mark: welcome, i am mark crumpton with first word news. taliban authorities ordered a nationwide bayonne on university education for females. the order comes as they continue to crush afghan women's rights to freedom, despite promising a softer rule when they seized power last year. the taliban are pushing for restrictions on all aspects of women's lives. in the u.s., emergency funding for childcare providers is starting to run out. much of the $24 billion from the pandemic era player has been used to give bonuses to teachers. now, providers say they will likely have to roll back the raises, or increase tuition. that has already caused some

parents to pull their kids out of care. meantime, hong kong is relaxing remaining covid restrictions. people will be allowed to enter bars without a negative rapid test and limits on the number of persons for a variety of venues has been scrapped. hong kong will keep its mask mandate in place. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton, this is bloomberg. ♪ >> welcome to bloomberg markets. >> let us dive into the price action, it is interesting. taking the limelight out of the markets, check out what is

happening to the s&p 500. i would argue some of that is because of the move in the currency market, a weaker dollar incentivizing a bit into the stock market, something we will keep an eye on. does it hold throughout the end of the trading day? the u.s. treasury market, the 10 year yield, three 69. 11 basis points higher, taking the cue from what is going on in japan. as they widen yield curve control, yields go higher, improving the entire global bond market. that is exactly where you are seeing the ripple effect here in sync with that story, as we start to see strengthen the japanese yen, the dollar will replicate into the stock market and i would argue the currency market. up about 6/10 of 1%. jon: helpful connecting of the dots, on that note, we have seen energy stocks fighting a bit with investors today. we've seen names moving higher

because of the move as the market reacted to the story out of japan. you have it up by about four points that -- 4%. as for other stories, a little weakness for gilead on disappointing data updates tied to a lung cancer drug. we have lots of earnings we continue to digest, general mills, the market reaction. a lot of the skepticism is tied to analyst commentary and reactions, we will continue to watch how that sector performs within the earnings landscape. we are watching for fedex numbers after the bell. stocks off about 1%, 90 is set to report quarterly numbers. kriti: a lot of news across the world, the bank of japan taking the cake. take a listen. >> there is no doubt in my mind this is the step toward normalization. the good news is, i think they

can control the process. that is good news for global markets, because it does not force selling by japanese institutions. however, over time, even this approach becomes unsustainable. jon: joining us for more context is shery ahn. talking about the approach taken by the bank being one it hopes will avoid any so-called forced selling, but in terms of the market reaction you observe today and the people you spoke with, what did we see? shery: the market reaction seems to think this is the start of normalization. blatant, decisive know. they are not hiking interest rates, they are not tightening. let me backtrack and breathe a sigh of shock, it took me back to 2014. remember the halloween treat when the governor really shocked us with the change in the

purchase composition of their assets? that was really incredible, and we had the market reaction. this time around, people saying this is a 1989 christmas crash. pricing and perhaps the fact we might see the 10 year yield move higher, but the governor is really adamant this is not the case. this should not happen for japan, not at this point. take a listen. >> although the government bond interest rates will widen as a result of the measure, we believe the effects of monetary easing will spread more smoothly. boj intends to aim for price stability by increasing the sustainability of the monetary easing. it is not the beginning of an exit strategy. shery: there are two camps, one that says they have to do this and it is forced normalization, the other camp is he only has two policy meetings left and just wants to make the yield

curve control more sustainable. the fact he is announcing this before the negotiations between labor unions and corporations around springtime just gives you a sense of, why would he do this just before they actually decide on wages? kriti: they say this will be a one-off type of decision, but going into it, people said it was inevitable. do we start to see another band widening in the future? shery: that is the key question. going into this decision, we did not know. nobody knew. all the economists surveyed by bloomberg thought in the future, especially since there were leaks and we might see the prime minister agreeing to have more flexibility on the 2% inflation goal, we are not quite there when the boj thinks about it. we are a core cpi of 3.6%, which yes, they achieved it.

what this means is importing inflation in a country that has battled with deflationary pressures for decades. we are seeing the market reaction being pretty swift, not surprising given japanese investors have $3 trillion of stocks and bonds globally, half stashed here in the u.s. this could be instrumental if it is a signal there is more to come. kriti: really historic moment, this is becoming the canary in the coal mine. shery ahn breaking it all down. let us widen the perspective with carl weinberg, founder and chief economist, thank you for joining us. i want to take a 120 thousand foot view. the japanese central bank has always been the guinea pig, if you will, when it comes to buying etf's. when it comes to other central banks around the world, are we going to start seeing what japan

is doing may be more adopted 20, 30 years down the road? carl: before i can answer that question, we have to agree on the premise that the bank of japan is doing anything. i'm very sympathetic to shery ahn's parting comment about if there is more to come. i'm going to say i think mohammed, i respect him a lot, but he is way off base in his assessment. the boj governor kuroda makes policy, as opposed to mohammed told us clearly, this is not an increase in interest rates. this is not an exit, a pivot or a tweak. this is an adjustment. you look at the whole thing of what they did last night, they left every single one of their policy interest rates unchanged. the increase quantitative easing of 7.3 trillion a month to 9% a month, over 20% increase in the amount of qe they are doing.

they were very clear in the preamble that they are looking at a bump in the yield curve that they do not like, and it is making markets disorderly and they want to get rid of it. if you look at the function on bloomberg, you can see it is clear. it is still there. i think what they did last night was a tactical move to drive people who own jgb's to sell for fear of exactly what people are fearing right now in the markets, that this is a pivot. and to get more of the market under their control, so they can have more absolute control. my theory is we are looking at them to reverse an increase in yields that we see right now, by the time we get to the end of the fiscal year in march and by the time we get to kuroda's term. my bet is kuroda will leave office with yields closer to zero than they are right now, that is what i think it is all about. to just increase control over

the market, they are not at all stepping away from the yc see target of 0% yield. jon: let me dig a little deeper into that and go back to something shery ahn is pointing to, the idea of all the cash that has been stashed in the u.s. i guess one of the initial questions today was, do we end up seeing a sizable amount of selling as a result of the headlines? can you walk us through your thinking on that front? carl: ultimately, the japanese are going to be repatriating a good bit of the money in the u.s. not this month, not even maybe the next year, so you do not have to panic. a long-term proposition. they are an aging population, it is the most important thing to know and keep a focus on in japan. as people get older and more people are retiring and dig deeper into deeper into retirement savings, the counterpart to those savings that have been placed in the u.s. and other foreign bond markets are going to have to

come back home to pay off the pensions and life savings of all these people. that is coming anyway. the other aspect of the demographics is that with the population that is shrinking, demand falls faster than supply always. 2% inflation is unattainable, with or without qe or ycc, we are going to see inflation in japan go back below target, almost without regard to what the bank of japan does in the policy space. with these two thoughts in mind, yes, eventually the japanese will have to take their money out of the u.s. market. for now, they are making fantastic returns on those securities, mainly because of the depreciation of the yen. they will not be unloading them anytime soon. kriti: 30 seconds, in the face of persistent inflation and high energy prices, japan is one of the largest importers of oil. how should they deal with that? carl: i wonder, kriti, why you

use persistent. as i look at my bloomberg, ic oil prices are falling and gas prices are falling, industrial commodity prices are falling. reading about what is happening in china, they will fall more and further as china goes through a covid outbreak and sees the economy suffer as a result. i think for the moment, japan's balance of payments will improve and i think the inflation worldwide, the part from higher energy prices, that will go away in the new year a lot faster than people think. kriti: so much to debate, carl weinberg, i wish we had more time. we think you as always for your time. coming up on the show, the move from the boj sending ripple effects across global markets. we connect the dots with the equity market. phil orlando joins us, that conversation next. this is bloomberg. ♪

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kriti: this is bloomberg markets. the story overnight has been the bank of japan widening the bands of their yield curve control. on the surface, that seems like a currency story. i'm going to argue it is an equity story, too. the stocks are moving to buy a ticket in the opposite direction, let us see if there's something to that. phil orlando joins us with his perspective. connect the dots for us. why should an equity investor care about the boj? phil: because if the yen is going to strengthen against the dollar, that makes the dollar weaker. u.s. multinational companies

tend to do 40 to 50% of their business overseas. the weaker dollar is better. for their ability to sell goods overseas, that tends to be inflationary, and that is something the federal reserve here has a very concerned about. we are in an interrelated market , watching the movements between the yen, euro, the pound and the dollar, critically important for what is going on in domestic u.s. markets. jon: let us stay on the subject of inflation, one of the most dominant themes of the equity universe in 2022. still big questions heading into 2023. the bloomberg intelligence team recently noting that historically, when you have inflation outpacing gdp, that can be a recipe for continued bear markets. what are you thinking about heading into next year's equity market strategist? phil: for continued bear

markets. you talk about the bank of japan bombshell today, we had our bombshell in the u.s. last week. three days in a row, tuesday, wednesday thursday. last tuesday was the cpi report, which showed inflation has peaked and is starting to come down. we've come down from 9.1% to 7.1% over the last six months. we are not going to get to the 50% target probably until the end of calendar 24. not the end of calendar 23. wednesday, the federal reserve meeting, they downshifted to a half-point rate hike as expected, but the increase to the terminal rate to 5.25% of next march or may. they increase the rate of unemployment they are forecasting to 4.6%, we think it could be closer to 5%. they took gdp growth estimate down one half of 1%. we think of that number is going

to be marginally positive. thursday, retail sales, much weaker than expected. christmas season is coming in a lot softer, probably half of what it was a year ago. you have a situation where the economy is slowing, but the federal reserve has to remain vigilant because inflation is still a persistent problem. after 17 point 5% rally from mid-october to mid-december, the stock market is down 7%. the s&p 500 over the last week or so. we think that trend continues to go south, the best guess is we will, at minimum, retested the october lows that we saw looking out over the course of the next couple months. kriti: one of the conversations in the equity market is the idea that earnings are going to catch up to a lot of the stock market. the idea is not priced in at all.

if, to your point, inflation is persistent and wages are sticky, why would the earnings catch up if, at the end of the day, a lot of the fastest-growing companies in the world are able to meet the bottom line? what is the problem? phil: we took the s&p 500 forecast for next year down to $200. the forecast this year is to 20, we are looking for a 10% decline . consensus earnings are up around $235, so when are we going to get that sizing and disconnect? fourth earnings will be reported mid to late january, we think are going to show a significant disappointment management is going to be cautious in the 23 guidance, that will result in a situation where the sell side is going to start to right size the estimates for next year. we think earnings are too high and they will be coming down over the course of the next

couple months. jon: a lot to watch, phil orlando, we will get nike and members from fedex after the bill, as well. we will see what is happening on the earnings front. next, wells fargo paying up after allegations of customer mistreatment. we will dive into the billion-dollar settlement, next. this is bloomberg. ♪

jon: this is bloomberg markets. time for today's for what it's worth, that amount is 3.7 billion dollars, that is how much wells fargo agreed to pay tied to violations that harmed millions of customers in the past decade. the industry regulator citing everything from overdraft fees to people having their cars wrongly repossessed. joining us for more context on the settlement is sonali basak.

we know the challenges wells fargo has been working through for years. what was the reaction to these developments? sonali: a few things, one is this might have been larger than initially expected, given 1.7 billion of this is a civil penalty. remember, they will have to take a pretax operating loss of $3.5 billion in the fourth quarter, that is in addition to already putting aside billions of dollars in the previous quarter to set aside for legal fees and regulatory actions. the other thing to note is there is good news and bad news. the good news being now that the number on the table, they can get past this. the bad news is they have other regulatory actions they may have to work through, and, at the end of the day, what they really need to get past is the federal reserve asset cap. it is unclear how soon that is

lifted for wells fargo, but the good news from the buy and sell side, they say it is a good sign that brings wells fargo toward the ultimate goal. kriti: how did they redeem some of their credibility? wells fargo has been dealing with a lot of different lawsuits, i want to say on the mortgage unit, as well. walk us through how they come back from this. sonali: one thing in their back park is a lot of the fines are coming from the pre-charlie era. this is when two ceos faced the brunt of the issues, now you have the newer ceo where they've been working past these issues. they still exist, but by and large, they are pre-charlie issues. as he they work through these, it's taken years -- as they work through these, it's taken years, if you see wells fargo recover some of the investor bakes -- base since the scandal started to come to light. this is a record find. the cfpb was post 2008 body,

meant to protect consumers. in essence, they are doing their job. we are watching wells fargo pay for historic issues that the bank itself has faced. this is largely seen as them turning the page from a very scandalous era. jon: we are going to continue to watch the continued reaction to this within the industry. the possibility of a message more broadly speaking being sent along with wells fargo, and those issues being addressed. sonali basak joining us, and kriti, we are watching what is happening in the broader markets within the financial group, also the continued reaction to all things japan. kriti: all things japan. you are seeing bond selloff, the dollar is weakening. as a result, little bit of incentive top to the s&p 500, higher by about 4/10 of 1%.

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kailey: welcome to bloomberg markets the close, we begin with breaking news surrounding twitter. the u.s. federal trade commission is up and get the scrutiny of twitter, the company elon musk took over in october due to security concerns. ftc lawyers have questioned two former senior executives in the past month about whether twitter has been able to comply with the agency's 2011 consent order since muska took over. for more on the scoop, let us get to kurt wagner, who covers twitter for bloomberg news in san francisco. what else can you tell us? kurt: the new elements of this are twofold, the first is that this investigation the ftc started in the fall, back