tv Bloomberg Markets Bloomberg July 26, 2022 1:30pm-2:00pm EDT
mark: i am mark crumpton with first word news. it is a day of dueling speeches in washington that could impact republican presidential politics. former vice president mike pence spoke of the young america's foundation about a freedom agenda. >> i could not be more proud of the record of the trump-tens administration. -- pence administered in. i don't know our movement -- i
don't note that the president and i differ on issues. but we may differ on focus. mark: former president trump is said to make a speech to a think tank that is working up an agenda for a possible second term. the british economy was the focused in the first head-to-head debate between the foreign secretary liz trust in the former secretary of the exchequer rishi sunak. they are battling to replace boris johnson. sunak claimed her back. trust said sunak's plan would drive the economy into recession. heathrow airport is 28 cap -- warning a cap on flights might have to remain in place for a year. officials are telling airlines to hire more ground staff to overcome the persistent disruptions. heathrow introduced a limit of 100,000 daily departing
passengers on july 12. there have been weeks of travel chaos across europe. adding to the chaos, germany's lufthansa says it will have to cancel almost all its flights in frankfurt and munich on wednesday because of a strike by workers. the walkout will affect more than 1000 flights. lufthansa assess its capacity to rebook passengers on other flights is limited. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. ♪ >> welcome to bloomberg markets. kriti: red on the screen when it comes to the stock market. doom and gloom after the bell.
ec yields lower. people pulling money out of the stock market. looks like they are putting it into the bond market. the dollar is stronger. remember the inverse correlation is very much in play. stronger dollar, weaker stocks. it stretches the brent crude. jon: as we swim to the earnings, how the profit picture looks today. it has been a key focus of investors. we have mixed results on that front. general electric getting the nod of approval from investors today. mcdonald's showing it had sales and pricing power. the stock is up 3%. we have been covering that fresh warning from walmart. though shares one of the worst performers on the s&p 500. as we get ready for the tech earnings tonight, shopify ready to report results this weekend today announcing a plan to cut
10% of their workforce. we had a conversation earlier with the long time growth stock investor tom marsico. here is his vantage point on investing in the business like shopify. >> size and scale went out over a longer period of time. that is what we have large positions in microsoft and amazon and google in these areas. in some cases they compete against shopify. amazon directly and the gathering of information and advertising, google definitely will be providing some of those services to shopify and their customers. kriti: the canadian e-commerce firm will cut about 10% of its workforce. its expansion did not pay off.
david, thank you for joining us. walk us how we got to the point of widespread layoffs. david: we saw how shopify's stock rose rapidly over the pandemic. it was a pandemic darling. when you're sitting at home and nothing much to do, shopify was one of those companies that a lot a lot of consumers to start their own companies online. with that e-commerce boom, they doubled their workforce from 2019 from 5000 to 10,000 bc today. they are reducing that by 1000, impacting folks in recruiting, support and sales. the company's founder and ceo saying in a memo to the company's staff we made a bet this would be a permanent shift to e-commerce. the bet did not pay off and he will own up to that. jon: it is interesting to hear you say that, david. we will hear from meta and
people have looked at the control mark zuckerberg has. this is a company, shopify, where there was a shareholder vote that secured some sizable power. what has been the reaction to the fact he is essentially offering about me a call but? -- mia culpa? david: with him owning and controlling roughly 40% of the company following that decision to create the "founders share," it will place a lot of attention on his management going forward. the board knows he has a sick big amount of control which will likely protect the company from hostile takeover going forward. there will not be more questions about shopify's business, the deliver acquisition, that two plus billion-dollar move to protect it from supply chain shocks will come into focus as well and upcoming quarters where that will likely impact margin growth.
