tv Bloomberg Surveillance Bloomberg April 12, 2022 6:00am-7:00am EDT
volatility. >> how high do rates really need to go to slow down this economy? >> what qt does. >> the risk of recession is not higher now than it normally is. >> this is bloomberg surveillance. tom: good morning. it is inflation tuesday. we welcome all of you on bloomberg radio and bloomberg television. today's number is 8.4%. lisa: maybe it is a .6%, higher or lower. the spread between economists' expectations is wide, the highest going back to 1981 on the precipice of the fastest tightening cycle that we've seen from the federal reserve going back decades. tom: we spent a lot of time framing out the rate of change
and speed of movement. what is full faith and credit to you? what is that signal to fixed income wall street? lisa: there is one thing about today is number, another if we go back to an inflation rate that seems familiar over the past two decades. are we looking at a new normal the higher inflationary rate which means higher benchmark nominal rates on treasury yields? how much are we looking at that as the new normal, and what does that mean to the trillions of dollars of assets that have had near zero rates for so long? that is still unknown. tom: we start the show at 6:01:20 wall street time. it is auction time at bloomberg surveillance. we are at a point, seriously, where the price movements are so abrupt that dare i say the auctions matter? lisa: who are you?
channel your inner ferro and ignore the dow. there is a 10 year option. it will be interesting. how many people will see this as a buying opportunity? going back to the amazon bond sale yesterday, a lot of the commentary was that this is an outlier. they are locking and borrowing costs perhaps ahead of with they say are price declines and yield increases. tom: jon ferro, partly cloudy on capri this morning. kailey leinz is doing extra duty. it goes from sea to shining sea. kailey: you had a deterioration for the third month coming below economists expectations. the estimate was for 95.
30 1% of respondents reported inflation is their biggest operating challenge last month and 72% are raising prices. it is passing on higher costs to consumers that maybe creates a problem for the federal reserve as well. tom: we have to touch on the war in ukraine. i want to wrap this morning something you have been out front on, agriculture in europe. one of the measures is european milling wheat number two up 75% in one study a bit ago. it is now a medical chart of six standards deviations was that food is expensive because of ukraine. kailey: to me this is going to be the biggest story of the next six months and we will see from the imf on thursday. i want to see how they are addressing a lot of the nations that rely on ukrainian and russian wheat and are seeing increasing social tensions
dealing with these prices. how do you deal with people who are hungry? a new dynamic that goes differently with some of the economic and esoteric reasons that we look at every day. tom: bloomberg is very strong with some of our partners across the continent of europe. oil is back to 102 dollars a barrel on brent crude. i have to show dollar dynamics. we will get to mark chandler in a moment. the euro is under one: 09 they gets my attention. red and green on the screen. futures are not part of the discussion. the vix after two challenging days gets my attention. tell us what is going on. kailey: it is the big cpi tuesday. eight: 30 we get that read. estimates for march range from
eight point 2% to 8.6% around the same level. a .6% would be the highest going back to 1981. does it matter? it depends with the trajectories after. i was looking at analysts reports that said this is probably the peak and inflation. great, but where does it drop to? what are we looking at over the longer term? the next five to 10 years, they have risen to the highest levels since 2014, though still relatively low at 2.5%. how much do we get inflation dropping below 4% next year? that is looking less likely. that i think is the nature of the conversation. tom: let me interrupt. this chart is the five-year out and five-year out further chart, my favorite chart on inflation, the one i've used for years. lisa: and one that a lot of people look at. we will hear what the fed things about it, including the fed
governor and the richmond fed president. it is a huge roster of fed speak this week. even the doves are hawkish. they are all considering even a potential 50 basis point rate hike at not only the next meeting, but the subsequent meeting, and maybe the meeting after that. we will hear from president biden as he tries to talk about some of the issues and some of the measures he is taking including having to do with ethanol and fuel. consumer sentiment weekend on thursday has fallen to the lowest since 2011. tom: confidence is very challenged. i don't know if we can get this up, but the mortgage rate has exploded. you need to explain to me how the american housing and economy adjusts to a spike in mortgage yields back to where we were in 2010?
