tv Bloomberg Markets Americas Bloomberg January 19, 2022 10:00am-11:00am EST
♪ kailey: it is 30 minutes and the u.s. trading day. here are the top market stories we are following at this hour. to the brink and back. the dip hires come in and the nasdaq rebounds after following dangerously close to correction territory. the global bond selloff takes a breather. bank of america thinks loan growth and morgan stanley equity traders as bank earnings end on a positive note. we will take a look at the potential ripple effects of tighter financial conditions as the market races for more rate hikes. we will discuss with bruce richards, marathon asset management chairman and ceo. i'm kailey leinz, with my cohost in london, guy johnson. alix steel is off today. welcome to "bloomberg markets." the question is, does it stick? guy: that is the big question
everyone is asking themselves. after yesterday, it is unsurprising that you do see something of a stabilization, particularly in equity markets. we are seeing a breather, but there's no way to go in this journey. cameron crise on the bloomberg reading it interesting piece over the last few minutes which he has just published, talking about the fact that at some point, you've got to get your nose out of the spreadsheets and take a look at the price action. it looks like one of those times. he basically has a list of charts you want to pay attention to. you've got the russell, an inverted head and shoulders when it comes to treasuries, you've got what is happening with the s&p, the real yield. there are a whole bunch of charts worth paying attention to. the one i think we will focus on is what is happening with the s&p, which is in and around its 100 day moving average. that has been a great signal of late for dip buyers to come in.
the question is, is this time different? the question of the day, is it time to buy the dip? joining us to discuss this, eddie van der walt of bloomberg market slide -- bloomberg markets live. abigail doolittle going us on set as well. eddie, you wrote a piece that caught my eye this morning. this 100 day moving average has been a great signal. is it going to work this time, or is this time going to be different? eddie: if today is the gate to take your nose out of spreadsheets, you know it is a big day in markets. i think it has been building up towards this because as you say, the year has just started off on a slightly sensitive, slightly confused note, with stocks pulling back, bond yields pushing higher. but really since the end of 2020, every time we either saw the 100 day moving average or we
saw stocks pulled back about 3% to 5%, that is where the dip buyers came in. but if you don't see the dip buyers step in, if you see the 100 days fail and the pullback may be going to 6%, which we have not seen for more than a year now, we see those reliable indicators starting to fail for the levels at which the dip buyers come in, then i think it could turn really nasty, but it doesn't look like today. it looks like they are back again. kailey: with the nasdaq, it actually broke into the 200 day for the first time in i think 439 trading days. how significant was that move? abigail: it is interesting, that is a tremendous test of support. but when we talk about these technicals, and i say this as somebody who loves the charts, we want to consider this from a macro perspective. what we have going on here is a real repricing of risk is the fed tries to normalize policy.
it is a time when you see yields go higher, and that jitters through all of the different asset classes. if you take a look at the s&p 500 over the last couple of months, it has been going up and down, testing the 100 day moving average. yesterday i was sharing that one of the old trade saying is by the first test and sell the others, but this 100 day moving average on the s&p 500 has been very reliable. the fact that you have the nasdaq down on its 200 day moving average, the russell 2000 flirting with its 200 day moving average all year, that does say something, that there really is a war here between the buyers and the sellers. it will take time for investors to get comfortable with the idea that rates are going higher. last year you had the 10 year yield back right up to 1.75%, and because a lot of jitters, and investors got used to it. had the nasdaq 100 up a lot higher on the year, so i think volatility is the name of the game here. guy: it has been rates that have
been moving the equity market. we have seen a massive repricing in u.s. rates. any indications from the chart whether that move is over, how much more there is still to come? because equity market's going to take their cue from that? abigail: they certainly are. a quick look at the 10 year yield would suggest we are going to see 2.25 percent pretty quickly. similar to last year, you had that 10 year yield. once it went through 1%, it just took off. these moves go further and longer than you could possibly think, so i would not be surprised to see the 10 year yield, that benchmark yield go above 2% relay very quickly. that could cause the jitters we are seeing. in terms of normalization of policy for the fed, it is all most like a car stuck in a ditch. it is back-and-forth. the yield could go straight up, but they are going to cause that back-and-forth for stocks, so i think again, volatility is this repricing happens could be here for much longer than would seem
