t politically palatable?
Not really. If you're not getting the wage increases
in low wage jobs that you previously would have because of an increase in
people who are coming in who will take those jobs for lower wages, it's a
difficult moment for the administration, for the economy.
From a lot of investor standpoint, it looks like an economic nirvana.
For how long does that last? Because honestly, you are seeing a
certain level of strength of consumer spending staying in there.
That leads to may
be a slightly different reality.
One nugget in this jobs report that I thought was interesting was the number
of multiple job holders increasing. So you have to hold multiple jobs in
order to keep up with your bills. It's up 27% since the former president
left office. And that is why you saw Trump come out
and say, well, there's things in this jobs report that you need to look out
for that's concerning things for the Federal Reserve to look out for
politically agnostic. They look at the situatio
n right now.
The market, I would say the markets got this constructive view because it
believes that Chairman Powell can respond to weakness and basically ignore
strength. So anything about the discussion that we
just had that the change is there? Well, if it is people getting multiple
jobs, that means that they're concerned about their well being in their ability
to pay for their bills. So that does not speak to a screaming
confidence that speaks to strength, which is a reason why there is some
caution. Right.
That wait a second, things are going to slow significantly the Andrew Hall horse
view of the world. This is why the Fed is being so
cautious. And the reason why Mohamed El-Erian is
saying we should probably cut rates in July, even though you are getting
economic data that's coming in strong. Mohammed, with us here in New York
tomorrow morning, 7 a.m. Eastern Time.
So don't miss that. I want to turn to foreign exchange in
the euro. Just quickly.
The euro against the US dollar thi
s morning looks like this is negative five
0.1% at 1.25. Just want to use that as an excuse to
talk about this from Eric Nelson. Of only credit, the difference between
the Federal Reserve and the ECB. Fantastic note from Eric over the
weekend. The Fed says it doesn't know when
exactly it will start the rate cuts cycle, but it sends a clear signal about
the expected pace of cuts once it starts.
And a view on the expected end point. And contrast, the ECB has all but
pre-announced the first rate cu
t more than 2 to 3 months ahead of the formal
decision, but insists the path thereafter remains virtually invisible.
When you compare and contrast what's happening between the ECB and the Fed,
there is a very big difference emerging right now and just have how they're
approaching communication on policy, especially given the fact that, Jeff,
you said earlier that this is a live meeting on Thursday with the ECB as they
come out, which raises this question whether the market is ahead of the game.
Right now, the market is doing the job for the ECB and saying your rate cut
path is a lot more concrete than the Fed's.
You have a lot more to go because you've got a weaker economy and frankly, you
have more sort of economic weakness filtering in to a more significant
disinflation. Jeff is looking for parity right now one
away, 25 and this event is this morning, a busy week of data on tap Stanley with
CPI and fed minutes on wednesday Thursday we get PPI and jobless claims.
You mix consumer sent
iment and bank earnings.
Round out the week on Friday. The latest question of the morning.
So far, bank earnings are data. Take your pick.
Which one? I think bank earnings actually CPI, if
it's in line, will be treated as basically a beat.
But really bank earnings might give a sense of just how much consumer pushback
there is, whether J.B. Diamond is speaking as a concerned
American or whether he's speaking from some kind of concrete sense of real
worry that he's seeing in the actual numbers.
Bu
t for the Fed to be able to cut, given the strong support we have in the jobs
market, they need to see softer inflation.
So I'm looking at the data and Bank of America is not with the consensus.
They're slightly off. They say it's two point percent month on
month rise in conflation. And they say this is much more
important, this print, than last week's jobs report.
The week really begins on Wednesday with that economic data, then picks up
through the week on Friday when we get those bank earning
s.
Let's turn to our next story. Paramount Global is nearing a deal to
merge with David Ellison's Skydance Media.
Anderson and its backers have agreed to pay 2 billion for the media giant that
owns CBS, MTV and Nickelodeon. The two sides agreeing to a month of
exclusive talks to work out the details. Plenty of moves in this sector right
now. I'm actually surprised there hasn't been
actual more consolidation. There's been a lot of talks, talks
about, talks about and talks that get broken up.
Are
they really going to be stronger together?
And is it really just going to be the bundle that we're going back to
essentially? Haven't we already returned to that
halfway? Would you like my Hulu complaint,
please? I've been waiting all morning.
I don't get the algo. The algo is absolutely terrible.
I mean, do you know me? What do I want to watch Sunday?
I want to watch the basketball. I want to watch the sports.
What should be at the front page? Sports.
Not there. Not that I then have to go to a
separate
thing and click on the sports and then find the basketball in America game.
I don't get it. I have to do the same thing with the
golf. Sometimes it's just not there.
But what is there? That's my question.
The farmer who wants to find a wife come on top of the pile.
It's because you love also romcoms. You said that So your algo is always
confused. It's confused because I'm multiple
people. Yes.
Because you watch a Lifetime movie. It might be that you watch a lot of
Lifetime Christmas and
watch Hallmark movies.
Yeah, but you do a lot by now. Shouldn't they know that it's now April
and it's not Christmas anymore and you don't want to watch that Hulu algorithm,
full service sports on Sunday.
Sports on Sunday. This is one to watch the golf great golf
over the weekend. It's a fantastic finish going into the
Masters this week. Let's turn the story to Jp morgan's CEO.
Jamie Time, a great show, by the way, with his annual letter to shareholders,
all about how we're moving away from ope
n stories to sort of stories about
world America. And it's almost you actually watch it
shift. Yeah.
So Hulu was correct just to love devoting a chunk to artificial
intelligence. We're moving on, guys, saying it could
be a transformational steam engine for the economy.
Over time, we anticipate that our use of A.I.
has the potential to augment virtually every single job.
Sonali Basak joins us now for more shortly.
It could be a transformation as a steam engine for the U.S.
economy. Walk us throug
h the logic from Jamie
Dimon this morning. Well, there are a few things.
We know that Jp morgan has been talking about this in their annual letter for
years. We know that he has thousands of people
devoted to the cause of AI. They just elevated somebody in their
investment bank to play a broader role here, to look at data and technology
across the whole firm. When they look at artificial
intelligence, they do use it in a lot of businesses.
Already everything from financial advisors are figuring
out how to
incorporate it in a more generative way to figure out how to dole out investment
advice. Remember, trading desks already use A.I.
at scale. Now what is generative artificial
intelligence mean for the trading desks as well?
Data centers and presence and data centers.
So you kind of look across the entire spectrum and certainly A.I.
has a huge role, not to mention anti-money laundering and security
concerns within a bank. If you have actors out there that can
cause harm as a bank, you a
lso need to have that defense properly in place
toward those actors off. You've been reading Jamie Dimon letters
for a very long time and then covering the earnings that come out shortly
thereafter. What's the relationship between the two?
So there's a few things in this letter in particular that does speak to the
business moving forward. You think, for example, what he says
about the expectations for First Republic?
They had said earlier that $500 million worth of earnings annually would be
add
ed and now they think that's closer to $2 billion.
Lee says. You could believe it.
And on top of that, too, he also draws out his concerns.
We always look on Friday, this Friday, coming up on what he's going to say
about the forward look for the economy and he gives a little bit of that in the
letter today. A lot of concerns about persistent
inflation and the idea that inflation could stay higher for longer.
It's interesting he balances that out in a very interesting way.
He talks about persiste
nt inflation relative to federal spending and worries
about geopolitics, but he also talks about economic growth and not only in
the vein of AI being kind of as productive as a steam engine, but also
when you think about how much money economies have to spend for a green
economy as well. This idea that, you know, he puts
specific statistics, 70,000 electricians needed to really boost the electron
ification of the United States, for example.
So how much product. 50 is needed to offset those force
s.
I think it's a big question we were asking earlier.
Is this Jamie Dimon as Treasury secretary or is this Jamie Dimon as CEO
of Jp morgan? You know, that's been the perennial
question, hasn't it? This letter has always been kind of a
swan song to the world. It has been Jamie Diamond's way of
really weighing in on a lot of issues that impact J.P.
