tv Bloomberg Surveillance Bloomberg July 12, 2022 6:00am-7:00am EDT
>> this is a courtesy and bond driven market. >> market currency is already pricing in rate cuts next year, that might be too soon. >> the goldilocks outcome is off the table. >> i would be surprised if we would into a new bull market anytime soon. >> this is bloomberg: surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: good morning, good
morning, this is bloomberg surveillance on tv and radio alongside tom keene and supper modes, i'm tongue -- jonathan ferro. euro-dollar is basically at parity. taylor: still doesn't want -- tom: this is one of the most historic days in 20 years. jonathan: heathrow airport asking airlines to stop selling summer tickets. there is a headline i'm not sure we expected to read a couple of years ago. tom: i hefted go way over there to buy stuff on cardi b street. the gyrations of the pandemic, dutch on barnaby street. the gyrations on the pandemic. the correlations right now are off the chart. it is jump conditions tuesday where em gives way along with silliness over the euro parity.
kathleen: jonathan: -- jonathan: it is over an energy crisis people think can't get worse. lisa: that was my reaction, is it an effort to conserve diesel, gas or energy or is it what you said, these people sacrificed and how much does it show the dueling nature, and imposed recession or downturn, and imposed retraction we are seeing speculated about in germany in order to avoid an energy crisis? this is a new era. kathleen: -- jonathan: this is new, they brought out fx intervention sin. the currency happening in the market is a long time, these countries have been trying to
hide their currencies and now it is unwanted. tom: couldn't come up with the assumption of a -- pruden -- putin, with the assumption of a strong dollar, it is about hoarding cash. the energy we are talking about, let's go to europe. rotterdam coal up in a moving study, and newcastle up 40%. part of the energy crisis is it is dead. jonathan: i will not ask you to repeat the accident. if you are forecasting for an exchange, specifically the euro dollar, and you're making a commodity call. and if you're making a commodity call, you are making a political call in europe. russia, the kremlin, a decision
about gas apply to europe. lisa: no one can do it which is why risk premium will stick for a longer period of time. people will charge in terms of a weaker euro because of a dramatic lack of certainty and consistency with respect to the decision. jonathan: we are lower, negative .7% on the nasdaq, they were down big time yesterday and this morning, seven or eight basis points on the 10-year. can't take it right off the euro-dollar, one 00.17, -.2%. lisa: it is basically at parity and it has been flirting with that level. it highlights the energy crisis, which is why am so focused. the monthly oil report coming out, this comes after the iea says there is the potential for a crisis we have not seen before
because of some of the constraints around russia. i want to hear what people plan to do about it. i tried to get the caps on russian oil prices over the past week and it was less one -- i was left wanting in terms of details and options. the fed president speaking at a lunch hosted by the very club of charlotte, what will he say about how much his decision to raise rates by 75 basis points this month and again by another 75 basis points possibly in september hinges on the cpi? if they go to 8.8% as bloomberg expect, does that go -- how much does that push them away from making such a series of rate hikes? tom, this is for you, i'm watching to see whether the demand we have seen over the past couple of sessions continues. especially in light of the inverted yield curve of the two
tens spread. this is a persistent yield curve inversion throughout the curve, not just two tens, not 7/10, not just 5/10 but also the three-month tenure curve. jonathan: do you want to talk about the twenty-year or should we move on? lisa: twenty-year. jonathan: thank you. for your revenue plus 10%, but get used to the headline. they still see a two percentage point effects trend -- translation with headlines. tom: everybody makes a big deal about it. it is a accounting reality, earnings, corporations and multinationals -- multinationals will get through. jonathan: let's talk to equity
strategy at bp power, how about are things going to get in europe? >> the reason tension in the fx market and the yield curve is proprietary to more recessionary price action. what happens with gas apply when we see rationing will be whether or not we do have that. tom: there's a worry, fix 27.09, to be almost 30 now. what is the value of going to cash versus finding the right spot in equities? greg: to trade off this volatility we see in the equity market, versus the cost of carrying an allocation to cash, affectively the price of inflation, so we will have this later this week which will be