possible, perhaps. kailey: talking about how long volatility may stay around, and now seems like it is the march meeting, and traders now pricing in more than a 25 basis point hike. is that realistic in your view? how with the market have to play catch up to that? eddie: i think the market has come out and really got behind the fed narrative of a really hawkish year with several rate hikes. even maybe four this year from the fed is looking possible if you are looking at pricing. the real question for me is if we see significant selloff in stocks, the charts are only important as long as they support the fundamentals, but nothing changes the narrative like the price. if we see a big drawdown, whether the fed will say hang on a second, maybe that hurts sentiment too much and we pull back a little bit on our expectations of a hike, i think
really, the fed has given itself a lot of room to be dovish this year, and i think perhaps they scale it back a little bit. that way, the fed can come in through the end of the year, deliver to rate hikes, look dovish, and we see a very supportive environment for the equity markets. guy: that is a bit further down the road. we've got to do with the hawkish story unfolding a little further. we are looking for to that march meeting. there's a lot of concern about what is going to happen and what the fed is going to signal. we are in the quiet period right now. we are not getting much commentary coming through from the fed. he spoke in your piece about the idea that there could be other catalysts. we have talked already about what is happening with yields, what happened with the charts. we got the earnings story coming through as well. how are the dip hires going to be looking at the dip buyers going to be looking at -- the dip buyers going to be looking at what is happening with the
story? we've had this letter curve, which has unnerved them. we've got rising costs. margins are being called into question. are we looking for other catalysts if we are thinking about what is going to encourage or discourage buyers in the equity market? how important are earnings going to be? eddie: earnings are really important, but earnings are little backward looking. we had a omicron and this wave of infections around the world that affected supply chains again and so on. it is a little bit backwards looking for me. what i think the traders are going to care about are the anecdotal stuff. the commentary that comes alongside the earnings. what the ceos, with the executives tell us they are expecting for the quarter going forward. those of the things i'm looking forward to determining where we are going from here because i think the backwards looking stuff, i think christmas was a
little bit cloudy this year. kailey: when we look beneath the surface, what about breadth? what does that signal to you? abigail: yesterday i was taking a look at a chart on the s&p 500 , or maybe it was the nasdaq 100, but in any case, 80% of the numbers i believe were off of the 200 day. it was something that was a simply -- that was essentially bearish. to eddie's point around earnings, they may be backward looking, but very important relative to the rates because if earnings come in strong, it suggests the economy can digest rising rates, which would be seen as a very healthy signal. if you take that in context with other positive data, it could help. something us i would point out about the yield curve, this could be a goldilocks macro rotation because, to eddie's point, the fed has a lot of room here. people like to harbor on them, but i would make the point that they really don't make mistakes. the fed puts something out
there. the market meets them. they meet the market. they can back off if they need to. but the yield curve as it comes in, while it does cause the repricing of risk, until it actually inverts, that tends to support stocks. if you look back in time as the yield curve comes in, that could support stocks. overall, it could be constructed for stocks until maybe it is not if we do at some point see that inversion. kailey: thank you so much to bloomberg's abaco doolittle, as well as and event about cash as eddie van der walt. sylvia jablonski, defiance cio and co-founder, joins us next. this is bloomberg. ♪
guy: let's pick up where we left off and talk about our question of the day. is it time to buy the dip? we are joined by sylvia jablonski, defiance cio and co-founder. great to have you on the show. what do you think? sylvia: i think yes, it is time to buy the dip. i'm a persistent, perpetual dip buyer. these have popped up multiple times in the last two or three years, but each of those times showed us that when retail
traders and institutions come back into the market on these pullbacks, the market tends to go back to the status quo and revert to the mean. i think the story is there. we are in a growing economy. these companies are sort of flush with cash. i am not too worried about the 10 year where it is. you have a lot of quality, cash laden companies out there to invest in. kailey: i could see how it be easy -- how it could be easy to be a dip buyer, but now we are starting to talk about the prospect of liquidity being drained out of the market rather than put in. tiger policy from the federal reserve. is it going to get a lot harder to do those dip buyings, to get into this market when it is lower? sylvia: that is a great point. i think what we have to reckon with is that the growth stories and the return on equities perhaps won't be as high as they were in the past couple of years