Morgan, its customers. But also remember, they bank clients and
governments around the world. There's a whole section in the back of
this letter that
talks about what it's like to be a good leader.
And you have to wonder if that's the handoff story.
Is that the note, not just to people who are looking at the qualities for the
next CEO, but also his own little letter here to whoever his successor?
Maybe he was a little bit kinder and he said Trump was kind of right in Davos.
Then recently he went to the White House and had lunch with Kamala Harris.
What is he doing in terms of politics? He's walking a fine line purposefully.
He always has. And
there's a part in the letter as well
where he says something I think we already know about how he's like a cold
blooded free market capitalist. And it's important to remember his
economic thinking as we think about how he deals with politicians.
He's always straddled the line. It's really interesting to watch him go
to Congress. Now.
They have that annual grilling of the bankers.
Now they don't ask them the same political questions they used to ask
about green energy financing, for example.
The
se things, the balance is swayed one year or another, frankly, for these
banks. And so he has been able to step up on
things like energy financing in a way that has been unpopular at times.
But guess what? A few years later, it's less unpopular,
isn't it? And so you see that he kind of stands
the test of time when he's fighting back on these issues.
Jp morgan shares are up 17%, more than 17% so far this year.
I find it fascinating what you pointed out about First Republic and how much
they've ga
ined from that, how much we expecting them to just consolidate their
gains as the world's biggest bank, as the US's biggest bank and really
dominating a lot of areas that previously were more open maybe to some
of the competitors? Yeah, this whole beginning of the letter
starts about the history of bank mergers from Jp morgan to Bank of America, and
this idea here that Jp morgan in and of itself, by 2004, Jp morgan represented
the consolidation. He says, of four of the ten largest U.S.
banks fro
m 1990. If you can believe it, I've you remember
that it had been born off of consolidation, but you forgot exactly
how much. And now when he's talking about bank
rules as well, he's making the case for the whole banking system to keep
consolidating to ward off. This is another favorite one that I had
from this, the idea that even Apple effectively acts as a bank.
He's talking about all the competition they're facing from the non-bank system.
And he calls out one big tech player by name interest
in Apple.
It's a bank, the airlines, a credit cards.
Everything's changing. The whole idea, though, it's sort of
what's your biggest competitor? Big tech is sort of the banking
industry. That was sort of three years ago.
Now it's just basically Apollo and other firms passing their lunch.
Let's hear me. Thank you.
Great to see you. Sonali Basak there of bloomberg.
Lisa mentioned the year performance. The jp morgan stocks up 16%.
Citi's up by 20. Bank of america up by about ten.
All three of thos
e banks have a decent year so far.
Yet tonight. Let's get an update on stories elsewhere
this morning. Can Rachel Bloomberg Daybreak.
Let's catch up with Dani Burger. Hey, Danny.
Hey, John. Crude oil is declining to start the
week. It comes off of a five month high.
Israel said it would remove some troops from Gaza, but it's still preparing an
offensive in Rafah. Chipmaker TSMC will receive $6.6 billion
in grants. It will also get as much as $5 billion
in loans from the US. That's to help it bui
ld factories in
Arizona. It's a prelim agreement, but the company
will build a new factory in Phoenix that adds to the two facilities in the state,
which are expected to begin production in 2025 and 28.
The newest factory will build next gen two nanometer chips.
Those are essential to emerging technologies like AI and military
applications. Spirit Airlines has reached an agreement
with Airbus. It will defer all aircraft scheduled to
be delivered in Q2 2025 deliveries will be pushed through to th
e end of 26
through 31. It should improve Spirit's liquidity
position by about $340 million over the next few years.
Spirit will also furlough about 260 pilots effective September 1st.
That's your Bloomberg brief. John Donnelly, appreciate the update.
Thank you. Up next on the program, trade is
trimming that rate cut. That's the policy mistake would be to go
after 2% inflation too quickly. If this Fed is continuously overly data
dependent, then maybe we don't get cuts. That conversation up next.
BP and the S&P 500 negative by 0.1% on
the S&P. We'll talk about that another time.
In the bond market. You're at a high by five basis points
for 4541 on a US ten year in the commodity market.
We look like this. We're just about negative by 0.7% crude
at the moment, WTI $86 Brent crude $90 and about $0.50 under surveillance this
morning. Traders trimming their rate cut bets.
There is a slow but sure migration in markets to the view that yes, we're not
going to get to 2%. We're going to get to a
bove to closer to
three and that's going to be stable. And the policy mistake would be to go
after 2% inflation too quickly. If this Fed is continuously overly data
dependent, then maybe we don't get cuts. But I'm hoping that they will see
through the backward looking data and look forward.
And I think we will end up with two cuts this year is the latest this morning
after a blow out jobs report, traders counting rate cut bets for this year
from 3 to 2. All eyes now on march.
CPI suggests a batt
ery shampoo writes in this less is more.
The market is on the cusp of looking to Wednesday to further price out a June
rate cut. Strong fundamentals and sticky inflation
bring into question the need for three rate cuts this year.
The pattern, I'm pleased to say, is with us around the table here in New York,
Sir Patrick, good morning to you. Want to get this question all the time.
Equity markets, sort of all time highs, credit spreads are tight, cut jobs
growth. Strange.
Okay. Why are we even hav
ing this conversation
about reducing interest rates? Why are we.
Well, I think it's a tricky year coming into this year.
I think the Fed thought that the economy would slowdown more dramatically than
what we actually saw in the first quarter.
In fact, we saw a decent amount of momentum.
Growth is tracking anywhere between 2 to 2 and a half percent.
And I think that they were also somewhat eager to at least start the rate
adjustment policy ahead of the election so that they don't appear to be
par
tisan. And that's what leaves them in sort of
this really tough spot where the data has been performing a lot better than
their expectations. And now, if anything, they might, you
know, an optimal time to cut might be in the fourth quarter, but that comes in
line with with the elections. So we're taking out the cuts.
We're pricing in stronger growth and maybe hotter inflation, stickier
inflation. And the bond board looks like this.
If we can bring it up and just go through, it's a better two yea
r close to
full rate, a ten year getting closer to full 50, 30 year, basically at 460.
How much potential is there for high yields from here?
I think it's going to be tricky for yields to continue to rise from here,
because I see this current environment as being very different than what we saw
in the fourth quarter of last year. Fourth quarter of last year, The Fed was
biased towards hiking more by the end of the year.
You were also looking in an environment where Treasury supply was in the
for
efront. You saw a build up in term premia
because of the increase in coupon issuance sizes.
And now we're in a different environment where the Fed's bias is clearly towards
towards easing. So they're they've told us that they're
thinking about rate cut sometime in the second half of this year.
So that I think kind of mechanically puts a cap on how high yields can rise
from here on The supply picture hasn't really changed meaningfully.
But that said, I think that the markets could be biased towar
ds lower years from
here on. Are you saying that there isn't any data
point that could come out or cumulative data points that would sway this Federal
Reserve from cutting rates this year? No.
The Fed could very well end up not cutting rates.
The share of the data continues to be strong, but the bias in the bond market
is going to be towards lower yields, given the fact that the market's always
going to be looking towards something in the data that breaks.
That would cause the Fed to to need to
pivot and cut rates.
So I think that that's really where the market's focus is going to be on.
Is it more bullish for the ten year yield if the data underperforms or
outperforms this year? In terms of it this week, I should say,
in terms of inflation data, if the inflation data comes in hotter than
expected and it forces this Federal Reserve to hold rates higher for longer,
is that more positive or negative for the ten year?
That's actually a very interesting question because if you think about
the
reaction function of the bond market or even on Friday, the wage print was
actually pretty benign. So that would kind of argue perhaps for
the Fed to be able to adjust policy. But on the other hand, you got a very
strong headline print, and it was really, really hard to see any sort of
weakness in the employment picture. So the employment picture overall is
extraordinarily strong. And then you're looking at an
environment where if inflation actually starts to tick lower in a will, the Fed
ne
ed to cut rates in an environment where everything else is really, really
strong and that's really where it gets a little bit tricky.