the peak in the cycle. it's the cost of going to cash. so far it has paid off. lisa: meanwhile, the safety trades and equities are being a turn of the head. we are seeing oil stocks come out of it as we see oil prices go down on fears of a lack of demand. how much is this a head fake and how much is it a real shift in terms of the leadership we have seen from commodities? greg: it is a great question. if seen changes in leadership in equities and we have seen tech name underperformers and it has been a multiple compression story. as we moved to the earnings season and the market is going to be less focused on what rates are doing and how that is compressing valuations. it's going to be an earnings story. something like energy is uniquely interesting. you have to be cautious of the potential for demand destruction weighing on the oil price, we have had years of low capex investments from some of these
oil names. we have single-digit, keep multiple valuations from these stocks so we've got some symmetry there. we can see crude state in the range it has been in recently, there is potential to still see upgrades, whereas we are seeing downgrades pre-much of her wells in the market. it makes it unique in this point in the cycle. tom: very quickly, we are airing this out with a beautiful phrase that captures the conditions of the moment, plural. that is little fires everywhere. that describes the bloomberg screen this morning. how do you look at equities when you see the little fires in fx and cds and debt? greg: undoubtedly we have to take these warning signals cumulatively. and we have adjusted this. we have described the price action we have seen this year already as recessionary. we have had massively --
absolutely massive value compression in this market, at a time when the labor market data is strong. it is fair to say the u.s. equity market is part of the story. it is already signaling things are going to get worse. the question is how much worse and how quick. jonathan: do you fly back to london soon? greg: yes, and it is making me nervous about it. jonathan: yes, here's the headline, but it's heathrow says that will be a cap on daily flights of 100,000 through the timber 11th according to a statement just moments ago. hundred thousand. -- as many as 4000 passengers over the summer.
the new recruits were not up to full speed. certain functions including ground handlers for baggage were under resourced. there is a labor crunch and we have supply constraints in this industry. tom: how do you solve a labor problem, jon? pay the more. -- them more. jonathan: they need more training, tom. tom: how long does it take to train baggage claim? jonathan: it can take weeks or months. there are security concerns, they have ramp-up, it's difficult. tom: do we go through copenhagen or madrid? jonathan: what you think lisa? lisa: there's a bigger issue. can't increase supplies or capacity because of the staffing
and it is difficult. it is not simply pay them more and bring more people because the turnover is dramatic. jonathan: a lot of people who already lined up outside of certain terminals at heathrow trying to get the tickets and get through, obviously thinking it is about time. once ago when the tickets -- futures, -.6% on the s&p, this is bloomberg. ritika: keeping you up-to-date with the news around the world, ritika gupta. two decade low of risk aversion has led to a rally in the market, concerned that recession is weighing on the outlook for the euro. the price of oil falling again, covid resurgence in china adding to concerns about the economic slowdown. the white house says opec has moved to raise production if
president biden boskalis trip to the middle east yields agreement . the conservative party in the u.k. wants to narrow a wide field of contenders to be the next prime minister. it would require candidates to have the initial support of many parts of the department, this will be held on wednesday. the new leader and the next prime minister will be announced september 5. london heathrow airport putting an end to the summer travel chaos, to quit selling tickets all the summer, a capacity cap of 100,000 daily departing passengers until september the 11th. they have been long lines and miss page -- misplaced luggage. galaxy clusters that appeared more than 4 billion years ago in vivid detail, president biden released these full-color images from the dames webspace
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as it is, which i am not worried about. jonathan: i'm sure they're not worried about it, gina raimondo, the u.s. commerce secretary. that's part of it, getting inflation down and a stronger dollar will help. tom: to a point, and then it is ambiguity. george of deutsche bank was with us yesterday and he said euro parity is not significant but what is significant is a lack of liquidity due to a global slowdown we are looking at. and getting over in jonathan: the yield space. jonathan:12% -- the yield space. jonathan: 12% move in the euro-dollar, nasdaq down what 1.2%. -- yields lower by seven basis points, to 92.07, and 100.14.
