‘Bloomberg Surveillance Simulcast’ (03/01/2023)

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Monetary tightening is not taking a bite
out of the economy. This is bad news for inflation and bad
news for the markets. At some point in the future, we will see
inflation coming back down target. We think that headline inflation is
going to fall back to around possibly just under three and a half cent by
mid-year. There's no sector of the economy that
really is hurting. This is an environment with very
heightened macro and market volatility. We have to change our views very
quickly. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz.
February, go, March. Live from New York City this morning.
Good morning. Good morning for our audience worldwide.
This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa
Abramowicz, some Jonathan Ferro. Let's get straight to this market up by
about a third of one per cent on the S&P 500 as we get this morning started,
T.K.. I think we have to begin in China
upside, surprise after upside, surprise in Chinese data.
Our latest reporting this morning suggesting that Chinese leaders are
surprised by how well things are going.

Comments that we open our economy with,
John. This has happened 14 times before.
I'm going to say back to 1968. But let's go back to 1978.
It's all about property. They can't look property collapse.
And what I saw was in the reporting of Bloomberg today is it that there's going
to be a property bailout, but they're going to move forward.
And that's where you come to the 6 percent GDP estimate.
We keep hearing on Bloomberg Daybreak the economy after a pandemic in the 70s.
Is that what happened? I think that their solution is the only
investment they have is property. And the bottom line is everything's said
and done. Property can't fail.
You saw way late at the opening of the center of BlackRock, at least looking
for 6 percent GDP growth this year. And then Lisa, ultimately looking for
that to slide towards the 3s in the following years.
And that's going to be the story. That's the tug of war.
And that's really what I wanted to highlight, that perhaps are the
authorities in China are celebrating this incredible data.
Look at the reopening.

But how much is this a messaging
exercise at the same time that you have companies moving out of China?
If they can and really you're hearing about that more and more, especially
with what we saw in Washington, D.C. yesterday.
So data good in China under the radar, hardly being discussed today in China,
which Xi Lukashenko of Belarus tum it Russia.
But you're right, it's an afterthought. So you're in this market.
Good decision to make. Is great.
I want to be invested in China directly or do I want it go through China proxies
and trying to avoid basically this tension between the United States and
China at the moment because of what's happening with Russia in this war in
Ukraine? Yeah, I go with that.
But I would also say the traditional way to invest in China is through
multinationals. And the optimists out there looking at
the glass half full are saying, we're going to get through this.
We're going to get new data.

We're going to get disinflation.
And we're going to get, you know, some form of life goes on.
And that will be multinationals like Apple doing business with China.
That's the China data. We get some U.S.
data a little bit later on this morning. Leaks is going to go through the day
ahead. And just a moment, your market looks
like this up a third of 1 percent on the S&P 500, a lift after the losses of last
month in February on both NASDAQ and on the S&P 500 outside of the equity
market.

Yields are a little bit higher, 393 on a
10 year term. We've just been sitting here in and
around 390 staring down the barrel of 4 percent over the last couple of weeks.
George, surveillance at Deutsche Bank. Oh, yes, on foreign exchange.
But writing a more legit note this morning and just saying the next two
weeks are absolutely critical. And you see that in the spread market,
what the pros watch, Jan 2 yields and the difference between them.
I walk in this morning. I mean, I know you get it later.
You get into 552 or whatever it is. But the bottom line is I come in today
and we go to essentially a record vanilla 2s 10 spreads.
We share the true story. I'm approaching the entrance of
Bloomberg this morning, shout outs of some shouts out, don't do it, don't go
in, don't do it, don't do it. And I think a patched in before you by
about 10 seconds anyway, that whatever features a positive move up a third of
one percent. A ton of data coming up a little bit
later. So that's basically the goal to get in
just before the other person, but not early enough that you can get there when
I get there.

Just saying retail earnings continue
today. We get calls.
It lowers and Dollar Tree before the bell, American Eagle after the bell.
Of course, Macy's and Costco all on deck later in the week.
How much do we start to see a resurrection of some of the names that
have done really badly this year, this month, year to date?
There has been a lot of positive gains, calls up 11 percent.
But last month, in the past 30 days, you've seen it down about 15 percent.
The volatility has been incredible.

At 8:00 a.m., this to me might be the
most important data point of the day. German CPI for the month of February
coming out at a time when you have the Bundesbank saying they expect inflation
to average 6 to 7 percent over the entirety of this year and possibly not
get back down to 2 percent next year or even a year after it had at a time when
they want to accelerate how much the balance sheet gets wound down.
These are some of the debates that could be potentially turbocharged by the data
that we get out today with the two year yield over in Germany at the highest
levels going back to 2008.

At 10:00 a.m., we get the other most
important data point of the day, which is the U.S.
ISE and manufacturing data for the month of February, as well as prices paid for
these manufacturers. Do we see any increase in some of the
momentum in the manufacturing sector? Afterward, a lot of people thought was a
manufacturing recession job. This is the conundrum for the market.
What if you get some sort of recovery in manufacturing just as you start to make
progress in diminishing some of the inflation stemming from the services
side of the. And this is the push pull of an
asynchronous recovery. Lisa, set, as always, Lisa, thank you.
The day ahead with Brammer there. Let's get straight to it with Jeremy
Stretch, the head of G10 Effect Strategy at CIBC.
Jemele, so we're just going through the data that comes out a little bit later.
I think I want to start with the ICM manufacturing in the United States.
We have this robust read on the US economy in January.
Big question we've all got is whether February confirms just some of that.
Do you expect it will? Well, I think we all get to see a modest
improvement in terms of that manufacturing ISE and printed, but I'm
not sure necessarily going to be getting back to an expansionary environment just
yet.

So I think we still have some headwinds
and I think we will be not only watching that headline number, but also looking
at those particular components in terms of price status as underlined and also
the employment market, because, of course, employment isn't coming out this
week. So we have to wait another week or
slightly more than another week until we get the non-farm report.
So I think we can and should see some sort of stabilization in terms of the
manufacturing backdrop, but I'm not sure necessarily we're going to see enough
momentum despite that payrolls blow out from January to point towards an uptick
in terms of manufacturing sentiment just yet.
Jeremy, I am very interested from your purview of foreign exchange.
What do you think of the bond market and what the spread market, an inversion
signal? Did they signal crisis where we go
disjoint or have jump conditions or did they signal some form of normality?
Well, that's a very good question. I think certainly when you look at the
history of those curves, you can you can signal this will see this significant
degree of innovation.

But again, in that you ask carbon
whether you think that is signaling a real dislocation in terms of economic
activity ahead or whether you think the markets are perhaps becoming a little.
I've got a little bit ahead of themselves in that particular context.
And I think it's the degree of inversion probably does overstate the downside
risks in terms of the macro outlook. We're cautiously of the view that the
market is perhaps pricing in a little too much for the Fed because of the you
know, there's sort of the resilience we've seen into the turn of the year and
we may not see that being maintained, that we see some of those inflationary
pressures not to diminish. But I think in the context of the
upcoming data releases, I'm going back to where Lisa was underlining the key
events of the day. Well, I think that, you know, that
German yield curve, I think is going to be very instructive because we aren't
going to see further inflationary pressures.
And that's going to keep eurozone summer rates well supported from an ethics
perspective, probably keep the euro dollar well underpinned as well.
So let's talk about that.

That's exactly why I wanted to go.
What the market is pricing in right now is significant, a 4 percent ECB terminal
rate at a time when you have inflation running at the fastest pace in decades
in modern history in Europe. How much are we priced in the upside
surprises that could potentially come from today's CPI data, tomorrow's
eurozone broader read? Well, I think if you go back to
yesterday and we saw the read from both French and Spanish, HSBC, those were
both the both of these releases came in on the top side in the Spanish numbers,
particularly disappointing in the context of the reduction in administered
prices that we've seen.

So it does look as though to all roads
are pointing towards a higher German prince than the market's anticipating
and probably also in terms of the eurozone metrics tomorrow.
I think most importantly, we should look beyond just the headline read, but also
focus much more on the core number. Well, I think that's going to be
something which is much more relevant. The ECB policy narrative going forward.
We saw some comments from Philip Lane earlier in the week regarding the
importance of core prices. When you strip out strip out food and
energy and those are already cyclical highs.
If we were to see another uptick or a move higher in some the core prices,
then that's going to only amplify the degree of pressure on the ECB to tighten
policy further on. Of course, that potentially starts to
raise issues in particular uncomfortable issues in terms of the context of the
ECB in terms of those fragmentation concerns once again.
So, Jeremy, this is where it stands.

We've had about 300 basis points of
hikes from the ECB. They were at negative 50 on the deposit
rate. They're now at sea 50.
Goldman Sachs came out a little bit early this morning and they now think
that the terminal rate, the peak rate at this hiking cycle will be 375 at the
ECB. Is that where you're at, 375 pushing
for? Well, well, put it this way.
We our I adjusted are a rate assumption back in December to 350 for this year.
But my presumption of 350 is proving to be increasingly challenged by virtue of
these inflationary dynamics. I think particularly if we do see ISE
and say those core prices remaining relatively sticky, then I think the
prospect of 375 or higher continues to build.
And so accordingly, that underpins our structural bias for a higher valuation
of Eurodollar through the course of the next six to 12 months.
And so that's why we're here.

We're looking for a euro dollar to be
trading back into the low to mid teens by the end of the year.
Well, euro stronger right now, one of six pushing eight, nine tenths of one
per cent higher on euro dollar. Jeremy, thank you, sir.
Jeremy, stretch there. A S.I.
B.C., the latest from Goulburn. Then looking for a terminal rate on the
deposit rate ECB of three 75 leases. Friend the Bank of France governor was
out a little bit earlier this morning to say that's CAC.
Yes, I did. I was waiting for you to bring them up.
Ten ran a 70 to get to the peak rate by September.
Just trying to work out what that peak rate will be.
CAC.

I like that you said, my friend, rather
than trying to. And then I said the Bank of France
trying to say bad dicarlo. But you wait a.
I always say it slightly differently. But there is a question about what that
terminal is. If you want to get there by September,
that means that March is not the last. And I think that is really instructive
at a time when the rate is already higher than many people thought they
could get to. And so you do wonder, especially with
the peripheral spreads controlled, have we seen the worst of it in terms of
being priced into the market? Let's talk about the journey.
So 50 basis points this month. That's what most people are looking for.
That's what the ECB guided us towards.

Goldman says another 50 basis points in
May time and then in June you have a lift to 325, 375 rather got bullied.
And you here in what's interesting is we we're now talking about the speed to get
there. And I would suggest September.
I don't care what the central bank is in central bank talk.
September's basically tomorrow. And this is part of it.
A lot of people talking about jump conditions that we're seeing right now
in yields and some of it's a gloom crew. But the answer is, all of a sudden,
we're talking about getting there fast. Meanwhile, ECB is a vacuum needle saying
he won't speculate on when it may be reached.
So there you go. She knows herself when the peak rate
will be raised. It's the same place, the same.
She doesn't want to basically double down.
I think he wants to get there fast, given that he's from the Bundesbank and
money by buying and basically all of the above.
Okay. Next now.
Emma Chandra going to weigh in on this.

Change someone's life.
Just kidding. This ECB still can't wait.
Looking forward to that conversation a little bit later this morning.
That's about 50 minutes away. Futures right now up a third of 1
percent. This is pulling back.
Keeping you up to date with news from around the world with the first word.
I'm Lisa Matteo. In China, the economy is showing signs
of a stronger rebound after Kogan restrictions were abandoned.
Manufacturing posted its biggest improvement in more than a decade last
month. Meanwhile, services activity climbed and
housing market stabilized. In northeastern Greece, at least 36
people have been killed in a train crash.
Eighty five others have been injured. Authorities say a passenger train
collided with a freight train just before midnight.
Starting a fire, the passenger train was travelling between two popular tourist
destinations, Athens and Thessaloniki. Lori Lightfoot has become the first
mayor of Chicago in 40 years to lose a bid for re-election.
She finished third in Tuesday's election in April 4th.
Runoff will pit former Chicago schools chief Paul Vallas against Cook County
Commissioner Brendan Johnson.

Lightfoot was unable to overcome voter
dissatisfaction with Chicago's rising crime and slow economic recovery.
FBI director Christopher Ray says the agency previously determined that the
Covid virus most likely originated from a potential lab incident in one on
China. Ray's comments to Fox News contradict
scientific claims that the virus emerged naturally.
He said the Chinese government has been trying to counter the work the U.S.
is doing and that matter. Global news powered by more than 27
hundred journalists and analysts in over 120 countries.
I'm Lisa Mateo and this is Bloomberg. Equity futures on the S&P shaping up as
follows are left on the S&P 500 and a third of 1 per cent the the half of what
it says is that the Bond theme? Lisa, watch that first James Bond movie
just six months ago won't stop talking.

Absolutely not true.
Every time you talk about G4S, I just think of that one.
That one. You know, James Bond seen from the
breaker with Joel Weber. OK, let's move on with Richard.
Charles smells great. You're really tell more than the market.
The markets are open about that bond market.
Let's get to it to you. Looks like this on February 2nd, the day
before the payrolls report, four point zero three per cent on a US two year
right now for B, 160. Yields unchanged on the session, not
unchanged over the last month. Similar move on a 10 year, 391, 43.
It's unchanged on a session over the last month, materially higher.
Any affects market. We shape up as follows.
We had German CPI a little bit earlier. The regional stuff, the breakdown region
to region in Germany, basically looking for German CPI now to come in probably
unchanged in about 90 minutes from now when we get the latest rate unchanged
for the previous month, year over year.

And that's a problem for the ECB, which
is why the likes of the ECB and Goldman Sachs and their call time is 375 on a
deposit rate over at the ECB is pretty great if this hiking cycle and the speed
of it. Where are we on the Bundesbank, which
has had headlines out from Nagle and it's like sooner.
I imagine they're going to be strategic in the next meeting.
We've got guidance of 50 basis points at the incoming meeting this march.
I imagine the Hawks are going to be driving to get the same guidance for the
following meeting to say how weak our 50.
Again, this is a joy to do right now. And this is when you hear me talk about
vector. This is where I got it.
Jennifer McKeown was lucky enough to learn economics at UCL.
And the giant UCL of the Algebra of Vectors and Economics is Wendy Carlin.
And if you study with Wendy Carlin at UCL, that's a good thing.
Jennifer McKernan joins us this morning with Capital Economics.
I'm going to go right there. Jennifer, I think that there is a real
change here in the vectors we perceive of inflation led by Europe, France,
Spain and the rest.