mark chandler is the perfect guest to start the hour. decades of experience in foreign exchange. what is the signal of a stronger dollar? mark: the federal reserve is in a tightening mode. a tighter policy. it is a positive thing. typically central banks want the currency to move in the same direction as monetary policy. so far the japanese have been objecting a little too escalating their rhetoric. there's nothing standing the way of a stronger dollar as long as the fed stays on its path towards an aggressive tightening cycle. lisa: if you look at the possibility of growth slowing in the face of rate hikes, at what point does that challenge the dollar? at what point are we pricing that in? any weakness in the u.s. economy
will be met with more elsewhere? marc: this is one of the key points. is the federal reserve going to raise rates until something breaks? what is going to break, i suspect it will be the consumer. the housing market, and existing home sales next week, those fall. i think this is the path they are on. the economy will accelerate after this weakness in q1. the challenging part is in the second half of the year. monetary policy takes place within unpredictable lag time. i think around the second part of the year we will see the economy slow. sustained growth below 2% is when i think the fed calls it quits. kailey: i have a new habit when i come into the office around 2:00 a.m. and look at the dollar-yen first thing. we are north of a one 25 handle. how much north can that go?
marc: we had a level since 2015 as you say. this is where it is a challenging point. the japanese officials, including this morning, the finance minister said raise the rhetoric talking about watching the market. up until now the japanese have been arguing that the weakness of the yen is positive for the economy, but i think they are changing their tune will stop the economy an escalation ladder. the next chart point is closer to 130. i don't think we are seeing objections from u.s. industry, especially the auto industry which has been sensitive to yen weakness. the bank of japan has targeted 25 basis points on a 10 year bond. 25 basis points. what we will see starting next
month, and when you get this cpi data it will jump in japan. real interest rate panic on the verge of falling sharply. here too i think it is like that old quote from one of the russians 100 years ago saying when you see a mush push, when you feel steel retreat. i think the market is feeling mush. tom: it is all about the inflation report. lisa: with this does in terms of economic growth, the nfib met just came out moments ago came in well below where the expectation was. it is another confirmation of how the inflationary pressures are weighing on the economic outlook in a way that we haven't seen since 2008. tom: i looked at a gas station
sign the other day, i don't drive, and it was a shell gas station where the prices are. it goes beyond that. i'm looking at corn in the united states. we showed the wheat in europe. these are tangible spikes in price. lisa: and these are staples, food and gas one of the most visible price increases. did you see that bank of america survey this morning? growth expectations record low and inflation expectations the highest since 2008. tom: an incredibly important interview this morning. this is a day of inflation report into hours and a half. ♪ >> keeping you up-to-date. president biden will allow expanded sales of higher ethanol
gasoline. he will make the announcement at it ethanol mill in iowa, commonly made from corn. they're using the higher ethanol gas and could save drivers per gallon. ukraine expects russia to widen is offensive in the eastern part of the country this week, echoing a u.s. warning which also predicted the growth of a more protracted and very bloody phase of the war. in mariupol the mayor says that more than 10,000 civilians have died since the invasion. in shanghai there has been an easing of covid lockdown restrictions. still the majority of the 25 million people are subject to staying in their homes and compounds. the government has ordered that non-essential workers and their families leave the shanghai consulate. the government is suspending payment on some foreign debt and
a possible default. there have been widespread protests in sri lanka gives to 20% inflation and daily electricity outages. they warn of clouds on the horizon. there was a sharp slowdown as prices cut into consumer spending power. the u.k. was under coronavirus restrictions. global news 24 hours a day on air and on bloombergquint take. this is bloomberg. ♪
world to images of mr. putin in the far east of russia with the gentleman from belarus. this is one of his projects easily over the last 12 years. the russian space program is wedded to kazakhstan. he wants his own shop. he is building it 400 the 500 miles in from the pacific, no doubt talking with astronauts here signaling that life goes on in his fractured russia. it is mr. putin that we normally see at a long table. lisa: this was his first trip out of the country, though belarus is closely affiliated with russia right now. it was the first trip out of moscow since the war started, a show of international mobility that we haven't seen.