-- 1.0014. tom: with one grain of sand at the beach house in cape cod, he put that image in the sky and there is an image of what the james webb telescope has done. i know no one cares, but there is a spectacular image of galaxies, 13 billion years old. joe mathieu knows what is like to look at these images where light travels at the speed of molasses. joe: quite a wind up. tom: quite a wind up because don't we wish washington remley james webb? joe: sometimes the government does cool stuff, this is a nasa product that generated something
as incredible as anyone said yesterday. tom: how shut down is this, it is 92 degrees, looking at nasa pictures out of nowhere, let's look at interior washington. what are some level of shutdown in washington? >> lawmakers are coming back. we've got the january 6 committee hearing today and it's about 96 degrees with extreme weather funders once protected, lots of symbolism hanging over the white house as the president gets ready to head overseas. shutdown, not so much. it will feel that way next month which reminds us that lawmakers have only about three weeks to get a lot of things done before they head home. i won't call it there reset but to their home district work period month. lisa: i think i'm going to head home to my home district work unit in the adirondacks.
one main issue is gas prices. we have seen them come up a little bit but there is big discussion about what russia gets from oil and gas. is there anything about getting everybody on board globally? >> be careful asking what makes sense to me because we can report the facts, but it is hard to rationalize what is going on. the cap is yet to be established but it will be in the front of president biden's mind as he heads into saudi arabia, in hopes of unlocking spare capacity. as saudi arabia and the uae suggests, there's about 3 million barrels a day. the refining bottleneck is a major issue. 95% capacity is where we are running. even if the president scored a big deal and announced a gush of oil coming, we may not be able
to do enough to impact prices at the pump. lisa: is capex resigned to getting a beating at midterm elections because it is so difficult to get some of these? joe: depends who you ask. they have their own personalities. now that we are coming up on november and getting into the second path of the first term, it is likely we will start seeing the revolving door swing. we did see the communications director, kate bedingfield, announced her resignation. the fact of the matter is, if they have not left yet, there on board for the midterms and they will be fanning out across the country to make the case for this president. tom: what does joe manchin want to get accomplished here? i get the battles, but i can't get a straight answer when his goal is. joe: i don't think chuck schumer can either. they want to have something to
show for this session. we will remember joe manchin laid on that $1.5 trillion and so forth with bill back better, it looks like they are moving ahead with a reconciliation bill. but it's complicated. one thing i want you to look out for is the expiration of enhanced subsidies for obamacare. the affordable care act. they expire at the end of this year and the reconciliation plan could be the only avenue the democrats have to revive or extend those subsidies, otherwise we will be talking about another mass with millions of people potentially losing health insurance. jonathan: we will be talking in the next hour, looking forward to it. joe mathieu and washington, d.c.. interesting stuff when you look at gasoline spending, up another 4% in june, 20% over the last five months. it is starting to take a toll on other categories of consumer spending.
