tv Bloomberg Surveillance Bloomberg July 29, 2022 8:00am-9:00am EDT
8:01 am
in the pipeline for them to relent. >> that is when the equity markets can start holding gain. >> you have an inflation situation that looks more persistent, looks more problematic. >> every major primary data point is pointing downwards right now. there is not a lot of room for optimism. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: live in new york city to our audience worldwide, good morning. this is "bloomberg surveillance" on bloomberg tv and radio. i'm jonathan ferro with his abramowitz. tom keene is back on monday. lisa: i know you don't like a bad news is good news but i will throw in another one. how about goldilocks? we are sharing about a new goldilocks where you see slowing in growth but it is not that severe, not allowing the fed to hike too much and we go into a
8:02 am
zone where people can be optimistic? you are hearing this with a rally that has been dramatic this month. jonathan: did goldilocks like her breakfast at 200 degrees? 9% inflation, can you call the goldilocks? lisa: i am just wrapping my head around the metaphor. that is the issue, can you even get there if you don't get inflation back to a 3% figure? how can we do that with where it is with the cost of goods going up and projections for oil given that we are at 9.1% for cpi? jonathan: is that what this fed wants to see, the loosening of financial conditions? the fed speaks for me more important than today to. i am not sure what to take from the gdp print and i think they will tell us. lisa: phila. they said something fascinating which is it the market rallies to 10%, that will
8:03 am
undo tightening the fed is trying to accomplish and they will push back and cap some of these gains. not because they are targeting the s&p, but because that will be the transition mechanism. how much will that be us hearing from them saying this is not going to work? you have to cool it. jonathan: 11% on amazon in the premarket. these tech stocks are flying. lisa: it shows you how though the bar was. we thought it was going to be a lot worse. they managed to eke by expectations. amazon has the luxury of a ws and even an advertising business that seems to be holding up in a way that is not for social media companies. for apple, they faced macro headwinds. tim cook talked about that. they were able to work through them enough that they were able to come in above market expectations. what does it look like a going
8:04 am
forward? jonathan: it is not recession, it is resilience. when you look at apple and microsoft, that is the word used multiple times. lisa: we knew the challenges were out there. as we talked about it deteriorating, this is the picture that is not going to get easier. it is going to get more difficult. this company's will have to navigate through those challenges. how long will they be able to do so successfully? jonathan: the question is whether we as pleats into the labor market, if we see the slowdown confirmed in that's pockets. tell me what will happen with this labor market through the next couple of quarters. lisa: and how much are we seeing that already with claims? tickin a little higherg. you hear about companies targeting workers. lisa: -- jonathan: we have some
8:05 am
data on a 26 minutes. the futures are positive on the s&p 500. yields higher by three basis points on a 10 year, 270.84 on a 10 year. the euro, rock and hard place. zero dollar positive by just 1/10 of 1%. that data out of europe, canada get worse for germany? stagnating growth, see the highflying, a record high across the continent. lisa: especially because there is not a great sign that anything will get much better. how many as have you read where people said that is the story heading into year end? not just europe, but globally what happens with natural gas and if russia drops all exports to germany. lisa: it leaves -- jonathan: it leaves the door
8:06 am
open for -- to keep on hiking. is it a bear market rally worse them were durable and how do you know? beata: it is a tough market. you had core inflation bond between six and 10. we have to remain forward-looking. the market already priced in a lot of damage. i think that is what keeps individual investors going, thinking about what does the equity market look like from here? your comments around the earnings picture are relevant this week. you talked about how the consumer could be holding up better than expected. not all goods have price increases. perhaps the consumer came in with a balance sheet that was the strongest balance sheet they have had in a long time?