. if you take a company that has a 60% year-over-year revenue growth, maybe that number gets cut down in the 10% to 20% range, but you're still looking at healthy growth in that example. i think that in the short-term term and the next year or so, there is still enough liquidity left in the market. the fed is going to taper, but they still have the balance sheet. rate hikes, i agree with the last conversation you had, that if the market is pricing in such a hawkish fed, the fed now has the liberty to be a low but dovish, and that could surprise markets to the upside. it just goes back to corporations and individuals have so much cash, and that remains the case regardless of what we see in the next year or so. that cash will go to capex, buybacks, and the truth is even if you get mid single-digit growth, that is more than you're getting in fixed income, so i think the market will fare
well this year. guy: do you buy every dip? we are getting a lot of talk on this program about sick can volatility this year. you could see a 10% correction. do i need to pick my moment when i buy the dip, or do i just buy every dip? sylvia: you can definitely have an argument that we are expecting a higher pullback based on what will happen in march, and perhaps it will be this immediate reaction and equities. when you see nasdaq testing 200 day moving averages, s&p 500 the 100 day, and you see these significant pullbacks were not a lot has changed, i agree we are talking about changes to come, so i do think new look at a time like this over the last couple of days, these are dips worth buying, particularly with a secular outlook for certain sectors. kailey: obviously we are talking
very broad, headline level here, but let's get granular. what specifically do you like right now that you would be eager to add positions to? sylvia: that is a great question. you're going to have a lot of volatility. however, if you drill down into the biggest secular themes and the largest opportunities for the future, i believe those things to be 5g, web 3.0, the metaverse, blockchain, cryptocurrencies, things like that. i would be looking to get into things like semiconductors, nvidia and amd. i would look at an etf that were present see seems. i would be looking into apple, alphabet, microsoft, amazon, the companies that are going to be part of the metaverse and web 3.0. those are names that are very much on sale. on the other recovery side, look at the cruise ships. look at the airlines. look at the hotels. they are kind of at the bottom. guy: in terms of what the flip
of that is, what is the other side of the coin? what do you want to be avoiding right now? sylvia: i think that work from home, stay-at-home trade is probably worth avoiding right now. i think it played out well over the last couple of years, bone you look at some of the high flyers that did well there, perhaps a peloton might have seen its best days in the near future. it would not be a name that i would be looking to allocate two. but sort of that reopening trade that we have been talking about forever, it is no a revenge trade because it hasn't fully happen yet because of omicron coming back. i think the stay-at-home names are probably a little bit of a play for the moment. kailey: by and large, are you one more of a it's ok to take risk or it is time to go to quality side of the spectrum? sylvia: if you look at the market over the last couple of days, and i think abigail made a
comment, there's more volatility in the market. it is something we are now living with, so everything feels like a little bit of a risk. but i do look at quality, to your point. i like the companies that have strong balance sheets, the apples and microsofts, the secular gross participation, but the cash in order to make those things happen. kailey: thank you so much for joining us, sylvia jablonski, defiance cio and co-founder. shares of the online lending platform are soaring after regulators gave it a conditional banking license. we will have more on that next. this is bloomberg. ♪
♪ kailey: it is time for the bloomberg business flash. once again, j.p. morgan is raising the pay for its junior bankers. bloomberg has learned the bank is increasing salaries for first-year investment banking analysts by $10,000 to 110 thousand dollars. second-year analysts will go to $125,000. procter & gamble has raised its sales outlook for its current fiscal year. price hikes helped offset a round of higher costs. among p&g's mainlines -- president biden's antitrust regime is facing its first big test of the year. accra soft's 69 billion --
microsoft's $69 billion takeover of activision blizzard could raise objections from some of their biggest rivals. the agreement is likely to get an extensive review from regulators. that is your business flash. guy: let's carry on the conversation on what is happening in the banking sector. we need to talk about sofi. the fintech company has been cleared to become a bank. shares as a result reacting quite strongly. that is the two day chart, but we've got a gap higher on the back of this news. let's talk about it all. sonali basak is the person to talk to, bloomberg's wall street correspondent. walk us through the process that sofi had to go through and how big an impact this is going to be. sonali: it was years in the making. it has taken forever it feels like to get this nod from the fed and the occ. they were the first real neo-bank to go public. they did so via a spac, very nontraditional.