You really need to see employment crack. You really need to see some weakness in
manufacturing or other indicators that would suggest the Fed would need to cut
rates in an environment like this. So you're predicting that the ten year
yield ends around 4%, ends this year around 4%.
Are you rethinking that? Are you getting a little bit nervous as
you see the strengt
h that you just described?
The longer the Fed keeps policy higher? I think that there's a potential that
that's going to feed through into the broader economy.
Our call is that any yields would probably start to decline towards maybe
375 ish or 380 by the third quarter as we head into the elections of the Fed
hasn't cut rates. Beyond that, I think once we get past
elections, just the certainty of that should cause yields to rise.
And then you start looking at things like debt ceiling, the increa
se in
coupon issuance sizes coming into the first quarter of 2025, that should again
see a rebuild and trump premia. So high yields after the election is our
call. Andrew Balls of PIMCO just saying
because of that, there are better places to take duration risk at the moment.
Look beyond the United States and look to say Europe.
Is that something you'd agree with? Yes, because of the fact that you look
at the sequencing of policy adjustments, the ECB basically told us that they're
going to be adj
usting policy in June. This was not what we expected coming
into the show. The expectation this year was that the
Fed would go first and then the ECB would follow suit after.
But now it looks like the ECB and perhaps even the Bank of England might
cut rates sooner than the Fed. So in that sort of environment, I think
it probably makes sense to go long bonds in other.
Other G three countries as opposed to Treasurys sooner and further sooner and
further at the ECB. Do you think they will take rate
s lower
than, say, the Federal Reserve? Probably not.
Again, the situation there is very tricky.
Unit labor costs are starting to rise. Inflation is still very much a concern.
I was actually quite surprised that they suggested or started communicating that
they would cut rates as early as the June meeting.
Now the market's saying, well, they'll cut in June, but then they might not
have to cut that frequently thereafter. So it's really a communication
game, if you will, at this point. This is wha
t we're all grappling with.
Are we truly in this new regime? When they start to talk about the
ultimate destination, how much higher is that destination than the previous
rounds of rate cutting cycles we've seen over the last decade or so?
What's it going to look like? So the destination definitely looks like
it's a lot higher. We raised our term forecast for for
Europe higher from two around two and a half percent term in terms of rate in
Europe. It's the same in the US.
I don't think the term
of the Fed funds rate is going to be anywhere close to
the long run Fed funds rate, which is around two and a half percent.
So when the cycle ends, I think that the Fed funds rate might end up around maybe
anywhere between 3 to 3 and a half percent.
And the path to getting there might be a lot slower than people anticipate.
You talk about the rising oil and commodity prices.
Who's more vulnerable to that? The ECB or the Fed?
It's got to be the ECB because of the fact that they are much more depe
ndent
on energy. The ECB also looks at headline inflation
a lot more than the US. The US, for the most part, is energy
independence. So if anything, there are some positives
that come out of higher oil prices to certain sectors of the US economy, CapEx
spending as well. So I think for the most part the focus
at least for the ECB, is going to be not just on core inflation but also headline
inflation. And to the extent that you have higher
oil prices, higher geopolitical risks, I think that that's
going to weigh more on
European bonds than the US. Interesting subject, right to say just
fantastic. The catch up safe shampoo there have
soaked in on a morning where we have new highs for 2024 across the curve the two
year out the 30 year the ten year right now what five basis points getting
closer and closer to 450. What was the line of the scent for
equity pain last week? It was 450 5556 well worth one person.
Yes. 556 Other people say 450 We'll see.
We're not necessarily seeing it completel
y derail the equity rally, but
we are seeing it in certain pockets is certainly questioning whether the
rotation can persist. They said here at 460.
That's what got my eye on my attention last week.
The Smallcaps underperform last week. Remember, we started last week by having
a conversation about broadening out small caps, doing better.
Then it got absolutely hammered even though we had better economic data,
because basically those are the companies that more leveraged in that
potentially could
feel higher rates where they are still a mystery about how
resilient this economy is, whether the long and variable lags are still in
existence or whether they just don't exist super long is what some people
might say 30 years, super long. Check mainly if Jp morgan and a quote of
the Atlantic Council, Kathy Boston of Nationwide and Gina martin Adams of
Bloomberg Intelligence, all joining us in the next hour, the third hour of
Bloomberg Surveillance just around the corner, equity futures on the
S&P
totally unchanged, massive week ahead. CPI on Wednesday, Q1 earnings kicking
off friday morning. Ingredients are there for the bull
market to continue in a healthy way. We are still technically in an uptrend.
Maybe there is more of a growth story at play.
We are seeing a lot of economic strength.
I think more than the Fed had predicted, more than most economists had predicted,
that debate is pushing more on the side of no, this is actually a stronger
economy than we thought. The US is an eco
nomic exception among
the advanced economies. This is Bloomberg Surveillance with
Jonathan Ferro Lisa Abramowitz and Anne Marie Jordan.
They said our of Bloomberg Surveillance begins right now live from New York City
this morning. Good morning.
Good morning for our audience worldwide alongside lisa ravitz together with
Annmarie Horden, i'm Jonathan Ferro. Your equity market is totally unchanged
on the s&p 500. Let's get straight to the agenda this
week. Helping to the cpi.
Coming up on wednesday
, we'll get the fed minutes released on the same day,
ppi thursday together with jobless claims.
And then on Friday morning, bank earnings just around the corner.
You started this conversation, Lisa, earlier on today by basically asking the
question on that screen, what are you focused on?
What's more important? Honestly, it sort of depends on how it
all comes out, because you can make an argument for why earnings are going to
tell more of a picture that could keep this rally going.
And you coul
d make an argument that if CPI comes in hotter than expected, all
of a sudden the bump has become the new transitory and suddenly we're talking
about higher inflation, the Federal Reserve that doesn't have the ability to
cut rates as much. I think given the fact that we have the
jobs data behind us and that unemployment rate, stellar unemployment
for over two years below 4%, the biggest issue this Fed has been finding is
inflation. And we've had these upside surprises.
What does it mean this wee
k? And that's what I'm really focused on.
Let's push this conversation through the bond market.
Let's get to the board. Look at a two year, the ten year, the 30
year. If you're just joining us, new highs for
the year on every single maturity you're looking at on the screen at the moment,
we're approaching 480 on a two year later, up by five basis points on a ten
year. Are higher yields still higher for the
right reason for stocks? And I think that that's ultimately the
key question that maybe we
'll get some answer from if we get Q1 earnings that
come in strong and that if we get the response of a good news being good news
for at least stocks, this has been the key question.
People have shrugged off rising yields, but they're rising a little faster and
they're rising with the idea that the Fed's going to respond.
And if that persists, all of a sudden, that will be the narrative, the level at
which bond yields become putative two case studies, one on Friday, one on last
Monday. Let's go
through them.
I think they sort of speak for themselves.
Monday we had I said manufacturing, but the really punchy prices paid number,
equities didn't like it. Bond yields up Friday.
We had a really punchy payrolls figure without the corresponding punchiness in
wage growth, the equity market can deal with those kind of yields.
So we had two very different sessions where yields were up for, let's say, the
wrong reasons and yields are up for the right reasons.
Basically, if you get this sort of di
sinflationary growth, well, that's
fantastic. But do you really have that conviction
that the Fed can avoid cutting rates in the face of a job spread north of
300,000? And this idea that there were no
downward revisions that were substantial and the fact that we are seeing people
talking, Laura Erhaim, talking about the stickiness and service aside, inflation
is the long series of upside surprises on payrolls over the last year, the last
18 months or so. Equities on the S&P 500 this morning
just
about unchanged on the S&P. We've talked a lot about the bond
market. Let's talk about crude just backing away
from the highs of the year to highs that we haven't seen since October.
