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tv   Bloomberg Surveillance  Bloomberg  January 30, 2023 6:00am-9:00am EST

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>> >>
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the story of the year so far and epic rally euro starks 50 up in europe by 10%. the question for us, and most people on wall street -- chase this rally or face this rally? lisa: this week is a monster we, potentially a pivot week not only getting word from the fed about the ecb and the bank of england. a slew of earnings will set up with the real reit has been. jonathan: the fate has been the tone. mike wilson of morgan stanley -- we are still trying to get used to this -- on the same page as
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jpmorgan, saying do not fight the fed. perhaps this week will serve as a reminder of that. lisa: on the flipside, the likes of stephen major of the ecb saying markets rally the most when you are near the penultimate rate hike and looking like we may be approaching that level. really an incredible story of uncertainty and an upheaval of last week's thesis. jonathan: take your pick. if you had to pick one right now, what would it be? lisa: earnings, because nobody believes the fed. do not fight the fed has turned into fight the fed, they are just wrong here that has been the message -- the husband the message from the futures .9% one s&p. german gdp came in soft. the ecb set for another 50 basis
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points. looking at yields, your 10-year in and around 350. lisa:, which has that underpinned the rally we have seen in equities. on central banking front, we have the fomc on wednesday, you have been asking last week about who would go further and hike more this year. the ecb was the dominant consensus. how much does that get ratified by what we see in this week's decisions? on the earnings, we talked about what is more important. thursday we have apple, amazon, and alphabet. meta comes out on thursday. if you see the pain we have seen in semiconductors push into tech stocks, how does that undermine the rally?
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it has been tremendous. jonathan: alphabet of 12%. amazon up 21%. lisa: people were saying tech wasn't going to lead and what do you make of this? thursday, nonfarm productivity and jobless claims. and friday the nonfarm payrolls report. how long do these -- load of these numbers have two -- have to go? that could change it. jonathan: q remember the consensus coming into 2023? it was dip and rip. wasn't the second half meant to be the better half? haven't we changed that? lisa: the rip and dipped turned in the second week of january and now we just seems to be never dip.
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steve chiavarone joined us now from federated global investment. do you chase this rally? steve: we got on the others of it at the beginning of the year. there are opportunities for this rally to go longer. inflation likely to come down and earnings seasons expectations were poor. the market was looking for this but the labor market will take much longer time to decelerate. we think the strength can go higher. you traditionally have 20% rallies but they are usually suckers rallies. it is premature to cancel the recession. there are so many signs the economy is likely to head into a recession, but it is going to take a while. every stage has taken longer and gone farther than you expect.
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we think this rally could last through midyear, but ultimately we have concerns about recession. we think it is a secondhand story. jonathan: is it through international or u.s. tech or combination of both? steve: we didn't want to jump on the tech training at the beginning of the year. we think valuations are too expensive and we get they will run on this rally but we did internationally come in developed and em international. this is a rally we are dating not marrying. lisa: how do you know the date is over in to break up? steve: you have to follow the fundamentals. if the market is moving higher by midyear yet earnings are coming down and yield curves are inverted, the labor market is continuing to slow, people look at this and they are confronted by the labor market. unemployment doesn't rise before
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a secession -- a recession, and i think you have to look at the emerging laugh announcements and see if the labor market continues to weaken and -- emerging labor market announcements and see if the labor market continues to weaken. lisa: how much is this a story about china reopening until we get more concrete data of what that looks like? steve: it is a big part of it but not the entirety of it. you have a fed that is likely to pause and emerging markers tent to do better when the dollar is tightening. you were talking about may be the ecb will be more aggressive in the fed in terms of rate hikes. you have to expect yield curve controls. you may have a scenario where a
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weaker dollar, no more rate harks -- hikes and china reopening gives you a window. jonathan: to the on wednesday, if i was there, i would say do you see with seen an unwarranted easing of conditions? how will he approach that question because it is likely to be asked? steve: if got to be frustrated. if you look relative to a year ago, the labor market is hotter than it was 12 months ago. inflation is as hot but is coming down so i don't want to discount that, but financial conditions are looser. spent so much: -- political capital and i don't think you will have a recession or not because of an extra 25 basis points. if they go to 25, they might do tomorrow 25's and i would expect
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you would push back against these financial condition some but have not had the best luck predicting what powell will say but better at getting what he will do. we will see how he responds, but you know he will get the question. lisa: when you pair that with your bullishness, why is it not going to be successful if the fed tries to down the market? steve: the data is going to look encouraging and the data to a soft landing doesn't look different than a road to recession. inflation will come down, earnings will come down and you expect that in a soft landing when not catastrophically, you expect the labor market to slow. you have had a market that for the better part has wanted to rally on any side of good news and they will get data that can be construed that way. ultimately i think it is on the
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road to recession. it would be astronomical not have this yield curve inverted and not have a recession. if you go back every cycle, the market has a big rally like that. it did it in 2006. those are the powerful forces. the market will see what it wants in this test. and usually the last one is the biggest one. it could last six months and be 20%. if you are a long-term investor in might be able to ignore that but if you are trying to manage through the markets, you have to be cognizant of that. jonathan: great to catch up as always. steve chiavarone getting you set up for the fed this thursday. even if you could guess what chairman powell was going to say, could you guess how the market will respond?
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you get the feeling the market participants, one by one, have turned deaf ears to what fed officials are telling them about what they want to do with fed funds. lisa: you just heard steve say he is bullish and thinks you should write this and they are going to push back and perhaps people will shrug off what they say. don't fight the fed has turned to fight the fed with everything because they are wrong and that has been the mantra of markets. jonathan:", confirmation might not come in they could get a weaker pocket through q2 and q3. are we pushing this out? lisa: the earnings have been great, so people are saying, when the earnings start getting worse, they aren't great, you see pockets of real trouble. at what part of a bad enough at a holistic level versus this rolling recession and what time
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does it get people's attention? jonathan: what is your big question for chairman powell wednesday? lisa:, chill push back against market conditions -- can they do the push against market conditions? jonathan: i think they should. do you think they will? lisa: i wonder if that will change some of the feeling. jonathan: coming up, the founder and chairman of grand -- graham capital. the from new york, -- live from new york, this is bloomberg. they said: in iran, a drone attack -- lisa: and iran, a
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drone attack happened and the wall street journal said israel carried out the strike. they said the aim was to look for new ways to contain iran's nuclear and military ambitions. in the u.k., rishi sunak will try to get back on track to overhaul the struggling national health service. the blueprint includes more ambulances, hospital beds and longer hours for urgent care centers. he fired the conservative party chairman zahawi over his tax affairs and damaging headlines. the federal reserve said to shrink interest rates and likely to raise the funds rate i a quarter percentage point on wednesday, following recent data -- by a quarter percentage point on wednesday following recent data. european central bank first decision of 2023 is days away,
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but the focus has shifted to what will happen after that? half-point hike is all but guaranteed on thursday. the question is whether policymakers plan to repeat the move in march or open the door to a smaller increase. it will be the kansas city chiefs versus the philadelphia eagles in the super bowl. the chiefs beat cincinnati with a last second field goal to win the afc championship. the eagles pounded san francisco 31-7. super bowl is february 12 in glendale, arizona. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪
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>> i know the president said he didn't want to have any discussions, but it is very important that our whole government is designed to find compromise. i want to find a reasonable, responsible way we can lift the debt ceiling and take control of this runaway spending. we haven't been this place of debt since world war ii so we cannot continue down this path. jonathan: speaker kevin mccarthy speaking over the weekend. a big week ahead.
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on the s&p 500, features down 9%. tough time for chinese tag. -- tech. bond market yields going into the yield. euro-dollar, positive by .3%. spanish cpi came in hot. german gdp came in soft. we are looking for the ecb to go 50 basis points at the meeting thursday and maybe again at the meeting after that and perhaps again after the meeting. pushback this morning. max had this to say, it won't take much to prompt the short-term setback for risk assets, talking about bank meetings.
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one said, let me be clear about max, we came into the year and the second half was better but max flipped it early in the year . he looked for a better first half and maybe a tougher second half. lisa: which is what seems like everyone did. jonathan: price action will make you change your mind. lisa: the data shows deceleration in inflation in the u.s. and perhaps we are past peak inflation and that is why people are not buying the fed will go as far as they are saying. that is the reason why it can't go longer than that. jonathan: does the debt ceiling conversation change that? that is the most frustrating conversation. lisa: why are we talking about this? with politicians knowing what a liability it will be if they do
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somehow end up in a 2011 scenario, it is one reason why people pushback against it. it will get taking care of but it will be messy. this is so exhausting. jonathan: are the reasons to think it is different this time? lisa: there are reasons to think maybe has a longer-lasting premium we have to pay out and people look at the political instability. the problem is, it is like this everywhere in the world. how a going to deal with this if you have battles in every democratic mission. jonathan: annmarie hordern joins us. any news on this or chance that we kicked the can further down the road? annmarie: it does seem like at least the talks look like they are in slow motion. we finally have a date when president biden sit down with
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speaker mccarthy. the debt ceiling ob top of that -- ceiling will be top of that and he said they can come to a reasonable agreement with the president. so far with the battle lines drawn between republicans and democrats about raising the debt ceiling and republicans want extraction of federal spending for that, there has been no movement. one thing mccarthy did say is social security medicare should be off of the table. it doesn't mean potentially he has the votes but all discussion of spending including defense spending on the table. it will be interesting to see what comes out of this meeting. lisa: i have to ask, do you think kevin mccarthy regrets taking this job? annmarie: i'm not sure about that. this is something he has wanted for a very long time and the fact that he was able to last, what was it 15 votes, and continue to want this job i think knowing the individuals
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and personalities he was getting on board with, he is prepared for it. but i do think he knows he is walking a very tight rope, between the extremes of his conference. lisa: given the fact he is walking a tight rope, what will be the purpose at this moment to visit taiwan, go over to the island that has caused so much controversy over in the south agency? annmarie: cassette in the past when speaker pelosi went last year that he said it was a trip he would like to do if he was speaker, preparing for his leadership in that role. we don't know on any fixed dates. some reports that there are talks of a trip in place. this would be about the republicans come as the democrats have had, make sure they are standing up for taiwan and also showing that they are not just talking tough almost
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walking the walk when it comes to making sure they are combating china and many perceived growing threats. it is an interesting moment in time for it, because you have the biden administration trying to warm relations with china and get some conversations and dialogue and secretary blinken will be heading there in early february. so we have seen the beijing foreign ministry talking about this. jonathan: will have a long conversation on this but the race for 2024, former president donald trump said i am not angry i am more committed than i ever was. there have been questions about his campaign. i thought he would be hitting the ground running about the current president talking about this. where we -- where are we on the race for 2024? annmarie: so far, we only have
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former president trump running. two important states he visited. it seems his campaign has lost some of the momentum and heart as governor sununu put it on cnn, that you saw the fight he had in 2016. we are still waiting for an announcement from the current president on whether he is going to run in 2024, but all the conversation direction looks like he will get in the race, but it is still very early on, special and the republicans side. we look at the polls, it shows that governor desantis has a much better chance and opportunity to win that if it was to be the former president trump. jonathan: what did you make of the comments of nikki haley? annmarie: she didn't show up in south carolina. she was supposed to be there alongside the likes of senator
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brand to talk about these are his allies when it comes to this campaign and she decided to not go, because she said originally she would not get in the race if the former president was running . it does look like she is now potentially going to throw her hat in the ring. jonathan: time for a new generation. how did you respond? lisa: can i.b. that leader? -- can i be that leader? i think i can. jonathan: that is a man preparing for a run. lisa: with you think he lives? -- lifts? jonathan: i don't know. but he looks brilliant. this could be a competitive race. lisa: get raises the issue on what does the democratic party do on the others.