8:07 am
of course we see is slowing in the economic picture and a tough environment for chair powell to manage. lisa: you said a lot of bad news that -- that news has been priced in and that is something we heard from chair powell. any rally is not exactly sending stocks back to the high point. the s&p 500 is down 13%. we are also tracing a lot of losses from earlier in the year. how much are we looking at their recession being baked in? how much are we looking at fed tightening being baked in? people think the fed will have to back away. beata: we think about the opportunity on a company than an index basis. this is a great opportunity for stock selection. companies that are managing their margins and others are having great success with the plight with the supply chain while others are challenged. you cmx picture in the retail
8:08 am
sector. -- you see a mixed picture in the retail sector. earnings have dropped around 20%. market is not priced in that type of earnings drop. the market has priced in. a drop. we had a big rally from a sharp decline and we are seeing earnings decline in terms of forecast. valuations will resent. in many ways, we see peak fear as an opportunity to buy. when you look at history, 12 months forward and 24 months forward, you are better off staying put in equities. lisa: where is the -- kailey: where is the leadership going to come from? in july you have growth outpacing value which is different than the start of this year. is it time for the rotation to rotate back? beata:. we don't think so. we track your time the styles frame much. -- we try not to attack -- to
8:09 am
track of the styles very much. earnings growth is contracting and economic growth is contracting so we see more of an opportunity in quality growth. it is the kind of growth you have. quality growth companies have really taken a hit. they are not saying the same hit on their balance sheets and earnings power. jonathan: those names have a massive waiting on the nasdaq. can i just do that passively to the index? beata: we think now is the time for stock selection. you have to be careful in this environment. it has been a tough year for active managers. that's perfect -- that pivot has been difficult to navigate. it is easy to say this is a
8:10 am
stockpicking environment, it is harder to pick the stocks. alphabet versus facebook, another example. lisa: how about where the leadership is going to come from? if you have that pivot, you will get to the rally from the big tech stocks. you have that kind of, but not entirely. there are people who are saying to save the energy that because it has gone far and it keeps giving way to morgan. how do you get this right at a time when you have any uncertain fed, uncertain data, uncertain backdrop for spending? jonathan: tim cook pushed back against this idea that we could go back against the 2020 playbook, this idea that we are going back there. he does not believe that will be the case. he believes the inflation story be stickier than some people appreciate. lisa: which is the reason why i have been questioning what markets are raking in which is the possible of cuts early next
8:11 am
year. we are talking about a softer piece of rate hikes. how can we do that? i am trying to wrap my head around what will justify that. some people have pushed back and said you are off the market, the fed is going to pivot and they will stop raising rates. they said you are underestimating the weakness in the economy. if the economy is so we can, why are stocks doing so well? if the economy is so strong, why would not the fed keep using rates? jonathan: may be the labor market is the new data point to watch. i make this point a couple times this morning, it is not controversial to say it is all about the fed speak because the fed is being confident about its reaction function. issue note spelled out how they are defendant on the data -- dependent on the data, that could be problematic. from a fed speech to fed speech, did two data point over the next six weeks.
8:12 am
lisa: tom is going to love this. jonathan: you have cpi august the 10th and two number market reports. take your pick. >> which of the fed members to be actually listen to? jonathan: that is another question. it drives me insane. lisa: john has a lot of feelings. jonathan: this is the market you have got and this is what is happening. on the bad news is good is dynamic according to so many others. this is bloomberg. ♪ leigh-ann: keeping you up-to-date with news from around the world. exxon mobil has posted it best profit ever next to surging
8:13 am
commodity prices at rising demand. net income at the second guest oil producer rose billions of dollars. chevron also posted the best quarterly performance in its history. the country pledged stock buybacks by as much as $5 million. president joe biden and his chinese counterpart, xi jinping, have told aides to plan and anp's and meeting. the chief spoke on the phone more than two hours yesterday. taiwan is a long-term cost point. matters could get worse if nancy pelosi visits the island on a trip to asia that begins today0 beijing -- begins today. beijing is warning pushback if that is happen. bloomberg alerted the government is considering seizing undeveloped land and using it to finance the completion of housing project's.