Crude is a lot by three quarters of 1%, $86 and about $0.27.
Coming up this hour, JPMorgan's Jack Manley on why he sees equities
broadening now. And I'm world of the Atlantic Council as
oil falls from a five month high and Nationwide's Kathy Boston sick.
Looking ahead to inflation data. We begin with our top story,
looking
ahead to a busy week of data and earnings, too.
Jp morgan's jack manley saying this things are still looking pretty good for
the equity market. The US economy is doing so well that
investors should be exuberant. Maybe things are a little too rich now,
but I think it's entirely possible that the market sees right the way through.
That, Jack, I'm pleased to say, is with us around the table.
Jack, good morning to you. Good morning, John.
Why can this carry on and why can it broaden out wha
t we're talking about,
Like you said, Lisa, Right. The economy doing well for all the right
reasons. The rate environment changing for all
the right reasons. That employment report was pretty
significant, John, that you had mentioned.
Very strong gains, very low unemployment rate, but not the pop in wages that we
would have feared. I think this week to answer that
question that you guys were talking about earlier, inflation is probably the
most important thing to be paying attention to.
At least
that's how the market's going to interpret it.
I don't think any individual inflation report sways the Fed's narrative, but
inflation will kind of further this story that the economy is doing pretty
well because if the popping inflation comes from a pop in energy prices, what
we're sort of looking at right now, that is by definition outside of the control
of central banks. The Fed can't do a whole lot about it.
And so hopefully they see right through it.
That's how I'm thinking. So this is not
because you don't talk
about Jp morgan results on Friday. It sort of is inflation.
We'll talk about inflation. CPI Do you buy into this
non-inflationary growth story that so many people are embracing, not just last
Friday but over the last few months? I do buy into it, frankly.
I mean, I think a lot of what's going on with inflation today can be linked very
closely to the level of interest rates you you slice and dice and.
And whether you're looking at the headline number, you're looking at the
core number, you're removing the goods equation.
So much of it has to do with the rate environment that's shelter.
On the headlines side of things, it's automobile insurance on the sort of core
services side of things. Both of these things are going to be
direct reflections of the interest rate environment.
I think we're in this really kind of funny, peculiar chicken and the egg type
situation where you're not going to see meaningful downward pressure on
inflation until you see meaningful downwa
rd pressure on shelter costs, and
you're not going to see meaningful downward pressure on shelter costs until
the Fed lowers interest rates, mortgage mortgages come down to a more reasonable
level and supply comes back online. So people are willing to step into that
market. So I see through a little bit of that
stuff. I don't think the inflation is something
to be worried about right now. Just to underscore what you just said,
do you think the rates where they are are inherently inflationary?
I
think so. I mean, it's it's so funny because if
you think about where inflation was two years ago, right, we're talking about
2022. We're looking at scarcity issues.
We're looking at shortages of energy, shortages of food shortages of finished
goods. All of these things related to Russia,
Ukraine, China still embracing zero Covid We crushed inflation from nine 1
to 3 zero in a 12 month span and it had literally nothing to do with interest
rates purely to do with supply chain issues getting bette
r.
Now, the stuff that's here right now, that's the stickier stuff, that's the
more complicated stuff, that's the stuff that's tied directly to interest rates.
So I think the path from 9 to 3 easing the path from 3 to 2, that's a lot more
complicated. And hey, we've seen plenty of evidence
over the last six, seven, eight months in those prints.
So does this leave you buying bonds and buying stocks because you think that
ultimately the Fed's going to cut rates and that's going to be positive for
yields since it's inherently disinflationary to cut rates because
higher rates are inflationary? We're environment, right?
Yeah I when it's like a tongue twister right there, when I think about fixed
income, I have to acknowledge there is a lot of short term uncertainty about the
direction of interest rates right now. We just don't really know how the data
are going to continue to play out. The Fed elected to not course correct at
its most recent meeting, they held on to that 75 basis point cut
narrative this
year, but they may change their tune a few months from now.
I'm not sure. In bonds, I like the upside downside
sort of risk reward profile there, where even if I am a little bit too early and
even if yields do back up a little bit more, so long as I'm not way out on the
curve, I don't really have a whole lot to be worried about.
So from a fixed income perspective, it is very much a 3 to 5 year kind of sweet
spot from a duration side of things. And I like the higher quality assets,
I
like the sovereigns, I like the higher quality corporates.
I'm not really worry too much about high yield.
On the stock market side of things. Valuations are clearly stretched right
now. I think even if you don't believe in
reversion to mean 21 times forward earnings at an index level is probably a
little bit too high. But we are looking at this sort of
broadening out of the recovery as the earnings story gets better for the have
nots of 2023. And I think that makes me constructive
on equitie
s, too. What does broadening out mean to you?
Some people think it's sort of within the S&P 500 away from the dominant seven
stocks of last year. Others say it's look, a broad are the
people that might be going from large to small.
What does it mean to you? I'll tell you of those three, John, it's
the first one. You know, when it comes to the
broadening out of the recovery, it's sort of overly simplistic, perhaps.
But I think it is important that investors remember that there are
another 493 plu
s names in the S&P 500 that no one's really talking a whole lot
about that. I've only just now started to pick up
from a price perspective that are trading at reasonable valuations, that
are punching above their weight class from an earnings contribution
perspective. And as the interest rate environment
gets better this year, as inflation continues to sort of normalize this
year, all of these things are going to be tailwinds for those those laggards of
of 2023. Not a big fan of stepping down in
the
market cap space. I think particularly when you're looking
at small cap names, the debt situation there is not particularly good.
The profitability situation there is absolutely abysmal.
And then from an international perspective, I like the US story.
As long as you are really careful about what you're buying out there.
You know, if I buy the European index, I'm buying European banks.
I'm not particularly interested in that. If I buy the AM index 30, that's going
to be state owned enterprise
s. I'm not particularly interested in that
either. So if you're going there, you got to be
very specific. We have a huge upswing in commodities.
How do you want to potentially expose yourself to that?
The huge upswing in commodities could result in short term outperformance from
those commodity producing emerging markets, but that is not why I own em.
I don't own em for the commodity play. I own em for the manufacturing play, for
the growth of the middle class, the demographics, all of that lead
ing into
consumption, into production of physical goods and even services.
The commodity story is not what's exciting for me about em long term.
So if I'm looking for commodity exposure, I want to clip that coupon and
maybe get a little bit of price action in there as well.
I like the higher quality stuff. I even like us energy producers think
it's a shorter term play there too, because there's not a whole lot of
CapEx. We're eventually going to have to drill
more if we want to. Pump more of thi
s stuff, and I'm not
quite sure if that's in the cards right now, but for where things are at the
moment, energy companies are making money hand over fist and they are
returning a lot of it. Back to you, the shareholder.
So it's a it's a pretty good environment.
Before I let you go, Jack, you said something that was pretty radical, this
idea that high interest rates are actually inflationary for the economy,
How do people agree with you? I get a lot of questioned looks when I
when when I say tha
t when when I'm speaking to clients.
But I think if you if you break it down, it starts to make a little bit more
sense. I mean, in particular on the shelter
side of things, you know, the Fed has raised interest rates notionally to
crush inflation. That's the whole point of this thing.
Right. But by raising interest rates, they have
made borrowing costs across the curve higher, which in turn has made mortgage
rates go up considerably, which has forced any sort of would be home buyer
who can no l
onger afford to purchase a home into the rental market.
And rental inflation has actually stayed quite robust.
And rent is what feeds through into CPI. It's not home prices, it's rented and
it's owners equivalent rent. And so I think if you kind of tease out
the connection there a little bit, it starts to make more sense.
But first blush, I get a lot of I get a lot of how are you sure about that kind
of views? We heard that from sofas as well from
over at Oppenheimer. He was talking about the id
ea that that
is really the key to bringing home prices lower is potentially lowering
mortgage rates. He was telling us about his 10%
mortgage. Wasn't a $1,000 really back to back to
the terrace Manhattan. Oh, poor guy.