Is there disinflation in Europe?
No, not really, not yet. Well, there isn't a headline figures we
know everybody knows that energy inflation is coming down with the gas
price coming down further lately, that that that should continue.
But the core inflation figures are the most worrying is cause.
And what we've seen in France and in Spain and and in the German states, too,
is service inflation picking up. And that's got to be a real worry for
the ECB particular time when the labor market is still relatively tight in your
world. Is there a study of goods, inflation or
goods, disinflation and services, inflation like there is in America?
Can you make that partition country to country in Europe?
Yes.

Yes, you can.
And we've had a even from the granular level from the German states.
We've had some data on goods and services inflation.
We know that goods inflation is coming down.
Product shortages of ease pretty dramatically across the surveys and
that's helping to pull goods inflation down.
Shipping costs are coming down, too. But in services, things seem to be going
in the other direction. I think we hope.
Central banks that hope that by now they'd be clearer evidence of services,
inflation easing off. But that just doesn't seem to be
happening. Jennifer, I remember about a year ago
people said that the nature of inflation in Europe is very different than in the
US. It's not delivered through the injection
of mass fiscal stimulus, but rather it's driven by the energy shock and about the
crisis in Ukraine. And now we see it stick here, even
though energy prices aren't that elevated.
Yes, they're higher than they were two years ago, but not relative to they
weren't where they were six months ago. How do you explain this?
Yeah, I think there's some knock on effect from the energy prices so that
they were high for a long time.

People are feeling the squeeze on their
bills. People are pushing for higher wages.
It's quite a slow process in the eurozone to get to get wage growth off.
And wages have been well contained for so long that they're relatively sticky.
But there is evidence now that that they seem to be picking up that workers are
having some success in pushing for higher wages and also that firms are
starting to push through their higher costs into the retail prices for things
like services.

How much, though, there's this really
defy the logic that Europe is the European inflation story is so different
from what we see over in the U.S. that is perhaps idiosyncratic and easier
to be than the one then in the in America.
I mean, that's basically been the argument at least 12 months ago.
Now, has that completely changed? Is this a similar inflation?
Yes. Yes, it's similar.
It's just behind. Inflation was was slower to pick up in
the eurozone. Both headline inflation and core
inflation picked up later than they did.

And then in the US and they'll be slower
to fall back to the wage bargaining processes is a bit slower.
And it may even be that that because of that, because of this stickiness in
wages we get in the eurozone in particular, that core price pressures,
underlying inflation pressures are more persistent than they are in the US.
This is part of the reason why, Jennifer, you see the market now
adapting to the idea that perhaps the ECB is terminal rate needs to be closer
to the Fed's terminal rate because the inflation picture is actually quite
similar to what we see over in the U.S..

Yes.
Yes. I think that's right.
We're expecting this terminal rate to be about three and a half percent.
The markets obviously higher. But I think the risk
to the upside depending a lot on what happens in the real activity data now as
well. What we've seen in the eurozone surveys
recently is, is some real evidence of resilience if we as we have elsewhere.
So a lot depends on whether the drag from the policy tightening we've already
seen and the drag from the squeeze on real incomes feeds through much more
strongly into the hard data and whether or not we see that recession that we've
been expecting in the Eurozone.

And a just said Jennifer's acutely
important. Are you suggesting that Europe and all
of Europe, 17 nations of Europe, 26 nations of Europe, that they have the
same equivalent productivity and technology overlay as the United States
of America? Lou Reed, equivalent to.
No trend growth. Productivity growth is considerably
lower in the eurozone than it is in the US.
But this is critical. Then how can we affect an equivalent
terminal rate? If that's the case?
Well, it depends on the point in the cycle.
And I think what we're seeing in the Eurozone is it is it is more of an
overheating in terms of inflation pressures, at least sort of tip it to
beyond that where the ECB would would want it.
The neutral rate is still relatively low.
And I think ultimately we're going to be getting back to the nominal rates of one
and a half, two per cent.

But in the meantime, you may go
significantly higher. And it depends very much on what happens
in the labour market and what happens to wage growth over the next few months.
John, does anybody at ECB, with all your experience, talk about our start?
I mean, I've never witnessed anyone in Europe wax philosophical about European
or start because I just don't think there's an equivalency.
It's one of those fuzzy concepts, Tom, that is really difficult to find.
Came out to try to find another. And I haven't heard, you know, the
extinguished people that I talked to. I've never heard any of them.
The phrase we hear a lot in the last six months is sufficient, restrictive.
What is sufficiently restrictive now? What will be sufficient?
Restrictive in Italy will be very different to what is sufficiently
restrictive in German books. And that's been a story for a long time.
What's the fish only get in trouble here?
What's sufficiently restrictive in Mississippi is different than what's
sufficiently restrictive in Montana. I mean, in the aggregate, can we some
Europe and do a compare and contrast so you make the comparison to the US.
And I think it's interesting because around the eurozone debt crisis, there
were some people who were thinking out loud, some about maybe reconstructing
the ECB to have regional ECB presidents, instead having national presidents just
to try and strip the bias out of things, because maybe the regional breakout
makeup of the FOMC is probably a little bit more than a bit more effective when
it comes to these issues.

It is a serious concern, right.
Which is what is the knock on effects economically to a rate that might make
sense for Germany, but not for Italy? Not for Spain.
Right. This is sort of the big concern.
And you wonder and I am curious about Jennifer's take on this.
Jennifer, can you weigh in? Are we looking at a much weaker Europe
going forward because of the damage they have to do to the economy with rates
that may be closer to equivalent the US, but are not fit for the production and
the productivity that that Tom was talking about or the technology, the
technological overlay of that economy? Yeah, the ECB has always had a very
complicated job with the various nations and different, different structures of
their economies and of course a really key issue for the Eurozone is that you
don't have a single fiscal policy which can distribute the distribute government
finances across the entire region.

You've got economies like Italy with
very high debt where they just can't offer the kind of fiscal stimulus that
would offset the effects of a policy tightening.
So that's a major issue. And I think another big problem across
the eurozone is that the difference in the structure of mortgages w some a much
shorter term variable rates, for example, in Spain.
And so you get a pass through of policy tightening relatively quickly, whereas
in Germany, long rates, fixed terms that Paul Sweeney comes much more slowly.
So it's extremely difficult to find a one size fits all policy.
And it's clearly going to be the case that some economies suffer more than
others from the policy tightening.

And this conversation, another example
of why we should never have done this. Jennifer McCune of Capital Economics.
That's a joke. I'm not saying that you said that.
Jennifer, thank you. Carol Massar is a promise in front
complaining about European Monetary Union and all that great stuff.
Let me finish on this. Throw them out there and let the ECB run
as pretty straightforward, isn't it? Inflation is too high everywhere.
You know, it's not like things are dreadful in Italy and fantastic in
Germany.

It's got to work.
This sounds pretty straightforward now. But I guess you're absolutely right.
That's the issue, is that they have to take a blunt tool to a serious problem
that does not seem to be a beating. The issue now is what is the economic
consequence and how bifurcated is it between different economies and
different inputs? I would argue perhaps are not as
desperate as they have been in the past based on some of the challenges that
Germany has been experienced in a way that is unique.
Well, Jennifer touched on it. I think when it comes to debt, it's a
very different experience right now for Italy to come with rates where they are
compared to to Germany, with rates where they are Mark Gurman.
That goes back to the fiscal separateness of Europe versus maybe a
fiscal uniform.

In the United States, I just let's make
clear that there are euro optimists that think long term that Europe can do an
aggregate economy better than the United States.
But are we there now? I'm not sure I see things that remains
to be seen. Yeah, I saw maybe a couple of examples
of governance in that direction in the pandemic, but some.
Once the crisis fades, there's a war going on.
I mean, you know, you got to we you know, I don't think now's the time to do
a study of that. You can talk to James RTS about if you
want, he's going to join us at seven thirty Eastern Time from John, a name,
the firm.

And I love doing this.
You've got this go on West James work for 2023.
I think they're gone back to Aberdeen. Aberdeen, are you think the.
I don't remember doing this sort of like you still don't get it, pronounces the
French banker. Can you imagine?
Can you imagine the conversation that took place when Aberdeen Asset
Management sat around the table and they had the marketing people and you just
know they paid for someone to tell this? And I just thought I just remember that
someone I'd love the back story to that, like the meeting.
I just want to know the NIKKEI on a board and said, yes, you know what?
I'm going to centre my first idiocy of this with Gerry, say the American can
company. It wasn't good enough.
So he did pray America to this day, I'm not sure I know what America and what I
love about situations like this is that the C suite goes away and makes this big
decision for the rest of the company. And they really feel really happy with
him and and the employees. They get the memo and their life.
So it was an all trip, for goodness sake.
Yeah.

Yeah.
Just speak to some people at Aberdeen and they're like, just nope.
Don't talk to me about it. But James is going to join us and we
hope that's not going to cancel. He's a proxy for and he's got a Jihye
Lee 730 Eastern Time, 50 minutes away from New York.
Look gone. Keeping you up today with news from
around the world with the first word. I'm Lisa Mateo.
U.S. businesses are set to invest billions of
dollars in Northern Ireland, but that's only if the deal on post Brexit trading
regulations leads to political stability in the region.
British prime minister she soon that could use the prospect of international
investment to help convince Northern Ireland unionists to back that deal.
In the U.K., the cost of living crisis showed little sign of easing last month.
Prices in British stores rose in February at their highest rate since at
least 2005.

The British Retail Consortium said shop
price inflation hit eight point four percent.
Food prices rose even faster. Fourteen point five percent in Ukraine,
President Vladimir Zelinsky said the battle in buck mood is the most
difficult situation facing the country's forces.
He said the intensity of fighting is increasing.
Ukraine has decided to send additional troops to Iraq to try to stop the
Russian offensive. China's President Xi Jinping has moved
to consolidate the Communist Party's hold over the economy.
In his speech today, touted plans for sweeping changes to the country's
bureaucracy.

The party will also have more influence
with private companies. And shares of electric vehicle make a
revision are lower today. The company is forecast to produce as
many as 50000 IV's this year. Well, fell short of Wall Street
expectations. Revenue came up short to Vivian says
supply chain issues are the main issue limiting that production.
Global lose power by more than twenty seven hundred journalists and analysts
in over 120 countries. I'm Lisa Mateo and this is Bloomberg. The big event last year was not Russia.
It was China. I mean, you have global oil demand
contracted 2 percent in the fourth quarter of last year.
That's a recession in my book.

As China comes back, we're going to lose
that that that spare capacity, our base case, as we get into the fourth quarter,
towards the end the year we get back above 100.
My confidence that we'll see another spike in the next 12 to 18 months.
That's quite high. Still looking for triple digit crude by
year end. That was Jeff Curry of Goldman Sachs
flight from New York this morning. Good morning.
Has the price action for you a quick sneak peak?
Crude right now, crude, softer negative on WTI by nine cents of one per cent.
Call it one full percentage point lower 76 30 in the bond market yields
unchanged, 391 62 in equities with a little bit of a left FTSE up a third of
one per cent.

Lisa went through the data that comes
out a little bit later on the US side of things.
China PMI is pretty decent relative to expectations upside surprises across the
board with the weakness in the Damien. Sorry to join the next hour.
John Yuan's six point eighty six. You want to call that some stability
there? We haven't weakened out to seven yuan
per dollar of strength in the Chinese currency this morning off the back of
that data. And we mentioned it a little bit earlier
this morning. The surprise, according to our reporting
from Chinese officials, about how wound that reopening and how good the data is.
Well, we're going to do that right now then to Curran.
He's our Asia economics correspondent.

But far more than that has terrific
anecdotal wisdom on the Pacific Rim. And we've got a lot of serious
questions. But let me go to that bridge to China
from Hong Kong. It was built in 2007 and changed
everything. Is there enough of a reopening where the
corridors, the western corridors from Hong Kong to the rest of China are quote
unquote, normal? Well, the reopening is going better than
expected, Tom. The economic data, the numbers we had
say were the first decent lead we've had in the economy since reopening.
And it does showed. It's better than the husband expected to
PMI fifty two point six percent, not just by consumers and services, but also
by the manufacturing side. And certainly a big part of that is the
southern part of China. Gong Guan Gong region next door to Hong
Kong, to Hong Kong is picking up on some of that.
But I think the broader back story is that the economy is now setting itself
up for a much better year. And it was anticipated only, only at the
back end of last year.

Remember, growth forecasts last year
were heading towards 3 percent. Well, now hardly a day goes by without
my inbox getting an upgrade. Yes, somebody and people people expect
their growth target of 5 percent or more now.
My amateur take is watch the property market.
And is that true? And is it once again, Beijing is bailing
out the national property market. I think that's.
I think it's quite true to keep an eye on property.
Not really a bailout, though. The property actually home sales we had
Dow Jones young homes has improved on year for the first time since the middle
of 2021. That is significant because the slump in
the housing market arguably caused more pain to the economy than Covid 0.
So there are signs of a bottoming out there.
There is, of course, official support behind that.
The authorities are pulling levers.

You know, I wouldn't quite call it a
bailout in the Western sense. They're imposing some pain there.
But nonetheless, there is a turnaround and a lot of economists are pointing it
out as one of the reasons for their optimism.
And is there any connection between the much better than expected economic data
coming out of China and the seemingly emboldened approach in terms of China's
potential willingness to engage with Russia and its allies on the war in
Ukraine? Well, you'd have to say that China's
economy was on its knees into the end of last year.
Lisa, there's going to be a very important political meeting kicking off
this Sunday and going into that with some pretty decent economic
data behind them.

I mean, the mood music is a lot better.
As I say, it's not just the consumer side of things.
Hints of manufacturing picking up today as well.
Employment indicators looking better there.
All of that speaks to, you know, China getting back on track, getting on its
feet. And, of course, that will bolster its
position on the world stage. No, I don't think it's completely
feeding into its position on Ukraine per say, but it certainly won't do the
leadership any harm in terms of what we do understand on the global stage and
reinforce the point that they handled Covid better than anybody else socially.
Is the recovery that we're seeing so far enough to garner the support for Xi
Jinping, for the leadership of China in the way among the population that they'd
wish amid some actually public dissent that we've seen?
That's very unusual in China. Very unusual.
At least we did have some reporting this week ourselves picking up on the level
of dissent on the ground, especially in the wake of those draconian Covid zero
policies.

