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tv   Bloomberg Markets  Bloomberg  January 26, 2022 1:00pm-1:31pm EST

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familiar with the justice's thinking. that will give the president his chance to fill his first vacancy on the court. he has promised to nominate a black woman to the supreme court. justice stephen breyer is the oldest judge on the court at 83. liberal activists had been calling on him to retire while democrats controlled the white house and the senate. the question of who will lead italy is still up in the air. a majority of voters left of their ballot blank for the third day in a row in a secretive process to elect the new president. while several will seek mario draghi as a top contender for the job, it is not guaranteed. the outgoing president got a surge today in the vote, but he has repeatedly said he is not up for a second term. germany grantham got the market's attention with his super bubble call on u.s.
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stocks. he has a new message to asset manager gmo, saying the goldilocks period is ending and the world needs to prepare for a future of inflation, slower growth and labor shortages. he spoke with my colleague erik schatzker in "front row." -- on bloomberg's "front row." >> we are in the early stages of running out of raw materials. there is only a certain amount of cheap nickel, copper and oil and we are beginning to have boundaries. we'll live in a world of bottlenecks, shortages and price spikes. and we have to get used to it and manage our way around it. mark: you can see more of that interview on the terminal and throughout the day on bloomberg television, as well as our front roadshow -- "front row" show.
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global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton. this is bloomberg. ♪ >> 1:00 p.m. in new york, 7:00 p.m. in berlin, i'm matt miller and welcome to "bloomberg markets." top stories from around the world. the countdown to the fed, the central bank out with its rate decision. full coverage with danielle dimartino booth, former advisor to the dallas fed. and another big event, president biden will be meeting with ceos to discusses build back better program and how it will benefit the workforce. and breaking news on the supreme court, justice stephen breyer is retiring, giving president biden
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a chance to fill his first vacancy on the supreme court. now a look at what is going on in the markets. after the drops yesterday, we have seen gains today. 1.5%. with volatility, that could change. but we have stayed between gains of 1%-2% for most of the day. 10 year yield is up as investors feel comfortable enough to sell the debt, or maybe they are waiting on a stronger coupon. 1.7726 is where we are. and the bloomberg dollar index, little changed. and crude continues to rise, $87.52 a barrel. brent crude above $90 a barrel today. a big move. interesting with the sound we got from jeremy grantham. now let's talk to danielle
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dimartino booth, former advisor to the dallas fed. what do you expect from jay powell and company today? danielle: powell is in a tough spot. there's a lot of hocks, -- hawks, including christopher waller who is on the board, and they are very much intending for jay powell to be really hawkish. the balance sheet has not been as reported on as need be. i think that would be the primary tool going forward because officials are concerned about how close the two year and 10 year are trading towards one another and they do not want to the yield curve to invert. matt: we have seen in times of rising rates, at least over the last 20 years, i have looked at rate rising environments and you
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do see a narrowing of the spread. sometimes you do see inversion. is that the main fear? danielle: yes, and at is what makes interest rate hikes a blunt tool, instead of trying to control the balance sheet into this hiking cycle. i think they will lean on that. it wouldn't surprise me of jay powell speaks directly to the 10-ers of treasury and mortgage-backed securities. if he wants to be hawkish, he can say we will end the tapered quicker than mid-march and indicate thereby that he is leaning towards quantitative tightening. matt: is that the strongest tool he can use and a they have the right majority in order to control the yield curve? danielle: you bring up a good point because so many of the treasuries on the balance sheet
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are maturing this year and next year, and it reflects the outstanding treasuries as well. the fed does not have as many longer maturity securities in order to control these yield curve,and that is the risk. risky assets will not like quantitative tightening being expedited, but jay powell has memories of what happened in 2018 when he was doing quantitative tightening at the same time as rate hikes. that was disastrous for the risky assets. matt: is the underlying growth strong enough to handle four or five rate hikes? we have four. the consensus for earnings growth is still in the single digits. bloomberg intelligence sees 15% this year. danielle: that is another good question. we have the situation of margins to consider. and the fact we have not seen a big margin, despite the fact that labor costs, and put have