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perhaps president biden could win against the former president trump, but what about some of the others? jonathan: amrit will drop by again. the chief economist at jp morgan, bruce kasman, is going to join us. you have to go back to august for the global gdp. manufacturing is weak without a doubt, does this go to services? lisa: that's what i want to say. we are going to get foreign payrolls and prints and that is what i will be focused on the service side. jonathan: futures down 1%. this is bloomberg. ♪
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jonathan: going into the federal reserve, equities down. the s&p, negative one full percentage point. the nasdaq, quite a run, up 11% coming into monday. futures down by 1.3%. plenty of bears talk. mike wilson, morgan stanley, perhaps this week will serve as a reminder. yields look like this, two-year,
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4.2341. 10-year up for basis points. we heard from lissette mentioning the latest letter from steve major, his newsletter -- lisa about mentioning the latest letter from steve major, his newsletter. it would've been a good decision to buy. the question is whether you think hike is the ultimate rate hike. on foreign exchange, euro-dollar shaking up as follows, stronger euro, her dollar. euro-dollar 1.0899. we will get cpi from france in the few days. germany gdp came in soft going into thursday. the ecb looking for another 50 basis point move. fed decision on wednesday, ecb on thursday, and the u.s. payrolls report rounding out the week. what a week coming up.
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michael: it is unfair that they do this. if they could spread it out it would be more fun. we will have a lot of interest rates move is what we know. the fed will go 25 and the ecb and bank of england could go 50. then the question is, what do they say about it all? i assume christine lagarde will say we are not done because they have a bigger problem than we do . but could jay powell say we are close to the end now and we might do one more or we will see what the data tells us. we will have two jobs reports, cpi's before the next fed meeting in march. there could be data that say you don't move. does powell want to upset the markets? you have yields go in the right -- going in the right direction. lisa: going in the right direction marginally after the same level for a month. at what point do they get concerned about the easing of financial conditions or do they not care because the data moves
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in their direction? michael: i think they are closer to not caring because the data is moving in their direction. i don't they know necessarily what it would take to get conditions tighter. at this point, you have 450 basis points, another 25 coming and we are still seeing positive financial conditions. it doesn't make a lot of sense but data is going in the fed's direction so why mess with a good thing? jonathan: you are there with us in jackson hole, wyoming. an eight minute speech. he said will higher rates bring down inflation and pain to households and businesses. where is the pain he was talking about? michael: you are starting to see layouts spreading outside of tech and it takes a while for it to hit the data.
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so far what we are seeing is companies rationalizing workforces rather than reducing. if you can parse that distinction. we are not seeing mass layoffs because business is bad but layoffs as companies restructure to look to more profitable areas. they are not trying to get rid of people because they had such a hard time finding him after the pandemic. jonathan: we meet in washington wednesday? michael: i will be in washington wednesday and will keep you informed. jonathan: looking forward to it. michael will be at the news conference. running us now is bruce kasman, global head of economics at jp morgan. where do you see this going? is the hike this wednesday the hike of the cycle? bruce: we think the fed will go 25 and think it will be a fed
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that continues to talk about the need to do more. however, i think as the data is showing in moderation in inflation and cooling labor demand, i think the fed is getting more comfortable and will probably hint at getting closer to a pause. we should recognize the pause will not be because the job is complete but because the fed is hopeful the lags and monetary transmission mechanism will deliver its results. thinking about whether the pause is due to tightening of the fed, you have to ask yourself where will the economy be in six to nine months and we are not as comfortable as i think the market is that the fed is done and will get inflation under control that we will have a recession and all the dynamics will be realized. jonathan: we will have a statement enters a line that says ongoing increases. you think that line sticks on wednesday? bruce: if they will shift it,
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they will shift to do something further, diminishing the magnitude of what they are talking about. they want to be hawkish. there is an easing in financial conditions they are somewhat concerned about and they do not have to tell us they are going to pause if a pause will happen after the merge eating, which means leading into the main meeting they may not move. there is a lot of data and they don't want to validate significant further easing in financial conditions but are getting closer to a resting point based on hope that the lags in transmission mechanism because we are not where the fed needs to be in terms of its objectives. lisa: there is pushback that there would be ongoing decline in inflation that could get us back to 2% by the end of this year. what will be the driver of that renewed inflationary aspect in markets? bruce: it is not renewed inflationary aspect but
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disinflation we are seeing right now, which is largely an unwind of supply shocks and other forces around demand that we have seen. there will be a cushion. labor costs are still rising rapidly and inflation psychology, we think inflation will come down into the low to mid threes but it will be hard to get it down to the low to mid to without a much easier labor market. lisa: how do you understand the idea that we are not seeing loosening in the labor market and the tightness seems to be pervading the reports as we hear increasing anecdotes not just big tech but smaller companies with layoffs? bruce: the tech story is specific. it is a high fire that is coming down to earth. are seeing a bending in business behavior in the face in what has been week demand and tightening conditions.
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you see the works numbers cooling but businesses are healthy. they are not going to shed labor rapidly. if we are right and what happens in the next few months is tightening in financial conditions we have had from the fed being offset by fading supplied shocks and pick up in china and europe, the dynamics of a healthy household sector that response to that, think the auto sales this week will be interesting in that regard. i think what you will see is a labor market that stays tight and labor demand that holds up for fundamentally good reasons. jonathan: put some numbers on things, where you see fed funds ending up? bruce: we had the fed pausing at five after emerge move but pretty even in our own forecasting of scenarios of whether that will be the end or the fed will have to sometime in the second half of the year fink about raising rates again. i think that scenario is the one
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we want to consider, partly because the market is off in pricing. jonathan: that will bring a lot of volatility if that is the case. can you tell me how china's reopening is influencing the thoughts? bruce: it is we have to be broadly right that the bending but not breaking is taking place. if we are sitting in the next three or four months and the corporate sector hasn't broken and the benefit of lower inflation is helping consumers, that the chinese opening will have an impact on commodity prices and good prices globally and add reflationary impulse to the u.s. as well as the global economy. lisa: you talk about perhaps we will not get a recession this year, is that recession deferred, say in 2024 it will be worse or lengthening the timeline in a cycle people
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thought was moving faster than it is? bruce: we don't think we are going into a recession now but the risks later this year in 2024 are quite high and part of it is simply there are lags in the transmission mechanism. the bigger mechanism is if we are in a situation where inflation is sticky and labor costs are sticky and the environment remains one where the fed has to stay higher and higher, gradually you will build vulnerabilities that could cause recession and the point to make there is while we tend to think this recession will be mild and it will when you look at the gsc which was off the charts, but late 2023 into 2024 coming with monetary tightening around the world, it is hard to see that as a mild recession in an overall sense and i pushback against the recession that will come here will be mild by any circumstances. jonathan: this with deeply
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thoughtful stuff and we appreciate your stuff. bruce kasman there, not constructive down the road. lisa: near-term construction -- constructivists. people pushing on the forecast might mean more pain later because as bruce was talking about, the secret nation -- the synchronization as well as downturn vulnerabilities. jonathan: the resiliency of this market front and center. so many people publishing this morning. andrew had this to say, we expect core inflation to challenge the most recent version of the transitory inflation narrative it. lisa: they have been talking about this for a while and think inflation won't roll over so quickly and then you go into the distinction of deceleration in inflation and when it is enough
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to sort of have the sustained momentum to go beyond 3%, 2.5% closer to 2%, and will it really matter? jonathan: high-end guilty of saying this every single monday, but what a week coming up. lisa: there been couple of mondays we haven't said that. this is an important meeting. jonathan: futures on the s&p down 1%. yields higher. euro-dollar close to 1.09. can forward to a conversation with jordan rochester. lisa: with the first word, i'm lisa mateo. president biden will meet with house speaker kevin mccarthy wednesday to discuss acing the
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debt ceiling and avoiding a u.s. default. republicans won a deal that includes government spending cuts and democrat have refused to negotiate of the debt limit. germany's economy shrinks were spent expected and makes a recession more likely. soaring inflation due to higher energy bills has weighed on german household spending. a billionaire attempting to restore confidence in his business empire falling flat with investors. adani slumped again and the selloff raised $68 billion in market value. over the weekend, adani issued a rebuttal to allegations of fraud by short seller hindenburg. the dutch maker of medical equipment phillips is cutting 6000 positions, a percent of its workforce coming on top of 4000 job cuts announced last year.