You know you know, well, it's it's
difficult to be scientific about consumer or public opinion across China.
But there's no doubt there is a feeling of disaffection.
That was part of the reason why the authorities made the turn that they did
on Covid 0. And as rapidly as they did and
authorities are more than cognizant of what was going on on the ground, giving
those punishing lockdowns and ongoing restrictions.
And by the way, the American Chamber came out today and they're making the
point that foreign companies up there are just have just are just exhausted by
what's been going on over recent years. So there is this disaffection on the
ground. It's it's very hard to be precise about
the extent of it. And can you speak to that directly?
How has life changed for you in the last few months in a place like Hong Kong?
Well, it has to be said it's night and day compared to what it was when we were
doing Covid 0, John. I mean, the airport has reopened.
Here was one of the world's busiest, the crossing in the shins and is reopened.
That's crucial for trade like Thomas ISE committed earlier on.
And of course, on the ground, things are better.
We just had that face mask rule lifted yesterday for the first time in three
years.

But Hong Kong, as one example, is still
nowhere near what it was before the pandemic level of activity.
And visitors and tourists arrives and all that is not what it was.
It has a long way to go. And it's not just Covid 0.
It is a feeling that Hong Kong is caught in the middle of the geopolitical tussle
between China and the U.S. It's on a geopolitical fault line, if
you will. And that's really weighing on the
recovery here.

And do you think there are some things
that have been lost to places like Singapore just forever?
It will be hard to recover from. There has to be, John, compared to what
Hong Kong was a few years ago in terms of visitor arrivals, conventions,
conferences, you know, events. People coming here back and forth and
all of that. Some of that business has linked to
Singapore, both in terms of personnel and actual business.
No doubt. But China's Hong Kong business model
remains that as long as Shanghai is behind the closed capital account.
Well, then the Hong Kong business model remains.
It is the money box for China. It's the place to do business if you
want to be with China. And that part of the equation hasn't
changed. And thank you, sir, for your reporting.
Great. Just fantastic, as always.
Anna Coren there at a Hong Kong it take. Hey, we had those conversations a couple
of years ago here in the United States. What would change?
What would remain the same? Would go back to a pre pandemic trend.
We're still having them here in the U.S., but they're just beginning to
happen over in Hong Kong.

They're behind on their own map.
But, you know, I go to the resiliency of what they've done as Tiger Nations.
And of course, a unique experiment of China is they've got a lot of other
equally as big challenges over the last 20 or 30 years.
I just you know, I don't want to pontificate about a Pacific Rim
resurgence, but certainly that's modeled in and I would look at the back of some
of these oil reports with Jeff Curry on earlier coming into the block.
And these guys are looking out a hundred dollar oil.
And I would suggest the one or the two factor in that is a Pacific Rim redo.
So and dimensions, supply chains, supply chains around the world all got a major
stress test over the last three years.

We all know that.
We're not talking about undoing globalization de globalization.
That process, if it does start to begin in a major way, is going to come with a
price. Lisa, we've got to work on how expensive
that's going to be. Jason Kelly.
This is actually one of the most salient arguments I think about more protracted
inflation is if you do reverse even part of the globalization wave, even if you
just don't have that globalization headwind to keep prices low, then you're
going to see some higher prices, you're going to see more price pressure, you're
going to see more labor issues as you try to get some of the workers if you
don't have the factory to the world in the same kind of way.
Did you see the anecdotal report about the airport manufacturer moving, saying
that they're going to move some of their manufacturing out of China, that some of
Apple's own manufacturing units are doing this?
So you'll see this on the margins.

I don't know if it's enough to be more
than just anecdotal, but that's under my living room couch.
It's it's it's life off a air. You've got your own Foxconn.
First last has a glimpse first. First, he eloquently last, whatever.
There's got to be 20 pair of air pods under my living room couch.
I mean, what a racket. What do they cost?
They don't let me know what they cost. What's the racket?
Is it that you're about 20? You don't have a suit where they make me
fish. I made it.
Yeah. Depends if I'll get the light switch
from Chicago or something like that. Are they made in China?
Well, they're being. And now we're gonna move the
manufacturing my living room. Yeah, exactly.
Under your couch. I suggest you lift the couch up.
You might save yourself. Can you imagine that basically alone.
Yeah. The airports.
If it was if it was, his own company would just be huge.
Oh, there's some of the parts of the ISE.
Scary, crazy.

Most of the sell side crew won't do a
legitimate some of the parts because the number is so high they don't want to be
associated with it literally. I'm not a marketing from a compliance
standpoint. You don't want to put that number out
there. What's the number?
You can do it. I don't have it here.
It's ginormous. Take services.
Forget about airports. Just take the services, you know, go
through your credit card statement to look at what's been spent on it.
I have children. We don't go through this.
You don't go through this. I thought people would go look and
they'd see that, you know, I did it. Monetary tightening is not taking a bite
out of the economy. This is bad news for inflation and bad
news for the markets. At some point in the future, we will see
inflation coming back down to Target. We think that headline inflation is
going to fall back to around possibly just under three and a half cent by
mid-year.

There is no sector of the economy that
really is hurting. This is an environment was very
heightened. Macro and market volatility will have to
change our views very quickly. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz.
Let's get the month of March started for your life in New York City this morning.
Good morning. Good morning.
Audience Worldwide. This is Bloomberg Surveillance on TV and
radio alongside Tom Keene and Lisa Abramowicz.
Some Jonathan Ferro equity features positive.
A third of one per cent some data out of China, Europe data and the US home.
Still to account constructive lift. There is the important data or John
Tucker you talk about because you care more than I am.
This data. March 1 here on a delayed jobs report.
I'm sorry. It's a big deal.
What we're going to see at 10 o'clock. Well, let's talk about what we're going
to see at 8 AM as well, about an hour from now.
Could it break down a German inflation going into the eurozone print tomorrow?
So far, so bad for the European break down a CPI, Lisa, at the moment.
What we're seeing from France, what we saw from Spain going in the wrong
direction, we see that in Germany all of a sudden.
Do you start coming out? I mean, we heard from the Bundesbank
this morning talking about possibly winding down the balance sheet faster.
What kind of ramification would that have at a time when we're just starting
to think about a world without zero rate?
We discussed also how complicating it might be to have China reopening.
At the same time, we grappled with all of this.
That process has only just started.

We've only just started to see a real
bounce in a PMI. So bite for growth set to see later this
year. That's not in commodities here.
Look at crude treats flat on the year. Geoff Curry of Goldman talking to
Francine early this morning. Some talking up triple digit crude still
year end. This is a really important what you just
said about the time continuum. We've only just started.
And the answer is, as someone said this morning, I think it was Ben Laidlaw or
two months in on a 12 month year. And, you know, we're going to reframe in
May. We're going to reframe in August.
And we'll talk to moan about this here in a moment.
But, you know, I'm sorry, the idea of making big views out to the end of
summer, it's not long term shelter, August and going to have this long term,
long term assignments and exams brave enough.
Well, let's talk about the first two months of the year.
There couldn't be any different.

January in February.
January, we're talking disinflationary process may be starting February.
Cold water, freezing cold water at this Tom Keene month all over that to show
you just how much this is the case. We saw the best January performance for
bonds for the aggregate index in data going back to 1990.
And now we just saw the worst February performance for the aggregate index
going back to data in 1990. That's a whipsaw we've seen in terms of
inflation expectations of Bloomberg Quicktake.
That's a blip, if I call it that. The aggregate sell products sell the
product. Lisa Abramowicz.
So I'm looking at it not from dodgy here, but we didn't make 50 percent
back.

We went down on price.
Terrible bond market last year. We came up, John, on the bounce and we
came back about 40, 45 percent. This equity market did take features.
China a bounce by a third of 1 percent. Here's the price action for you.
When the S&P 500 a little bit of a left wing to talk about the data you're going
to get a little bit later. Lisa is going to go through that for
you. The bond market unchanged, the 10 year
three and ninety two and the affects market.
Lisa Eurodollar, there are six sixty four.
So let's talk about what we're seeing and what we're expecting to see.
We talked earlier this morning about some of the retailer earnings.
We already got some of them.

We got Lowe's.
It basically met expectations. You're not seeing much in premarket.
Kohl's just came out and they came in disappointing pretty much across the
board in terms of gross margins, in terms of what we're looking at, in terms
of revenue, as well as their forward forecasts are seeing a loss and those
shares are lower by more than 11 percent.
It highlights how hard it is to get ahead of some of these stories, the
whipsaw action we've seen before. And in terms of before and after some of
these earnings has been tremendous. I mean, you're looking at may have never
been to one.

What happens at Coles?
Well, somebody wrote in and said that everyone is just using Coles is a
glorified Amazon return center. I am not saying they use it for just you
know, there is this concern if you can't identify what your role is as a sort of
lower price. Well, the hope was that you'd go back,
return stuff and then you'd buy things. Right.
Isn't that wasn't that the hope? You know, I went into a retailer I'm not
going to mention and there was a line you walk out the door.
It was a and it was you know, it was all people doing returns online, returns in
the store. Our store fronts becoming return centers
for what you heard. I saw baloney.
I've always hated the word omni here. It's sort of like, what's the vulgar
now? A camera?
What is omni channel? Omnichannel amnesty.
We live in an atmosphere, of course. Let's talk about it.
These are family run businesses. Many people on sell.
So I would suggest this should have been rolled rolled up years ago.
They're out of Wisconsin, 35000 employees.
Kohl's is venerable, venerable Midwest retailer.
That's gone nowhere for 10 years.

Total return per year, negative.
Point two percent per year. Why are they publicly traded?
It's gone somewhere now it's down eleven percent, Lisa.
And we'll follow that throughout the morning.
Just quickly, we also get German CPI. We've been talking about that for the
month of February at 8:00 a.m.. What is the response going to be at a
time when two year yields over in Germany are three point two percent, the
highest level going back to 2008 at 10 a.m., the U.S.
ISAF and ISAF Manufacturing and Prices Index for the month of February.
Do we see a re acceleration there, John? That's really gonna be a bit quiet.
The number one question, isn't it down into payrolls on Friday?
Absolutely. Next Friday, does that confirm what we
saw like eight days away? Yeah.
You're gonna be around for that coming in.
I'm sure that's not here. Let me just skip in the fact I'm
skipping the Fed. Why are you doing that?
Because children rule, okay.

And they demand rule.
They demanded that you skip. This is like you get like John with each
kid. You get like a window a year or two
windows a year. Okay.
And I'm aware because of the child, I sort of turned it down.
I said, well, I actually think I should. I thought you said loving parents.
And I said, I have been dating permanently.
Exactly. You didn't.
Perfect. I wasn't aware that children take time
off. Thanks for that, Sonali Basak.
You're born into it. That's helpful.
Grandma John joins us live. And every day, senior investment
strategist at Edward Jones Motor. Let's start with this equity market.
You like quality growth. What is quality growth?
Yeah. Hi, John.
Thanks so much. You know, look, I think we started this
year looking at a market that was driven by better than expected economic data.
We saw a strong January jobs report. We saw better than expected retail
sales, and we certainly saw inflation at least towards the back half of last
year, starting to move lower.

But I think the trade into what we'd
call more cyclical parts of the market probably happened too fast.
Too soon. Earlier on this year.
So to your question, as we get through this year, we need to see a couple of
things before we can kind of revisit that recovery playbook or that cyclical
playbook. We would still need to see one, of
course, inflation move meaningfully lower.
We'd like to see the Fed actually step to the sidelines at some point, probably
middle of this year. And then three, we are starting to see
earnings being revised meaningfully lower at this point for 2020.
3. We haven't seen that bottom yet.
So until those conditions are in place, we'd say probably the market is going to
take a more defensive tilt. We could see continued volatility at
some point when those conditions are met.
Maybe towards the back half of this year.
We do think that investors should think about diversifying into those more
recovery parts of the market.

That includes quality growth.
That means growth. That is not a negative earnings
yielding, probably not as speculative parts of the market.
And then, of course, areas like cyclicals, even parts of small caps
international interesting as well. So all part of our recovery playbook
that could happen down the road. Money, you've got a wonderful single
sentence in your note, which I totally agree with, which extrapolation right
now is very dangerous to your net worth.

If it's a extrapolate free 2003, if you
have a face to be in the market, how far are you reaching over to the next
horizon? Are you looking out a year or dare I
say, is a new extrapolation out to three years?
That's interesting, John. In Tier IV, Tom's right into your point,
but he can't release as well. That's
a level three of you. So I do think Windows January data, it's
very dangerous, as you noted, to extrapolate the strength we saw
certainly in the labor market, certainly in the consumer to the rest of the year.
You know, keep in mind, the labor market does tend to be one of the lagging
indicators. You know, we have leading indicators.
We have coincident indicators. Then we have lagging indicators in the
labor market tends not to usually be the first shoe to drop, but perhaps towards
one of the last shoes to drop.

But your question on time horizon, we do
still think a 12 month time horizon, although we've been talking about 12 to
24 months, because that's really when we can see this cycle go through a
bottoming process and then markets can then start looking towards a recovery
process. And we do think, you know, investors
have a very unique opportunity in the 12 months ahead in that we know bear
markets don't happen all that often, one every four to five years.
But in history, the good news is every bear market has ended and every bear
market has been followed by a potential bull market.
So we look out 12 to 24 months. We do think investors are positioned for
better opportunities ahead. What's the leadership going to be in
that next bull market? Yeah, it's a great question.
And look, I think when we look at the last 10 years or so, the 10 years after
the financial crisis, that was an environment that was characterized by
Fed funds rate towards zero bound growth, outperformed value for much of
that period because investors were pushed out the risk spectrum.
We think about the next 10 year period or so.
We don't necessarily see yields back at the zero bound.
Certainly the Fed funds rate could go from this five, five and a half percent
back to more neutral territory.

But in that environment, we do think
investors have to consider a balance between value and growth and think about
a more diversified picture and leadership going forward.
So that's interesting for the next longer term period.
I do think over the next 12 to 24 months or so, we think we'll go from a more
defensively oriented tilt to more offensively oriented tilt.
As we noted earlier, that recovery playbook does come into play when we use
this word defense. I discussed this yesterday.
Love your insight on it being hugely valuable to me.
Defense is usually just what works when things are bad.
And last year defense was energy because that's what worked when things were bad.
Motorways, defense in 2023.