Exactly. Seriously, Jack, good to see you.
Great. Sir John Manley of J.P.
Morgan Equities right now in the S&P, just about unchanged.
Let's get you some stories elsewhere with your Bloomberg race is Dani Burger.
Hey, Danny. Hey, John.
For a few fleeting moments today, Americans wi
ll look up to the sun,
hopefully with glasses on as the path of the total eclipse tracks across cities
and towns from Texas to Maine. The entire event itself, it's going to
last for several hours. But the main spectacle is when the day
turns to night and the moon is obscuring the sun.
That will last only for about 4 minutes. The event has sparked a tourist boom in
areas along the path are fully booked. The South Carolina Gamecocks are the
national champions. They defeated the Iowa Hawkeyes 87 to
75
in the women's NCAA title game. It's now the third South Carolina
national title in just seven seasons. They're also the 10th D1 team in history
to complete an undefeated season. The real highlight, though, was Iowa's
Caitlin Clark. She ended her career with a whopping
3951 points, leaving as the all time leading scorer in both men's and women's
college basketball. Now, on the men's side, it's a battle of
the number one seeds. UConn faces Purdue tonight in the men's
NCAA championship game. T
he UConn Huskies, they're looking for
back to back national titles. The Purdue Boilermakers now have their
first chance for their first ever championship.
And that is your Bloomberg brief, John, As many of you know, a manager is a
Purdue grant, which means point a boiler up.
I think we just said that repeatedly. Right.
Every time you get to that extra point. So does that actually work?
Please write it and let us some of the most great weekend of sports.
Liverpool drop in points. What's better th
an that?
Really? What's better than what's better than
next year? Me the oil rally taking a breather.
The Saudis would love to have a $90 price mark going to 95 or 100 and not
going much below that. But you can't really manage a market to
that degree. $90 would be the perfect number if it
would be stable for long. Through that conversation, I'm next.
Live from New York, this is Bloomberg. That was good.
That was good. All right.
I could look like this on the S&P 500. Equity futures just about po
sitive by
0.05%. Yields up six basis points.
The ten year for 4581 under seven is this morning.
The oil rally taking a breather. The Saudis would love to have a $90
price. That going to 95 or 100 and not going
much below that. But you can't really manage a market to
that degree. So they have a much better not cynical
understanding, but a real deeper understanding now of the dynamic effects
between financial flows in and out of markets and and the balances.
$90 would be the perfect number if it w
ould be stable for long, too.
Here's the latest this morning. Oil falling as this round removes some
troops from Gaza, but still above $90 a barrel on Brent and I'm world of the
Atlantic Council right in this for OPEC. The $90 a barrel level can be a
difficult spot. It's high enough that consumer nations
get upset with prices and want them lower, especially during periods of high
demand like the summer. It's also harder to maintain adherence
to quotas because producer nations have the opportunit
y to make more money with
higher per barrel prices. At, and I'm pleased to say is with us.
This line that came from at Salem. $90 would be the perfect number if it
would be stable for a long period. Allan, you make an interesting point,
how difficult it is for that number to be stable for a long period.
Yeah, I think it's very difficult to be stable for long periods because once
that number seems like it's here to stay, as opposed to just a spike due to,
say, a geopolitical occurrence or an envi
ronmental occurrence, you've got you
start to get really, really uptight and against the consumer nations.
India is going to be upset. China is going to be upset.
Not to even mention the Biden administration, which is going to be
very upset if we see this going on all through the summer.
That could damage their election chances so much, because for some reason,
American voters really associate gasoline prices with the political party
that's in power currently. There's really no there isn't reall
y a
reason for this, but it's really a really prevailing element amongst the
American electorate. And so if the $90 stays, it really could
become a problem. And heck is going to have a very, very
hard time resisting, resisting the pressure both to put more barrels on the
market, especially Saudi Arabia, that's already got these extra voluntary cuts
beyond what they're required to do under their quotas.
So we're going to have to at some point. It sounds like you're saying see supply
either come f
rom the Saudis or potentially in SPR release.
At what price level do you think the kingdom steps in?
I think that they they don't step in necessarily at a price level, but they
respond to pressure. I think if they see prices going much
above $90 a barrel, then I'd see them then step in.
I think that they are also looking at their demand.
They're going to want to see what kind of orders they're getting for from Asia,
especially because they don't want to see that drop off.
And if it looks like th
eir oil is getting too expensive for their Asian
customers, I think we will see them potentially start to put together a
price increase at the next OPEC meeting. Okay.
So let's talk about the potential production increase.
Let's talk about the potential use then potential use of the SPR.
We are well below the highs during the Obama administration, but we're still
at, I think, 360 million barrels that this SPR holds.
The Biden administration could have a meaningful tap of the PR before the
electi
on. No.
Well, I think that's a really difficult thing to do because first of all,
they've already tapped into the SPR earlier and there was a lot of pushback,
especially because a lot of that oil got exported to China or to other countries
and it wasn't necessarily used domestically.
And the purpose of the SPR is not to just lower gasoline prices because they
happen to be too high or they happened to be too high.
Then what they prefer for an election. The purpose is really to have this in
store
in case there is a geopolitical event that is preventing oil from from
getting to the United States or to other countries.
Or there's a hurricane, for example, that could take out production in the
Gulf of Mexico. We saw SPR releases after there was a
significant time where production in the Gulf of Mexico was out due to a
hurricane. And if the vitamin restriction starts
releasing the SPR, just because gasoline prices are a little too high, then
they're setting both a difficult precedent because
then when are they
going to refill this? They've really got to refill it
constantly if they're going to be using it.
Plus, the summer months are coming, hurricane season is coming and hurricane
season is strongest in September and October, which are going to be right
before the election. They may want to save the SPR basically
in case they need it for that time. And then when you are an energy
exporter, what is the appropriate level of the SPRO?
What do you think it should be? That's a really g
ood question.
I think that that question is kind of not so relevant because we're
technically members of the IEA, and the IEA has a certain in order to be a
member, you have to maintain a certain amount in your SPR because a certain
amount of your consumption. So I think it's it's it's a tough call.
You really should maintain, I think, more than you would think, because you
don't want to screw up all your exports by suddenly deciding, okay, we got to
halt exports because we need this domesticall
y.
You don't want to have to do that. And so it's a good idea to maintain a
good amount in your SPR to be used in the event of some kind of embargo
stoppage, you know, natural disaster. And not to just use it because gasoline
prices are $0.50 per gallon higher than you think they should be.
It reminds me the conversation about the Fed.
We talk about what the Fed should do and it's talk about what it will do.
You know, at the end of the day, you and I could talk about this.
We probably agree on t
he same things regards to the to the SBI and how it
should be used. It's how it is being used that I think
is more important here. Do you anticipate there will be training
that spark going into the election? I think that that really depends on
where oil prices go. I think if OPEC decides to increase
production at the June meeting, there's a lot less likelihood that they'll drain
the SPR. They're not going to refill it until
it's below, I think, $75 a barrel. But if OPEC does increase production,
I
don't think we're going to see that. They'll also probably try to push
American oil producers to increase production, which is something that I
don't think they're going to be very receptive to, given how much pressure
they've had basically on every other respect and how much vilification
they've had at the hands of the Biden administration.
They're going to do what they think is best for their business at this point,
regardless of what the administration says.
There are two points in there.
Saudi Arabia's response to oil prices,
especially heading into the election, and US producers.
Let's start with Saudi Arabia, since you wrote the book on the Saudi family.
How willing are they going to be to help President Biden heading into this
election? That's a good question.
I think that they're not going to be that willing and they're going to want a
lot in response. That doesn't mean that they are totally
unwilling, especially if they think it's a good idea for the market.
So if they're g
etting pressure from the Biden administration and they're getting
pressure from Iraq and Kuwait and other producers that want to increase output.
Plus, they say, look, $90 a barrel. Well, if it stays that if it goes above
that, that looks like it could be heading to 100, which I do think seems
unlikely, but is absolutely a possibility, then they're definitely
going to want to increase production to stave that off, because once you hit
higher than that, you see demand destruction.