in the interim time, you saw sofi grow in nontraditional products and grow its footprint, despite not having that banking charter. it happens now? they have more than one million customers in sofi money. those will eventually convert into checking accounts. so they start off the bat with e-cig and base, and they will also have the ability to charge them or competitive rates or provide more competitive rates for those checking accounts. all of that comes at a time as rates rise. kailey: let's talk about competition. who is this likely to directly enclose on? sonali: that is the most interesting to me. why does checking matter so much? it is the primary point of entry for so many consumers. once you have checking, you are lucky to do all of the other things. cards, invest, loans, whatnot. sofi doing this so quickly starts to put them on a more
competitive edge moving off the back of things. think about it this way as well. you have one million or so checking accounts at sofi. you have more than 4 million accounts at bank of america. so the competition is tough among the biggest of the consumer banks, but it does really start to put an interesting fintech into the forefront at a very competitive time. it is coming fast, and in the u.s. in particular. this is at a time when we thought the fed, the new occ under the biden administration, would be very tough on fintech, and this is validation that they are allowing innovation among the newest competitors at a time when we thought they were going to crack down and be tougher on new technology. that said, they have an entryway now and a pathway into being a more normal bank and compete on a more normal scale. kailey: bloomberg's sonali
basak, thank you. sonali had a busy couple of days covering all of these bank results. it's got a lot better for bank of america and morgan stanley today than it did for their. . -- for their peers. guy: absolutely. you have to see today in context in so many ways. you look at what morgan stanley's share price results look like -- with the share price looks like today on the back of the results. i think it is unfair to compare the reaction to morgan stanley's results to the reaction we got to jp morgan's results. in some ways, it is already priced most of this in. kailey: expectations have been tempered. we will discuss that next with walter todd of greenwood capital. from new york and london, this is bloomberg. ♪ ♪
every day in business brings something new. so get the flexibility of the new mobile service designed for your small business. introducing comcast business mobile. you get the most reliable network with nationwide 5g included. and you can get unlimited data for just $30 per line per month when you get four lines or mix and match data options. available now for comcast business internet customers with no line-activation fees or term contract required. see if you can save by switching today. comcast business. powering possibilities.
abigail doolittle is here with a look. still a positive day, but we are off of the highs. kailey: get buying not looking quite is it -- dip buying not looking quite as attractive as it did half-hour ago. was interesting this year, it has been all about the right rotation into value come out of tech. today you have tech doing better, but 0.6%, as yields come in just a little bit. the kbw bank index is down 2.1%. if we took a look at what is happening relative to yields, we are going to see here the five-year real yield, the 10 year real yield, and the 30 year real yield -- a little bit a tongue higher there -- going down. you have i believe the 30 year real yield almost positive. that inflation pressure has been the story of this year. that is why we have tech under pressure this year, but not quite as much today.
let's take a look at what is happening relative to the bloomberg commodity index because this is a very interesting divergence relative to the selloff we have seen in stocks this year. all year we have had oil trending higher, so that commodity index right now up about 1%. crude oil, 1.5%, up for a fifth week in a row, at his highest levels since 2014. italy looking like it will go back above $90 a barrel. copper joining in. these are positive reads on the economy, perhaps suggesting that traders, investors think the global economy is strong enough to digest these rising rates. platinum really on fire, up 4.5 percent. finally, the banks overall may be down because yields are down on the day. here we have the five year yield in five basis points. the 10 year yield down three basis points. however, very strong earnings reports out of bank of america and morgan stanley. in the premarket, both of the stocks up well more than 4%. back of america, their loan growth very impressive.
morgan stanley talking about $10 trillion worth of client assets, raising the profit view. the stock still higher, but off of the highs. it seems as though the volatility we were talking about earlier is in play on an intraday basis today. guy: morgan stanley still on a three-day basis down by 7%, so you need a bit of context just to put what we are seeing today from morgan stanley, bank of america into a little bit of context. but we are seeing -- or we saw a bounce earlier on, definitely fading. let's dig deeper into what we have learned from the bank reporting season. joining us now, walter todd, greenwood capital chief investment officer. he owns jbm. he owns active america -- owns jpm. he owns bank of america. he owns morgan stanley. we have wrapped up the reporting season. what have we learned? walter: i think we have learned a couple of things.