8:14 am
8:19 am
heard a lot of talk of recession but we have not found any indication in the results. we are not seeing layoffs. there is maybe slowing of hiring and consumers are resilient. we heard that low income households might be saying some pressures. jonathan: good morning, we are 12 minutes away from economic data in north america. five or 6/10 of 1% on the s&p 500. it would be unfair to keep calling this a bad news is good news rally. the earnings from some of the big players have beaten some low bars. that includes amazon come up by more than 11%. i will show you some bad news and then some good news. intel and apple. intel, down 11.4%. apple come up by 2.5%. here a man with some things to say.
8:20 am
pierre ferragu joins us now. what does that tell you that intel is down that heart and apple is doing okay? pierre: it is very surprising. it is down because of the consumer the pc consumer market, revenue is down 25%. you have a weakening in consumer demand that affects pc manufacturers who lowered their inventory. they stop ordering from intel. that is the old playbook, we have weakening consumer demand and intel gets hurt. the institution is very different. you have one significant macro aspect to that which is that apple is exposed to consumers. i do think today in the market you see the consumer weakness
8:21 am
concentrated in the lower end of the market. they are doing great with their macbook and you see that with the iphone. that is one aspect to it. another aspect is execution managing -- that is very significant as well. you have an element of the -- it is impressive do the talking about people who switched to an iphone for the first time. record user base by every product.
8:22 am
as a consumer franchise, they are making good progress. lisa: where do you see weakness in the lower income a second is in the consumer forecast? it looks like they brought an out to the more affluent customer to affect the likes of apple which seems increasingly like a consumer stable -- consumer stable. -- staple. pierre: you are asking the question that keeps me awake at night. we are seeing that develop rapidly. we see consumer -- with the higher end of the market. we have always seen things moving together but this is not the case today. my honest concern from a stock
8:23 am
effective, i am very neutral on apple. on one hand as he developed to of the franchise, the value of the business. on the other hand, i am getting worried that at some point, when the recession unfolds, affluent consumers are going to start feeling the pain as well. this is new to sherry -- this is new territory. kailey: i noticed tim cook about supply contracts and how that may be -- supply constraints and how that may be masking a deterioration in demand. how do you think about that? pierre: no strong conviction in how it played out. what you know today is that before apple gets hurt by a weakening in demand, they still need to match demand.
8:24 am
they're not shipping, shipping to demand. that put them in a much better situation than intel who basically saw consumer demand in an area where clients had elevated inventories. the one thing i could tell you is that consumer demand eventually hits apple. as consumer demand slows down -- that will be far less than the pain it has been on until. jonathan: pierre ferragu there of new street research. if tom was here, you know what he would say. people always talk this company down and here we are. lisa: can i play tom for a minute? [laughter] companies adjust, they have free
8:25 am
cash flow. the employment cost index could be a massive trickle for rush massive troop -- massive trigger for markets. a happy downside surprise from the federal reserve's perspective. jonathan: did the fed to speak pushback start this morning? lisa: yeah. jonathan: we mentioned what the atlanta fed president said on radio, i don't think this company is in a recession. because of that we need to address the high levels of inflation and get this to a sustainable situation. jonathan: you are going to have to expect -- lisa: you are going to have to expect that down the line because there is no way fed officials can look at the reaction and say this is great, people are pricing and more economic growth so they are
8:26 am
going into equities. that is not what they want to see. jonathan: a 75 basis point rate hike, that is problematic. futures up 6/10 of 1%, getting you set up with that data. mike mckee's unaided studio, ready to go. he will break down those numbers. equities up 9/10 of 1%. we fade a little bit as we get closer towards the open this morning. yields are up this morning at three basis points. 270.84. we have had some record out of europe, record high inflation. gdp is okay, not in germany. germany is stagnating. economic data in america, up next. ♪
8:28 am
8:30 am
8:31 am
michael: we are looking at an employment cost index that goes down a little bit which had been a record high in the first quarter. now we are looking at the second quarter numbers, 1.3%. that is better news. wages and salaries, a 5.3% increase for the 12 month period ending in june. 3.2% for the 12 month period ending in june of 2021. it has gone up significantly. does that mean we have a wage-price spiral? maybe not. but it is good news for the fed. personal income is up 6/10 of a percent. that is the same of a prior month. we will see if it is wages and salaries, that becomes the real question. spending is up 1.1%, about what
8:32 am
is expected. significantly better than what we saw in may which was 3/10 gained, more than double that in terms of personal spending. you have to take out inflation from that. real personal spending is nothing to write home about -- i caused a 3/10 decline the month before. the numbers everybody has been waiting for, notice how i saved this, bce, inflation up 1% during the month of june. that is higher than the 6/10 we saw before. it puts the year-over-year number at 6.8% which is higher than the 6.3% in may. it matches what was estimated. a year-over-year basis, up 4.8%. the numbers are not going in the direction the fed would necessarily like to see. the one caveat would be june data. we saw the energy prices start to fall in july.