how much do we see this as a precursor of belarus's more intimate connection with russia in the war in ukraine. tom: he has to be focused on the trip back to moscow and the challenges in ukraine. wait, wait for which side will begin. without the romance of world war ii what appears to be a land war. lisa: we are hearing about intensifying fighting in the donbas region. if that were the case it would be an escalation. it would have to warrant some further response from the west. that is the nature of the conversation now. tom: we go to emily wilkins. images of mr. putin speaking clearly to astronauts dressed in blue. they are not in astronaut gear
but rockets are in the background. in must be a diversion for mr. putin, but he must be focused on the response from the west and mr. biden. emily: we will see president biden travel to iowa today talking about gas prices, of course speaking about inflation. he will be blaming the rise in prices on putin's shoulders. they have been branding the high old prices because of putin's invasion of ukraine. it comes at a time where the u.s. and its european allies are beginning to rethink the weapons that they are sending to ukraine is the worst shifts. what different weapons do they need in terms of heavier weapons. you see that discussion as they try to prepare for the next step of the war now that we haven't seen sanctions be the gut punch that a lot of leaders
hoped they would be. lisa: we are dealing with two different shocks. president biden is trying to blame the increase in the cost of living on people while going further in terms of being more aggressive with vladimir putin. what takes priority at a time with the cost of living is the main issue for voters heading into the midterms? emily: that is an interesting point. we had a lot of angst among americans at the higher inflation and gas prices, but you also have in the u.s. a strong sense of support for ukraine and wanting to support ukraine and a very negative opinion of russia. what you are seeing by is combine the two. tell americans that we know that you are angry about high gas prices and inflation, but you can blame putin for that. that is a small piece on the larger story of inflation and supply chains, but apart that biden is going to push because
he knows that that will resound with americans. kailey: the president is dealing with the politics of inflation and was talking to the prime minister of india. are there real signs of tangible progress from countries like india and china who have so far not come out to criticize russia for the invasion of ukraine? does it feel like we are moving even an inch on that front? emily: we haven't seen a lot of action at this point, though what president biden told modi yesterday wasn't a demand russian oil from india, but they should not be increasing or accelerating what they are buying at this point. the ask was low. it will be interesting to see what india does. we had headline on the terminal about india deciding to increase its shipments to russia by 2 billion. that is not energy. it is things like textiles,
pharmaceuticals, machines. it will be interesting how the relationship between india and russia continues and if u.s. pressure influences that at all. tom: i'm watching the feed that we have on bloomberg radio. they are in a photo op now at the cosmodrama in the pacific. president putin shaking hands with the leader of the cosmodome. i will editorialize. he looks tired and he appears to be limping. i think we have mr. putin with a bit of a limp. lisa: i don't want to speculate on his health. i think it is interesting timing, the show of international clout or ability for him to move from one place to another at a time when many are speculating about his
increasing isolation. how much is he trying to shore up allies? how much pressure does this put on china as we see india perhaps working more closely with the u.s.? tom: no one rips up the script like emily wilkins. thank you. we get back to the market story in two hours. an inflation report that harkens back to what paul struggled with , the double recession of 1980 and 1981. what is it like to be of a younger vintag confronting the inflation of my youth? kailey: you were talking behind your mortgage rates. i have to move into months because my lease is up. there is little inventory. tom: there is a surveillance park bench in central park. kailey: i thought that you're going to say that i can move in with you?
tom: the dogs are too much maintenance. kailey: it is a very real thing that the federal reserve has to consider. one of the most direct mechanisms that the fed can try to rein in the economy is through higher mortgage rates. maybe try to cool down the housing market first. we are talking about a potential eight handle on inflation. has the federal reserve already made up its mind? tom: they have made up their mind. that is the heart of the matter. it will be the parsing of inflation, the goods dynamic, the service dynamic. it is actually a fed that is committed and far more importantly. in washington, madame lagarde will be there. lisa: we're talking about the ecb having their meeting this thursday as well. i go back to tom kennedy's question, at what point do these higher yields actually restrict economic momentum?