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phillips is reducing spence's while dealing with -- reducing expenses while dealing with recalls. no -- renault is agreeing to lower the nissan stake and transfer the remainder of the stake into a french trust for a sale. the deal still needs approval from the boards. the japanese automaker will invest in no -- renault's business. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪
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the u.s. but now expect to see a relatively soft landing in europe. gas prices have helped and the pickup in china the absence of recession doesn't mean we are yet into a strong recovery cycle. jonathan: fantastic to catch up with peter oppenheimer in london last week. it is the difference between recession and stagnation and stagnation and recovery. getting excited about stagnation i find slightly difficult. lisa: perhaps this is the issue you are asking a lot of people, are we seeing people close out short or they kidding long? if you check out the u.s. international investors, it is getting long. jonathan: i keep reading stories and headlines, how can you get long with the reopening story? it has been going on for three months or in china. i looked at alibaba on the charts last night, 80% higher --
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87% higher in three months. another question you could ask is where do i want to be for the reopening but have fleet seen it in the last three months? lisa: it is great point as people start talking about everything that will happen. there was an interview with the boeing ceo saying air travel will return to 90% of pre-covid levels due to china boosting it era have we seen that play out? jonathan: we could talk to god about europe. -- guy about europe. we are going to talk to maria tadeo. what is important for the ecb thursday? maria: at this point, it is not
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because i am spanish but this is a data point that i covered religiously for two years of my life and it is not a bias but this is a single mandate central bank and it is about inflation. if you look at the data out of spain, inflation accelerating 5.8%. in january, we expect a cooldown . the opposite for core inflation. this is very important when you look at spain, which a lot of people look at as a forward indicator is that core inflation gets measured differently in spain. to answer your question, at this point it is inflation. if you look at everything for weeks, it was said it is about inflation and the ecb has the job to bring it down to target. jonathan: you follow the common tree from ecb officials closer than i do, how much division is there on the governor counsel? maria: the thing to me that is striking is she came out hard in
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december. you remarry the press conference where she set the job is not done. we have to get inflation back to target. this will be hit and staying the course and there has been very little pushback from the doves. when you look at thursday and that is the big meeting, the market expects another 50 basis points hike in the real question will be, will she signal another 50 basis points come march. when you look at the data out of spain, you could argue that the hawks had the argument to say we have to continue to hike at 50 basis points. lisa: germany it looks like it is place for a recession. even though you are seeing optimism in spain and other economies, the biggest one in the euro region is struggling. does that color the conversation for how high the ecb will go? maria: that is a good point because sometimes we talk about this european recession, do you
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mean germany or the entire euro area. when you look at spain, italy, france, the economy is not in a recession but germany is the biggest one. german policymakers will say it will be shallow and short and their focus is on inflation. the german bank battles around inflation and it is growth and inflation but to me it seems it really is about bringing down inflation to target regardless of what the economy is doing. lisa: how much of the increasing inflation had to do with fuel costs as well as tourism, a weaker euro of people coming in and flooding the region with money? maria: that is a good point when you look at the tourist season or you have the china reopening and we know countries like france, italy, spain are big
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hubs for chinese tourism. you had two big events in q1, fashion week and carnival. i wish i had time for both but i have time for neither but that could play into this. it is too early to say whether that had an impact. you had to thinks coming off of the spanish economy, a subsidy on fuel, a flash reading but i want to see the details at the end of the month but i would stress the point, core inflation also include some elements of food in spain so you have to treat it differently. jonathan: amazing the conversations last week about let's call it relatively speaking constructive optimism around the european story on recession and reading front page of the european papers about the war taking place in ukraine. it is almost like on wall street and the financial sector there is fatigue. it is still happening in ukraine
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and some would argue that things are escalating. kailey: lisa: -- lisa: a lot of people are concerned about russia trying to get ahead on the weaponry that ukraine will get you have olaf scholz trying to make some discussion with vladimir putin because this is dragging on and the deaths are catastrophic. jonathan: what is the latest on that front? people are constructive about what is happening with the economy. can you say the same thing about the war right now? maria: if you look at the words of president zelenskyy, he is painting a grim picture saying russia is potentially preparing a new offensive and the one year mark of the invasion of ukraine, intentionally -- intentionally something that will come -- potentially something that will come. he said he needs more and talks
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about fighter jets and said a war is going on and has not gone away and could play into russia's hands. it was repeated yesterday and the speech. he said we need the stuff now and it is about who gets the upper hand. jonathan: thanks for your time. maria tadeo over in brussels. lisa: i do think there is the issue you raised that the geopolitical risks that people are talking about, perhaps because it is fatigue. you talk about the war as it continues to escalate and you talk about a widening questioning of the geopolitical arrangement with russia's support of iran and the attacks of iran and what it could mean for oil. when you talk with macro traders, they are focused much more on this then it would seem. jonathan: the overwhelming
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consensus is the ecb hikes more than the fed this year. i went back to my notes that i made from christine lagarde, we are not wavering and we have longer to go. she will repeat those comments at this meeting. lisa: they have more oxygen at the fed. is the year region going to function well with say three .5% overnight rate versus the 5% overnight rate that will be the peak for the fed? where is the limit and is it lower than the fed but they might hike more because they are further away from it? jonathan: no way. if 12 months ago you would have said to 50. the ecb getting to 250, i would have laughed at that. lisa: fact that there has been an ongoing recovery and not a full up session is pretty incredible. jonathan: it might be the
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inflation backdrop in europe being more sticky impaired to the united states. we could put it in a bucket saying they are six months behind. lisa: from your perspective, the labor unrest and strikes not only in the u.k. but france, how does that play into the stickiness of the inflation? jonathan: i don't know. i think union membership is a big part of this. if we had the union membership in the united states that we did back in the 1970's it would've been a different picture. lisa: you mean stickier? jonathan: without a doubt. equity features on the s&p down 1%. massively ahead, federal reserve decision wednesday. earnings from meta, amazon, google. ridiculous this week. a full preview.
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looking up to catching up with kenneth tropin. this is bloomberg. ♪ ♪ at allsprwith purpose. away harnessing data-driven insights and boundless curiosity. we dissect the market from every angle. helping to build portfolios that redefine what's possible. because investing isn't one size fits all. allspring. purposefully divergent.
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>> we think structurally returns are going to be lower. >> we think the global economy is in relatively good shape and we expect a soft landing in the u.s. but we also expect a relatively soft landing in europe. >> the fed is starting to adjust to the fact that the economy has weakened did use itself as being in restrictive territory. >> the market is underpricing
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what the fed will say. >> the market is underpricing the risk of hikes for this year. >> this is bloomberg surveillance, with tom keene, jonathan ferro come in lisa abramowicz. jonathan: a massive day ahead, so tom keene took the day off. i'm jonathan ferro counting you down to a massive week ahead with the federal reserve on wednesday, payrolls friday come in earnings in between. equity futures down 1%. we have the big debate on wall street. mike wilson on morgan stanley, and the other side max kettner of hsbc saying you should chase this. steve chevron saying he was jumping on board with the rally this year. lisa: the biggest bearers are actually going in on this rally because they do not see a reason for it to stop. you have steven major on one side saying we might be close to
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the penultimate rate hike which could signal a sustained bond rally and then you have hedge funds boosting their short positions on treasuries to a record. this question around the push/pull of whether the fed can push back against a market that seems to be moving in the direction they want. tom: the 10% -- jonathan: a 10% or 11% rally on the nasdaq will change things and that is what has happened. lisa: the bulls intact say the job cuts are necessary. if you start to look at the chip sector that indicates there is lot were paid to, with a lack of investment. jonathan: the weakness is being pushed out. jp morgan acknowledging what could happen in q1 that will likely mark a turning point that the next leg higher might not,. ms. love saying -- mislav saint markets could encounter an air pocket.
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what happened to the first half that would be dreadful in the second half will be this big recovery? lisa: what is the saying that the market will exert a massive amount of pain. i wonder how much the consensus of dip in rib will get turned on its head and people got turned into a mid that was not that bad. jonathan: futures right now the s&p down 1%. equities lower after a massive month of gains for january. the nasdaq up 11%. equities up 9.9%. euro stocks up 10%. this is four weeks. the s&p 500 up about 6%. that is still pretty decent. yields up five basis points. euro-dollar just about pull you into levels around 1.09. the data out of europe, spanish cpi came in hot and german gdp
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came in soft. lisa: basically it is stagflation, which is not necessarily -- go along seems to be the trade for a lot of people. the fomc rate decision is on wednesday. we are doing a special on that which is perhaps why tom took the day off today. ecb rate decision on thursday and bank of england. we see a bifurcation of the message with the federal reserve taking a bank of canada tone -- to me i think the earnings might be more important this week. tech has led so far in 2023. can it continue after the behemoths report? mehta on wednesday and then apple and amazon alphabet on thursday. i'm curious about cloud computing, about amazon and its layoffs, who they are cutting. a lot of people are looking to them as a bellwether for the employment picture.