8:33 am
this month could see an improvement but we will have to wait to get that. jonathan: futures are still positive on the s&p. the nasdaq fades a little bit. they move in bonds are more obvious. yields kick higher vifor pharma basis points. on a two-year, up seven basis points. what do you make of this one? lisa: it is hotter than expected. this gives the fed a reason to keep hiking rates. the fact that you are not seeing it borne out more in the equity market is interesting. they just want to rally. it does seem interesting to me that you are seeing the employment cost index come in at the head of. expectations people are still spending and earning more. they are getting wage increases. this will not cause the fed to back away from rate hikes. jonathan: consumer inflation
8:34 am
expectations, mike mckee, you will break down for us? michael: the question is do people think inflation will continue to rise. the latest numbers suggest that people have backed off of that related to the fact that they are paying 70% -- $.70 less at the gas station then they were before. jonathan: kailey, what is your take? kailey: inflation is still hot so it becomes a question of if we think the fed will be firm. the equity market telling you there will be weakness in their resolve. will their -- will there be, though? jonathan: joining us to talk about that is vincent reinhart. this market seems that we are taking the first pivot. do you agree? vincent: not particularly. the sentiment is that this will
8:35 am
be massive disinflation. we think the inflation, the fed will have it over the next few years and that will allow them to prevent. lisa: is the economy doing really well or is it not? i've tried to parse out the equity move. some people accuse me of being bearish matter what. if the economy is weakening, we have a fed that is willing to curtail that if they continue with their rate hikes. you think they're going to cause a recession by design as jay powell seems to be suggesting? vincent: if you believe inflation is the number one concern of the fed right now, you woke up this morning within fission as a problem, inflation is still a problem. therefore there is a slow aggregate demand in the hope
8:36 am
that aggregate supply fills in. the way you slow aggregate demand is you tighten financial conditions. we don't have slow enough aggregate demand yet. it does not seem to be slowing. we have next evidence that supply is filling in. we need to tighter financial conditions. lisa: what data will the federal reserve be looking at? vincent: the answer is always all of its. in particular -- he brought back his stars in his press comments. i.e., the fed has central guideposts but they are only estimated, approximated. a big one is inflation and inflation expectation. that is why your interviewers should be looking to the university of michigan survey. that is why they care about what
8:37 am
is happening in bond markets because that tells them when inflation compensation is. right now, inflation is job number one so everything that goes into the space to predict inflation is what is important. commodity prices -- kailey: what do you think inflation can get down to it by the end of the year? vincent: not as much as the fed hopes, and much less in 2023. i think we will get a modest update and i think it will be growing and inflation will be off a percentage point. the indexes even in the high fives. the fed forecast is not outlandish for 2022. it will be more persistent next
8:38 am
year because it has inertia. we saw it this morning with dci. it was not as much looking forward to future inflation, it was trying to catch up to purchasing power. kailey: given all of that, higher inflation than the fed wanted to be, that means the fed will not be able to blink. yet that is what the market expects. you said they need financial conditions to tighten. that is not what they have gotten. how aggressive do you expect the pushback to be in coming weeks? vincent: i think they will have to push back. chair powell, he seemed to be accepting of where markets were right in then and there. he said the summary of economic -- economic assumptions is appropriate in terms of forecast for the policy rate and the macro outcomes.