And that's defi
nitely something they don't want to get.
They want to keep their Asian customers happy.
They can also keep the Biden administration happy and get new defense
treaties, new, you know, military equipment sold to them.
If they can get concessions on on other things that they want, then I think it
would be a win win for Saudi Arabia, especially if they can portray it as a
kind of big PR coup for them when it comes to the domestic picture.
How much more can the U.S. produce?
How quickly can they act
as a swing producer after already pumping 13
million barrels a day? That's a really good question.
I definitely think production could be higher.
The question is, is that something that they think is a good idea?
Now, the US is really a swing swing producer because its oil production is
not centralized. We've got all sorts of different
companies doing what they think is best and what they've been saying is best for
them for a while is not to drill that many more wells.
Yes. Each well, they're ge
tting a lot more
productivity out of those wells, but they're not interested in spending a lot
of money drilling new wells, especially if interest rates stay high and
inflation continues. They're not going to want to spend more
money. They may try to get something out of the
Biden administration like approvals for new drilling in the Gulf of Mexico, for
example. It's possible that they could use that
leverage, especially if they think that Biden is going to be re-elected.
Interesting. Alan, than
k you.
We've got to leave it there. Alan Wealth of the Atlantic Council and
the author of Savvy in Crude this morning.
Stand by. Let's call it three quarters of 1% on
$90 in about $0.50 WTI. 8631.
Just got a fascinating note from Goldman Sachs on the economy.
Take a listen to these numbers. Recent immigrants are disproportionately
younger primates and come mostly from Latin America.
Here are the numbers. We estimate that net immigration surged
to roughly 2.5 million in 2023 versus about 1 millio
n per year before the
pandemic, boosting labor force growth and potential GDP growth as well.
That's what we keep hearing from every economist.
Torsten Slok over at Apollo put out a chart showing just how much of the new
jobs, how much the employment has come from new arrivals to this country.
We'll talk about the economics of that in just a moment.
We'll catch up with Nationwide's Cathy boss Jan, she's looking ahead to
inflation data this Wednesday. Live from New York, this is blowing
back. Six
equities on the S&P 500 positive
here by 0.1%. 60 minutes away from the opening bell
just around the corner. Just a little bit of a lift on the
Russell by 0.4%. More than a little lift in the bond
market. I think we're up something like 60 basis
points yesterday on a ten year close to that level, up another six basis points
this morning, four 4581 on ten. If you are just tuning in to the price
action this Monday morning, new highs right across the curve, the 24,
including at the front end on a
two year lease.
So getting closer to 480 and people pushing back just how much the fed can
cut rates this year given the incredible employment picture that we're seeing.
It is still viewed, though, as positive. I want to just sit on the fact that
we're seeing yields at the 2024 highs and yet stocks still eking out a gain
that the downdraft last week was so difficult.
Okay, We haven't seen a down day of more than 2% going back to February of 2023.
This is a completely entrenched kind of feeling o
f optimism.
And this equity, this bond market hasn't been able to stymie it.
303 was just a blowout number on jobs on Friday.
And does that sound consistent with rate cuts?
Well, Mike, open up. Bank of America says it is while
exceptionally strong, the employment report is consistent with the Fed
starting to waste this year in June, the Fed is in crisis supply side.
A jump in labor supply can allow for stronger growth without overheating
effects. That's the story they're all embracing
on the FOM
C. And then you had Jack Manley of Jp
morgan coming on and saying actually maybe higher rates are actually
inflationary, not deflationary. Maybe the Fed is actually contributing
to inflation with rates where they are. And he is not alone.
People looking at this and saying Johnson office that if you lower rates,
then actually more supply is going to come to the market in terms of housing
and you'll have prices go down. This is how uncertain the moment we're
in. We don't even know what restrictive
rates means at a time where some people are saying it's actually stimulative.
I think just in my camp just wants to buy a property there in Manhattan, want
some supply once rates to come down here.
Is that what you think? Yeah, I think so.
And you think that? I think a lot of people from a certain
demo from a certain generation are all thinking the same way about interest
rates and housing prices. Yeah, but it tells you something.
But do you think it's going to lower prices for you or are you g
oing to get
that $280,000, you know, two bedroom apartment with a with a death roof deck,
with a rooftop roof deck for two in Chicago, in Manhattan?
Don't the boomers drive you nuts on this issue?
On this issue? Well, you know, it is different with a
lot of boomers, best friends with tech still.
But on this issue on this issue, I get really wound up.
Although he still rents. He still rents.
Yeah. So you know that he missed the boat on
that one and of big time. Can you imagine he's got stories ab
out
that he can share them with you when he wants to.
Let's look at commodities Brent crude and WTI.
They look like this spread crude is negative by 0.8%, $90 in about $0.50 and
a world. Great.
Just 10 minutes ago, what stood out for you?
What stood out for me is this line in the sand almost.
You're talking about this $90 a barrel where especially as we potentially have
more upside risks with geopolitical concerns, the pressure she's talking
about that's going to come on Saudi Arabia.
And she ma
de a great point. It's not just from the United States of
the world, it's from China. It's from India.
And potentially, if more pressure is coming from Asian countries, maybe this
gets uncomfortable for the kingdom. Crude down three quarters of 1% under
Savannah this morning. Treasury secretary Janet Yellen
delivering a direct message to china. Focus on domestic demand.
Yellen framing China's excess production as a risk for the global economy, saying
it poses, quote, significant risk to workers
and businesses in the United
States and the rest of the world. These complaints aren't new.
They're old. They're really, really old.
And I just wonder what the purpose of them this time around is if it's not to
just lay the groundwork for more moves on tariffs later this year.
Well, an Emory can get into the tariffs, and that's what a lot of people are
expecting the data, though, behind. It's fascinating.
And Brad Setser of the of the CFR came out with this chart showing how exports
from China o
f electric vehicles and lithium related batteries have
skyrocketed. They've grown exponentially since the
beginning of the of the pandemic. And it highlights how it's shifted.
It's moved away from computer parts to these areas where the tariffs are likely
to be put on. So there is this new urgency that
suddenly they feel like they have to get ahead of it, ahead of the election at a
time where there's already a growing sense of unease without China, they just
keep signposting. This and Yellen's l
ine here.
I've made clear that Biden I will not accept that reality again, talking about
decades ago when it was cheap steel coming on, overcapacity of steel on the
US market, what that meant for US jobs. But they are going to wait, I think,
until right before the election. The best bang for your buck.
But interesting, Goldman has a note out today about actually how high inflation
could go if we get even more tariffs on China.
Not even a blanket, 60% if the election goes the other way and it goe
s to Trump
complaining about the loss of American jobs is politically maybe the right move
complaining about cheap goods right now, given how everyone feels about inflation
in this country at the moment, I'm not so sure about that path politically, not
economically. Going into the election.
People want things to go down, prices to come down, inflation.
But this is the reason why it's so difficult to have a real conversation.
Because all of these issues are nuanced and they all have multiple part
s.
And there isn't a level of consistency where you can say, look, we're going to
have to accept higher prices if we want more meat domestically and if we want to
have a concrete policy of self-sufficiency on the industrial side.
If they want to make that argument, it is going to come with higher prices and
it's going to come with certain other sacrifices.
That's a conversation people don't want to have.
I know it's tough to do the counterfactual, but on this issue, they
don't want to talk about
this. Let's imagine that union membership was
level with where it was in the 1970s. Can you imagine how different this
inflation story would be? You'd have to check mainly sitting there
moments ago, and Jack was talking about how quickly inflation's come down from,
say, close to double digits to around three currently.
Do you think that would have been easy if we had union membership when it was
back in the seventies and the pass through from headline inflation would
have been direct right into
wages. Right into wages.
Can you imagine what that would have been like?