one is there are sig. can cost pressures at the bigger banks. we heard that first from jp morgan. we hold it -- we heard it again from goldman sachs. morgan stanley benefited from not reporting first, so the expectations they had come a flat to slightly up expenses, that help them relative to the prior reports. i think we have also learned that traditional banks, the traditional banking business in the regionals has actually done better. i think what you have seen from a weakness standpoint is the trading revenues and some of these bigger institutions that rely on that, you have seen from truist and other regional and super regional banks, the traditional banking business, we saw this from bank of america today also, does lending money and making money on that is doing pretty well. kailey: as you point out, bank of america starting to see some loan growth coming back anyway that the other banks aren't. how confident are you about that return to loan growth as we move forward through the year? walter: if we look at some of the credit statistics, people
and companies are starting to borrow money. it consumer lending is starting to come back. i think the real question here is for investors and for the market in general, is the fed going to be able to walk this line of tightening rates, but not tightening too much to slow the economy down and ultimately push it into recession? i think that is the struggle you are seeing with the market today. we have seen a violent rotation between growth and value, but now the value trade, people are saying, wait a minute, we are getting softer economic data. are we slowing down too much into a fed that seems pretty bent on tightening, the market thinks three or four times by the end of the year? guy: the financials and many doubles minds are meant -- in many peoples's minds are meant to be a hedge as inflation rises. do you think they are going to be able to fulfill that in many people's portfolios? walter: that is a great question.
it certainly did last year as we started to see inflation pickup at the back end of last year. financial did well, but as we sit here today in the last three to four days, i would say no because they are dealing with these rising cost pressures. so i think it is going to be a little bit more nuanced and mixed. we are seeing some of those traditional banks like truist financial, pnc, and others have been able to manage that process, and bank of america and morgan stanley have managed better than jbm and goldman sachs did, at least initially. so i do think it is not as straightforward as that playbook might suggest, and we are just going to have to see how we play out through the rest of the year. kailey: our question of the day today was is it time to buy the dip on a broad macro basis looking at the equity market as a whole. when you look at some of these banks in particular like jp morgan, would you be buying the dip and adding to that position here? walter: we would. in fact, we have run that to
model as new clients have come in. so we would be adding to these names as they are attracting after very strong runs. last year, i think the market in general, it is important to keep the perspective that the s&p is down only 4% to 5% off its high, but yet you have other areas like biotech, software that have been hit much harder, so i think there are opportunities within financials as they come in, but also beyond the traditional value sectors in areas that have been hit the hardest the start of the year. guy: you bring up biotech, software. i think the latter is a useful point of comparison here. how do you think about how you should value banks? i listen to jp morgan, i listen to what other banks have set as well. jamie dimon is talking about investing huge amounts of money in technology. how should i think about valuing
these businesses given that appetite that exists to almost turn these institutions from being financial institutions to being quasi-tech companies? walter: last year, the hot item was by now, pay later, and valuing these software companies at 10, 15, 20 times sales, and here you have the banks considered expensive if they trade to 2.5 times -- trade two to 2.5 times book. think the sector has been redefined in terms of value and what we would pay for a given asset. banks have really stayed in that bucket of you can't pay more than 2.5 times book. so i think is that business transitions, you have the potential to see summary rating and some of these areas to pay a little bit more than you would have traditionally for banks. guy: walter, great to catch up.