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on the data front we get jolts data on wednesday, thursday we get nonfarm payroll, and friday we get the nonfarm payrolls as well as the ism manufacturing and service sector data. put this together, do we start to see softening in a jobs market that has been resilient to date? jonathan: fantastic week ahead. lisa: huge stories. jonathan: payrolls, the fed, ecb. joining us to discussed is kenneth tropin. fantastic to catch up with you. thanks for being with us. the amount of central bank tightening we have seen, there is a feeling we can get away with something mild, something short, then move on. you share that feeling? kenneth: i think that is too optimistic. if you think about how 2022 compared to the previous decade,
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in the. between the end of the financial crisis, 2010 to 2021, we saw a total of 1325 basis point rate hikes between the ecb, the bank of england, and the fed. in 2022, we saw 40 25 basis point rate moves. some of them came at 50 or 75 a crack. you have seen an enormous sea change in financial conditions and i do not think the market reflects that in equity valuations. jonathan: -- lisa: would you move against the tech rally, would you move into bonds? ken: i think it is a good time to be very conservative. one of the things that i think about is for the last 11 years prior to 2022 you were rewarded for buying every dip in
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equities. that is the psychology of investors broadly. i think that psychology needs to shift. i think the 10% rally in equities seems like there was a big selloff last year people wanted to get back in with the sense the fed was going to start easing in the second half of the year. we are not so convinced they will ease and there is still a lot of rate hikes priced in between the fed and the ecb and the bank of england. i would be cautious personally. lisa: what does it mean to be cautious when last year at the 60/40 did not work and the bond component had the worst year of record if you look at certain denominations. is this a new time of that being a haven trade or is that a difficult area? ken: it is a difficult area. you have the yield curve inverted. i think to be in one year notes
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and be patient makes a lot of sense. last year was the worst year for a 60/40 portfolio in 37 years. it is crazy. jonathan: are you thinking inflation will be stickier than people anticipate? ken: i do. somewhat stickier. it is cooling, but energy prices have not gone down that much. if you think about the world we are in, there's not any energy to element in the united states. green policies, which we need because of global warming, discourage more energy development. resources are tight. if you look at labor, there is softness in tech. on the other hand cvs and walgreens are limiting hours because they cannot get enough employees. i do not think we will see inflation get anywhere near
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target as soon as the market would like. jonathan: where does that leave the yield curve? some people that we could get that return because the federal reserve will save the day and deliver the steepening we could get. are you pushing back against that? ken: i think the yield curve has moved too much. for all of the years i've been in finance there was term premium and duration priced into the bonds, today is the opposite. that does not make a lot of sense to me if you think we have inflation that may be around longer than six or 12 months. lisa: we have been talking a lot about anecdotal signs of weakness in the labor market, whether it is big tech or the big banks that have been cutting jobs. you think those anecdotes represent a softening in the labor picture or is there more sustained strengthen people realize? ken: i think it is bifurcated. in high income there is definitely softness and i think
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in the service sector or more blue-collar jobs, not so much. i also think we have the psychology of a lot of employees who are younger who have never endured a recession. they are being very patient about looking for jobs if they are laid off. that is a new phenomenon. jonathan: your favorite trait this year? you do not get to say the two year because you have said that already. ken: the two year is not a trade, just a good place to be conservative. if stocks would go up 10%, i would probably lean short. jonathan: you would go short right now? ken: we are mixed. some of our quant systems are long equities while are discretionary or short. jonathan: does their part of the market you think needs to be shorted more than most? ken: if you look at the hang
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seng that has gone up an enormous amount in the last three months. that looks really expensive to me and i think broadly in the u.s. if we are going to see a recession this year, i do not think that is priced it in the s&p at all. jonathan: this was great. ken: it is the most exciting time to be in macro and 15 years. so much going on between what is happening in the ukraine, and inflation come all of these rate hikes. it is a lifetime opportunity. you never know exactly what happens, but it is really exciting to be in macro. jonathan: is exciting to talk to you and let's do this more often. ken tropin there. leaning against may be some of the equity market rally. lisa: the hang seng was an interesting point. you asked this question earlier, how much of we priced in the reopening trade and gotten over
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our skis be forcing the data on the ground and how the opening will manifest itself. jonathan: we are talking about 18% or 19% moves in three months and people are talking about the reopening trade. it has been going on since november. lisa: other people would say look at the carnage last year and this is what can was talking about pushing against this idea that stocks will always go up. we double along way to go before we recover last year's losses. jonathan: it takes a long time to recondition the psychology of market participants. equities on the nasdaq lower, the s&p lower, too. on the s&p we are lower .9%. coming up, tony rodriguez on the bond market. interesting to hear that comment from ken that maybe the 10 year yield is too rich. lisa: the stickiness of inflation. jonathan: andrew bowles last
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week said that could be the big risk of 2023. all of that coming up and amh on the other side of the break commercial break. looking forward to catching up with her in d.c.. lisa m.: keeping up-to-date with news from around the world, i am lisa mateo. in iran officials say a drone attack cause an explosion at a defense ministry ammunition depot. according to the wall street journal, israel carried out that strike. the journal says the aim was to look for new ways to contain iran's nuclear and military ambitions. in the u.k. prime minister rishi sunak says he cannot raise taxes to fund to pay hikes for workers in the state run national health service. rishi sunak told an office of health care workers that nothing would give me more pleasure than to wave a magic wand and have you paid much more. workers and ambulance workers are both planning strikes february 6. the federal reserve is set to
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raise the benchmark federal funds rate by a quarter percentage point on wednesday following recent data suggesting the fed's aggressive campaign to slow inflation is working. china is urging house speaker kevin mccarthy not to visit taiwan. beijing raise the specter of a repeat of last years show down when nancy pelosi made her own trip to the island. mccarthy had pledged to make his own trip to taiwan if republicans took control of the house. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪
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>> they said he is not doing rallies, he is not campaigning. i am more angry now and i more committed now than i was. there is only one president that has ever challenge the entire establishment in washington and with your vote next year we will do it again and i will do it again. jonathan: the race for 2024, donald trump speaking at a rally in new hampshire and south carolina. let's head down to washington, d.c. and catch up with annmarie hordern. we talked about it, what campaign?
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we heard from the former president over the weekend. annmarie: he is out there, two important states. the criticism against the former president in the republican party is this campaign before this weekend had evaporated and lacked the momentum and excitement he had in 2016. this also comes at a time when you see others starting to tee up potential bids they also want to run in 2024. jonathan: wicked think of two of them. ron desantis in florida. that is the republicans and we can focus on that but we need to talk about what could be happening on the other side. i thought we would hear from the current president after the holidays about his intentions. what has happened to that? annmarie: you have the state of the union next week. i also think this president knows that once he throws this name in the ring he will also be
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viewed as a candidate. americans prefer a president rather than a cabinet. he will probably wait until after the state of the union if he does decide to make that announcement. also the white house has been dealing with the trip of the documents crisis, whether it was at the president's former office he was using when he was vice president. that is starting to die down, especially since another former vice president, those documents also found in his home. as that started to quell and the noises getting under control for the white house, potentially that makes it more of an opportunity for them to come out in the next few weeks. lisa: before we pivot, document gate, what is behind this? why is it so many form officials have classified documents at their homes? is there a logical explanation? annmarie: this is a great question. i think you will hear a lot of growing calls and you already
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have from members of congress to make sure there is a better procedure in place when officials are leaving their office and they are done with their term in office and they're packing up that this does not happen. i think how you have to judge these or the way you will get a justice department is was their intent? -- was there intent to steal these documents, to take these documents home, or were these accidents? there will be questions about this because it is not just the current president, the former president, but it is also the former vice president. clearly there is an issue. lisa:: we talk about president biden and whether he will run again, there is a long way to go in terms of his actual staff and the overhaul that will happen the next few months. i think of his chief of staff and the potential for lael
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brainard to take over. is there an idea of who will replace are on the federal reserve? annmarie: that is a question people are asking but so far there been no names thrown out as a short list. partially that is because they are still deciding whether or not it will be lael brainard to lead the national economic council. she is definitely the front runner, but also we are going into an fomc meeting, there is a blackout period. until she is announced you will not see any name circulate on who could take her spot. jonathan: we have the reporting suggesting she wants the job? annmarie: the fact that she is a top contender, admix and she probably does want the job. -- i think it makes sense she probably does want the job. since she is at the fed she is in a position to say it makes sense for me to stay here.
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she had a very good excuse if she wanted to stay. i would read the tea leaves as this is something she wants to do. jonathan: i don't think this is that controversial that lael brainard is going to this government. lisa: i think it is controversial to see how quickly they will replace our. behind closed doors the conversation is what caused the extra spout of inflation. part of it is the fed did not get on the ball early enough, and part of that was a political reason because jay powell was not reconfirmed. if he had been perhaps he would've had more political capital jonathan: that is what some people on the fomc have suggested. lisa: we have no idea but that has been the speculation. what issue does it because if the number two is not replaced quickly? jonathan: i think people on the margin think it would make it more hawkish because chairman
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powell would have more control -- he has control anyway. think about the optics of this. your chief economic advisor to the president going into potentially raise for 2024 is the former number two from the federal reserve who a lot of people in your own party are blaming for the economic fallout they are witnessing. i think the optics of that could get tricky. lisa: in terms of president biden and what that could mean for his reelection? perhaps, but on the flipside you could say he got someone who had knowledge of the innerworkings of the fed. there are a lot of ways to spin this but it creates a complication on both sides. i wonder if it has created a complication whether she has taken the job. jonathan: i think you want one of the sharpest minds out there to take the position. for the national economic council and for her to lead the policy for this white house and this administration, i think that is a big issue.
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for this individual, unsurprising when i saw this headline. totally unsurprising. there were reports several years ago about donating to the clinton campaign. we know she was the front runner to be the next treasury secretary. and anyone who thinks the fomc does not have political beasts on it are out of their mind based on where the nominations have come from. lisa: i do not think it is surprising for her to want this job and take this job and for her to be expected -- for her to be respected by a lot of people. what is surprising is the timing considering how fraught this moment is for the fed. we've not seen the unemployment rate turn upward. we start to get political interference. as we get into that time it makes things more complicated. jonathan: do think there will be allegations of political interference of the federal reserve? lisa: either there will not be political interference and they will hike rates more and people can push back and torpedo the
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party and the current administration, and if they are not hawkish enough people will say it is because they want to keep the economy humming for the next election cycle. you are laughing, but i am wrong? jonathan: i am laughing because it is ridiculous. i'm not saying you're right or wrong, i just think the conversation around the lael brainard nomination is ridiculous. annmarie hordern in d.c., thank you. i do not think it is that controversial. i do not think it changes much of the federal reserve. how much dissent have you seen at the federal reserve? they all seem to be on exactly the same page. lisa: should i continue talking about it because you think it is ridiculous? i think lael brainard has been on the margins more dovish so that is interesting if her voice gets eliminated and put towards the head of the economic counsel for the ministration. jonathan: i am happy, too.