♪ tom: mr. pruden in -- putin in the far east of russian and mr. macron getting an ear fill that cheerful out campaigning. lagarde is watching this morning. mulhouse -- in the flight path to zurich, coming into davos on your plane, you are having your breaky and this is in the very east of france. lisa: do a lingo, you might get the pronunciation correct. kailey: you don't say the h and french. -- in french. tom: you are getting an ear
full. the coverage led by francine lacqua and caroline connan. she is watching the french elections, one example of the new autocracy worldwide, the strident moment that we live in, and that is joyce chang that jp morgan. joyce, give me the new scene at jp morgan. you wrote most of the 44 page later -- letter. what is the research theme in your shop the rest of the year? joyce: we've taken the first half down because of russia-ukraine and the high energy prices, down three percentage points. we are looking at the first energy crisis in the decarbonization era. jamie has been writing about a need for a marshall plan on how
we can accelerate this transition, and sure energy security and get used to a world where we are in a place with more volatile cycles, higher inflation, higher treasury yields to come. there is a lot to watch in the commodities market. we are waiting to see. a lot of those pressures are still with us. tom: i look at the marshall plan of jp morgan and david folkers landau, the academic at deutsche bank saying the same thing, there will be a massive fiscal stimulus in europe whether they like it or not. and then i have the giant of dramatic economics -- germanic economics saying, we need to tame inflation. government fiscal stimulus versus a titanic fear of inflation. joyce: we are looking at very
broad-based inflation, not just energy prices. in europe, the surge in the euro area, natural gas prices have pushed inflation to about 15%. the u.s. global inflation tracking posted 9% in the first quarter. there is also rent and wage inflation so the central banks will have to respond. we see them moving 50 basis points in the next couple of moves and we see that more stimulus will probably have to come online in china where growth is coming down, but also in other places. we are seeing concessions on whether there will be subsidies and automatic stabilizers put into place if energy prices stay at these levels. we see brent oil getting above $100. lisa: at what point do rates become restrictive? how high do borrowing costs have to go before it has an impact on
inflation? joyce: we see the fed fund rates getting to two and 7/8 next year. they will revert to 25 basis points in july and after. the issue is to get to neutral as soon as possible and see if you can anchor inflationary expectations. lisa: to your point about oil at 100 and china is slowing down, at what point are we looking at dueling shocks where inflation pressures will take a while to rollover and are exacerbated by the shocks and will conspire to rollover people are not pricing? joyce: that's what remains to be seen. we will see a lot of stress that comes in other parts of the world apart from the u.s. and europe. emerging markets, inflation is 40% to 45% of the basket in
certain countries like india, the austrian countries. these pressures will be with us. we have made material downward revisions but the question is whether it will continue. all eyes will be on china because we are seeing the numbers that will come out for march and april will come down materially as they have increased the lockdown. the lockdown, they are suffering the equivalent of one third of gdp. kailey: it could have an impact on chinese growth that a lot of production is housed in china, and we've seen the impact with companies in shanghai. if supply stays constrained, potentially exacerbated by the zero covid policy, how much is the fed able to make a difference? we talked about the ability to engineer a soft landing. what about a rolling over in inflation? joyce: there is the fed hikes
and the faster -- to come. it is a combination of the things and also doing 50 basis point moves to anchor the inflationary expectations. the fed is in the front seat taking the lead but across developed markets and emerging markets, there is more rate hikes to come. on the oil side, releasing from the strategic petroleum reserve funds, we don't think we will get the worst-case scenarios with higher oil prices. there are ways with the oil market, a global market. kailey: when faced with higher prices at the pump and grocery store, higher prices will alter consumer behavior in a material way. when do you expect the real demand destruction will kick in? joyce: i think that is always away. the mobility, i think the demand