we really appreciate your time today. water todd, greenwood capital cio. we will carry on the conversations around these banks. brian moynihan, bank of america chairman and ceo, we will be speaking to him a little bit later. that is going to be a fascinating conversation. coming up, we are going to come at this from a different angle. financial conditions. are they going to tighten? how will they affect markets when they do? what kind of trajectory is the fed on, and what does that mean for credit markets? bruce richards, marathon asset management chairman and ceo, is joining us next. this is bloomberg. ♪ ♪
guy: where are we? we are a week away from the fed's next policy decision. markets already starting to brace for the major impact of monetary tightening. how far will the fed have to go? how will the fed manage this process? bruce richards, marathon asset management chair and ceo, joining us now. fantastic to catch up. these are some of the greatest conversations we have on bloomberg, so i am really looking forward to what you have to say over the next few minutes. give us an update on where we are. inflation is climbing. the data all points to that. the fed is talking about tightening. how far will the fed have to go in order to bring inflation under control? bruce: that is the big question. how tight financial conditions get in 2022 will determine how the markets perform and how the economy responds in terms of growth.
there is no easy choice because the die has been set. it is pretty well-known right now that the fed remarkably is still behind the curve. it is still easing. zero rights today, still buying for the balance sheet for qe right now. the fed at this point, we are crossing the rubicon. we remember deja vu, 2018, the equity selloff as the fed raised rates and strengthened the balance sheet. that is when inflation wasn't running. now inflation is running, they have much more to do. to your question, the balance sheet they shrunk back then was to the tune of $500 billion. today, the balance sheet is 2x that. that is $1 trillion have to reduce the balance sheet by on a
per annum basis, from having expanded the balance sheet by $1.5 trillion a year. that is a big delta. so how far will equity markets fall when fed funds rates move to do percent -- move to 2%? 2% and eight rate hikes, not three or four that are priced into the market. i think we know that answer. i think the equity markets are incredibly volatile from here. buy the dip, that was the earlier discussion on your show today. it makes sense because the fed is easing right now, and i think the first two or three or four tightenings can be absorbed, but it is what happens after that. because what happens after that is really critical. what i am referring to is not just a move up in treasuries, but a tightening of credit conditions that may come. kailey: spreads are still very tight. at what point do we see the readthrough not just in terms of equity markets and risk assets,
but start to see some cracks appear? bruce: it hasn't happened yet. the high-yield market is holding very well. duration is lower on the year. high-yield likewise is 300 and basis points off of treasuries. there's a lot of excess in the market place, from some of the tech companies, particularly the highflying, high multiple tech companies. we see a lot of the excess in the market that are really not in credit, so we expect, with strong earnings this year, for credit to maintain its spread. it will widen because conditions will force it to widen. on that widening, we think it is a buy because of rather good, 1% or less, so what it comes down
to, people talk about is at the supply chain, is it demand. yes, it is both, but what it really is is the money that the fed has printed. you've gone from $7 trillion in money supply to $21 trillion today, and the printing of money , this money for nothing policy, the great giveaway that has happened has a price to pay, and it is a price to pay with credit ability and a price to pay with inflation, and that is what we are paying now. [indiscernible] guy: sorry bruce, finish your thought. bruce: it is unfortunate because consumers are going to bear the brunt, from our senior citizens to working-class america. there's a big price to pay for food, for housing, for transportation at the pump, and
it is due to these excessive policies of how we printed money. our analyst team was recently studying doors and windows. there's a lot of doors and windows that go into the exterior of a home and the interior of a home. these vinyl windows, these wooden doors have taken prices up on average from one hundred $50 to $250. that is a 60% increase since covid. they are making 2 times, three times a year rice increases. it is because material costs are up, shipping costs are up, labor costs are up, and they can pass through these costs. guy: you are talking about potential he ate hikes. can the fed thread the needle? can the fed deliver a soft landing? or do you think we need to start, if we are talking about eight rate hikes, a recession? bruce: a recession does come after the fed raises rates four
times. you will see a recession on average, if you look historically at all the recessions that happen since the great depression, you will see the recession began about two years later. so you are talking about mid 2024 if presumably they raise rates in q2, the beginning of march, let's say of this year. so beginning in march, there's eight fed meetings a year, that leaves seven left for the year. will they raise rates all seven meetings, or raise rates three or four times and take a pause? they have to tighten financial conditions to bring inflation down, and that is what they need to do because right now, all of that excess savings we have from distributions and folks being able to save, that is all -- by inflation. the excess savings that have been built up has declined.