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lara rhame is jealous we are always going to make a story out of something. i do not know how big of a story it is. maybe people disagree. lisa: i think it is worth questioning because we spent so much time on this issue of could this fed through with rate hikes at time of true economic softening? maybe we will skip that debate because we get immaculate inflation, but if we do not it becomes of local question. jonathan: i think the data is more important than whether lael brainard is on the committee. futures down .9% on the s&p 500. yields higher. 3.5495 on the tenure. lara rhame of fs investments, coming up. ♪
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jonathan: going into a monster week for financial markets worldwide. equities down .9% on the s&p, the nasdaq lower 1.2%. steve chevron of federated saying chase -- saying fade this. mike wilson at morgan stanley, that list is growing in the face of a big rally so far in the first month of 2023. yields look like this. 10 year yield higher by four
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basis points. yields up on the front end by four basis points and a finish on foreign-exchange, for those of you still tuning in, waking up stateside very late. it is very late. jonathan: i'm not going to scold it -- lisa: not going to scold anybody for waking up on a decent time. jonathan: over the next couple of days you will hear from france, germany, italy on their inflation story going into the ecb. lisa: earlier this morning ken tropin was talking about fading the hang seng. we seem to be seeing that a little bit in markets. alibaba and, all of the adr of these chinese companies, you can see a market selloff. this is not anything in particular except people coming back to the office, sing the reopening post lunar new year
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and saying -- you see trip advisor down 2.1%. that if you flip over into some of the other big winners, tesla shares last week surged 33%. we are seeing it down about a 1% decline in the tesla shares, down down .2%. lower. perhaps people pushing back against the enthusiasm, down 1.2%. micron, i'm watching the chipmakers quite closely considering they have given negative projections. those shares. is there something more material with a misplacement of which chips have been produced and for when? this is a big question in markets. jonathan: you said this a few
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times. the earnings have not been great. lisa: i do not understand people saying if you look at earnings, that is a reason to rally? is it? jonathan: the numbers for microsoft? intel? lisa: intel was kitchen sink and people saying there a lot of kitchen sinks there. jonathan: it was pretty brutal. fed meeting on wednesday, payrolls friday. going into that meeting lara rhame segment 25 basis point rate hike is widely expected. i expect the committee to say further increases are necessary. the battle for rate cut expectations will heat up in the fed will be pushing back hard against the idea that rate cuts are necessary. lara rhame, chief u.s. economist at fs investments, joins us now. this is the question into wednesday. the recent easing of financial conditions, warranted or not,
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and i wonder how you think he will answer that question, and whether you think market participants will listen to him? lara: whether they are warranted is a reflection of the fact that markets have been trained to look on the curve of the economy. there was so much talk about a recession at the beginning of last year. you need to look at the timing of this. this is why i've penciled in late 2023 for an economic slowed down. that is why the fed have not constrained lowering that curve and cutting rates until much lower in the year. if you paid that macro backdrop, it means that markets were pricing in three rate cuts this
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year have gotten too aggressive. that is pulled down the front end and look at what we have had. mortgage refinancings have reignited again. we are about to see the housing market come back to life. the fed has not broken anything. they have put a pin and all of these interest rate sectors of the economy and when rates come down those replay are and that is the push and pull we will see over the next year. it will start this wednesday. jonathan: try to con your call you do not think the weakness comes until the year end? what guides that view? lisa: you have to take out a microscope to find weakness in the labor market. we have upsetting headlines on key industries like the tech sector, but the reality is these are sectors that over higher during the pandemic. they are trying to right size that right now and when you look at the broader initial claims,
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the employment rate at 3.5%, jolts data, the vacancy rate, dough down the list and pick anything, it is just very difficult to find any signs of weakness. normalization, cooling, all of that is healthy. on the consumer side i would argue there is a similar situation. there has been a lot of talk about delinquency picking up and consumer banks are being cautious. that is their job. at the end of the day when you saw earnings from mastercard, from american express, the consumer is healthy. with jobs where they are i think the household can continue to spend and lower inflation has role to play in that. it is not a strong growth picture, it is a grind, but it stays positive. lisa: you say the fed has not broken anything and then you talk about these pockets of strength that could keep inflation hotter than the fed would like. is the implication the fed has to break something and what is
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that they would have to break? lara: that is what a recession is. it means they have taken something and pushed it too far. our economy does not like to contract so it needs something to not be working right to fall into contraction. they have talked a lot about the labor market. they have talked a lot about wages. we need wages to come down significantly and i am not sure that is going to happen given the limited number of job availability. i think when they think about targeting something to really slow the economy in a broader level, it often is the labor market. i think right now they are content with broader slowing. they just see the need to continue to raise rates. i do not think that is going to change. it is time for them to slow down. they are doing the right thing over the next several meetings. lisa: a lot of people took some
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signal from the bank of canada which has been on the front foot and they indicated they would go 25 basis points. they potentially will hold indefinitely. why is the fed not going to do that because it does not seem to bother them that financial conditions keep easing? lara: i would push back that it may bother them somewhat. i think they recognize that when long-term interest rates come down it undoes some of their rate hike activity. while they will continue to monitor this, they cannot only focus on it because it is not the main mandate. we will see it not just hit 2% but hit inflation persistently at 2%. they have wiggle room to manage expectations and financial will be a big part of that. i think they will keep watching financial conditions very closely. jonathan: we are catching up
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with jim bianco later this morning and in his recent notes he said there narrative and attention should turn to how far down we will go, not whether inflation has beat. can you speak to that? are we going down to four or will we find it difficult to get to two? lara: the inflation numbers are going to look so choppy. this is because year on your base affects will make the headline number come down very fast. we about contorted ourselves in the monthly cpi numbers of looking at services, wages that are excluding shelter. we have gotten too micro on the cpi data and need to step back and include wages in the conversation. we need to include numbers in the medium-term versus the near-term. inflation expectations are part of that in those have been stickier. to me is a holistic inflation
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picture and i think the fed will be very focused on more than just one piece of cpi. the labor dynamics are very critical to that. that is what the medium-term models piaf of. -- the medium-term models key off of. lisa: what are you watching for? lara: nothing beats the payrolls. i think the employment cost numbers will be important as well. jonathan: fascinating the just a few months ago there wasfor nuance and all of a sudden the cpi just became nuanced. lisa: i wonder how much of this is going back to this feeling that people want to rally. do your point you think there's been a big pivot. lara: i would not say a big -- jonathan: i would not say a big pivot, i would say something subtle happened where he said the risk of doing too little outweigh the risk of too much and in a couple months that view became more balanced.
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i do not think we have had the full pivot. where there is a massive spread, you appreciate this and lara does, too. the fed is saying they will keep rates unchanged against the backdrop of disinflation, that means you stay tighter than this market thinks and this market is looking at rate cuts. if we reconcile that spread with the market coming up to the vet that will come with rate volatility. if we get that climate again we have a problem for risk assets. lisa: you know what no one is talking about? the balance sheet rolloff. it is happening. we have seen $500 billion taken down from the balance sheet and it will keep going and keep accelerating on that front. even if the fed keeps rates at 4.5% to 5% it'll will be an ongoing tightening. jonathan: it is like watching paint dry. lisa: maybe it is because nobody is talking about it. where does that come into play? there is a much money in the system and everybody has money
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and as soon as people want to feel risky they can go into whatever they want because they have the money. what happens when he gets train from the system weston mark jonathan: at least they got what they wanted from that front. nobody is discussing it and maybe it should be. lisa: it never comes up. is it paint drying? jonathan: i don't think it is but i was so wrong on the east be -- on the ecb getting to real damage. i thought there would be monster damage in the peripheral bond market. maybe qt is like paint drying. it is not to me or you, but that is not what counts. lisa: the market seems to be saying we like watching paint dry. jonathan: did i stay thanks to lara? she is gone. jordan rochester of tomorrow joins us next. lisa m.: keeping you up-to-date with news from around the world, i am lisa mateo.
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president biden will meet with kevin mccarthy wednesday to discuss raising the debt ceiling and avoiding a u.s. default. republicans want to deal that includes government spending cuts. the president has refused to negotiate. in germany the economy shrank .2% at the end of last year. that was worse than expected and makes a recession more likely. soaring inflation due to higher energy bills has weighed on german household spending. a millionaire attempts to restore confidence in his business empire falling flat with investors. shares of most adani group firms slumped again today. now he raced about $68 billion in market value. over the weekend adani released a 413 page rebuttal against allegations of fraud. toyota is the world's largest automaker for the third year in a row. japanese companies sales were
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mostly flat at 10.5 units for the year. meanwhile volkswagen sales fell 7% to 8.3 million units, the lowest level of deliveries in 11 years. bloomberg has learned the chinese search giant baidu will roll out in artificial intelligence chatbot. the tool will allow users to get conversation style search results. it is said to debut in march. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪ 92% still active? seems high. seriously? it's just a bike. wait. they make a treadmill with an intuitive speed knob? yeah. want to try? 92% stick with it, so can you. rent a peloton bike or bike+. terms apply.
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>> the bank of japan is starting to adjust. i think the dollar has definitely peaked. i do not see a precipitous decline but a gradual decline as other central banks catch up. jonathan: subadra rajappa there on this bond market and central banks. the federal reserve wednesday, the bank of england and the ecb on thursday. going into all of that earnings and a splash of economic data. equities are lower .8% or .9%. what is wrong with you? lisa: it sounds like a cooking channel. jonathan: it is a recipe for uncertainty. higher bond yields, 3.5477, that is how the table is set into federal reserve decision. have you ever heard this quote -- lisa: you just read it to me. jonathan: listen to this. low interest rates great week
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man, weak men create high interest rates, high interest rates create strongmen and strongmen create low interest rates. what you make of that? lisa: you want me to take it seriously? i think it is great. there is a regime story, story of men great and small. it is easy to have a business model with free money. it is harder to have a business model with expensive money and that is what we are seeing. i don't know if we can talk about strongmen versus weak men. jonathan: we are inclusive. you can replace men with people. yields up four basis points on the 10 year. euro-dollar just back through 1.09. gdp in germany is soft. more inflation reads in ecb decision on thursday. a stronger euro and all of this optimism about the future of europe relative to the doom and gloom and less constructive stop over last 12 months.
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jordan rochester joins us now. it is conference season, which means you leave london and go around europe and try to picture ideas. i wonder how many people are on board with this constructive euro, long euro story from the people you speak to? jordan: we have been around the world and had one client that has pushed back a lot on the review, mostly from a positioning angle. when it comes to positioning data and the proxy positions, all of those ways we can judge how overexposed investors are to this long euro, short dollar trade, that is the problem. everybody seems to agree. now we are entering into a world of how can things go wrong and to gdp numbers stand out. i do not think it is a flash in the pan, think there are key reasons. my job is to keep an eye out for
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how things can go wrong. lisa: how much is the divergence in central bank direction the only driver between what we are seeing with euro going higher and the dollar going weaker? jordan: i think the fx component to rates, the bread-and-butter of foreign-exchange. if you had an ecb view that was strong and if it you that was strong you can explicit in rates -- you can express it in rates and fx. rates do their own thing. flows are trade dominated and fixed income dominated so depends where you see those -- you think growth improving, the dollar will weaken. in this environment with energy prices lower, with fiscal stimulus and europe, with the reopening and china, it is positive for european growth and a big momentum change. in that environment euro area growth could outperform the u.s.
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, at least from where we were in terms of pricing. in that environment i see euro-dollar going towards 1.10 very quickly. i had that is my target by tomorrow. that might be too much in one day, but we were looking for 1.13 in q2 and 1.16 by year end. lisa: you said potentially reopening in china. what you have to see there for the euro to go higher? jordan: china is reopening but we have to take it in stages. we are still coming out of the situation in winter, which was high covid cases and china being rocked around. there is also -- we do not see the rebound until the second half of this year, the material rebound. i am optimistic that the spring weather we could really see a rebound in china's reopening and hopefully we see fresh fiscal stimulus. that could really accelerate the story.
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that is why i think the big move in the euro higher could, in q2 as we go into the warmer weather and it slows down toward the end of this year. jonathan: you think europe imports a stronger growth impulse. does it import the inflation story? jordan: this is where europe stands out. all of my leading indicators for euro area inflation are collapsing, they suggest disinflation. then you get spain. spain leads euro area inflation because they are more exposed to energy prices with floating contracts. they came in hot and i do not expect that. most economists thought we would have a big slow down. it could be the case that u.s. inflation slows down. we could have goods deflation in q2. in europe, because of the big fiscal stimulus, 7% of german gdp, this could lead to a difference in inflation where inflation rebounds in the second half of this year while the u.s. is slowing down. we have the ecb hiking rates to
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3.5% and keeping them on hold for the rest of this year. a very different story for the u.s. raising rates until the end of march and cutting rates towards q4. that story could see the euro outperformed because of the hot inflation. the big part is thanks to the fiscal stimulus and the bigger exposure to china. germany is three times more exposed to china with trade than the u.s.. jonathan: you clearly think that is a euro strength story based on your projections imply that the euro-dollar gets out to 1.16. what is the risk it ends up being a your weakness story? jordan: the main factor is if we flick from the dollar we are currently in, which is things are good elsewhere therefore the dollar weekends. if we flick not towards u.s. dollar outperformance -- republicans with the house will make it difficult to get the debt ceiling raised -- but we could have the other side of the
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dollar, which is a big risk off, credit spreads wider and european assets underperform. very possible but that is a black swan. you can hope for the best and prepare for the worst. if we did see that credit spread widening a lot of people would be quick to get out of these euro-dollar longs because we do not know what that is. the good news is the eu have been very good about playing a game of whack-a-mole. all of last year they were good with feeling any problem that came if the eu provided loans or stimulus. this time around because with russia and ukraine at war the eu will be quick to help out with any credit stress, unlike the u.s., where joe biden's hands might be more tied by congress. jonathan: wanted the greatest word to use for europe be stagflation? why are people using it? jordan: we used it a lot last year. stagflation was everything. this story now is disinflation,
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potential deflation, especially in the u.s.. inflation coming off high levels , but also we are seeing signs firms are charging less ahead. that is good for your real gdp forecast. you can lower your inflation forecast. growth in the euro area has been very weak and we have had very early signs in the january date of a bounce back. i hope that carries on in february. jonathan: we will see. jordan rochester on the latest in the fx market. if i told you two years ago we had 0% gdp growth in germany and inflation pushing double figures i think you would have a word that word is not being used. lisa: because it is negative and people are sick of it. people are sick of the narrative last year. it is a lot of growth and people are not seeing growth. it is disinflation in the u.s. or deflation. to some degree is because there
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are signs of growth in europe and away we have not seen in a little bit in terms of china reopening. that is truly -- it could change things. for trickling the auto industry, particular in germany. at what point do people start calling it what it is? jonathan: exactly. what is. we do not have a recession. we have stagnation and inflation , and you can make the argument that will change, but trying to make an assessment on where we are right now. lisa: often it is the direction. stagflation means it is stagnant. a lot of people are seeing the prospect with fiscal stimulus in europe and china coming back online that it will not stay this way. your point of are we going to see people go along? jonathan: i am starting to sound like you. lisa: this is ridiculous. i missed you, too. it is nice. jonathan: equity futures down
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>> the recession that people feared six months ago is not happening. >> these and momentum going into
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the fourth quarter. >> if you look at equities we are in the middle-of-the-roader. >> i think we have been destabilizing. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: the fed decision on wednesday, some central banks decisions before friday. good morning to our audience worldwide. alongside lisa abramowicz, i'm jonathan ferro. the s&p is bucking the trend of the year so far. lisa: led by the ev sector that was evidently dead and tech, which has reasserted its leadership. a lot of people are going "how long can that last?" jonathan: chairman powell, will
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have one question -- is easing conditions warranted or unwarranted? lisa: unless there is enough weakness to make them confident that -- i still call it immaculate disinflation. jonathan: you have been on top of that story. this about how market participants responded the response to that question. i have to say the chairman has spoken. they have all spoken.they have all said they are not cutting any times soon and the market keeps acting as if they will. lisa: the data is in their favor. at some point you have to say, "which data?"
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jonathan: perhaps that is an important question too. what is more important? the fed decision on friday or the events of the week leading up to friday? lisa: this question of the cost index, the employment cost index, and how much the price of employees is going up. people are demanding higher wages. is that going to give the fed some pause? jonathan: i think it is clear that most people assume inflation will come down. the question is how will the fed respond to those cuts. what happens if inflation is far stickier than people expect? andrew bolles joined us last weekend talked about that. we are hearing that from andrew hauling horse. they believe there is a hawkish surprise in store from the
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federal reserve. it -- "we expect core inflation to challenge disinflation narrative." the quote of the last couple of months on this program. the final mile, when you get down to 4, how difficult will it be to it down from 4% to 2%? lisa: the housing market, the first place people were looking for a downturn, we have seen it stabilize. home prices have climbed slightly. we are starting to see people refinance their mortgage rates. there are so many points that really suggest you cannot really kill this beast that quickly. jonathan: barry knapp of ironsides says that the payroll
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is more important than the presser. we will go into the payroll and the pressers later this week. jay powell delivers on wednesday. the s&p 500 and nasdaq are a lot lower than they were on the week. 3.5495. in europe it is all about the data between now and the ecb announcement. you get cpi reads from france and germany. lisa: someone wrote in on our discussion of stagflation, " is this stagflation transitory?" jonathan: let's start with that question. what is more important to you
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this week german powell or payroll on friday? >> the data -- chairman powell or payroll on friday? >> the data. the market is moving in that direction. he wants to push back on that. when we look at the data, there i think is a substantial possibility for a's apprised of the market. we think the consensus will be in the ballpark accurate. we think the trends we are seeing now with respect to the data and on the economy and on inflation are likely to continue here for the next couple of months.
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lisa: how do you push back against people who say it is too neat for the 10 year yield to continue to decline and for people to get confidence that the fed has control over inflation but won't crush this economy? >> good point, lisa. we think the rate story is about right. rates will bound back until the second part of this year. then we will price in some of these slowdown. we are forecasting that 10 year will continue to be lower. the disconnect is we think it will cause the fed to pause. 23 is the year of the pause. we will not expect any cuts until 24. but those things together and it means the trends you have seen in january since october, we don't want to be analyzing those. there will be some reversal here and some give back as risk
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assets repriced to a little bit rosy scenario. lisa: rehearsal. you are selling investment grade and high-end bonds. tony: we are not selling here. we have emerging-markets loans. we think there is still some risk here the next couple of months. we would be expecting to increase our risk exposure in the next one to four month. those better entry points, you went to take advantage of them. jonathan: what do you make of the spread tightening we have seen in high-yield with the data where it is the pmi's sub-50, expectations that employment
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will be higher not lower. what would you make of the spread tightening in the face of all that? tony: we think the direction makes sense. the data is showing more resilient. we think about the macro economic data. the data is better when you think about the short-term. it is substantially better because we were hoping for a warm winter and of course with china reopening the regulatory crackdown using, that has all been better -- easing, that has all been better news. we think it is moving above 3%. it is not going to be to a level that becomes disruptive to the financial markets. our view is that there needs to be repricing because it has gone too far, but the broad direction
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is pricing in some of the better news on both inflation and on growth we are expecting to continue in the first half of the year. jonathan:wide enough through 350. we are south of where we are in q3. lisa: since june of last year, the spread was six percentage points over for high-yield rates. just to give you a sense of the direction of travel. can we get an economic cycle without the default cycle? jonathan: so what exactly is going wrong? tony: distortion -- lisa: distortions that have been righted. jonathan: just ultimate surgery. we just take out the distortions and there is no collateral damage. the immaculate disinflation, your favorite phrase. lisa: is that what we are
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pricing in here, the immaculate disinflation with surgical removal to quote john of the distortions? tony: we have gotten ahead of ourselves in terms of market pricing. if you had talked to us back in november i would say that the possibility of a soft landing was 30%. today because things have moved in the right direction, i would say it is more 50/50 that the fed is able to achieve it. they should be pricing in better levels today than we did in october. at the pricing in of cuts in the second half looking a what the returns are in january, thinking you may be able to annualize that return is too optimistic. it will be a longer period.