if you're the board looking at his leadership, there may be questions as to how this company can maintain its aggressive growth strategy. jon: david, thank you and we await those shopify results as we move into tomorrow. let's zoom out into tech earnings. we have plenty to watch for later today. bloomberg intelligence analyst joining us once again. as we got the shopify market reaction on some job cut news, it's a reminder of how sensitive this market is. how are you approaching a very busy few days with alphabet and microsoft reporting later tonight? >> a slight difference between shopify and microsoft and amazon. when you look at a company like microsoft, it has far better margin structure than any other company out there of a similar size. it is different but very
diversified in terms of revenue it generates me outside. the big question is fx and how that will impact reported results. we expect a hit from fx. other than that we expect a good quarter from microsoft. kriti: what about the cloud story? the heavyweight is going to be amazon web services. alphabet and microsoft are both trying to make the way into the market share. what can you tell us about with the earnings might say about that today? anurag: microsoft is the number two big player in the market. google is a distant third. we will see both margin expansion and growth rates from herself's 40% plot -- microsoft 40% plus. what is the economic weakness going to do to the growth rate in the next six to 12 months. longer-term, we are not concerned about the companies and their cloud businesses. for the next six to 12 months there should be some weakness
based on transactions. you would still see fairly strong double-digit growth from all three companies. jon: let's also put these bigger technology companies in the context of advertising going forward. we learned last week there is concerns for arguably smaller players like snapchat's parent snap. alphabet has a sizable advertising business. what are you watching for on that front? anurag: alphabet is far more exposed than amazon and microsoft. it has far more susceptibility to slow down. the one think about all the three companies you mentioned, in my view they are stronger today than they were two years ago structurally, on a fundamental basis. in some cases they are trading below pre-pandemic levels. shopify's absolute stock price today is below what it was at
the pre-pandemic level. there are a lot of concerns you are seeing. one could argue it's already in the stock price. kriti: let's talk about the balance sheet. microsoft,, apple, they are sitting on massive piles of cash that have not been the wood. -- not been deployed. anurag: they are moving money where they can in acquisitions. the regulators are not going to make them by large companies. microsoft is in the process of acquiring activision. we will see how that plays out. the other companies, it will be tough for them to deploy that capital to buy larger companies. the most logical way they can spend money is going to be through buybacks. kriti: thank you as always. always a wealth of information on the tech space. let's stick with earnings and go to mcdonald's. reported sales topped estimates as consumers continue to eat out. joining us is michael hale.
thank you as always for joining us. it looks like higher costs worked for mcdonald's and i would argue coca-cola. that is not the dynamic of walmart earnings. what is walmart doing right? michael: mcdonald's is doing a few things right. really the sales were driven by price increases. they had not seen an increase in foot traffic at all. what they are doing better than others is they have scale. they can offer a value menu and price points their smaller competitors cannot match. jon: the other thing -- we were talking about shopify, a business exploding during the pandemic. in the case of businesses like mcdonald's, they retooled during the pandemic. thinking about how many menu offerings they had. it appears that allowed them in terms of having a tighter, more
focused list of offerings to keep serving and keep focused to avoid some of those labor headache we've heard so much about. what would you say about what they have been doing over the last couple of years to get them to this moment to mark -- this moment? michael: a big thing was eliminating all day breakfast. it was hurting their operations. that was -- even though it had really spurred their turnaround six years or so ago, franchisees were happy to let it go. it was causing more labor decreasing service in the drive-thru. that was probably the biggest thing. most companies we cover had paired their menus during the pandemic. kriti: let's bring it back and talk about the currency exposure. 60% of revenue comes from abroad. how much pain is that actually
providing the some of these companies? michael: yeah. mcdonald's obviously is global. it is the largest restaurant company we cover. they have a large international business. they don't own any company-owned stores so they generate more revenue in united states. management said it will be 14 to 16 sent headwind and the respecting $.40 to 50 since next year. -- $.50 next year. it is an impact. the bigger concern for mcdonald's is consumer sentiment globally. sentiment is hitting record low s, not just in the u.s. but overseas and in europe it is worse. inflation will be worse there. there is only so much lower and middle incomes can take when it comes to price increases. we have seen high single digit