destruction will happen at some point in time but we are not in the scenario where we see oil over $130. we are more in the range of $110. still seeing oil prices very elevated but i think you have a lot of pent-up demand as mobility comes back online so that will take time and i don't think it will be in the next quarter. tom: let me ask you a sell side question on everybody's mind. whether big tech, we saw the amazon bond deal yesterday where they effortlessly go out, maybe you got a phone call. i could see him, get chang on the phone. what do you think of the vibrancy of big tech in america? joyce: this is a pandemic that has really changed the way we live and work. the dependency that we have on
big tech. we still see that there is pressures in the equity market, a lot of that coming off the growth numbers and higher energy prices, the fact that we had such a massive rally. i don't think that changes the overall story on tech. what we need now is consumers coming back into the office and getting back to normal. lisa: as you talk about big tech, a lot of it is tied to the bond market which has given a lot of the relative valuation trade to big tech. how concerned are you about the bond markets, i don't want to say breaking but breaking in terms of the lack of liquidity as the fed withdraws? how much will that color the narrative in the next six months that is different from the rate hikes? joyce: 10 year yields are at a three year hi, finally looking fairly priced, but that has further to go. we are looking at about 200
billion dollars of treasuries that will run off this year compared to, relative to the baseline forecast due to a faster normalization. the fed is fully on board on selling to get to an entree -- all treasury balance sheet by the end of next year. sales are a real possibility in 2023 and the sales might take the form of setting a floor on the runoff rather than a cap. treasury yields don't have much higher to go here. we have the stage set for the balance sheet runoff in may. right now, some of those higher energy prices seem like they are in check. tom: joyce, thank you. we need to do this more often, i'm thinking weekly. joyce chang of jp morgan. the president will go to iowa and bloomberg with a wonderful story on ethanol. i did a whole lot on ethanol
eight or nine years ago, and to talk to you, farm girl, if you go from fargo to ethanol i still don't understand the ethanol ethics other than as a boost to corn. i love what greg valliere said, this is a president going out to save $.10 a gallon on iowa ethanol and grasping at straws. lisa: corn prices are also high so it is pick your poison if you are dealing with elevated prices. it comes at a time of real perilousness for president biden considering he's got not a lot of things going for him popularity wise heading into the midterms. tom: i don't get, to be logical about it, heaven forbid we be logical in washington, the price of corn is up just like gasoline. if you pop ethanol in iowa you pop corn while yes goes up.
kailey: this is a president that needs to be seen trying to be do something. he doesn't have much power. he tried to tap the strategic petroleum reserve. it is a president that is running out of options at the same time as you have an american populace that would like to see more with ukraine. how much more can you go? tom: it is like "the raiders of the last dark -- of the lost ark." they have been buried for 40, 38 years, 45 years, get out the whip inflation now buttons. reports on inflation in two hours, michael mckee. coming up on ukraine, julie norman of ucl. this is bloomberg. ♪
ritika: with the first word news, i'm ritika gupta. march may turn out to be the high water mark for inflation. cbi expecting to share prices rising 4.8% from a year ago, the fastest since 1982. higher energy costs in the wake of russia's invasion of ukraine. we will get the inflation number at 8:30 a.m. new york time. india plans to boost exports to russia by $2 billion in the wake of sanctions. they are working out a payment system on the products india would shift -- chip to russia. -- warns a quarter mark a quarter million more people will face poverty this year, due to the impact of the coronavirus and soaring prices. more than 368 million dollar people will be below the $1.98 line by the end of 2022.