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we do not see that until the end of '24. we saw gdp at a 1% type of growth level. that makes a lot of sense. we will be sitting at a 0% to 1% growth rate. you need to price in closer to 3.5% to 4%. you do not need to grade in financial crisis level of defaults. jonathan: looking ahead to the week ahead. the most important thing to him as the data at the end of the week, and not what chair powell has to say. coming up tom forte. we have apple, meta, google, amazon, all coming up this week. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world with first word i'm lisa mateo.
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explosion at -- an attack happened in iran. israel carried out the strike. in the u.k. rishi sunak says he cannot raise taxes to fund pay hikes. sunak told an audience of health care workers that " nothing would give me more pleasure than to wave a magic wand and make it be lots more." nurses are planning strikes on february 6. policymakers are likely to raise their benchmark federal funds rate by a quarter of a percentage point on wednesday following recent data suggesting the fed's aggressive campaign to
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slow inflation is working. the ceo of tiktok will testify before a house committee on the company's privacy policies and its relationship with china's communist party. it will be -- china's government could use tiktok to control millions of users' data or software. china will jumpstart global air travel this year. a boeing executive reiterated the company's forecast that airlines will need another 41,000 planes over the next 20 years with china as a key buyer. global news, 24 hours a day powered -- i am lisa mateo, this is bloomberg. ♪
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>> if you look at equities we are sort of middle-of-the-road, but think about the opportunities you really need to come down. it is in software, tech, the venture, and we have seen a pretty meaningful reset there. jonathan: live from new york, looking ahead to the payroll report on friday and the fed decision on wednesday. we are down by a tenths of 1% on the s&p. -- eight tenths of 1% on the
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s&p futures. the federal reserve will just -- many anticipate that the federal reserve will go just 25% on wednesday. tom, i have some sympathy for you, sir because the calendar for earnings in tech is -- if you had to pick one earnings report right now that i could give to you, what would it be? >> the one i want to see as amazon. i'm curious. the term i think we will see this quarter is " beaten layoff." to what extent are these companies -- it is more difficult for them to show better than expected sales and profits, because if they had
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better than expected sales and profits, why are they cutting employees significantly? jonathan: why isn't apple cutting headcount? >> apple will cut headcount. they will do it in one of two ways. if you look back to amazon between the first quarter and second quarter of last year, they cut 1000 heads that they acknowledged they were overbilled for the current level of demand. they have been one of the companies who have been in the news for wanting their employees to return to headquarters for a greater period of time. they can assist on that and have some attrition there. they could also lay off employees at the retail level. apple, like everyone else, they will adjust their headcount. lisa: so far this year, tom, any kind of announcements of layoffs has been met with a rally in the shares of the company with this
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feeling of cost cutting that would allow growth to accelerate. at what point is that not true anymore for the tech complex. >> are they cutting fat or are they cutting muscle? a lot of the cuts have been fat. these companies were bloated in terms of the headcount. are they cutting muscle and not fat? that remains to be seen. the reason you are seeing these stocks react favorably to the headcount moves is on the expectation that in the near term basis it will reserved in higher margins and lower expenses. lisa: there are a couple of different strains. the business side, the cloud computing, a desk pounding -- a this pounding -- disappointing outlook for microsoft.
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are we seeing some of the bigger softening? >> the greater concern, and this pertains to amazon, was not that they are mature e-commerce business was growing, it was that there faster higher-margin units were starting to feel the negative impacts of a macro economic environment. we see more signs of that in amazon reports. that is the greater concern seeing as it is higher revenue, higher-margin for amazon. jonathan: this weekend that is the question to ask. are we seeing some of these names face a cyclical test, or are we seeing some of the cyclical story, that structural shift, that change in the underlying trend that could be with us for years to come regardless of the cycle? tom: i am going with the
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structural shift. gone are the days when you could wake up and expect amazon and apple to outperform against the nasdaq automatically. you need to see some initiatives or a rebound in digital advertising so their shares do outperform the nasdaq, even over short periods of time. i would say it is more is a -- more structural. it is a change in dynamics. jonathan: how does that change the way you think we should be valuing these companies with that in mind? tom: in order to maintain its premium multiple, amazon has to outgrow the contraction from an earnings standpoint, which is why you are seeing such a significant shift to services, to higher-margin efforts from amazon. question for all these companies and big tech is can they outpace
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the contraction and their multiple by having their profits grow at a higher than expected rate? it will be a challenge across the board. lisa: what will happen to the unprofitable tech companies? i'm thinking about snap. will this be the beginning of the end? tom: the good news is you are seeing a lot of the companies this year getting positive performance in their share price, even if you are seeing a pullback in some of their projections for earnings, but for the companies like snapchat, for companies losing money today that may be don't have a good balance sheet, can they get incremental capital? will the capital markets reopen before they run out of money? in many instances it is to be determined. jonathan: this was great. jonathan: i hope we can do this again later this week. tom forte. alphabet, meta---
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lisa: we have snap tomorrow. can you imagine having to analyze all of these companies as they come out? i asked him, " -- jonathan: apple, for those interested, february 2 a little later this week. a big week coming up. lisa: you should say it more. these will be some of the more interesting earnings reports. what tom forte just said about the macro plate, you get both the business pullback -- play, you get the business pullback in amazon and how much you see -- could that be an economic data point in its own right? this is going to be the first time in a couple of weeks we have all been together. i think people think we are on a boycott of being together. i have been getting a lot of
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messages. jonathan: what are they saying? lisa: "what is going on? where do you together? -- why aren't you together?" he is just off today. he will be back tomorrow supposedly for the snap earnings. jonathan: that is exactly what he is coming in for. he loves that. i can picture his face. lisa: apple -- you will be holding up his iphone all day. jonathan: in the next hour we will catch up with george gonzalez of mufg. we have as the most important question -- the easing over the last few months, is it warranted
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or unwarranted? how do you respond to market participants? do you focus on the rate cuts that you are pricing? we have had that question asked repeatedly through this morning, and when asked that question, what answer are we getting? lisa: data. a viewer wrightson, -- writes in " bloomberg surveillance morning hosts are at odds citing egos." jonathan: who has the biggest ego in this lineup in general? how would you rank? lisa: look at those markets! they are really going down! jonathan: we've got ago.
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lisa: welcome back. this is bloomberg surveillance on tv and radio. it has been an amazing year for big tech until today. just basically hanging in there. yields are marginally higher. the stasis in that area has been remarkable. a bit of euro strength. we were talking to jordan rochester talking about the potential of 1.13 or 1.16,
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ongoing strengthening in the face of better than expected outcomes with respect to whether, china -- weather, china and crude. we have been talking about that throughout the morning. a massive week in terms of tech earnings, in terms of the fomc meeting and the payroll report. if there is a big question about what people may not be seeing. will people keep pushing back against the fed and say the data is showing disinflation, immaculate or otherwise? joining us is my goal -- michael gapen doing his best jonathan ferro impression, sitting in his chair. >> big push back, probably no. what is more important, what you
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say today what you do tomorrow? it is hard to push back to strongly. they will repeat their message, but it is hard to be hawkish and strong when you just slow down again. the policy action suggests they are more comfortable with the outlook, more comfortable with where they are, pushing back at that point by saying "we will be more hawkish," it is hard to do that. lisa: i remember when people were talking about the potential pain, including jay powell to the markets, to the economy if you have both rate hikes and a balance sheet runoff. we are talking about rate hikes and how we are at the penultimate up e-gov them, but no one -- penultimate peak of them. >> we will get to that point. if the fed is in a higher for longer phase, and markets expect more rapid disinflation, that is
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a different view of the outlook. we think inflation will be stickier. you heard waller say we should consider continuing to run the balance sheet off as we continue to cut rates. i don't think that would be a consensus. if the fed cuts raised -- cuts rates they also probably cut the q -- jonathan: have -- lisa: have we seen the tightening from that? a low person, you will wonder how much cumulative runoff from the balance sheet we will have. this would be a way of saying they do not think the balance sheet will runoff as much as you thought. you reevaluate your expectation of how much treasury the market will have to reabsorb. lisa: when we start to see the
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peak of the tightening cycle in economic data? have we already started to see most of it or a material amount of it? michael: we are getting to the point where we are seeing it. historically, the modeling would tell you it takes at least 12 if not 18, may be even up to 24 months to see the cumulative effects of tightening come through. conditions of start to tighten in march and april of last year. we are still in the first quarter. there's more to come and most of our growth expectations for 2023 are still weaker than they were in '22. lisa: when it comes to the labor market, we get payroll reports on friday, what we have to see in order to continue with this feeling that the fed is making progress? no one wants to see progress as people losing their jobs. michael: the target hear from
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the fed's perspective is monthly job gains, 70 to 100,000 or less. what we would need to see is that we are on a path to that. we are likely to get some payback from the california strike this week. we think the headline will be around 225. i'm not convinced we will get that message this friday, but that is the goal. we need to know that things are decelerating, not rapidly rolling over. 70,000 80, thousand the month is probably where the fed is targeting. lisa: if we do not see that what is the response from the fed? michael: the risk is you keep the leaking 25 basis point hikes as the market does not slow down. if the data continues to moderate, that is your heart -- your hike, pause, and mark
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signal. the cuts the market are looking for the second half of the year did not materialize. lisa: it feels like it is segmented in many different ways. you have the people who work on the ground in jobs that are no -- that were not fillable during the pandemic. i'm thinking about a lot of the fulfillment sectors. a a lot of people have not been laid off because they are worried about not being able to rehire them. is this a structural change that means a more employed base even during a negative economic outlook? michael: a lot of us have that in our forecast. from a foreseeable horizon, 2 to 3 years out, i think this condition persistss. that is why we look for a tick lower on friday not a material weakening.