Yeah, it's a great point because energy
is not usually always the defensive part of the market, but we think more
traditional defensive sectors, health care staples in particular.
If we do go into any sort of economic downturn, slow down those sectors which
have underperformed thus far this year, we may see some, you know, some interest
and some more leadership come out of that, more traditional recession proof
and even to some extent inflation proof part of the market.
What's interesting, I think this time around, defense is also your shorter
duration CDE 1 to two year Treasury bond space as well.
Of course, what's notably different this cycle is that cash and cash like
instruments are yielding anywhere from 4 to 5 percent plus.
And that is an environment where, you know, if investors do want to hang out,
think about a recovery playbook.

But in the meanwhile, put their money in
very attractively yielding assets. That is a place that we're seeing a lot
of defense right now. This was great, as always, managing the
of Edward Jones Mono Mahajan on defense and basically cash and the 5 percent
geos you can pick up on it. Next on the program, I'm going to talk
about China and these comments from the FBI director, Christopher Wright.
He was speaking to Fox News just last night, said this.
The FBI has for quite some time now assessed the origins of the pandemic are
most likely a potential lab incident.

And we'll have that conversation coming
up shortly from New York. This is Bloomberg. Keeping you up to date with news from
around the world with the first word. I'm Lisa Mateo.
Bank of England Governor Andrew Bailey is signaling that further interest rate
increases may be needed to kick in to contain inflation.
Now, in a statement, Bailey said that doing too little now may mean sharper
rate hikes later. He said the experience of the 1970s
taught that lesson. In China,
the economy is showing signs of a stronger rebound after Covid
restrictions were abandoned.

Manufacturing posted its biggest
improvement in more than a decade last month.
Meanwhile, services activity climbed and the housing market stabilized.
FBI director Christopher Ray says the agency previously determined that the
Covid virus most likely originated from a potential lab incident in war on
China. And Ray's comments to Fox News
contradict scientific claims that the virus emerged naturally.
He said the Chinese government has been trying to counter the work the U.S.
is doing in that matter. Lori Lightfoot has become the first
mayor of Chicago in 40 years to lose a bid for re-election.
She finished third in Tuesday's election on April 4th and April 4th.
Runoff will put her former Chicago schools chief Paul Vallas against Cook
County Commissioner Brandon Johnson. Now, Lightfoot was unable to overcome
voter disparities, dissatisfaction with Chicago's rising crime and slow economic
recovery, and Lowe's forecast annual profit that meant Wall Street s
estimates. The home improvement retailer took a
cautious approach in the midst of shaky conditions in the housing market.
Lowe's comparable sales unexpectedly fell in its most recent quarter global
news power by more than twenty seven hundred journalists and analysts in over
120 countries.

I'm Lisa Mateo and this is Bloomberg. The FBI has for quite some time now
assessed that the origins of the pandemic are most likely a potential lab
incident, and I will just make the observation that the Chinese government
seems to me has been doing its best to try to form and obfuscate the work here.
And that's unfortunate for everybody. Christopher Ray, the director of the
FBI, speaking of Fox News, that's something after the report we had over
the weekend, some from The Wall Street Journal, remember that one that the US
Energy Department has also concluded that a pandemic likely arose from a lab
leak. You know, we talked to Andrew Peck out
of Johns Hopkins yesterday.

Jones Paul Sweeney.
And it was really something to talk to somebody, you know, from another time
past, John, about this and what's the efficacy of going back and look at these
horrific skeletons in the closet from three years ago.
It's a huge debate. And yet at the same time, if this is
correct, it's still appalling if it leaked out.
Absolutely. Paul, I think what's amazing about this
is the amount of different agencies across the U.S.
government right now that have different views on this.
The general spoke to that over the weekend.
You've got the Energy Department and the FBI saying the virus likely spread via a
mishap at a Chinese lab.

And then the WSJ Wall Street Journal
goes on to say four other agencies, along with a national intelligence
panel, still judged that it was likely the result of natural transmission to
undecided. If you're the president right now, what
do you say about this Simone Foxman? What you say is needed more information.
Perhaps this is a way to lobby for more access to some of the labs and some of
the underground facilities in China.

But I don't know the answer to that.
And the question is, how is it leaking out in this capacity?
What's the goal of that? And then what is the consequence of that
from a policy perspective? I think I think you're dead on.
It's like what's the goal of it? I go back I remember being in Washington
as Henry Paulson, his treasury secretary, literally had the first
conversation business meeting with the Chinese.
I think I can sum it up by saying it was a complete failure.
Do they want to talk to us about. Well, the frustration that people have,
Tom, is that this was a question that people asked during the pandemic and it
was shut down. And it was a conspiracy theory.
And now there are agencies within the U.S.
government publicly discussing what was once considered to be a conspiracy
theory. And I think the frustration other people
also have is that most of government wasn't open minded about where this was
coming from.

When you heard from from U.S.
officials at the time, it is political, which means we need to speak to Annmarie
Horden. And she's R.
Bloomberg, Washington correspondent. Now, Emory, just an open question with
your great reporting and reading. The Zeit goes down there.
Where is this heading? Where are we in one week or one month or
dare I say one year on the mystery of the beginning of this pandemic?
Well, I think you guys really outlined the fact that there just is no consensus
across a variety of U.S. agencies about what exactly happened.
I mean, this really goes down to the issue that when there was the pandemic
outbreak, there wasn't these independent researchers that were allowed into that
Hahn lab. So when some scientists come out or some
agencies say that this was a natural causes, there's a lot of individuals who
say were critical of that because the access at the very beginning.
So there's just is still a lot of questions.
Jake Sullivan, when he was asked about this, the president's national security
adviser said it was the Biden administration, the ones who actually
got the Department of Energy involved as well into looking at this, because
they're the ones that control all these labs.
So they will say that they are the ones that want a diverse views across the
government to make sure that they get to the bottom of this.
But the fact of the matter is, when Admiral Haynes released that report, it
was just inconclusive, because these agencies cannot all agree.
The U.S.

Agencies can agree.
But I don't see one iota of interest to the Chinese to act within the scientific
community on virology. And my right arm.
Well, they definitely did not want to have these independent researchers come
into their backyard, into the Rouhani lab, what they say is that there should
be scientific. And they think that when the U.S.
points fingers at a potential mistake at this lab, that they're politicizing it.
Well, does this highlight the political nature of the lack of scientific
process, to John's point that he was talking about earlier, of certain claims
are rejected outright and just cast off as a political smokescreen rather than
something that could be legitimate as comes to the fore later?
Yeah.

I think I think follow on this.
If we continue to get either more comment from the FBI or more reporting
about the Department of Energy was able to fine as they were brought into the
conversation and the analysis of what went on, there'll be a lot of questions
about I think about the United States in terms of their support and funding for
the World Health Organization. And I think that's probably where this
story goes next. Please elaborate.
What do you mean? How is it going to be used to justify
some sort of change in the support the US gives the World Health Organization?
Well, I think the World Health Organization has, for the most part,
really has ignored some of these concerns that potentially this started
in a routine lab, obviously, that the Chinese government is also part of the
World Health Organization. And I think many people will think that
some there'll be criticism that they did not act appropriately and really get to
the bottom of what happened at the start of the Covid pandemic.
What's the alternative in terms of the potential consequence that the US could
create? To say if you don't comply by these
rules or allow for this type of transparency, we will do X?
What is that X? I think you'll hear a lot of politicians
probably use this information, whether or not it's the Energy Department or the
latest comments from the FBI add to enact more tougher stances, whether or
not it's business or based on humanitarian issues, human rights issues
with China.

I think they will use this to feed some
potential bills or maybe export controls, whatever it is against against
China. That's what it'll be used.
But I'm not sure that the US, if they are not they do not have a conclusive
final understanding of what actually happened.
And you have all these I mean, these are a number of agencies that do not agree.
It will be very difficult for an administration to take a definitive
approach to this. John, jump in here, because I think
you've written more on this than I have on a probabilistic determination basis.
Good people are going almost like the Fed minutes show some several whatever,
but they're setting up the probabilities.
And the answer is to use a statistical word I'm hearing.
We have a real dearth of confidence in our guesstimates.
Well, even the Energy Department and the Wall Street Journal story, I think in
the fourth or fifth paragraph says that DAX judgment, that judgment was made
with, quote, low confidence.

So work in all of this.
I think it's pretty obvious. Countless lives lost cost the global
economy, trillions of dollars. And I think if you had an accident
anywhere that cost you thousands of pounds, thousands of dollars, you'd want
to know how that accident happened, wouldn't you?
Shouldn't we be a little bit more keen about finding out what on earth happened
here? I would like to see more clarity on the
process that different groups are coming with.
The conclusion from. Right.
So what is the process that people are using that are finding different
conclusions? And what evidence are they are using?
Are they deriving this from or is it consistent evidence?
Right. We don't have any visibility into those
types. Why don't we have a central focus?
But it's not because it's coming out in terms of the conclusion.
So what point do you release some of the information that the public can judge
for themselves and trust the government again?
We have to remember that we've gone through this long process through the
pandemic. Initially, remember, we were told that
the masks don't work, don't buy masks, but actually we needed the mask for the
healthcare healthcare workers.

So then all of a sudden we needed to
wear masks and then you had to wear masks all the time.
Then you don't need masks release at some of the things that we were told.
People were lied to. And that's the problem they have with
this kind of information as it pours out.
Dani Burger. I would completely agree with you.
There's also the issue, though, of some sort of a pre precondition that you have
around some of these conclusions. If you don't have all the evidence that
come out, what some of the ramifications could be before you actually have the
evidence.

Right.
So it's a very fraught situation because of the political tensions that go more
broad. And that I think is really underpinning
perhaps the reticence on different sides or is the political motivation on other
sides to push certain ideas forward. I think the story is not going away
anytime soon. All right.
Emory down in Washington, AMH, thank you as always.
If you are just tuning in, we need to pick up on what's happening in markets
as we kick off the month of March and look ahead to some economic data in
about 35 minutes time. German CPI then after that, two hours
later, you'll get a fresh brand new ICM manufacturing rate on the month, the
separate February important. We want to work out whether the robust
nature of the US rebound in the month of January will be reflected in any way,
shape or form in the economic data for February.
So that's a February ICM.

Just some survey data for you.
Then it's on to next Friday, not this Friday.
Tom, looking ahead to payrolls just around a corner.
I'll take your point. Payrolls is a huge deal.
But I got to admit, once Germany come out, do it comes out here like in 34
minutes, 34 minutes. I'm sorry, it's inflation center study
right now. Jobs.
Yeah, it's going to be important, particularly off the oddity of the boom
seen 30 days ago.

But I'm sorry, inflation matters in that
inflate. I believe it's March 18th.
I can't remember when the inflation report is just a big deal.
James RTS coming up from Aberdeen. I'm told he's still going to show up in
about four minutes. So looking forward to them since
Bloomberg. 730 in New York equities look a little
something like this, the left a bounce, we're looking for one anyway.
After a month of losses in February, equity futures up by a quarter of one
per cent on the Nasdaq 100, we advance by four tenths of one per percent last
month. Remember, we were told repeatedly coming
in to 2023, the correlation between stocks and bonds is going to break.
And then it didn't.

Bonds were down.
Equity stood out and yields were up. Yields are up again by a basis point on
a two year for 83 on a 10 year upper basis point and say, nice, I'm 393 57 on
a 10 year yield, rounded up 394. I'm sorry, we're still close to 4
percent. And you think about the economic data
that can get us to some drama here, which I think people are starving for,
up or down. Any idea how far away are we?
Some room real drama. When I come in and see who's 10 spread
out to new rides negative 91 beeps. Wait for the ISE in about two hours and
30 yards and get a flavor things for the month of February for manufacturing at
least I can honestly say. I mean, things became fun in 2007.
I was both boring before that. I've never seen a time like this, John,
where everybody's hanging on macroeconomic blah blah blah like we are
now. I've never seen any consensus.
Tell me the narrative around the macro blah blah blah shifts from day to day,
weights hour to hour and suddenly shifted month to month January into
February.

Can we talk about are you going to
reader into this, John, or we know what's going on?
We go through the rundown very quickly. What would you do?
Gentlemen, I'm going to have a look at finance fired up.
Then Lisa's going to go through some central names.
OK, Joe Elliott, gasoline. Okay.
And someone in your is going to tell you in a moment.
Thank you. Let's pull up foreign exchange.
Quit looking for a dollar for you. Thanks, T.K..
In about 30 minutes, call it 29. You get CPI out of Europe, Germany.
Just a radical. Any one piece of euro dollar 0 1 0 6,
Lisa, 79.

And having a decent session as ECB
officials talk up some big moves. A lot of people are looking for that
euro to go a whole bunch higher. What I'm looking at in terms of single
names, revision came out yesterday after the bell that was supposed to be a
competitor with Tesla. It is not evidently at least their
forecast deliveries are falling short of expectations.
They're still losing money on each of their vehicles that they're producing.
Remember when they used to basically take people's money and sell it?
They deliver in like two years. And that was part of the issue.
Those shares lower by eight point seven percent.
Tom, did you want to weigh in? I wonder if by me the other day I was
alone in the why was it a beautiful car? A beautiful car.
It's a beautiful. Just 40 to 20 after visiting 10.
I mean, is it like the new Tesla? I don't get it.
Part of the problem has been that they are trying to lose money on each car to
go basically generate enough critical mass in the market.
And they are not being successful in doing that.
That basically has been the takeaway.

And this has been a warning that Elon
Musk has put out there. And there is some feeling that perhaps
there is a bit of indication based on their latest results.
We shall see. Lowe's also came out meeting
expectations. Those shares aren't necessarily moving
around all that much, basically flat. But Kohl's really is where I'm looking
at, because if you take a look and dig through those earnings and only to talk
about gross margins that were well below expectations in the fourth quarter, but
their full year forecast was very low.

They talked about the potential for
trying guidance. Again, this is this is what happened
last quarter, citing macro pressure. They basically see earnings of two
dollars and 10 cents in 70 cents a share for the full year versus the estimate of
three dollars and 20 cents. Those shares are gone down 49 percent
over the past year. Just to give you a sense of the concern
around this company that are both macro economic but also somewhat
idiosyncratic, which our friend call it a little bit earlier this morning.
I think that phrase glorify Amazon, return center glorified Amazon return
sensor that no one wants to be told that.
No. But I do wonder how many of these brick
and mortar stores that haven't necessarily created a reason to exist
are becoming returns. Right.
That's great. They've got to create a reason to exist.
I mean, you know, he's, you know, thinks about when you're sitting in the hole
trying to work out a reason to exist, just to be out is OK.
There are a lot of activist investors involved with Coles as well, trying to
create, you know, come up with a reason to exist.
Yeah, that is brutally a theme.