increases this year. it's a question mark about what that will do to the traffic in the second half of this year. jon: a story of winners and losers. do those consumers have to pick if they are staying with mcdonald's or one of the other players out there/ -- there? michael: i expect transactions to fall because of consumer sentiment being weak right now because inflation is so high and because of the wealth effect than what they will do to consumers in the second half. there are going to be winners and losers. definitely companies with a look at like mcdonald's having the scale and having a competitive advantage on the value side if we return to environment with discounting returns. there are other chains we cover on the casual dining side like texas roadhouse that have been conservative with their price increases. same-store sales are exceeding peers. we think they have more
pricing power than other companies we cover. kriti: michael halen, thank you as always. coming up, we get to the main event of the week. the federal reserve meeting and what that means for markets. 75 basis priced into the market. we will ask max gokhman if that is a fair assumption. this is bloomberg. ♪
kriti: this is "bloomberg markets." as we prepare for the fed decision, the 2023 recession could be a negative -- inevitable. joining us now is max gokhman, who is using artificial intelligence for analysis. tomorrow, 35 basis points on the table. what is going to surprise the market here? max: i think the biggest risk is that powell actually specifically says there is a real chance of another 75 basis point hike in september. i think the markets will be calm with a hike tomorrow. that is priced in but it's the forward guidance where i would
be a little bit more concerned about a down reaction. i don't think there is going to be much in the way of the upside surprise. powell says we think september will be 50 basis. that is what is currently price in. jon: i want to build on that. you're an amateur racecar driver. you can appreciate complicated corners that jay powell has to handle going over it at a time the market increasingly has been talking about when rates start coming down heading into next year. max: yeah. when we are racing there is always this variable of the unknown. that is something i think powell is dealing with now. there is a lot of variables the fed does not know. what they should do is what a good race driver is due, not signal their strategy too much. when i have someone in front of me and i know they are trying to predict where i'm going to go left or right, i tried to surprise them.
with the markets that might be a good idea. if the market knows it will be too restrictive, they will have a negative reaction. the fed should be more careful without signaling -- about signaling expressively. kriti: there are calls for 100 basis points tomorrow. we will dive into all of that with representatives of those banks tomorrow. what kind of difference does those potential 25 basis wins make? -- points make? max: i don't believe the fed will do a 100 basis point hike. they have been good over the last decade, even before chairman powell, at getting the market expectations for the upcoming meeting to match the reality. i think 75 basis points is priced in, like we have the 75 hike leaked right before the announcement.
at the last meeting. i think we will see the same thing this time. if it is 100, the surprise factor will be pretty palpable in the equity market downturn that follows it. jon: before we let you go, speaking of digital assets, we have a lot of tech earnings this week and those cryptocurrencies have tracked what is happened in technology. does the market of digital assets focus more on the fed or these tech earnings this week? max: i think it will focus more on the fed. there's a question of what it costs to borrow. inflation is something that does affect digital assets more. it's a question of whether these tech firms have an impact in the digital assets based. something like square and meta will have more of an impact and say alphabet will. jon: thank you very much. always good to get your perspective. max gokhman joining us as we get
jon: this is "bloomberg markets ." time for what it's worth. the number today, $7 trillion. the approximate amount of market value for the so-called fang stocks that ended in 2021. we have seen a huge surge in the value of high-profile technology stocks. bloomberg's david rubenstein spoke with nelson peltz about the recession, risks, and what it means for the markets. nelson: the problem we all have
had, those who invest in public securities as opposed to private ones is that unless you are in 12 or 14 stocks, it was hard to keep pace with the s&p over the last five or six years. it was ridiculous. all the gains came in a dozen or so stocks. today i think there is a reversal. i think even though we are going to be in a recession, i think cash flow, stability, good quality companies, when this is all over are going to be valued once again. those are the kind of companies we invest in, boring companies. they are wonderful companies that generate cash. just needs to be treated properly and have a good plan. those of the companies we like. kriti: you can watch that interview with nelson peltz
mark: keeping you up-to-date with news from around the world, here's the first word. president biden's covid-19 symptoms have almost completely resolved after completing a treatment course of paxlovid. that's according to the white house position. the president is said to be feeling well enough to resume his physical exercise regimen. today is the fifth full-day since he tested positive, opening a window for him to return to events once he tests negative. american eskimo star brittney griner returned to a russian courtroom
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