including services, according to them. spending on restaurants for the first time since january. remember what happened in january, the omicron surge. month over month, the decline since january 1 spending and restaurants. interesting. tom: and they show the door to the ceo. you wonder in obvious retail fashion, in general, how are they going to do? focus on the machine of home depot, it will be fascinating to see how it performs. jonathan: is taken as to housing, they have put out this as well. i'm sure you saw this. 60,000 home purchase agreements in june. almost 60% of homes that went under contract that month, the next highest percentage is march and april of 2020. you can imagine why people work spooked and closing on houses, but people are spooked. and they are getting crimped by
gas prices. lisa: when it comes to the transaction volume of housing, you are seeing prices come down just a touch but not dramatically. the worry is it is going to bring rents down quickly enough. some of these fissures are not going to bleed into lower cpi or basic inflation for the average consumer quickly enough to curtail some ongoing tightening and destruction. jonathan: looking forward to that tonight and tomorrow, then onto bank earnings in america. lisa will be with us. and then she is on a jet plane. far, far away. through heathrow. lisa: [laughter] jonathan:
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jonathan: in the bond market, looks like this going into cpi tomorrow. the headline is about 8.8% and maybe higher. we will build on that with yields coming in ahead of cpi. a lot of you are a focus on what is happening with the euro-dollar, let's talk about problems behind the single currency. all about energy, gas in what happened with energy supplies into winter. 11 or 12 months away. what goldman did with copper is worthy of more attention. the price target comes out about 8650 down to 5700. we are softer by about 1.5%. if you are looking for big global growth resurgence in the second half, goldman is not involved. tom: it is drifting away. when you look at the summation of the coal and copper charts,
the forecast of four or five months ago of 2.8% global, we left. guess what, we are there. jonathan: i talked about the forecast on the euro, you have to make a forecast on gas and what putin may or may not do. you have to make it: what happens with lockdowns in china and that is joseph's hard. become sound to whether we are reopening or looking down in china and the evidence toward shanghai points toward more restrictions. tom: there was one study of 18% even as it stays flat, but i do take your point. jonathan: the only thing, the bottom line whether copper or the euro, the forecast is based on the whims of dictators. you have to work out what they will do. tom: we will have to say. try 6.94. on the heathrow's -- 26.94.
the heathrow story, a gentleman who is good it aviation, guy johnson joins us at heathrow. what is the distinction of the chaos at heathrow? guy: it is getting worse. while there are different problems in different parts of the world, the air traffic control system in the united states, it is here in heathrow with a situation where they can't have enough quickly enough. note has been published this morning by the ceo of heathrow, he goes on to talk about the arithmetic of what is happening here. they're trying to bring people in and it is a slow process. they are hiring as quickly as they can and then struggling to train staff as quickly as they can. they're not keeping up with the demand. heathrow is now saying it can deliver 100,000 passengers a day
and no more. what it is saying is that by current forecasts, looking at the current forecasts, airlines have booked around 104,000 seats per day in and out of heathrow. they are saying they can't do that. what they are saying is in excess of 4000 there, 1500 of those seats have already been booked and 3.5 thousand have not. -- you cannot sell any more out of our airport. a huge problem, they're trying to rebuild their balance sheets as a result of the pandemic. a capacity and strength, labor market constraints are a factor and they cannot do it. 100,000 passengers and that's it. lisa: this does not bode well for the inflationary backdrop. people are willing to pay more for tickets and airlines will demand more in order to
compensate workers, how much is this an airline specific story and an airport specific story, a broader one in the workforce in the united kingdom? guy: it is much broader, lisa. last night, the train drivers voted to go on strike. using other train stuff going on strike, barristers on strike. the service sector is feeling it and in a big way. we are short of staff, people have left the labor force with the u.k. and the publication of brexit as well. even if airlines wanted to charge more for the seeds, heathrow is saying you can't have the seat. we are done. there is a limit. jonathan: massive question about how much seats will cost leaving from other airports of the u.k.. what will happen there? guy: you will see this move over to other airports, the most
obvious case in point here, you get some of the regional airports. but there was a taxi a few months ago i shared with someone who worked there and they had a problem, across the board, across the u.k.. there are slightly different problems but basically the same issues, ground haggling staff, tickets, it goes across the board. and different regions are having different problems. it is a problem that will face the entire industry across this summer. you may end up seeing a significant drop-off off in demand. that is the question everybody is trying to ask themselves, what happens, does the demand drop off? leaving you high and dry in that situation, the opposite of where they find themselves now. there's a huge problem, if you look at the revisions being built up in the airline sector, their building and building.