8:39 am
too optimistic on inflation. essentially, right now, markets lead to the end of what the fed wants, they don't exactly have the means. the means will be tighter financial conditions. 75 basis points and financial basis points are easier, something went wrong. lisa: from your perspective, how quickly would inflation have to come down for the fed to visit -- for the fed to visit? vincent: at that point, it will be important, the other part of the dual mandate. if inflation has come down, it probably means the unemployment has gone up. as they get closer to their goal, they can get closer to their other goal, maximum employment. in our forecast, we think the fed declares victory a little
8:40 am
earlier. remember, paul walker did, too. if inflation is noticeably lower in 2023, the fed will connect dots that says it is lower now than it was six months ago and six-month before that. now is the time to worry about activity. however, you don't get the slowing of activity if you don't get the decline in inflation. jonathan: a clinic from you as always, thank you. looking forward to consumer sentiment survey data. mike mckee will break that down. you were in the conference with chairman powell. you asked about the journey. what did you make with what he had to say. michael: it is interesting, vincent is more pessimistic about where the fed is.
8:41 am
powell admitting they don't know where they are, they know where they are going. questions have been raised about whether they would declare victory too early. he pushed back against that. the other question is do they have the numbers wrong? that will be interesting because he said we are at a neutral. now the question is with inflation where it is, how could 2.5% be neutral when you have 9% inflation? jonathan: -- came out strongly against that comment. lisa: he said this is not neutral and they have to be more realistic. to vincent's point, there still is that assumption baked into some of the prognostications from the fed that it will just weekend -- it will weaken naturally. jonathan: you know but it is
8:42 am
time for? time to hear from mohammed el -erian. we will do that and the next hour. we will hear from brian and nick on this massive rally we have seen. the spanish prime minister said he will not wear a tie. he has asked the same to his ministers. this is the reason, in the heat there is no need. we need to lower the air-conditioning. this is going to be about climate change now if you wear it tie. [laughter] lisa: you are wrecking the earth. what if the tie is slim? jonathan: exactly. happening in 20 minutes time, mohammed's view. this is bloomberg. leigh-ann: keeping you up-to-date with news from around the world, i am leigh-ann gerrans. nancy pelosi is said to leave on
8:43 am
a trip to asia today. the question is whether she plans to stop in taiwan. reports she is considering a visit has drawn criticism from china which considers taiwan to be part of its territory. taiwan was one of the central issues discussed in a call between president biden and xi jinping. biden warns against using military action to keep taiwan aligned with the mainland. -- the goal was to target western audiences with content that showcased the best side of china. takedown -- tiktok turned down the request. it is owned by beijing -- he also told national public radio that the central bank had further to go in raising interest rates and getting
8:44 am
8:48 am
>> consumers after two years of pandemic want high-quality products. even when they are counting their dollars, they want to buy the best quality. today, we do not see consumers trading down. on the contrary, they are investing and equality. lisa: cute the debate on whether luxury goods or higher income goods will sell better regarding the weakness. that was the chief executive officer of l'oreal. this is the big question.
8:49 am
how much of what we are saying is true strength and how much is more leveraged spending by a consumer borrowing more with credit cards, used to dealing with inflation over the past couple of months and continuing to spend anyway? kriti gupta has a look into that. kriti: disposable income all the way back to the early 2000's -- we know the savings rate skyrocketed with fiscal stimulus. we are now at levels we saw post 2009. i want to make a point going back to 2004 and 2005 when he saw the savings rate drop and hit negative territory. the reason was inflation was getting higher and higher. the housing market was getting stronger and stronger which meant americans felt so strong about their wealth situation, the fact that their houses and
8:50 am
assets were priced so highly that they felt they did not need those savings, they could spend a little bit more. we are not quite there yet but i wonder if that is where we are headed giving the housing market and how much the wealth effect plays into consumer spending. lisa: you out of the complication of the spending we have seen at how that might muddy the waters that are already muddy. we are parsing through the data, we got the data that came in above expectations. personal spending beat expectations. not a blockbuster, but we are seeing this in a very bifurcated way depending on the retailer. we are trying to make sense of which retailers will benefit the most. we saw amazon be revealed and -- be resilient. how much is what we are seeing a bifurcation of the haves and have-nots? that the higher individual will
8:51 am
continue to do well while others struggle with compression? >> that is exactly it. we are seeing this big bifurcation by the middle income consumer, the upper income consumer, and the lower income consumer which is why retailers like target and walmart are struggling more than amazon. also costco, targeted more towards an affluent demographic base. there are differences in retail. that is what we learned yesterday with amazon. they are not seeing similar inventory issues like some of the other box retailers are. that was a huge concern going into the. q2 release. that is probably a reason we are seeing the stock up this morning. lisa: the fact that inventory management is a critical factor, what does that mean about how much of this is just execution and idiosyncratic to each company and their ability to handle these demands versus a
8:52 am
bigger macroeconomic tell? arun: it is to get down to the inventory because a lot of that is cost inflation, that a company like target, for example, their square footage is smaller than walmart. they don't want to crowded their store space so they are renting out external storage and putting inventory in external storage which is costing them not just money and rent but also transit titian costs. amazon does not have a brick and mortar footprint, they have larger warehouses. they are not facing similar problems. a lot that inventory for amazon is not there. they have a huge third-party seller business and they can rely on these third parties. this past quarter, third-party sales was the highest on record. amazon is relying on a third
8:53 am
parties to do things. kailey: on the subject of cost, amazon has admitted they over hired and overextended and overbilled during the pandemic when it comes to warehouse footprint and labor workforce. how effective do you think they will be on cost control measures? that has a huge implication for margins going forward. arun: that was really the story over the past year or so, cost inflation due to wages, transportation. now we are seeing the pressures start to ease. if you look at q1, their incremental cost was $6 billion. q2, it was a $4 billion. worker productivity improved, they doubled their workforce and within new workforce comes productivity issues. they are working through that. they are also starting to work through other cost pressures like higher tradition costs.
8:54 am
they started charging a surge -- a surcharge to third parties using their fulfillment service. the second half of this year, the cost outlook does the other for amazon. worker productivity should continue to improve. another big topic is about their overcapacity and leveraging. they are starting to sublease access warehouses, things like that. they are trying to grow into that capacity and grow themselves. hopefully those things match. that might take some time because the management environment is normalizing. lisa: thank you so much for being with us. this is the issue. we have seen resilience, where john was talking about, from some of these companies. but the ones that don't have inventories, that don't
8:55 am
necessarily have the different kinds of mixes that a walmart does where you see more purchases on the food side and it is harder to price along with the food increases -- harder to move along the price increases. where are we in this cycle? what do earnings mean with weakness around the edges? kailey: especially with the macro headwinds they are still facing. they have been navigating through them the last quarter, but as things deteriorate, how much success will they have in doing so? amazon, up more than 10% in market trading. four not flying over the bar, just stepping over it. it shows you how low expectations were. is it just negativity being priced in? lisa: or people being on vacation and there being a little liquidity. we are 35 minutes away from the opening in new york.
8:56 am
we did get the data the federal reserve is looking at, employee cost index at 3%, above the 2.3%. still a little bit within range. how much do you see this continuing to double down and questioned the narrative being banked into markets that the fed will be able to back away you are seeing deals higher -- you are seeing yields higher. the dollar is strengthening here against the euro on the heels of these economic reports. the strength really in the economy semi-to edify more rate hikes. coming up on "balance of power," jason furman, former advisor to obama. this is bloomberg. ♪
9:00 am
jonathan: this market is poised for his biggest monthly gain since november, 2020 with futures positive this morning. the countdown to the open starts right now. ♪ >> everything you need to get set for the start of u.s. trading. this is bloomberg, the open, with jonathan ferro. ♪ jonathan: live from new york city, we begin with good
73 Views
IN COLLECTIONS
Bloomberg TV Television Archive Television Archive News Search ServiceUploaded by TV Archive on