It's an interesting question because it also speaks to the globalization that
led to a lot of the disbanding of some of those unions, the lack of industrial
output by this country. Honestly, it's a lot of questions and a
lot of people are thinking really big. What kind of new era are we entering?
Is it one that's more weighted to labor? Is it one that's more headed toward
industrialization, but with a high heavy component
of automation?
Careful what you wish for. It's easy to say I'm the president of
the unions and go there and sit with them and campaign.
But if you had membership levels where it wasn't a seventies, the cost of doing
that would have been a lot higher for this economy.
And this time around, of course, membership rates were a whole lot lower.
The past were, of course, less obvious anyway.
You understand the story. Let's turn to JPMorgan CEO Jamie Dimon
out with his annual letter to shareholders dev
oting a large part of it
to A.I. Dimon saying the technology will have
wide reaching impacts across all industries.
Diamond also issuing a warning on the economy, writing, quote, These markets
seem to be pricing in at a 70% to 80% chance of a soft landing.
I believe the odds are a lot lower than that.
Let's hear what he has to say on Friday. That's what I have to say is a typical.
Right? Well, this is exactly it.
I mean, how often do you hear the sort of gloom and doom?
And then it's sort of, yo
u know, we just made $2 billion with the acquisition of
First Republic. So but a lot lower than 70.
80%. So what 50% is that?
You know, I think we get confused with Jamie sometimes.
When I listen to Jamie Dimon, I hear a risk manager talking about a range of
outcomes, a range of possibilities. And I think we're too quick to compare.
And so it's like, this is the economy, This is his base case, and it keeps
changing. I think, from a risk management
perspective, what would you worry about that it'
s not going to be a soft
landing, that maybe rates have to stay like a lot higher for longer because
inflation's going to be stickier if you're a bank CEO, I can imagine they
would be things that you spend a lot of time thinking about.
And you know what? People want to hear what he has to say.
He runs the biggest bank of this country and people want to understand his view
on things, which is the reason why we're hearing a lot of major executives
talking about the debt, talking about the deficit,
talking about concerns
about Liz Truss moment, not those words. This is their late grandmother's
concern. But, you know, part of this is because
of dysfunction in D.C. So who's going to take that home and
actually have the rational business case for things other than the business
leaders? I mean, at a certain point, yeah, Who's
the business friendly party at the moment?
I had that conversation just last week with a lifelong Republican about his
stance as well. There isn't a consistent policy be
cause
of the protectionism on both sides of the aisle and the fact that there is a
sort of populist bent. If you think of a business perspective,
they're getting concerned about the deficit and it's real.
When I talk to different investors, this is what keeps them up at night.
It's not just lip service, it's the auctions.
I couldn't agree more. It's the auctions, Big, big auctions.
As Bremmer repeatedly says on this program.
Coming up, we'll be talking about this. A busy week of data US inflatio
n data on
Wednesday, the latest ECB decision on Thursday and the big banks kicking off
earnings season with Jp morgan, Wells Fargo and City set to report on Friday.
Kathy Boston says the chief economist at Nationwide Mutual Insurance joins us now
for more. Kathy, I want to talk about this supply
side story, which is almost like code at the moment for immigration.
I want to talk about these numbers from Goldman Sachs because they are just
stunning numbers on immigration. We're talking about milli
ons of people
coming into this country, 2.5 million in 23.
Net immigration, that's the number that Goldman have got versus about 1 million
per year before the Pandemic Cafe. How important is that as a theme to
ensure that we see numbers like the numbers we saw on Friday?
Well, good morning, John. Happy to be with you.
It's critical, right? You know, I was saying a year ago, you
can't continue to have, you know, 300,000 per month job gains with the
labor force we had. How low could the unemployme
nt rate go?
We just don't have enough available workers.
And immigration really changes that story completely.
If indeed, we're having, you know, closer to 3 million, which is now
estimated by the Congressional Budget Office for this year compared to 1
million, as you said, that's a huge game changer.
And that means that employment gains can be, you know, 100,000 more.
Right. Per month than than than we thought
before. So it's a really big game changer, does
increase the supply side of the econo
my and helps explains why, you know, this
expansion just continues. Don't we have to think about how
sustainable this actually is kind of thing that if you get a change in the
White House that this might change quite quickly?
Indeed. It's something that we we are looking at
when you ask and try to, you know, handicap the election and, you know, the
different outcomes. And that could be a big game changer.
We know that if there's tough talk on immigration, it could also, you know,
under the previ
ous Trump administration, it also deterred legal immigration.
So maybe some of what we're seeing could be reversed.
You know, and we'll have to watch that right as we go forward.
But for now, you know, we are we are seeing that at least through this year.
The immigration numbers look very, very high.
Kathy, there's an argument to be made that because of how big the numbers are
and how much of that is being taken up by new arrivals to the country, that
it's masking an underlying kind of status in
a labor markets, that it's
masking sort of a churning that is slowing down?
Do you buy that argument that potentially it's masking the idea that
this economy is going to slow substantially in the second half?
So I think it's less likely now. I think, you know, what you're seeing is
that the companies are are backfilling jobs they would have otherwise filled.
Right. That it's not just that getting back to
the pre-pandemic level, but it's getting back to the pre-pandemic trend and the
fact that y
ou have more workers and you're generating more income, that
means more consumption so it can continue to support itself on the
upside. So we see it less likely that we see
this big downturn in the second half of the year.
Earlier, we were seeing signs of that. If you went back four or five months
ago, we were seeing a big concentration of jobs.
What I would say is in more the non cyclical sectors, but that has really
changed over the last couple of months. We've seen it broaden out quite, quite
nicely and I don't think at this point the momentum so strong.
You know, I don't see that happening now in the second half of the year.
So let's fast forward to Wednesday, Cathy.
This idea of immaculate disinflation or growth with disinflation ongoing, what
would you have to see in Wednesday's CPI numbers to challenge that concept?
Yes. So we're you know, everyone's going to
be, you know, very focused right on on the core number particularly.
But we're coming up with our estimate 3/10 of total
and core.
I think it's not. So, you know, as long as that number
isn't 4/10 or higher of the core, I think you could still have the narrative
because we have four. You know, in addition to that, you can
have three inflation reports before July that the Fed meets at the end of July.
I think if you if you get, you know, start to get 2/10 prints on a month
going forward, you know, that still leaves the open the door open for them
to cut rates in July. But we really do need to see that
slowdown. I t
hink there are factors underneath in
that, you know, housing you spoke about. I mean, our model still suggests rental
inflation should slow. And then if you look at other categories
in the super core transportation services, we think some of that real
frothiness starts to slow. So we're still encouraged.
And I do think that, you know, the Fed really you'll get this, you know, they
may get that supply side increase and still see inflation slow.
I like to marry these two stories. We had an uptick
of multiple job
holders, individuals who have to have multiple jobs to just pay their bills.
How much are we seeing? Higher inflation keep fueling a stronger
and even tighter labor market. Yes.
So great point in that there is a dichotomy still, right in our economy.
And you could argue it's gotten worse if you're reliant on, let's say, variable
rates like we're seeing in the housing market.
The existing homes market is still stalled.
It's completely paralyzed. And then if you look at the workers
,
yes, if if interest rates are facing higher credit card bills and they have
to take multiple jobs, you know that that only adds to the pressure.
They're on them. But they can continue to to spend and
borrow. But there is pressure there.
There's vulnerability. And let's put it this way, many
consumers are not prepared if we get a labor market slowdown.
You know, looking ahead again, I think that's more 2025 story at this point.
What do you think of Jp morgan, Jack Manly's point that because rat
es are so
high, that that this is putting so much pressure on the housing market and
shelter makes up the wide swath of the inflation number that's been hard to
come down? I think there's a good point there,
although what we have seen is the new housing market and housing starts,
construction has been stronger than the existing market.
So I would say that, you know, builders somehow are finding a way.
Either they're buying down the mortgage rate or there's other incentives going
on, or maybe we
have more cash buyers, but we are seeing new supply.
Come on. That's what we really need to see.