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all increased. we have heard it on conference calls. as for the economy, we saw a record gains in retail inventories this morning, causing the market to take down their gdp estimate for the first quarter based on the fact that we have built up more inventory than anticipated. 1.5% compared to bloomberg' consensuss of 3% and it is a very low number. the risk is jay powell will be proven right that the supply chain, disruption will become on disrupted. and on the other hand we have gasoline and a really cold winter, food inflation, things that are out of the fed's control. matt: in terms of inflation, the consensus is it will not come back down to 2% anytime soon, but will it hold at 7% or do we see some easing of inflationary forces this year? daniell i think we will seee --
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danielle: i think we will see easing. i think that the 7% will mark a high point for inflation, or maybe one more number in this general zip code, but i think there will be downward pressure. something like housing inflation, that tends to be sticky and it could manifest itself in inflation for longer than anticipated. the same situation with jeremy grantham and his comments and the high energy prices we have seen. that is the most visual inflation to most households because the price at the pump feeds through to inflation expectation. jay powell has a narrow needle to thread. matt: the interview with jeremy grantham was fascinating. he is, of course, almost always bearish, but he is looking for a big collapse, not only in the stock market and risk assets,
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but in the housing market as well. we've seen real increases in housing prices and no inventory really coming out. plus, rising rates people are saying will push homebuyers in for fear of missing out on relatively low rates. how do you see that panning out? the last housing collapse was the cause of the great recession. danielle: that is where households hold the majority of their wealth. when you get outside of those with stocks. that's a risk. 30% of the market is investors and they will be holding those prices up, despite the fact that organic buyers have stepped back. and so, if 5% on a conventional 30 year was enough to break the back of the housing market in the last cycle, i would have to say that 4% would be the new
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ceiling. and we have heightened sensitivity to these rising mortgage rates. matt: in terms of the big mistakes to watch out for, longer-term the risk is that the fed raises rates too quickly or too far and pushes into a recession. what is the likelihood of that? danielle: i follow the yield curve as closely as i can, because that is the main barometer that tells you the latitude the fed has to actually hike those interest rates, right now at 75 basis points it suggests three at most, may be march and june, unless the fed surprises with a 50 basis point hike. but i do not see him doing that, it is not an jay powell's dna, despite there are so many hocks. -- hawks. joe: thank you for joining us. that is danielle dimartino booth . we are also following the supreme court news, it looks
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like justice stephen breyer is planning his retirement. if he does at this early enough in time to let the biden administration pick a new nominee, they could get that person confirmed before the midterms. that is the key timetable people are watching. we'll discuss that further when we come back. this is bloomberg. ♪
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matt: here is president biden
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speaking after a meeting with ceo's. let's listen in. president biden: take universal pre-k. if we are designing our education system, we have talked about this before, i doubt anyone would think that 12 years is enough. so, what we do here is we want to have the best educated workforce. that is why universal pre-k will mean so much. and it also increases exponentially the prospect of that child being able to, no matter what their background is, get through 12 years of school and go on, almost half go on to a two-year or four-year college. and students show, these studies have been done by great universities, that -- i think it is an economic necessity to have
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an educated workforce. take clean energy manufacturing. we are bringing american manufacturing back, i should say you all are bringing it back, and we are helping along the way here. the industrial midwest is coming back, believe it or not. when i was 20 or 30 years old, it was still going strong. now it's coming back. and doing so with sophisticated manufacturing. and a real breakthrough began last year, when mary and jim, gm and ford, and the key labor leaders announced that they are moving to all electric, all electric vehicles. yesterday, mary and a gm announced a $7 billion investment -- and gm announced
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a $7 billion investment in electric vehicles and that will create thousands of jobs. i went to go see the f-150, an electric vehicle, that will also create jobs. matt: that is president biden talking about his discussions with mary barra and jim farley, the ceos of gm and ford. we'll continue to bring you headlines from that conference as we get them. justice stephen breyer is retiring, giving the president a chance to fill his first vacancy on the u.s. supreme court and reinforce its outnumbered liberal wing. i'm not sure if it would reinforce, my guest strengthen -- i guess strengthen it in a way, but chuck schumer says of the nominee will receive a prompt hearing and will be