so you look at retail sales which recently softened. whether due to omicron? that is what the press would have you think, but i think it was really due to inflation. people spending more at the pump, more housing, more to heat their homes. they have less discretionary money to spend on retail sales. that is why retail sales were soft at christmas. kailey: in this kind of environment you are describing, is it one in which there's going to be more opportunities in distress? bruce: i think credit is going to be really strong. the earnings will be up 8% or 10%. with that, companies are in good shape. most of the company's we track are in good shape. some can't pass through the higher costs, but almost all of the companies we are tracking can pass through higher costs, so it is not a corporate default rate event that happens now. save that one for the recession,
not financial conditions. financial conditions tightening, first round is treasury rates move up as they raise rates. the second part of that is fyke it -- part of that as financial conditions tighten will be wider credit spreads. those can be absorbed by the companies because companies are, for the most part, still highly profitable. it is when a recession hits, when the economy actually turns down. the economy is excited to grow up 4%. it might start that way, but we think the end of the year, growing about 1.5% to 2%. so we will see deceleration of growth due to tighter financial conditions and this higher inflationary rate that stymies the consumers' ability to spend. guy: there is an expectation in europe that the ecb is going to sit this one out. to can push back every time the idea of a rate hike this year is mentioned. what do you think, does the ecb
have the ability to sit this one out? bruce: interesting that in your bunds just went from negative to positive for the first time i think since 2019, and three years. was e -- what is really interesting to see is the futures contracts starting to take up -- starting to tick up a little bit, so i think inflation will impact europe to a lesser degree because they did not print as much money. it did not run up the balance sheet nearly as much as the u.s. fed did. but they will start to see some wage inflation, and i believe they will have to tighten once or twice just on the margin. but they did not have the growth we had here in the u.s. or the
excess on a trade policy we had, so the reaction will be less. kailey: we are talking in europe and the u.s. about the prospect of tighter policy. in china, they are easing. how does that affect your world? bruce: not so much. i think a lot of the supply chain will begin to move from china to live just go points that are much closer to the distribution of products, so a lot of the companies we are sticking to our moving the supply from china to the u.s. and latin america, so a longer-term move, but it is starting to happen. the u.s. housing market is about 3%, 3.5% of our gdp. in china, housing has been 18% of its gdp, so they can't see their housing market decline,
and their housing market has declined rather substantially, evergrande and all of the other companies that went way beyond their skis and are in the process of defaulting and restructuring. they are in the process of easing to make housing affordable, to allow easier financial conditions, to allow the companies to complete these projects. the fact that they tightened the year prior gives them the ability to now ease. i think china is in a very different place from what is happening in the u.s. kailey: unfortunately, we have to leave it there. thank you for joining us, bruce richards, marathon asset management ceo. this is bloomberg. ♪
shot of the bloomberg year ahead event. bloomberg's john micklethwait is speaking to intel's ceo pat gelsinger. you can find this on your bloomberg terminal. fantastic event. what have we got coming up? we are going to talk more about what is happening in the european markets. stoxx 600 fading. the german 10 year briefly earlier in the session went positive. we are flat. we are just below that line right now. less than half a basis point away. that move continues. we will continue to watch what is happening there. u.k. inflation absolutely surging. the bank of england governor giving testimony down in whitehall right now. liz martins, hsbc senior economist, joining us next. this is bloomberg. ♪
and there you have it. woah. wireless on the most reliable network nationwide. wow. big deal. we get unlimited for just 30 bucks. sweet, but mine has 5g included. relax people. my wireless is crushing it. that's because you all have xfinity mobile with your internet. it's wireless so good, it keeps one-upping itself. take the savings challenge at xfinitymobile.com/mysavings or visit an xfinity store to learn how our switch squad makes it easy to switch and save hundreds.
>> the countdown is on in europe. this is "bloomberg markets: european markets," with guy johnson and alix steel -- european close," with guy johnson and alix steel. ♪ guy: let's talk about the price action. european stocks fading. thanks weighing on the market right now. the german 10 year going positive a little earlier on in the session. we are just below that line now, 0.3 of a basis point, to be exact. the pound finding a little bit of traction today, despite what we have seen when it comes to the u.k. economy and u.k. politics. we will talk about the politics and just a moment. we had a superstrong inflation number a little earlier on. how strongly will be bank of england have to react to that? kailey