Now, it's not great. The existing home market is stalled
because I think that restricts mobility across the country.
But but that said, I think that overall, yes, although people we need to
see lower rates to get the housing market up and running.
And I think even on the new, you know, new housing supply would do better if
rates were lower. Kathy Jackson last point was also that
high rates are actual
ly inherently inflationary.
Do you believe that? No, not, not.
You know, I can I can see the argument for the housing market, I think.
Other than that. No, that's not I don't think that's
true. I think, you know, higher rates do
depress activity. And when that happens, less orders rate
for companies and they're going to feel the pinch and they're not going to be
able to to raise rates as much and it tends to be disinflationary.
Kathy, can we just finish on immigration?
I'd love your thoughts on
this. And let's stay clear of the politics,
because I know you want to focus on the economics.
It's welcomed in the labour market for the following reasons.
You embrace the supply side and somehow it keeps a living on wages and more
people come into the workforce. And we can talk about this another time.
Whether that's actually a good thing because it keeps a lid on wages.
What I struggle with from the perspective of this being
non-inflationary growth, if we're talking about net immigration of 3
.5
million versus 1 million and those individuals getting jobs and spending
money elsewhere, aren't they competing for houses, pushing up rent?
Cathy, Can you really say that's non-inflationary growth away from the
labour market? Excellent point.
And I do think there is the housing market where you have the largest issue
rate. I think that there has to be a response
on the supply side. And you're right, if they're working and
spending and have jobs, they need housing and that will put pressure.
I think eventually, you know, you get that supply side response on housing.
I think away from that, that will help greatly.
But we need that and that takes time. But I think away from housing.
I don't necessarily see it as inflation or as you said, wage growth has been
moderating because of the supply side. But we are in a very I agree with each
other, very unique period in that we lack the housing supply.
And that really goes back to the financial crisis.
Right. Pendulum swung so far the other
way.
We've seen a restriction and depressing effect on housing supply and it's
catching up with us right now. So for now, we're in that conundrum.
But I would suspect that away from housing, you see a pretty, you know,
disinflationary effect still in place. Interesting cafe.
Thanks for the update. Appreciate it Kathy Post transcript
there of nationwide got into inflation data on a Wednesday.
Let's get to your Bloomberg brief with Dani Burger.
Hey, Danny. Hey, John.
Goldman Sachs strategists say
that Europe stocks are likely to outperform
the US in the next year. A team led by Sharon Bell cited a lot of
factors that included a manufacturing upswing, a pickup in global PMIs and the
ECB rate cuts that they say will begin in June.
Strategists are also expecting to see a better performance for financial, energy
and consumer discretionary stocks. Specifically chipmaker TSMC, will be
receiving $6.6 billion in grants. It's also going to get as much as $5
billion in loans from the US to build f
actories in Arizona.
It's a prelim agreement and under it the company will build a new factory in
Phoenix that adds to the two facilities in the state, and production is expected
to begin in 2025 and 28. The newest factory will be building next
Gen two nanometer chips. Those are the ones that are essential to
technologies like A.I. and have heavy military application use
as well. Spirit Airlines has reached an agreement
with Airbus to defer all aircraft scheduled to be delivered in the second
qu
arter of 2025. Deliveries now will be pushed to the end
of 20 1631. That should help to improve Square's
liquidity position by about $340 million over the next few years.
Spirit will also be furloughing about 260 pilots effective September 1st in
that they cited aircraft deferrals and grounded aircrafts due to engine
availability issues. And that's your Bloomberg brief.
John Donnelly, thank you. Up next on this program, looking ahead
to Q1 earnings, our attention is really shifting to the earnin
gs season, which
is upon us. Ingredients are there that even though
we might see some, you know, a breather here and there, that ingredients are
there for the bull market to continue in a healthy way.
A conversation. I'm next. The opening bell, 39 minutes away to
kick off a brand new trading week. Equities trying to bounce back 0.2%
attempted to bounce from the biggest one week loss on the S&P since the start of
the year, yield to high by about four basis points for 44 on a US, ten year
for 40 f
or 60 and crude pulling back by 0.9%, $86 and about $0.15 under
surveillance this morning. Looking ahead to Q1 earnings, our
attention is really shifting to the earnings season, which is upon us.
Reality is this higher for longer. Interested in bias should be positive
for financials too. And check is still holding in there from
an air demand. And so we think that the ingredients are
there, that even though we might see some, you know, a breather here and
there, that ingredients are there for the
bull market to continue in a healthy
way. Earnings season kicking off this week
with big banks leading the way. J.P.
Morgan City, Wells Fargo all reporting their latest results before the opening
bell on Friday morning. Gina martin Adams of Bloomberg
Intelligence joins us now to discuss Gina.
Great to catch up the cut into those numbers.
What are you in the team looking for Friday morning?
Yeah, I think it's going to be a really interesting earnings season, but not
necessarily because of financ
ials. So I hate to throw cold water on the
sort of financial story financials been in.
The group has been in a pretty consistent slow earnings recovery, but
there's just more exciting things happening in the rest of the index.
So if I were to say what to look for for the earnings season at large, financials
usually set a pretty positive tone they have for the last several, several
quarters. But really what we're looking for is
revenue growth overall to surprise expectations.
I think that revenue
growth has gotten sort of a bad rap and analysts have been
somewhat scared, frankly, to increase numbers for revenue expectations, that
revenue continues to beat expectations, volume sales even continue to beat
expectations despite the on again off again macro weakness.
Analysts have really not adopted the revenue trends.
So I would say overall expect a beat on top line revenue growth for the S&P 500
at large, in particular driven by checking communications but also
generally driven by consumer
sectors. Yeah, I think we might also see a pretty
big surprise in the commodity sectors where we've seen stabilization in
commodity prices, but analysts are still expecting double digit declines there.
Just quickly then, are we looking then at Wednesday, really the earnings kick
off with Delta earnings that are coming out before the opening bell?
Yeah, I think the most important part of earnings season, Lisa, I know that we're
all anxious to get it get it going with this week, but I actually th
ink the most
important part of important part of earnings season won't come for a couple
of weeks. We'll start with a slow roll into
industrials and financials. Then we really move into some of the
tech communications. And finally, at the end of the season,
you get the bulk of the commodity sensitive space.
So as much as we're all excited about the next week as we enter the season,
the real ramp up and probably the most interesting components of an earnings
season won't happen for another week a
nd a half, two weeks.
We're just trying to get excited about it.
Gina Thank you. May 22nd and video.
Basically, it's my 20 seconds and video I actually am interested in.
Wednesday we get to earnings and that's the perfect intersection of consumer
discretionary plus commodity space. So it's going to be incredible.
Okay. My second apple, if you're interested,
April 10th. April 10th, I think it's May in tech,
right? Yeah, man.
Tech. Well, the talk of this broadening out.
Sure. The focus is can they
deliver the same
kind of gangbusters projections? Is the AI pipe all that it's made out to
be at a time when people are saying it could take a while to actually get
rolled out Wednesdays. Only thing that matters.
March CPI is going to eclipse pun intended by Subaru and her Note all
other data this week with that eclipse down to earnings.
Yes, yes. Now who knows?
I mean, honestly, if it's in line that we're going to be talking about the
thing that never happened, I guarantee we barely talk about
down to earnings on
Wednesday. Is that business sort of telling me
you're just telegraphing in advance. You mentioned that unless they get you
discounts of some sort, it be like a sort of hinge on my seat.
I'll just get shoved, shoved backwards getting shut out.
I will tell this week there is stuff coming out tomorrow.
So at Kansas City, Mohamed El-Erian of Queens College, Cambridge, he'll be
joining us around the table, will speak to make a drive for Barclays.
And Seth Carpenter of Morgan Stan
ley, fantastic line up for you.
Tomorrow morning, we'll get to the opening bell about 34 minutes away.
Equity futures attempting to bounce with bond yields at new highs for 2024.
Your ten year for 4480 higher by five basis points.
Live from New york city, this was Bloomberg Surveillance.
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