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considered and confirmed by the full u.s. senate with all delivered speed speed. -- speed. joining us to talk about it is josh wingrove. justice stephen breyer is 83. they want to make sure that they fill or replace one liberal with another while they have the chance. what's the timeline look like? josh: a big difference from 2020, when it was liberal icon, the passing of ruth bader ginsburg, who was replaced by amy coney barrett and democrat heads exploding. now they will be able to still not shift the balance of the court, it would be a 6-3 court, sometimes feeling like a 5-4 court, but nonetheless the balance of power will not shift too much. that is why we will not see the
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same all out brawl we have seen in past hearings. president biden has signaled he will appoint a black woman or nominate a black woman to this position. they have made no secrets -- the people in the party wanted this retirement to happen so they would have the chance to put somebody in place that would not further shift the court with another conservative judge, for instance. and politically the president has faced pressure from voters of color for not doing enough on court issues, like on things with police reform, and if he had an opportunity to make a high-profile denomination, there could be political dividends for the democrats on that. it looks like we will have something coming in the summer time if justice breyer, if it is correct, that he intends to serve out the current term. matt: this is shared by someone
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familiar with the justice's thinking. staying in washington, a ceo that was in that meeting with president biden, jim farley, who spoke recently with emily chang. jim: the country needs to be competitive in all electric. we need to catch up with europe and china, and we need to help consumers make the transition and we need incentives that will last for some time to help the industry convert over, because we need to buy batteries in this country and get raw materials, and that will happen as customers go electric. matt: that is jim farley talking about the transition to electric. i spoke yesterday with mark royce from gm about their plan to shift to electric, and fully, within the next 10 years. we our counting you down to the fed decision and a news conference with a jerome powell.
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do not miss our special coverage kicking off at 1:30 p.m. eastern. this is bloomberg. ♪
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matt: this is "bloomberg markets." i'm matt miller. to bring you further headlines on the developing story, justice stephen breyer, according to people familiar with his thinking, is considering
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stepping down at the end of his term. that would give president biden a chance to replace him with another liberal justice. and president biden has pointed out that every justice has a right to decide what to do, which is clear, but i am sure he's fairly happy about this opportunity. he has not been able to fill a supreme court vacancy yet. and we are moments away from the fed's rate decision. jay powell will be telling us about how hawkish he plans to be to counter inflation. our correspondent from uber intelligence is here to give us a preview. carl, what can we expect? carl: they chair will have to acknowledge there has been mild deterioration and the economic conditions with the onset of the omicron wave. and he will have to empathize and that they will navigate around it will could be a very unhealthy looking january jobs
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report. today, the message is basically to signal that we have arrived at full employment. the fed things it is about 4%, obviously we reached 4% in the december report. that is the major new information since the fed last convened, inflation remaining above target. that's not particularly significant. so the boxes are all checked, we are not hiking today. but they have come to hike, signaling lift off will begin at the march meeting. the challenge of the press conference will be navigating the expectations around at the balance sheet unwind. there is a lot of uncertainty in the marketplace of active versus passive unwind, but the pace and start of the unwind will be in
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focus. maybe it is best to get the hikes underway before joining the balance sheet. matt: will he go into details on that? how much does the fed, how much are they influenced the volatility or drop in risk asset prices? carl: the fed is sensitive to what is happening with risk assets into financial stability is front of mind as they think about achieving their objectives. they will not achieve those objectives if we have severe unbalances in the marketplace, so absolutely that is -- i do not want to say a third mandate, but it is looming over there two mandates of price stability and a full employment. the fed is keeping this in mind as they move forward. i do nothing jay powell, we may not get a dot plot today and he will not front run what they will be doing at the march meeting. when we do get those updates, he
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will signal it is go time, increases coming. i do not think he will want to provide too much clarity on the three versus four. he may take the wind out of the expectations for 50 basis points, because this is a gradual lift, even if they are moving more forcefully against the inflation numbers. in terms of the balance sheet, as we saw in the december meeting, they had preliminary discussions, only started to conceptualize what the unwind will look like, so i do not think he will give much clarity on that side, but rather just give peace of mind that things will happen in a measured fashion. matt: thank you so much. the fed decides is next. this is bloomberg. ♪
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