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you reduce temporary hires first. you would slow down hours. if you were labor hoarding that is what you would do first to manager labor input. lisa: you think there is a structural obstacle to getting inflation back to 2% that is underappreciated by people who are seeing the deceleration and cheering that on? lisa: the immaculate -- michael: the immaculate disinflation story would require some of this going away our labor supply picking up. the wage story and the services story which is, what the fed has been focusing on is more persistent inflation would come from. goods prices are falling and that is great. we have all been hoping for that and that is what is really bringing headlines lower to get it back down to the fed's comfort zone, that is less clear at this point. lisa: we are speaking with michael gapen at a time when many people think this is an
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inflection point. we have fomc and bank of england decisions and china the first week after the lunar new year, what does this reopening look like? where will we see the reopening? willoughby in terms of demand from chinese consumers are the demand for commodities pushing up prices and causing more inflation? michael: what i look for in terms of how it would affect the u.s. outlook, it is the latter because as we all know energy prices transmit into gasoline prices into consumer balance sheets so if a china reopening comes forcefully and pushes commodity prices higher, that could be a material drag on the consumer. we saw that during the first half of the year last year. we got tailwinds last year because of that. it is less important about a global growth narrative in my mind then commodity prices.
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lisa: how much do you watch gas prices in terms of what that does to consumer spending? michael: it is one of the most critical things we watch. last year when gasoline prices or surging we saw the rest of the consumer consumption bundle take a step back. for me it is very important. we were at about five dollars a gallon. it fell back to march 2020 pre-russian invasion of ukraine levels. we are not thinking that continues. we have probably normalized. the question is do we go from $.30 to $4 or do we -- from $3.50 to $4 or do we bump around at 3.5?
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we are seeing consumption moderate. most of us have that baked into our forecast. we are saying what have been tailwinds to the consumer should start turning into headwinds so that would be a headwind story. lisa: one of the difficult aspects of getting your head around this market is there are different segments moving in this economy at different paces. i think about housing. we already saw a real deceleration there and now we are seeing it even now in terms of the negative and positive news. is this a turn or a pause before has continues to deteriorate? michael: we have had the peak deterioration. i'm not ready to say i think that housing makes the turn just yet, but mortgage rates are still pretty high. home prices have come down a little, but not a lot. the affordability shock is still there. maybe housing is a little less frozen then it was but i'm not
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ready to say that housing is on the turn upwards. i expect it to turn up for the broader economy does. lisa: do you think the fed could end up getting north of 5.15% even with everything -- 5.25% even with everything? michael: if you look at the labor market alone it is easy to conclude you will get above 5% to 5.25%, which is what we think the terminal will be. manufacturing data slowing, the slowing is expanding into the good sector, inflation is coming down, that will get you your hike and pause story. there is still upset risk to the fed's path. jonathan: thank you for being with us -- lisa: thank you for being with
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us, michael gapen. if it is 70,000 for a number of months and he wrote, the expectation from bank of america's north of 250,000, so a bit of distance between what the fed would like to see versus what is real on the ground. coming up, mr. o'rourke as we try to get our heads around how long this tech driven rally can continue in the face of a fed that may push back aggressively on wednesday. we are seeing a bit of softening down three quarters of a percent on the s&p. we have yields on the 10 year yield up. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world, with first word i'm lisa mateo. resident biden will meet with kevin mccarthy to discuss raising the debt ceiling.
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republicans want a deal that includes government spending cuts. the president has refused to negotiate over the debt limit. a russian missile hit a residential building in kharkiv. 2 weeks ago a russian missile hit an apartment building killing 45 people. the malaysian prime minister ordered goldman sachs to honor its settlement with the government for its role in the 1 mdb scandal. >> i think goldman sachs should come out clean and do you think you can dismiss this as something small you can use your strength to dictate your terms ? >> goldman has said that if it
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cannot reach a decision with malaysia it will be settled by arbitration. ford is responding to tesla's recent price cuts. it is slashing the price of its electric mustang. that comes on a model that ford already described as unprofitable. experts anticipate the growth of electric vehicles will slow this year. powered by more than 2700 journalistss and analysts in more than 120 countries, i'm lisa mateo, this is bloomberg. ♪
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>> there are so many signs that the economy is likely to head into a recession, but it will take a while, and that has been
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the hallmark of this cycle. every cycle has taken longer and gone further than you would expect. lisa: that was steve chef at federated hermes, for electing what a lot of people have been saying. this strength could last for longer than many had expected. the dip and rip is now ray-ban dip or may be justices stand -- rip and dip or maybe just a sustained rally. that has stood out to me. today you are seeing a disproportionate selloff. this does, heels of a little bit of an increase in yields, but otherwise stability. it raises the question of what the correlation is between bond yields and tech stocks.
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michael o'rourke, chief michael strategist -- chief strategist at jones trading. how much is this a direct correlation on bonds going later? michael: when bond yields drop they -- you get those long dated growth needs. it is more mechanical. it is systematic. i don't think it will be something sustainable. when you look at earnings season, how earnings have played out, fundamental story's not there. i think we entered 2023 with a lot of pent up among stock investors. they were well behaved in 2022, knowing that the environment was a little bit gloomy. they want to put money to work. they have done it thus far in
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early 2023, but you are looking at seven mega cap names driving most of the s&p to date. that includes -- i think it is still happening, but unsustainable. lisa: let's dig into the earnings side of things. so far we have. not seen incredible earnings how important are the earnings we will see this week on wednesday, apple, amazon, alphabet all coming out on thursday. michael: aaa thursday! you're talking about 3 mega cap names that represent 12% to 13% of the s&p 500. they do to trillion dollars -- they do $2 trillion in revenue.s thinki -- i think that will set
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the tone going forward. it is hard to sit there and say there will be a great outlook. lisa: what concerns you more? the tech picture or the overall picture? michael: i think a lot of what we saw coming out of the pandemic was similar to 1999, 2000. you had a lot of investment into these high-growth areas. people didn't realize they would commercialize pretty quickly. i think about overspend and that over build is a lot of what you see in 2022. we will see more of that. look at intel's numbers last week. you are seeing that emerge among the bigger names. that will be a problem going forward, but also your looking
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at as of last week this is the first time since 2019 that we had a neutral fed funds rate where we had a negative real fed funds rate since early 2008. we will get to the point where we have a positive real fed funds rate for the first time in a long time. lisa: if we do get some hawkish discussion from chair powell on wednesday, pushing back against the rally we have seen will markets take notice? will they listen? will they selloff? will you see a tightening in financial conditions? michael: that is a big question. as of friday's close, did -- the goldman sachs financial conditions index is at its lowest level since august. i think the fed's balance sheet
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has shrunk by 4%, but we have not seen financial conditions tighten. the question is, how much more will the fed need to do? when you start seeing the markets react to the hawkish and us of the fed in a meaningful way that will -- hawkishness of the fed in a meaningful way, that will give them room for more tentative rate hikes. i think you will see them err on the side of hawkishness rather than let markets continue to ignore the fundamentals, basically. lisa: a lot of people heading into 2023 were talking about margin compression and the likelihood that companies would have to cater to consumers who are struggling more. lisa mateo was talking about ford cutting the price of some
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models in response to tesla. how much are you looking at this type of mini price war, many price cutting battles that shrink margins more than anything else in the earnings? michael: that is an incredible headlinemichael: because tesla price cuts started at the end of last year to firm up their fourth quarter. tesla shares traded around $105, $106 a couple of weeks ago. they went out last week at $179. you have this headline today where they have a price war going on. price wars are not good for business, not good for margins. that type of competition should not be governed share prices, but what we have seen as the market, because financial conditions remain easing, -- lisa: i want to point out ford shares in premarket trading are
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down 2.5%. tesla shares are up after being down earlier in the day, about 4/10 of a percent, perhaps being seen as the winner in this war as ford capitulates on the price cutting side. we will be getting auto sales numbers this week.. h much is that important to see what the demand is like, how strong that consumer really is? michael: everyone is concerned about a potential recession out there. we have not seen a slowdown in jobs. we have seen some softer economic data. this whole situation seems to be taking much longer to play out then investors realize. i think that is another aspect. we can look at where the stock market is. we had decade highss in inflation.
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these things do not reverse overnight. i think we will keep an eye on the consumer, but i do not think it is falling out of bed right away. that reinforces the fed's higher for longer message, which is something this market has not been accustomed to. lisa: what would be your top trading recommendation, given what we have seen so far in 2023? michael: investors, you have been given this rally i call unearned. you should take profits here and be more defensive. i still like sectors like financials, but there is a long way to go from here for 2023 to play out, and it will not be straight up the way the first three weeks have been. jonathan: long european -- lisa: long european banks? michael: i like american banks
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right now. i think that has to do with the valuation difference going on there. there was hope that the ecb, interest rates there will get a lower level, but i prefer u.s. banks. i'm optimistically cautious overall. lisa: i was mentioning european banks, barclays, and -- we are seeing shares move lower more broadly. an interesting headline we were talking about with for joining in on the price cuts we are seeing. we are not seeing those price cuts in the airline space. we are talking about an exclusive interview with dave calhoun, chief executive officer of boeing. they expect travel to reach pre-covid levels due to the reopening in china. we will build on that in that
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interview tomorrow. this is bloomberg. ♪
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jonathan: up big on the year, down on the session. a big week ahead. the countdown to the open starts now. announcer: everything you need to get start for the u.s. trading. this is "the open" with jonathan ferro jonathan: live from new york, fed chair jay powell ready t


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