jonathan: what a mess. great work. looking forward to your coverage later with the european close. tom: you can get from edinburgh to naples with one stop. jonathan: what he just said working out the appropriate capacity, at some point in the future it is a difficult thing to do. you've seen that with retailers. tom: we are coming out of a once-in-a-lifetime medical crisis that we are still in. for global wall street as you are fixated on the dollar, the euro, forget about parity silliness, a 0.98. the guy with the single most important concept out there with the major tip to david rosenberg of david burton -- of toronto. looking at core inflation, why should we pay attention to core
cpi? david: partly because it is not been so affected by the pandemic. a lot of headline inflation numbers and you're looking at rents, airline fares are crazy, hotel rates, they have all been distorted by covid. the idea of a core number as it looks behind that noise and gets to the inflation story. that is what will be there would all of the covid stuff eventually drops away. what is driving the core story mostly is wage growth. this time last year we were talking about that in the labor market and getting worried about the idea of a wage price spiral that spooks the fed last year. now the pictures very different, growth has slowed and already it is feeding into smaller month-to-month prints in the core cpi. it is too early to crack open the champagne and we have too
many big distortions on the upside from covid. but where will we be in six months, 12 months time? these numbers are encouraging and there's every chance they continue. lisa: core cpi has lost a little potency at a time when people are worried about inflation expectations. even jay powell said we can't be too nuanced because at the end of the day, it is what people feel every day and it has happened long enough we are starting to see inflation expectations creep up, notwithstanding the debt on the longer term. how do you push back against that? core cpi used to be important but is less so now. ian: yeah, i don't buy that for a second. why do we care about inflation expectations or what anybody thinks? we care because it might translate into action. and we care about higher wage demands. if headline inflation has shut
up, expectations have shut up and people are extracting bigger wage increases from their employers, you got the danger of a wage price spiral look in the 70's which we all know is a horrendous nightmare that took a long time to fix. but wage growth over the last few months, it's averaged about 4%. at the end of the last normal economic cycle, a sustainable pace in productivity growth. i'm happy with that. it was different a year ago. no question about the wage growth and it was very scary. if it continued or accelerated, the fed would have been in panic mode. but what happened is supply picked up, participation has risen and people have come back to the labor force. you can see already in the core cpi. the fear of expectations driven spiral is not justified anymore. it is a risk but it is not there. lisa: we were talking with guy
johnson about heathrow, the concern about all these companies building of capacity in the face of some of the distortions on the heels of the pandemic only to be the best at with a lack of demand in the next couple of months. how much do you expect a disinflationary force from that overcapacity that is being built up right now? ian: yeah, this is a big deal, especially in the goods market. industries in some sectors are way above before covid, massively in some cases. we have a story of gigantic expansion, the story for the next year is gigantic compression for ordinary levels. there is a question for equity investors because of earnings compression. from the market -- it is quicker
than markets expect is not just about gradual slowdown of wage pressure. it's about the potential for collapse. and there is no way on earth and is notably suspended and if they fall quickly, you could see core inflation in the u.s.. tom: a final question here. patheon has a unique focus on the pacific rim. are we seeing butterfly effect, butterflies flapping abroad as we focus on the euro? are we missing pem unravel? -- the em unravel? ian: i'm not sure. there are some bright spots. and the china data are improving with--moving forward. numbers will be terrible but that is ancient history,
stretching back to april when things are different. we are not all-ish but it is not catastrophic and some of these have popped higher which is a relieved everybody else. but the euro story is about the euro and the u.s. stories about the u.s.. jonathan: good to catch up, i think you and the team at patheon macroeconomics. the chief economist. this market is betting against inflation and slower growth. breakevens are basically at the lows of the year and it does not look --get talked much about. lisa: i was looking at that this morning, while you mentioned that. the five-year breakeven rates. this is market expectations over the next five years. they are at the target. it has been trending lower, the fed is going to get what they want and there's going to be enough inflation to get the market there as well.
nine basis points yesterday on the session. we see that move lower going into cpi tomorrow, want to reflect on the words of the economy minister to echo what they said. should be getting ready for a total russian gas supply shut down and this is the most likely event, the fear about some of these moves with the euro-dollar within striking distance. tom: i went through the coal complex today and you are saying it not only in the move to parity, 1.012 right now, but it is mirrored in what i'm going to call usable commodities, copper, rotterdam coal, there it is. jonathan: i wonder how much more you're going to see across economies in europe for just for -- for different reasons. what about energy? tom: we will see about energy
and maybe that is the next step. brent crude is down 124 to 104. the headlines from spain, harkening back to our conversation with another the other day, spain could impose tax on banks. jonathan: i have not got the details. i will bring those to you. tom: right now, ellen, the senior fellow at the atlantic council on oil and the strong dollar which harkens back to another time and place, what does a strong dollar mean for your oil world? ellen: yeah, things are quite incredible in oil right now as we are seeing prices going on almost a roller coaster, up and down, fears of recession tend to send prices down because there is a sense this will reduce demand. but the next thing you hear is
demand is so strong. still. and you see prices going up. i think the news of heathrow reducing capacity, capacity limits, the idea that could reverberate across other airports could put a damper on travel and demand as well. jonathan: -- tom: is there a link from the petrol dollar to the oil demand? ellen: that is a good question and at this point we are not seeing a drop in demand. we look at meme stocks, some weeks we see a drop and other weeks we are seeing an increase. i think we have seen some declines in terms of demand disruption, but not a lot. there's a lot of pent-up demand. it does not seem like the dollar is affecting demand all that much at this point. lisa: which raises a question of
what we will see the pop in oil prices, given birol from the iea just said this is something we've never seen in terms of complexity and speed. why does this translate to higher prices and what you are seeing in the fiscal market? ellen: it is so interesting. we are seeing calls for oil going down to $60 a barrel. there's a huge margin and it reflects a lot of the uncertainty and he is correct to call attention to a lot of the issues we are seeing today. look at what happened in sri lanka. that could be next for many more countries. not just developing nations, but we could see fuel crises around the globe. part of that is due to historically low investment in
fossil fuel. the trend is not really reversing itself at any point. this is precipitating a huge energy crisis. lisa: does any part of the capping of energy prices from russia or the energy prices they receive, does it make sense to you in terms of feasibility and rollout and getting everybody on board, or is this highlighting the lack of tools available to curtail the crisis people are talking about? ellen: i don't see how imposing a cap on oil prices is idle feasible. you can say, only pay this amount for russian crude and the idea is that they will want to pay less. of course they want to, but will the russians want to sell them for less? russia is holding the cards because if india and china
want their oil, they can say sorry, we are not going to sell it for $40 under the benchmark. we are offering you a $20 discount and are india and china going to state -- say no and risk them having a fuel crisis in their country just because the west is saying we want you to cap the price of russian oil so it will hurt ukraine in the war? tom: you mentioned sri lanka and i'm curious about the contagion effect. when a poor country beleaguered by high oil prices provide subsidies to mystically, where do they get that money? -- domestically, were to the get that money? ellen: my guess is they first issue debt and they are hoping for a bailout from the imf. if that is not coming people see
serious problems. and we are seeing not just developing countries do this but we are seeing this in more developed countries as well, offering the subsidies or trying to subsidize the energy prices. in some cases they are saying to the utilities, you can charge more than x. if utilities have to pay more than for their fuel, that is going to put the utilities in a bankruptcy situation and likely cause them to be nationalized in the government is going to take that debt. they are not really solving the problem, they're kicking it to other people or entities. jonathan: ellen wald from the atlantic council, thank you. we've got a real problem in europe to say the least and it could get worse year-end. tom: we do, and they are single head of the moving the market. brent crude down 105, absolutely cratered. brent crude 102 .91, oil and
freefall. jonathan: -- tom: i famous family, indian name, more of an than a western phrase. jonathan: you can dig yourself out of that hole in a moment. talking medivation on slower growth, crude down for percent. lisa: ellen highlighted that came out we are not seeing demand go down that much. the enforced heathrow band and enough people -- ban engine of people wanting to come to the airport. jonathan: equities down on the s&p 500, from new york, this is bloomberg. ♪