This year is the zombie roll up and
they're part of it. I mean, I won't mince words.
It's every sector job. It's not just retail retail's visible
and all that. But my name is when I was starting to
exist. Let's go to Janesville in ISE.
Let's go to James RTS to save the hour. He's investment director at Aberdeen.
Thank you, James, for joining us. Now, you've got some wonderful
perspective that we're hearing from many others about the inability to predict
forward. How do you go about it now, day to day
to not so much adjust a portfolio, but even maintain confidence in your
existing portfolio? How do you process that day to day, hour
to hour? Those conversations in the Coles
boardroom about reasons to exist and sounds.
Sounds like perfect segue way into my attempt to forecast the future and
manage the risk associated.

Yes.
It's difficult, Tom, it's really difficult.
This is a you've got you've already talked about it, the complete about
face. Between January and February, when I
spoke to John a few weeks ago on his show, I called it narrative tennis.
And it's very much been the case over the last three or four months that I'm
just doing the opposite of the prior four weeks has been a very profitable
strategy.

And just given the nature of markets,
how how low liquidity jet tends to be, how many systematic and kind of
technical traders there are on a daily basis means that momentum riding
weaponized. So it is difficult, Tom.
You try and take a long view. You have to be disciplined.
You have to respect market price action. That largely means managing risk without
necessarily giving up on your core view. So I'm still medium term of the opinion
that this monetary tightening will see the economy suffer in the future.
All right. Hang on to some sort of duration view.
But I need to manage that accordingly. James.
David Page RTX has the same ideas you and the word he uses a synchronous that
some people win within our narrative tennis.
And I look at Chevron with a massive buyback, LVMH with a more measured
buyback.

But critically, LVMH puts a date on it,
which is I think somewhat unusual, particularly for Americans looking at
share buybacks. Can there be winners out of this?
Yeah, I mean, obviously, the energy sector has been a massive winner over
the prior 12 to 18 months. And just given all the issues around CSG
and fossil fuels, it's no surprise necessarily that they would return some
of that, if not a lot of that to shareholders, because maybe the
investment opportunities aren't as abundant.
Everybody's going to be at a different place on that spectrum.
And of course, you will see winners and losers always in the equity market.
The Polish market is much less diversified in terms of day to day
performance equities, even when there's a broad trend in one direction or
another.

There are individual names or sectors
that are bucking that trend for for specific reasons.
You know, if you're selling nondiscretionary items, you expect to do
better than if you're selling highly discretionary items.
If you're selling items to the rich that tend to be very less sensitive to the
cycle, to changes in income. You probably find that you a much more
defensive play relative to those highly cyclical sort of retailers.
Of course, it's all horses for courses, gyms for a while.
There has been a real bearish tell to some of your commentary and I've been
sympathizing with it and I'm wondering how painful it's been to be a bear
through the ups and downs of this tennis match, as you put it.
He has not been easy.

It really hasn't been easy because
actually it's not just about, you know, getting fundamentals wrong.
You know, I've been surprised at the strength of the U.S.
labor market, and I've certainly been wrong in that respect.
Certainly in terms of timing, if if not yet the end game, we don't know.
But actually, they've been periods in this market over the last two years
where I feel a cold calls that the macro correctly and the market has responded
in a way which is just not normal. I think the U.K.
is a prime example. You had that dovish NPC just before Liz
Truss's budget, you know, to all the world.
Do you think if a central bank is too dovish when there's high inflation, you
should get a vast steepening of the yield curve and instead the market was
just disbelieving of the central bank and bear flatten the curve.
And those kind of moves have been had been painful.
Now, that's the job.

That's what you sign up to.
It's about trying to be humble. It's about being disciplined.
It's about, you know, taking market signals.
But not allowing yourself to be led by the market is a tricky balancing act.
You know that that fine line between humility and confidence, overconfidence,
you have to find a balance. But I guess.
Been a very difficult couple of years. So the difficulty in calling the macro.
The difficulty in calling the market response to the macro.
I mean, at a certain point, how much has the process changes?
You become a dartboard, essentially. You know, I really think that the
process has changed. I think it's more evident in equity
markets than it is in bond markets. But I think it's true that bond markets
as well. And realistically, I think you can just
summarize that as being there are less and less fundamental investors.
So increasingly the marginal buyer, the marginal seller is not somebody who's
looking at the same data and information as you as a doctoral, a form of you in
the same way you are.

They have very different investment
styles and strategies and there are very different triggers for their portfolio
changes, shall we say. And if data is hard to come by,
certainly in the bond market, you're largely talking about over-the-counter
cash trading and over-the-counter derivatives.
That's a big part of that. And so it's more difficult to get data
on, but it has, I think, meant that we overshoot relative to fundamentals more
frequently and by a greater amount. And in markets as volatile as this, that
can be really large gaps between market pricing and what I would consider to be
the fundamental outlook. So all interesting, James.
I really, really love it. But this is not why we're having your
own, John. Help me out here.
I got an email yesterday while meeting with friends Satya Nadella.
I got an e-mail yesterday that said more soccer, less Formula One.
I don't want they want the football talk.
So I'm going to do that right now with AC because he is qualified.
I'm lost.

And how many leagues?
These teams. This is not America.
In America, you play Major League Baseball.
That's all you do. Now, you got the Premier League this
year that the tots visit Sheffield United, which I think is like Def
Leppard. Joe Elliott Flea is in there as the
effect. How would you explain to me why the tots
are visiting Sheffield United? I just don't give us the FIA Cup.
You play. You play people in differently in
different lower leagues like minor league soccer.
Yeah. For a for a trophy at the end.
It is like Britain winner takes it. Is James AC riveted by this?
No, James. That he just wants a top four finish to
play Champions League football, but he'd love to see Tottenham win a trophy
because Tottenham haven't won trophies. Is that like a clock in Piccadilly
Circus or whatever it is? It's basically counting up.
James, before I let you go and it's come back to something you said, I can't
think of anything more frustrating than getting the macro call right in a market
call rank.

I'm sure you know the work of any Jake,
the former poker player who wrote that fantastic book, Thinking About Bats,
mentioned it on the program because I was rereading that last week.
She often would say, don't focus on the outside and focus on the process.
Now, James, when you have a year like you've had where you're now at the macro
but got the market go wrong, particularly in equities with with tech
leading and all of that good stuff or bad stuff.
James, how do you reflect on the year so far?
That's exactly right.

So you have read the same book.
I love poker, watching and playing and an altitude cause it resulting.
I think it's really important lesson. Don't just judge the quality of the
decisions on the outcome. But judge them on the process that led
to them. And so in that case, I don't beat myself
up too much. It's frustrating from a performance
perspective at times, but it shouldn't lead you to trying to do different
things next time you've concentrate on where you really have got the macro
wrong. Now, the ECB.
That's one where I was way too dovish with respect to the ECB outlook.
I really underestimated how hawkish they would be prepared to be and indeed how
stable the bond market would be.

So that leads to a bit more
introspection about how I've handled income, incoming information and sort of
how stuck in it. In a prior view I may have been, but the
case of the UK is frustrating, but it doesn't lead to it shouldn't lead to too
much change to process going forward. You continue to use your analysis and
play the odds as you see them. James, appreciate it as always.
James NASDAQ of Aberdeen, most out of camp.
Equity futures positive this morning. Good morning.
Keeping you up today with news from around the world with the first word.
I'm Lisa Mateo.

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I'm Lisa Matteo and this is Bloomberg. The moves that you would get if you
followed a bullet type approach is much more consistent perhaps with Fed
history, that you could see the rates move a little bit higher to peak, maybe,
you know, even towards a peak of 6 percent.
But then once you reach that, you would break the economy.
You would have to see rate cuts followed quite quickly.
David Pace, that they had a macro researcher, AXA investment managers on
that theme.

I think that you can maybe go back six
months. Take that quote.
Take out six in four. Say exactly the same thing.
We'll get to four and things could break.
We'll get to five if face could break. And now with Sam, we'll get to six and
things could break Joel Weber dead on in the history of this to the 70s, in the
60s, the last time we did this. Granted, this is highly unusual.
Is everyone adapts. Now, the housing market witnessed what
you mentioned earlier in that publication by the Dallas Fed that's
making the rounds last night. Thank you, Dallas Fed for sending me.
That is. Whoops.
What if housing gets in the way? So that's maybe a little different.
But you're absolutely dead on that.

We've had this conversation before.
If you're on a steady affects 3 percent, lucky you.
You're not feeling this fear. And that's all I've said out in this.
Sit up. Sit out.
I'm going to sell me. I mean, you may have some fungibility.
Lakewood with divorces, kids move schools, whatever, you know, the usual
soap opera. But, you know, you're right.
A lot of people sit this out. And that's why Price want not come down
as much. It's certainly in certain geographies as
well. Thorsten Slack of a Palo put out this
that I thought was interesting. The interest rate sensitive components
of GDP is only about 20 percent of the GDP.
So, yes, that is significant, but it will take time to bring down growth,
especially when those interest rate sensitive areas have less interest rate
sensitivity because of the 30 year time horizon, because of extending some of
the duration.

Don't tell Joe Biden.
He will be. The politicians will be more attuned to
the interest rate sensitive. Do you think they aren't?
I mean, given where the economy is, three point four percent unemployment
is, we get to the election four years from now.
So help me. After Labor Day, the election kicks in
after Labor Day as it does. It's absolutely odd.
Time is not a good time to talk to Damien.
I think it's a perfect sentiment for temporary leave.
Thank you for that. We'll do that right now.
David Spencer joins us here on E! And I mean, I'm just suggesting your
world not for all, but for some. There's a great unraveling going on.
Perhaps the rates are coming up. And it's Patrick Gillespie just enjoying
the sorry. He's really helped me on the unraveling.
We know Argentina's terrible. Who are the other Argentina's the other
Argentina as well. We know they are.
They're Tunisia, El Salvador, Ecuador. The list goes on and on.
But you make a great point just about what we've seen in the last month alone
since that payroll data.

Right.
I mean, we've seen em follow the Fed and basically E.M.
swap rates. Two, your swap rates.
You know, it's the two year that really matters in fixed income these days have
absolutely blown up. I mean, we're talking 50, 60 in the case
of Mexico, 100 basis point move in just four weeks.
That is a macro of move as you measure this day today.
I mean, you slide in here, it's seven thirty seven, forty five a.m.
you start to check your Bloomberg about eight thirty.
It's way from a cup of coffee when you slide in.
Is there efficacy in looking at the credit default swaps or do you look at
other Damien says or secrets all the synthetic Lada.
I like the synthetic market because they always overshoot.
Right. I mean, so CDO spreads in emerging
markets have been following China. We have to talk about China before our
conversation is done here. But really, at the end of the day,
sovereign credit default swap spreads across the whole.
IBM have compressed quite considerably, and that's what's taken the probability
of default for those frontier economies like Argentina down so considerably this
year.

Right.
But you can't believe the CBS implied bank community, of course, is panic and
it always overseas. And I lost my microphone because my
liberty wasn't saying getting important. But look, I think we really do have to
talk about China. If I can't pivot, is that an okay pivot?
Because, you know, the PMI data, you know, usually people just answer their
own questions, have satisfied this or they ignore me.
And that's very odd. Jonathan and Lisa.
Is anyone surprised by the PMI data that we've just seen?
Shouldn't be where no one should be, right.
I mean, five and a half percent.

Forget about it.
Let's go for 6, 7 percent GDP growth in FII 23.
But underneath the surface, and that's what we'd like to do it be I.
That's what I like to do. Let's look at inventory builds, energy
inventories, LNG and coal, which are the feedstock for the Chinese economy.
Inventories at ports and utilities in China are rising.
They're at the high since 2021. Wait, hold on a second.
Are you basically saying that you think that this data is an accurate and
missile? I'm saying there's a time element to
everything we're looking at. Of course, people are excited about the
China reopening. Of course, we expected a bang out no
here. But how are they going to be able to
sustain that type of sentiment? Right.
So what I'm saying is let's look at the underlying data.
Let's look at travel travel's bounce back.
Obviously, that's why they're not manufacturing.
PMI number was blow up at 56. Look at metals inventories, look at
copper, look at aluminium. It came in 60 days into the Lunar New
Year. At one point, five times a year, 20, 19
times, it's come all the way down to note the end demand for YRI, which is
the first use of copper or for, you know, OEM is demanding, you know,
aluminium for their sorry, aluminium for their for whatever it is.
They're finished goods.

Finished goods.
Inventories are rising. This is not good.
I just don't see sustainable domestic demand.
I love that John Farrow comes to us and calls it aluminum.
And Damien, you call it aluminium NIKKEI here in New York.
I just want to point that out. I do want to just follow on the
question. Averaging the call, if there is a
question about how this translate into an into an emerging markets call that
has been bolstered dramatically by this idea that China would be reopening and
provide a boost to many of the developed nations that depend on it.
Do you basically say that this isn't enough to give you that conviction, to
pile onto that trade, that if anything on the periphery is there's evidence to
go against India? Well, absolutely.
I think if you look at the prices, I mean, look at thermal coal prices,
they've come all the way down the reflecting this.
What I'm saying is it's not going to be that.
I think it's it's just it's underperforming expectations.
People thought China's reopening was going to be gangbusters for everyone
across the board.

And that's what my dad is telling you.
But to sustain that over the course of the year is going to be near impossible.
And I think what we're really playing for is another retreat.
Right. It's going to be a slow grind.
And then in the end of the year, when the property sector may finally catch a
breath and look, we had some good housing data out of China overnight.
Also, I think it rose for the first time in 20 months for a long way away from
normality there. So I think we need to see the property
sector come back online. We've got some time yet quarters, but
that kind of takes me into my thesis, which is effectively there is a more
durable play in China growth and the reopening than there is perhaps in the
eurozone and disinflation.

Okay.
So a final question here. If you took a 12 month rolling view of
the economy in China right now, we think it's six.
Maybe when you get to June, July, I start looking at twelve months.
Are we thinking about 3 4 2 0? Well, if you look at the IMF data,
certainly if you look at the 20, 24, they talking 4, 4 percent GDP growth.
So, yeah. Over the long term, structurally, if she
can't get these reforms, pursue if they can't get consumer spending.
Household spending, confidence that they're going to have savings.
Right. If they can't correct the problem with
SS, which is where local governments, where all of their public savings comes
from, where, you know, all their social services comes from.
If he can't structurally reform that, we are not going to cede snap back to five
and a half, six percent over the long term.
That raises the question then whether we've already seen the rough and and
maybe it start in October that and now it's already over.
That's basically the suggestion. And that's basically what Damien's
saying.

Right.
Because the actual anecdotal data already points to the slowdown, the lack
of activity that's going to come down the pike.
You go to 5 a.m. this morning, just you know, I'm just
going to say that every morning. I don't know what time I ran during my
last one. Ma'am, I did.
I ran three miles this morning. I got up so early.
I was so excited to listen to you guys. Sandy, Bobak, what time do you wake up?
You know, I can't sleep a lot. Jet lag.
And I was in Miami last week. That's the same time zone.
Yeah, I know. But I'm trying to say I was in Miami
last week instead of CAC soccer.

It's real.
You know, you guys were questioning whether Miami lags Miami.
Miami is real. The orange, what I myself really.
So it's universal in Miami. Oh, nice.
Represent. Very cool.
You know, this is you know, this is I mean, to me what is happening here.
You see this unlike the real play DAX, which is where you where it is, where
son go and see, know where the sun doesn't go to college.
And he's a senior in high school, but he will be very.
Yeah. This was nice.
Wasn't that nice? Second radio's a Muslim Sonali Basak
Miami. Aluminum, aluminium, cross-border love.
Whenever I say if I say aluminum, I get so much from back home in Maryland.
Stop saying just so many NEA.

And you know, people say you've been
listening, right? Yes.
Can I just say the most important Sonali Basak.
This is off. Go over him.
Yeah. Most important date going forward, guys,
if the music's not playing yet. March 15th, tabla.
We can play the music. Ted Larson can play music when I feel
his TV tour. Is that trick ish?
Is that supposed to be Jimmy Carter? It's a little light.
It's a little bit. I think it is, right.
It's a little bit like him. I love her.
You want a Formula One and more than one line?
I'm already fine. I'm in the final season.
I'm already fought for five episodes. And I know I love it.
And then that's the best way to change my life.
You're going to watch us and.

And the draw and the golf when I forget
the name of it. I've just started that first job.
Well, that's cute. It changed your life.
How did it change your life? Mode, push mode.
Push. Look, I mean, look, I mean, look at the
way I see it is it's it's about performance of the engine, right?
You need a bigger engine. You need.
You know, you you know, you need a fast you need a better machine.
Also performance. You're you stay efficient or a type of c
lean. Yeah.
Try to perform this morning, love. So you're on your own team with
Bloomberg Intelligence and those poor young kids are.
There you go.

That's good.
Push it. Push it.
Push. Yes.
I love that one. Does Richard Sherman whisper that he
does so all the time? I estimate there is just I love
Fernando. Well, you got to be that way, man.
Advisor, God bless. Good day.
I blame Ferrari. I blame her.
Yeah, don't spoil it for him. He's not all the way through.
I like the idea that you watch him like championships took place four years ago.
Look, if it encourages interest in this for fantastic diplomacy.
The new season begins this weekend. I think the economy is surprisingly
strong.

If you look at where valuations are,
it's placing in steel a very modest kind of growth outlook for the economy.
Markets are adjusting to the fact that the Fed has more work to do.
We may see some gentle drift back down in rates, but the people that stay in
cash are not going to lock in the returns for the long term.
Our view is still that we do see a mild recession.
I stress mild. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz.
Good morning everyone. Jonathan Ferro.
Lisa Abramowicz. Tom Keene.
On radio and television. A most interesting day important.
March 1st data here at 10:00.

Jan Fair was focused on that.
I assume Jon Lisa showed the chart earlier and I'm sorry the vector is weak
on the general. I have some statistics and I saw
manufacturing some 50. Let's save it surprises to the upside
and continues the progress we made at the start of the year for the month of
January, January. Really robust economic data in America.
Well, February confirm get a sneak peak of that a little bit later with the ice
and manufacturing a little bit later this morning, I believe 10:00 a.m.
Eastern time, the here and now.

Another upside surprise for eurozone
inflation. First, it was Spanish inflation.
It was French inflation. Now it's German CPI.
Nine point three per cent. The estimate was nine.
The previous rate was nine points. A tax cut in the wrong direction.
Euro dollar is out one full percentage point this morning, an approach in 1 0
7. And this talk all over the place about
the CCP going 50 basis points a month, maybe in the next meeting as well, and
perhaps even a consideration of needing to do a whole lot more after Dow Jones
over the United States as well. I've got now the two 10 spread out to
negative 90. It was negative 89 before that German up
statistic. And what's important to me, John, is to
be clear here, folks, this is not a disinflation study.
Many of these series, John, are up their inflation realities.
Without a doubt. So now you've got Germany, you've got
Spain, you've got France will get a read on Italy.
You get the eurozone composite, the aggregate of it all a little bit later
this week.

And we're going to be talking 4 percent
interest rates and ECB. Lisa, now that's a major change from
where we were six months ago. So the conversation around the Fed now
is 550 to six. The conversation around the ECB is
something close. The fourth quarter and the conversation
from an economics perspective is what don't we understand about the nature of
this inflation because the narrative has changed around.
This is an oil shock. This is a different type of inflation
than what we saw in the US, too. This is a broad based inflationary push
that has stemmed from wages that are stemmed from services that are stamped
from tourism is going to be really tough to beat.
What is the consequence going to be of raising rates to 4 percent?
I mean, to suggest this is foreign for me and Lisa.
It is not for John. This is the cultural fabric of Europe.
John, these statistics, whether it's 7 percent, France, 8 percent, a stunning
nine point three percent statistic on harmonised inflation.
Culturally, that is unacceptable for core Europe.
And that's why they like 50.

It's visceral.
And I would imagine based on this data going into the next ECB meeting, there's
going to be a push from the Hawks to confirm the next move as 50 as well.
So the current guidance is 50 for the March meeting.
The Hawks are going to want a commitment to go 50 again just to try and retain
some credibility around the inflation target.
Do the hawks get hockey or do they bring neutrality?
I mean, the Netherlands and Germany will be there.
I get it. But did the Finland's do they come along
with them or did they fight tooth and nail?
I think they are going to come along with them because what choice do they
have? What's the argument right now across the
eurozone? I mentioned this a little bit earlier.
This is pretty simple. It's not just Germany.
Italy, too. It's not just France.
It's Spain as well.

And that's the problem that we have at
the moment, summits right across the eurozone.
I'm not sure what the argument would be up until.
And I think you'll hear more from the likes of Maloney out of Italy, the
leader over there. Up until you get a severe break in the
bond market in places like Italy, poorer until you have to actually use said bond
market to finance any fiscal kind of stimulus or fiscal support that might be
needed in the wake of any weakness. Because all of a sudden then you start
to talk about coupon payment. Welcome.
A very different proposition. That's a good guest here.
Let's get out of the day to check to get to Michael Schumacher.
And John, I'm just going to suggest here to turn spread negative 90 in the 10
year U.S.

Yields three point nine, three percent.
Any more data like this and they move. Yeah, yeah, it's up.
And Germany yields up in the United States, particularly over the last
months. And Beck moves higher by about a basis
point on a 10 year state side, 393 on a 10 year yield in the affects market.
That's the move on Euro Eurodollar, one of six 84 better a euro strength, some
dollar weakness out there, particularly dollar weakness at the moment in Satya
Nadella. Yeah, it's a cold David Westin is well I
mean if one turn that you know, it's a it's a round number on the collar.
Can we imagine the euro breaking out of higher interest, higher inflation to
something above a 1? Ten months in, we have one ten thirty
three on the day of the ECB meeting.

I think it is February 28th, February
2nd. We had 110 33 on euro dollar.
Just came all the way back in after that blow out payrolls report.
Let's get to this right now and it's perfect time.
He's been digesting this German data. Global head of macro strategy at Wells
Fargo, Michael Schumacher, joins us this morning.
Mike is well, forget about transitory, but are we are we moving away from
disinflation to actual price stability or outright inflation?
Very sticky inflation time, and I think that's really the challenge.
I think the point about Germany and core Europe reacting viscerally to inflation
is excellent. Talking to clients over many, many
years. That's always been the big fear in
Germany for obvious historical reasons. So this just doesn't work.
It does imply whether it's sticky, whether it's accelerating.
It's just simply too high. Mike, when you look at what's taking
place in the bond market off the back of this, it's been orderly so far in places
like Italy.

And Mike Lee said and myself, we all
talked about this just moments ago. If you told us that this ECB was going
to go to four. I think we would all have said the
Italian bond market not going to survive that, Mike.
We're gonna have real trouble. Mike, have you been surprised by the
stability on the periphery? And are we getting to a point in your
mind where things have become a little bit more troublesome?
It has been surprising, John, and I think the comments about fragmentation,
about the periphery, we haven't heard much about them in the last month or
two.

I think now it's because the ECB has the
main challenge right in front of it. It simply has to get inflation down.
It's going to have to tolerate some volatility of peripheral spreads.
It's a little bit surprising it hasn't come up previously, but I think that's
why it's not. There is a larger issue, though.
Mike, we were talking for years about how we couldn't really accept the zero
rate regime, this negative rate regime without more ripples, without more
consequences in financial markets. Now we're talking about a four or five,
six percent regime, depending on which nation you look at.
And we're not seeing the ripples in terms of difficulty borrowing questions
around the validity of stock valuations in any kind of existential level.
Mike, what's going to cause this to change at a time when people seem to be
just resetting their understandings of the interest rate sensitivity of this
global economy? I think it's going to happen least, so a
couple of things.

Number one is governments are going to
have some difficulty over time, but not yet.
And secondly, when you think about corporate borrowers, there's a bit of a
lag function probably takes a couple of quarters for corporate default rates to
go up meaningfully. But it's very likely going to happen
here in the U.S. You probably look at something like a 7
percent default rate, for instance, a yield this year.
That's material, but it takes a while to get through the system.
We've been talking about how difficult it is to really game out the macro data
and then to understand what the market's reaction would be to say macro data.
When you take a look at inflation coming in hotter than expected on consecutive
days, France, Spain and now Germany, what do you do with that information?
How much does that shift your view or your trades that you're recommending?
Yeah, for us, one thing we've been looking at quite a bit, as you can
imagine, is relative pricing for the various central banks.
So, for instance, ECB versus Fed.

And usually we'd say the ECB and right
now use can't do it. So I've been more in the camp.
The ECB would not deliver. But after seeing this parade of very
nasty inflation prints, I think you've got to lean towards the ECB.
Going 50 this month is virtually a lock and 50 next month looks more and more
likely. So very tough to feed ECB.
Very tough to say the euro right now. Let's take that further.
Do you think there's more chance the ECB gets the fall than the Fed getting to 6?
Tough call. I'd give the third the edge there, John,
so if you look at market pricing now, it's called a 20 percent probability.
Look at an option pricing the third as it six at the end of the year.
So a little bit higher than that in terms of terminal rate.
It leans slightly toward the third, but it's a tough call it Joe Weisenthal.
Well, the fact that that's even a tough call, just that conversation that I'm
not even serious and looking for is ridiculous.
Fix is nuts, but were actually taken that seriously.
Just tells you where we are.

Mike Schumacher, Wells Fargo.
Thank you, Mike, as always, sir. T.K..
Just, um, real stuff. This is great.
And if Schumacher was just hugely holistic view, as is fabulous and I go
back, I'm still not over the untimely and far too early death of Martin
Feldstein of Harvard. He was a massive Eurosceptic.
I mean, if not the American euro skeptic.
And there he was. And this is well over 10 years ago
writing that I'm sorry, history is here in history cannot be reversed.
But Martin Feldstein and Barry Eichengreen and the rest in America
looking from a distance at this spirit.

John, you lived pre Brexit and you let
our coverage on Brexit. The bottom line is none of this dealt
with 7 percent inflation. Morris as the arch German conservative
over to Martin Feldstein, dead set against the experience.
None of them framed 7 percent inflation. Go back to the hikes of 2008 2011 from
tree shake at the ECB and go through the statements.
And when you go through the statements, they're talking about the risk around
the inflation outlook and price stability close to at the low 2 percent.
And you look at where inflation actually was.
That was the concern at the tree JCB of inflation levels in and around 2 percent
at least that just frames this conversation in Europe at the moment.
Nine is a massive problem. When I look at the comparison between
between now and the year of 2011 2012, Germany was stronger than the periphery.
Germany had a stronger argument to say, we don't want all this easing.
I get all that stuff. When you look at Europe now, Germany's
arguably been the problem shouter the last twelve months and they've all got
the same issue to face, which is inflation is too high, which makes this
decision for this ECB just a whole lot easier.
They've got to keep going.

The most unnerving part about this is we
don't understand the inflation picture, perhaps not even why it was so low
before in the decades where it was an ambition to get to 2 percent all the way
up to 2 percent. Now, there is a sense that we keep
underestimating the stickiness and we don't understand why people come up with
theories, but they keep changing them every day.
That phrase we don't understand better what became it needed, say, because
suddenly people don't have a clue what's going on.
So are the balance of risks now that inflation is going to get hotter and
hotter? And I think that that really is the key,
that for central banks, the balance of risks has not yet shifted to the concern
about destruction destroying the economy.
The balance of risks is still sorely on defeating inflation.
And that is the public consciousness story that was changed like four times,
which has been two very quick months.

That's correct.
Go back to those meetings. Back to back.
Federal Reserve disinflationary process has started.
Lagarde, 24 hours later, it's over. The risks around inflation are becoming
more balanced, not balance, but more balanced.
Come on. Here we are a month later going into
these meetings this month, just a completely different conversation.
Disinflation and it could change in two Fridays again.
And the NASDAQ revisions to the previous month and payrolls have a slight.
Yeah, I told you so.

I had fake futures up a tenth of 1
percent on the S&P. This is pulling back.
You up today with news from around the world with the first word and we see
Matteo, Bank of England Governor Andrew Bailey is signaling that further
interest rate increases may be needed to contain inflation.
In a statement, Bailey said that doing too little now may mean sharper rate
hikes later. He said the experience of the 1970s
taught that lesson. In China, the economy is showing signs
of a stronger rebound after Covid restrictions were abandoned.
Manufacturing posted its biggest improvement in more than a decade last
month. All services activity climbed and the
housing market stabilized.

FBI director Christopher Ray says the
agency previously determined that the Covid virus most likely originated from
a potential lab incident and moved on China.
Ray's comments to Fox News contradict scientific claims that the virus emerged
naturally. He said the Chinese government has been
trying to counter the work the US is doing and that matter.
Lori Lightfoot has become the first mayor of Chicago in 40 years to lose a
bid for re-election. She finished third in Tuesday's
election, and April 4th runoff will pit former Chicago schools chief Paul Vallas
against Cook County Commissioner Brandon Johnson.
Lightfoot was unable to overcome voter despair, dissatisfaction with Chicago's
rising crime and slow economic recovery. And it's the latest outage for Twitter
since Elon Musk took over the company and fired thousands of workers.
Users reported there were problems loading the service today.
That follows problems last month that prevented users in the U.S.
and Asia from tweeting, checking messages or following new accounts.
Global lose power by more than 20 700 journalists and analysts in over 120
countries.

I'm Lisa Mateo and this is Bloomberg. There were some clear successes, but
there were also some clear stumbles on the direct consumer businesses.
We found the more challenging it became clear that we lacked certain competitive
advantage and that we did too much too quickly, which affected our execution.
David Sullivan of Goldman Sachs measured the chairman and CEO cited in the press
show iPhone and Investor Day. So that looked like it's a good job.
We are so far away from what it used to be.
Is that where Goldman is going? I don't know.
To hell sells you on radio. He's got the big screen up in front of
these, doesn't have a tie on.

And he's you know, we got a new job.
They got a lot of coverage. They really are the new iPhone.
With Goldman Sachs equity futures right now, four tenth of 1 percent on the S&P.
You know, it's such a high five basis points year.
Inflation out moments ago, German inflation coming in.
Ha! And widely anticipated after a regional
breakdown from state to state across Germany.
We had earlier this morning, CPI comes in at nine point three percent.
That's up from nine point two month over month just to get the month over month.
Number one, one per cent, not good year after year with a nine handle month over
month at one. Just that just mean one thing for the
ECB. We're going hike rates last week we were
going to cover this. Right now it's just too important.
They have to stagger to March 16th. Do they jawbone like poor Lisa has to
talk about Fed officials? Does her jaw boning pre March 16th?
I think it's tough to say that coming and is 50.
March 16th that's come down. So they're gonna go March 16th, 50 basis
points.

Does everybody speak at the Governing
Council. Yeah.
Yeah. Shock cos okay.
They'll get around a table at the Governing Council and the big
conversations going to be about whether they
communicate going another 50 at the next meeting.
Commit to that. Does Neel Kashkari wait.
Kashkari, can I give Kashkari a shout out please.
Put him out any of the shit in a blog post.
And if one of W throws mud at Kashkari I'll get it.
He's come from but up to a before. Understand all that said, 540 need to
get to fast where I want to be 540 and then I want to stay there.
Forget this rate cut stuff.

What do we stop priced in the last week?
540. Let's not pushing out rate cuts and his
tone has been correct. We need to see evidence of the
disinflation that people believe in and we're not necessarily seeing sufficient
evidence yet. So he's been right in terms of that
narrative as well. My work to go, the narrative at Goldman
Sachs that we saw yesterday, thanks to Sonali Basak for her wonderful coverage.
Now we speak with GM Securities Devin Ryan with years of following the
travails of Wall Street. Devin, I know you've memorized all 118
pages. You know what I did?
I went to the money chart. It's on page 68.
Enterprise Partnerships Disciplined grows in the hope and a prayer out.
Two years is on the consumer area. The net revenue goes up and the change
in net reserves comes down. The hope and a prayer is a two year path
to a better consumer bank. Were you sold on that?
Were you convinced yesterday? Morning, Tom.
So, yeah. It's a it's a it's a road here that, you
know, is going to be able to comfortably on consumer.
But, you know, I think you have to give them some credit.
You know, they had their first and yesterday, three years ago, they hit all
their targets.

They laid out there, you know, at least
in terms of are we at efficiency ratios? And the key drivers I know we're talking
about consumer here, but the key drivers are what they're doing in the investment
bank. And asking management and consumer is is
one piece. It looks like they're going to look at
some strategic alternatives there and maybe even look to sell some of those
assets. But yeah, we are going to hit targets as
they did for the last three years. So I feel pretty good about that.
Is there an E that's out there to buy? How do they jumpstart this all of
Fortress Gorman? Yeah, so yeah, they've been doing some
small talk and asset manager acquisitions, you're really the big
focus and asset management is alternatives.
And you know, they've already raised you're pushing two hundred billion
dollars in the last few years here.

They're going to raise another 50
billion or so over the next two. And so they're seeing, you know, 13
percent revenue growth kicker on their asset management fees.
And I think that's going to continue here.
So they made a really credible pitch there.
I don't think they need to do inorganic things, but yeah, I think they're gonna
look opportunistically. That is an area where I think they can
look to do some MBA. And at times he was described as getting
flustered with that. How would you describe his performance?
I think, first off, you know, the stock's up one hundred and ten percent
since the beginning of 2019. You know, he took over in 2013 to give
to the S&P. So I think you've got to give him a
little bit of a pass and they've hit their targets in the last three years.
I think he's frustrated with some of the narrative in the market.
And I think the company's sharing more than I've ever given before.
And they're not hating everything. And I think there are clear that there's
been some missteps here.

And I think that's frustrating.
The pushback that they're getting. But he did mention that their partner
headcount, you know, the turnover there is a low since 2014.
And their employee turnover is at a five year low.
So they're not seeing a mass exodus in any way.
And you know that, again, in their book, values grown almost 40 percent since
their last Investor Day, and the stock has outperformed the S&P by more than 2
X since that day. So I think they deserve a little bit of
a pass here. And I do think they're executing just
not hitting on all cylinders. You think the problem is that they're
not market stand? They and he's not James Coleman.
Yeah, well, listen, I mean, Morgan Stanley, yeah, there's only one Smith
Barney. Morgan Stanley did that deal and that's
been kind of a transformational opportunity for them and they've made
some good decisions. And so Morgan Stanley's outperformed in
some areas. I think you're Goldman Sachs.
So, listen, we've outperformed in a lot of other areas.
And so, you know, I think it's a slightly different business mix.
In the last few years, the business mix has definitely been towards Morgan
Stanley's favor.

But the Goldman Sachs, you know, they
had a phenomenal outperformance in 2021, did better than anyone else in the
industry, 20. You know, we're talking about the most
recent year. Point twenty two was a really tough.
And I would argue abnormally difficult backdrop.
And we get some mean reversion. I think Goldman Sachs will be right back
in the running and people stop giving David Solomon a hard time.
There have been a lot of discussions about repairing some of the mistakes
that Goldman Sachs is perceived to have been made.
And this is really focusing on the consumer banking unit.
There was a discussion yesterday about finding strategic alternatives for a
number of different units, including Green Sky, the specialty lender, as well
as the credit card partnerships with Apple and others.
Do you think that this is a good move on their part?
Do you think that trying to offload big parts of that consumer credit business
is the way to go? You know, I think that based on the new
directive and consumer, which is to be more profitable and more targeted, it
makes sense.

Obviously, you have to have the right
buyer and right transaction if that's what they're going to do.
But I think Goldman, in their ethos, came up yesterday.
But, you know, when they have a bad trade, they normally don't sit on it.
And I think this is a situation where, you know, they get a little bit of mind
by making a mistake in this one area, but they need to move on and get
themselves in the best position. Again, this is a small part of the story
in our thesis. But I do think that you're potentially
looking to exit some of the businesses could make sense at the right price.
And it will just kind of take away also some of this, I think, overhang that's
getting more attention than probably deserves, but that they would like to.
That's a theme of this conversation, Devin, that maybe they are getting too
much criticism then perhaps they deserve.
As you look across the coverage of this name, the stock that you cover both in
the media and from the analyst community, from your peers as well, just
get the sense that this is personal.

It's actually just about him, the
individual. Yeah.
I don't know that it's personal. I think it's, you know, Goldman Sachs
for, you know, really its history has delivered.
You know, I think outstanding performance.
And so I think it's just kind of human nature that when your firms are really
performing well, people want to, you know, fight errors, knock them down.
And your Goldman you know, before David Solomon came in was Roy Black box and
glass. If every four years they've given a lot
of transparency, they've given a really detailed roadmap on their expectations
and how they're gonna get to their targets.
And so when you do that, you're always going to find things to critique.
And this consumer is one thing, but they haven't really delivered on.
But also the market mentality shift.

You know, people don't want to subsidize
anything, losing money, whether it's a Goldman or tech company or fintech.
And so straight, that's rotten for the movie.
And so I don't think it just David, I think it's more about, you know,
Goldman's done well. People want to hear.
Thanks for that, Devon. Run that I can think of Champaign
Securities on the latest with government and their Investor Day.
Here's the latest for you. Tell me, you know, you asked me at the
Governing Council of the ECB, do they all talk today?
Neither Latvians just sit that quiet and the food is distributed based on GDP.
That's that's amazing. 3 ISE in sight.
So the governing council appreciate. Pretty sure that's it.
Just say, you know, coming up in the next half, I'm blimp activation lineup.
Mike Wilson of Morgan Stanley did not miss that 930 Eastern Time around the
opening bell.

We'll catch up with Stuart Kizer of Sets
A Sad Bachelor, Shaffer of Suck Chance, A Break Down This Bond Market Move as
well. Awesome lineup DAX.
Now actually lineup there as well. Can I defer Mr.
Solomon? Banking 31 billion revenues.
Wealth management 17 billion revenues. Platform Solutions 2 billion revenues.
It's tiny. We've discussed that.
Yeah, features right now just rolled in over just about unchanged on S&P 500.
60 minutes away from the opening bell. Bloomberg Surveillance Lisa Abramowicz
Tom Keene. A most interesting day, Mr.
Ferrell getting ready for a 9 a.m. hour, Mike Wilson to join John Farrell
in that owl to explain the challenges of this equity market.
Red and green on the screen, again in shock over German inflation, as you've
heard Michael Schumacher and Damien says our talk.
It has been absolutely extraordinary and well-timed.
Bloomberg's Maria Tadeo speaking with the Bundesbank president, Joachim Nagel.
After the release of the banks annual report, it seems to be the case that
inflation is very stubborn and that it's bringing me to the point that monetary
policy has to be more stubborn.

It's not fair to speculate what is the
sequencing beyond March, but it looks like for the moment that 50 basis points
for the March meeting. Very necessary
and perhaps so important for all of our listeners and viewers worldwide.
Nine percent inflation in Germany, Maria.
Today it sounds to me like just possibly we need a surveillance road trip to
Germany to really understand is high inflation.
With that conversation, what did you learn about what I'm going to call the
sweat factor, the angst of 7, 8 and 9 percent inflation?
Yes, Tom.

And to be honest, I think he he himself
framed it very well, he said twenty twenty three is going to be, quote, a
bumpy year for Germany and the euro area.
Again, when you look at the numbers for this year, they expect inflation in
Germany. This is just for Germany between 6 to 7
percent. And he told me as the head of the
Bundesbank, that is not acceptable to me.
We need to bring down inflation. And the other concern that he pointed to
his is changing dynamics potentially where you see headline inflation go
down, but core inflation stays sticky.

And for the reputation of the central
bank, that is even more problematic in terms of what to expect from the
European Central Bank, obviously. Yes, Tom.
Everyone speaks at the Governing Council.
But this is the biggest economy. So obviously he carries a lot of weight.
He told me essentially March 50 basis points, quote, that is very necessary.
But then it's going to continue from that point and it will have to continue
now. He did not want to get into speculation,
but a significant number. But I did ask him the market.
We've seen a big repricing yesterday, 4 percent rate.
Would you feel comfortable with that narrative?
And he told me to some extent, yes, I'm comfortable with that.
Not only that, but we also heard from him earlier this morning, Maria, that he
would like to see a more rapid acceleration of quantitative tightening,
of the reduction of the balance sheet of the ECB.
How much company does he have on that front?
Look, I think what we're about to find out and again, it goes back to the
point, that's actually a very fair point that the Tom Keene who speaks when they
gather and how does it work? And essentially we have is 20 economies
which have very different dynamics and now it's 20 because remember, Croatia
joined the euro this year and you have to essentially bring everyone together
around the table.

I think this is a debate that he wants
to put forward. He told me it does married a
conversation, but we're going to have to wait until the Governing Council meets
in two weeks time. Maria, our American viewers and
listeners need a primer right now with your encyclopedic on.
I'm going to say it's Germany and the Netherlands are the arch hawks.
Spain has 8, 7, 8 percent inflation. His Spain joined them is arch hawks.
Look, that's such a very good point, Tom.
And as you know, the government Bank of Spain, who was a chief economist before.
So we go a long way back with that. Now, this, of course, is, in fact, the
governor of the Central Bank of Spain. I think at that point you see that the
cliches do not fit, because when you talk to him, he'll tell you with that
kind of inflation. The Central Bank of Spain cannot be a
DAX should not be perceived as that. When you look at his calls on fiscal
policy, he also says there should be restraint this year.
So it does show that perhaps in this new era of central banking, the old playbook
does not work.

Maria, thank you so much.
And congratulations on a timely interview with the head of the German
Bunds Bank. A wide ranging conversation now with a
little bit of red on the screen here. Futures negative for current.
Weinberg joins his chief economist at High Frequency Economics.
And Carl, you had such a stunning note and it's off our radar.
We have not mentioned Japan today, but for our American viewers and listeners,
maybe not schooled in this. Guys like you say, Japan is really,
really important. And the tension point is not yield curve
control in their experiment. After 10 years, it's the dead out past
10 years. And that is deteriorated price down and
dramatic yield up. What does that portend for Japan?
Hi. Good morning, Tom.
So the Bank of Japan has work to do. The end of the fiscal year is now just a
few weeks away, March 30 first. And there are substantial capital losses
on what I'll call the ultra long segment of the GDP market.
The part where they haven't been trying to control the yield curve.
So those yields are up about 70 basis points compared to where they were at
the end of the last fiscal year.

And that implies 0 between 30, 30 and 60
trillion yen worth of capital losses, which are big enough to wipe out the
balance sheets of a lot of the institutions.
So the Bank of Japan and the finance ministry are going to be out there in
size over the next few weeks, buying up this asset, catching buy the asset.
They're going to move the market lower. They'll do it.
But it will be quite a challenge for them.
How close are they? And I don't mean to an absolute owning
the bond market, but not on a trend line or a glide path to owning the bond
market. Where is the Bank of Japan?
Maybe use a baseball analogy. Are they in the third inning or the
eighth inning of buying every bond that's issued in Japan?
Well, at the short end of the yield curve, two out of 10 years they own.
I think the numbers about 65 to 70 percent of the market and then at the
ultra long and they own a lot less because their target has been to control
yields from overnight out to 10 years.

So they still have scope to buy at the
ultra long end of the market. But yes, you're right.
And Bank of Japan governor designate, you later said this in testimony the
other day. The BMJ can't buy bonds forever.
And at some point this has to come to an end.
When it does, there will be capital losses in the bond market.
And yes, I think that will that will imply that will generate some
institutional risk. The odd monetary experiment of Japan
aside, the rest of the world is grappling with deeply entrenched
inflation, at least by all accounts. And what we saw this morning out of
Europe with respect to Germans, nine point three percent February CPI rate
year over year. Karl, you've described this idea that we
will see inflation roll over, perhaps if prices stabilize at a higher rate.
How do you hold to that conviction if we're just not seeing it in the data?
You know, let me let me frame my answer in terms of the interview that you just
broadcast with Mr.

Nagel.
All right. I was so glad to see him talk about
quantitative tightening. All right.
The inflation adjusted money supply in Europe is still four and a half percent
higher than it ought to be. Given the current level of output in
recent trends. So, sure, there's too much money chasing
too few goods and that's pushing up prices.
I view this as a price adjustment that will run its course when real money
supply is deflated back to where it should be by a combination of
quantitative tightening and by rising prices.
So we still have more price increases to go, but there is an end in sight to this
process.

This is not the spiraling inflation that
we saw in the 70s. I don't think interest rates matter
nearly as much to the ECB and to the course of inflation in Europe as
quantitative tightening does. So aside from just understating the
quality of tightening, which I do want to get into, since that is something
that's being raised by the German central banker, how much are we looking
at what you view as an overreaction by central banks to something that is
perhaps stickier but not inevitably protracted and spiraling?
Well, I think that they're chasing the wrong thing with higher interest rates,
which is not to say that I don't think this rise in interest rates isn't a good
thing in the longer run.

We've had negative real interest rates
in Europe since the financial crisis and it's time to straighten that out so that
investment doesn't get misallocated. And so the economy can grow in a healthy
way. That's a good outcome here.
But as they move much beyond 200 basis points or 100 basis points above
inflation expectations, it'll become restrictive and they'll start to make
recessions that are already going on even worse.
Karl, you and I could go for two hours this morning and you're wonderful
heritage of Latin America, which is falling apart.
Argentine peso.

But I really got to stay on Europe here.
A lot of people publishing right now, including Commerzbank in Mali de Bono
over Pantheon. And Carl, the basic idea is, look,
there's EU inflation and I know our listeners and viewers are saying, do we
import that? What do we bring their inflation at the
margin over to give us a lesser disinflation?
Well, I mean, surely at the margin, you know, what happens in Europe does
transmit to us through trade prices and other forms of arbitrage.
But it's really quite at the margin. The price increases we're seeing in the
United States are coming about, in my opinion, because we've got excessive
cash balances in the United States.

Also, cash balances are over two
trillion dollars higher than where they ought to be.
Given the trends and the growth of the economy and and and until that gets
sorted out by a one time rise in prices and or by quantitative tightening, we're
still going to see prices going up here. That's that's the main event.
That's the show. Tom.
Carl, thank you so much. Caroline Hyde Frequency Economics, this
warning goodly some time here.

Just to sum this up, my head is spinning
over the geographic reach. We've done this morning.
It's like we're around the world with economics, finance and investment.
This is someone's, I think, George surveillance a dodgy bank.
I'll give him credit for this. We're just at this critical two weeks
around the world with one story, which is more rapid growth and more rapid
inflation than many people expected. Then over to the central banks.
What do you do with that? Right.
I mean, how do you basically navigate a world that, as Carl Weinberg was saying,
perhaps is less interest rate sensitive in a world that we don't recognize after
years, decades of low interest rates and imported disinflation from
globalization? The fact is, you know, in terms of
history, it can be Anna Schwartz and and and Allan Meltzer and the rest were data
dependent or exposed.

Fine.
Were there. We have 9 percent inflation in Germany,
et cetera, et cetera. So it's the acting known as John
mentioned. The ECB is going to pop 50 basis points
here, March 16th. We're here.
The the data dependency is an out there. It's here.
And you're going to see a response to that with higher rates.
If you take a look at what the market's pricing in, it's a 4 percent ECB rate.
If you take a look at what the market's pricing in for the Federal Reserve, it's
gotten up to five point four percent by July.
We now have a peak rate of five point four, three percent by September.
It's not going to go below a five point three percent before the end of the
year.

That is what the Fed funds market is now
projecting as we game out what a higher for longer type of scenario.
What is your bonds base telling me? I looked at 2s as compared to the former
benchmark 30 year bond. We've never in the modern history had
this inversion. How does it devolve over to high yield
to investment grade and the rest? You're right to point that out.
And we're actually seeing new lows this morning.
And these are sort of the low yields on versions that the greatest inversions,
the greatest, the differential there. What it means is we're going to see
yields stay high at the long end until growth declines enough.
You aren't seeing a feeling of deep recession really being baked into
credit, Mark. I can tell you, in all the years doing
this, folks, it's real simple.

You talk to me in Europe, 7, 8, 9
percent inflation, that is in the modern day, an original conversation.
U.S. futures deteriorate.
S&P futures at negative 6. The VIX 20 points six to stay with us.
This is Bloomberg Surveillance. Keeping you up to date with views from
around the world with the first word, I'm Lisa Mateo.
U.S. businesses are set to invest billions of
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British Prime Minister Ricci's soon act could use the prospect of international
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In the U.K., the cost of living crisis showed little sign of easing last month.
Prices in British stores rose in February at their highest rate since at
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Food prices rose even faster. Fourteen point five percent in
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Now, according to the Mortgage Bankers Association, a 30 year fixed home loan
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Take a breath. Lisa Abramowicz some Tom Keene with you
on a really, really interesting day. I mean, it sets us up for Thursday
tomorrow. And I know I got claims.
I mean, do we just state? Well, of course, they're going to be
under 200000.

Well, I guess I'm at 10:00 is really the
lead lead data point. Well, we go do we get ten o'clock today,
10 a.m. we get the manufacturing, I assume.
And then on Friday we get the services, I assume.
And how much do we get in this ongoing strength on both sides?
No jobless claims and cited that you are not seeing a weakening.
How much does that get confirmed and how much more do we have to price?
I if priced in the response from central banks, a cacophony it is.
We thank you for joining us on radio and television here.
Just really, really a collective conversation.
Other Caroline Berg on Japan.

I mean, how obscure is that we go yield
curve control out to 10 years. Whoops.
There's other debt out there somewhere. Well, yeah.
That's the question with you. Eight
saying we can't buy bonds forever. They can't own everything.
Always. And going forward and this is perhaps a
departure from previous ideas to try to come down here.
We can do that with IRA Jersey. Oh, he's sensitive.
He's chief U.S. interest rate strategist at Bloomberg
Intelligence. So we can try to look for it in a
measured way, which is what he publishes with among his colleagues, Will Hoffman
at Bloomberg Intelligence IRA. I get a sense of real calmness in that
when everything is said and done in the history of European 7 8, 9 percent
inflation. You people are actually modeling out
some form of a lower interest rate, tragic trajectory.
Describe that trajectory. Yes, so it's basically reasonably flat
kind of range bound market, at least in the long end for now, and that's
predicated on some of the things that you and Lisa were just talking about,
you know, higher inflation in Europe, the possibility that yield curve control
in Japan ending could you know, that's going to roil the the U.S.
and European sovereign debt markets, at least for a short period of time.
So.

So you have this risk that maybe we we
see a 4 percent, maybe a foreign a quarter percent, 10 year yield.
But then thereafter, when you see a lot of the other underlying data, eventually
the economy is going to slow. And and, you know, even though the glide
path is much shallower than we thought for for inflation, inflation's likely to
be lower at the end of the year than it is today.
So because of that, we do think that that interest rates and long term
interest rates in particular will probably be lower later on and end
today's data point. You know, you guys talked about ESM
coming out of 10 that I assume new orders in particular tends to be one of
the best leading indicators for the path of the economy.
And we're nearing, if not right, at recessionary type levels.
We aren't.

So so that's super important.
Are you suggesting we need to have our radar up for 4 percent, 10 year yield?
Yeah, I am, primarily because we've been hovering here and kind of testing the
waters as to whether or not we can breach that 4 percent area, and we've
actually broken a pretty important technical level.
So. So there's not a lot of technical
support up to around four and a quarter percent.
So.

So you wind up getting a, you know, some
decent data. It might be today, like, for example, if
I assume new orders bounces and is above 45, for example, that could be an
impetus for us to once again test 4 percent and maybe break up above.
And of course, once that happens, one of the these interesting dynamics starts to
reemerge probably where risk assets falter a little bit.
Credit spreads wider, equities down, rates up a little bit.
But then, you know, rates, we're going to have a harder and harder time,
probably moving higher. When when risk assets are are doing so
poorly. When you say rates, perhaps that's on
the long end. On the short end, though, there's a real
question on what's required from central banks to bring down inflation to the
rates that you're expecting.

Right now, we're gaming at a five point
four percent terminal rate for the Federal Reserve and seeing it staying
there for much of this year. IRA, do you think that that's enough or
would you go further? Well, so one of the one of the things
that that we've noted for a long time is that the Federal Reserve, at least in
the last three or four cycles, has always hiked until the real Fed funds
rate has been positive. So that means that the Fed funds rates
above the year on year P.S. deflator level.
So so we're going to get there probably when we get above 5 percent or 5 and a
quarter percent.

So so five and a half percent doesn't
seem unrealistic to me. Yeah, well we have to go higher than
that. I that really depends on whether or not
inflation we accelerates. You know, and there is a big risk to our
view and that that risk is, is that things like goods prices, which we saw
in January, according to both the P C deflator and the CPI data, actually
started to started to stabilize and we thought would continue to to fall
modestly. And because it's been running a little
bit hotter, there is a big risk that if inflationary accelerates, the Fed will
have to go more. Now, that's not our base case scenario,
but clearly that's something that we have to watch the data very closely for.
And one of the reasons why we'll be watching some of the data like the the
ISE, some prices as well as what what happens to wage growth, particularly in
the services sector when we get payrolls next week, because services has really
been the impetus for a lot of the a lot of the inflation that we've been seeing
over the last six months or so.

We're moving forward to the U.S.
data that we're expecting in about an hour time and then what we're seeing
next week. But this comes after that inflation rate
in Germany with a shocking nine point three percent February CPI read, which
is unthinkable for a nation that had hoped to have defeated inflation and
tried to avoid taking out debt to avoid the spirals that it saw back in the
1940s. How much are we looking at a global bond
market that is very much influenced by inflation from nation to nation pushing
rates up globally? Oh, it's all about inflation, quite
frankly. And, you know, you have some interesting
dynamics going on where where the global interest rate environment has completely
shifted from where it was two years ago. And in Europe in particular, I think
that, you know, that they started a little bit later than than the Fed did.
And it's possible that the Fed is going to have to hike.
Exactly.

The ECB is going to have to hike at
least a few more times, if not many more times.
And, you know, they've been reluctant to do that, I think, in part because some
of the inflation there obviously has been influenced by exaggerates factors
like the war in the Ukraine. But at the same time, their mandate is
to get inflation low. So in order to do that, they might have
to hike even more than what the market is currently pricing.
IRA. Question from another time and place.
I don't think I've asked this question well in excess of 15 years with the
inversion that we have. Is some of it foreign buying of our
longer maturity debt, keeping the price up and the yield lower?
That's a question from a Greenspan era.

Is it a no?
Very, very modest. Actually, when you look at who
traditionally have been the bigger buyers of of our debt.
It's it's been a central bank. So one of the reasons why, you know,
foreigners have owned so much of the U.S.
debt, it's been bad and the fact that we've had massive current account
deficits. But, Tom, I think you're right.
And if you look at foreign flows into U.S.
treasuries and you look at private foreign flows in particular.
So these are flows from pension funds and and other types of real money
investors. Those continue to come in at a
reasonably high pace. Even though central banks are cutting
their holdings of treasuries. So and private investors are buying no
10 year, 30 year debt. And you can see that in some of the
auction data that we've been receiving, some of those auctions have been pretty
strong. And I'd add a couple of the recent
months. We can't say this month.
But but in recent months and because of that, you know, part of that certainly
is because of wrong and buying backed by foreign private investors for sure.
IRA Jersey, thank you so much for the brief look for his publications.
Bloomberg Intelligence, just a great team there.
Particularly the short maturity area.

IRA doesn't like to go up past two
years. It's just, you know, bad form and all
that. I was shocked to release.
You're doing a question here and I was going back and forth between BBC
Football and Formula One and that. And then I wandered over to the U.S., 30
year mortgage rate topping through 7 percent.
I did not realize we did that in the last two days.
I think we got back 7 0 3 percent on what I follow the 30 year bank rate
mortgage. It had been fast running up to the
levels that we saw last in November because seven point three, five.
Basically this feeling that we're going back to an Arab before disinflation,
which was five minutes ago.

There is this question of how does this
really trickle into the real economy? And there was a story in The Wall Street
Journal that I read about how a growing number of home purchases in the U.S.
are all cash, which is not surprising, because if you're going to buy a home
and you have the cash, then you can avoid a 7 percent kind of what would
have been thought is punitive and a 3 percent era kind of mortgage rate.
But what this does is it just basically means if you have cash, you're in so
much of a better position than it is to buy a new home.
Back to biblical times. Even in times of hardship, the haves can
take advantage of price down. And if they've got all cash, which they
do, they can do it. The moving average study in the 30 year
mortgage is seven point one four percent.
So we are eleven basis points away from these series touching the moving average
study.

How many people are actually paying
that? That's my question.
How many people are actually paying a seven percent mortgage rate given the
decline that we've seen in mortgage applications?
It's obviously like mortgage applications came in this morning.
They were lower by five point seven percent month per month.
Just to say there has been an extraordinary one.
There's no question about it. We're going to continue this discussion
on radio and television. Stay with us.
This is Bloomberg Surveillance..

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