president biden restricting ghost guns, crackdown on purchases for people who assemble guns from kits. honda plans to spend $40 billion on its push into big oil. events second biggest automaker so some 30 ev market -- ev models will be -- and will phase out gasoline powered vehicles completely. global news 24 hours a day, on air and bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪
invasion of ukraine on energy prices and other commodities. we've seen what's happened to gas prices in the united states and that will be reflected in likely a big divergence between the headline and core. tom: director of the u.s. national economic council for the president and managing the inflation message out of the white house. right now, the news flow is extraordinary. we are losing the video on mr. macron. mr. macron and madame le pen get out and campaign. he is stuck in a crowd and some of these people are really giving it to the president of france. lisa: he is campaigning as the latest opinion runoff poll just came out showing he led 54% to
46%, a big jerk -- bigger margin than most people thought. tom: we don't have the sound to translate the french and we don't have the sound for kailey leinz. dealing with ukraine and the financial challenges of russia, seven-day paper, they are giving it away for 17% is the basic idea on the russian rate as put out moments ago. ukraine now, we do this with an expert on human rights, julie norman codirector of the ucla center on american politics that her work is on the heartbreak of terror and human rights. many talk it. she does it. you were unprepared, we were
unprepared by what we see in ukraine. forget about the hague and war crimes. how do you respond in real time? julie: it is certainly horrific images that we've seen over this last week or two and unfortunately they are unlikely to stop. we are expecting more atrocities in the next wave of the more likely in the east. there has been a lot of discussion about war crime trials in the future. it tends to be quite time-consuming and when they take place there is question over whether an international criminal court would have jurisdiction. the important thing to remember is those types of litigations usually don't deter action in the moment so even if they take place later they would not stop putin now. we are focused on how can the conflict and? -- end? as long as it is
continuing in imagine we will see atrocities. that is the double-sided coin of diplomacy. tom: i need to be very delicate, professor norman, reports, speculation, rumor of chemical weapons being used down by the black sea. how do you determine that? do you look for canisters the stuff was used in or am i thinking from world war i? how do you detect chemical weapons? julie: obviously it depends on the weapon that is used what kind of residue is left. it tends to be something that is difficult to show in the moment especially in a situation where access to the city has been very limited. we have heard reports they have not been verified. chemical weapons take many different forms. some would consider teargas
chemical weapon not one that is deadly. the scale to which a weapon has been used, that is happening to people in that area, you have to have forensic evidence to show the impact as well as residue or canisters with things like phosphorus. it is not clear what chemical weapons have been alleged to have been used and if and when they were deployed but we are more aware this is a possibility. lisa: this is so crucial because of the potential response to the use of an escalation or something that is new and more horrific in this war. what do you expect the response to be when the united kingdom has come out and talked about nato deployment? julie: the u.k. and nato have been trying as much as they can to de-escalate but also support ukraine through military aid. what would perhaps change that is if there was a deployment of
a tactical nuclear weapon or chemical weapon. it is expected there would be more of a robust response but the alliance up until this point has been so committed to trying not to get boots on the ground and get this actually becoming a broader conflict. it will be difficult to find that balance if something like chemical weapons are used. tom: professor norman, thank you so much. breaking news. part of this is that the cosmodrome in the far east of russia, mr. pruden the -- putin the first sighting i've seen in ages, meeting with mr. lukashenko. it is clearly stage-managed by mr. putin's people with a russian flag in the background. back to the inflation report and what has not happened in the
last 24 hours, yields explode higher, 2.80% on the 10 year but the real yield didn't move so we've got the nominal yield exploding up and the residual, inflation rather, doing what it does, and the residual has not moved. lisa: how much faith you people have that the fed will follow-up hawkish talk with walk and action? it is underscored by the fact that real neat -- real yields are negative. to talk about the fed policy that is highly accommodative at a time where you have inflation at the highest pace going back to the early 1980's highlights the dissonance of this moment. at what point do we see yields moving up not necessarily because inflation expectations are moving up -- which they are -- but because they see more restrictive policy? tom: to touch on policies as anna han comes up, i look at the
equity response and it is a little bit linked. yesterday was ugly but the disjointed and as these titanic moves in the bond market versus less than titanic, the dow jones industrial average, i should say it in italian, 34,230 on the dow, not even a correction. kailey: is the equation for equities different if you see real yields inevitably going positive? does that throw the case into question? earnings season starts in full force tomorrow with j.p. morgan. how much are equity investors relying on corporate profit to provide the support behind the equity market even in the face of a federal reserve tightening? tom: the drawdown on the dow, 6.8%. lisa: i thought you were chair knowing your inner -- channeling your inner ferro?
♪ >> the financial situation has been positive for equities. >> but we are seeing is an increase in volatility. >> how high do rates need to go to slow down this economy? >> what qt does is another unknown. >> the risk of recession is no higher right now than normally. >> this is "bloomberg surveillance," with tom keene, and lisa abramowicz. tom: jonathan ferro, lisa abramowicz, and tom keene on radio. it is a tuesday of extraordinary inflation, that report in 90 minutes, michael mckee leading the coverage on the agony of a nation with inflation. it permeates every aspect of our economics. lisa: