Skip to main content

tv   Bloomberg Markets Americas  Bloomberg  April 18, 2022 10:00am-12:00pm EDT

10:00 am
alyx: here are the top market stories that we are following for you at this hour. there is growth in china after weak consumer spending data overnight. that is a wrap. bank of america closes it out with zero trading losses and love me tender. that was the tweet from elon musk not had investors head spinning. is it a reference to a tender offer or has he bliis on bp? guy johnson is -- repeat.
10:01 am
guy johnson is off today. a lot of the world is on holiday but there is a lot to cover. there are some currency -- concerns on recession. the are about 35% in the next few years. what is the biggest threat to u.s. growth? i am joined by romaine bostick and tom. tom: is a bit of a unique situation. strong. there is also all this talk of recession.
10:02 am
there are some challenges at home and abroad. the fed will have to hike rates aggressively to bring inflation under control. examples without pushing unemployment and triggering the border economy abroad. the russian invasion of ukraine remains a significant risk. as we learn from china overnight , there is an impact on the factory. historic, there have been a lot of questions and raised eyebrows about china's economic data. many people were surprised, but
10:03 am
they did a good job of capturing the intensity. the first couple months of the year did raise some eyebrows. it looks unreasonably strong. i think it is difficult to treat the data with the same degree of trust. there must be a greater willingness than there was a few years ago. i think the answer is yes. alyx: what influence does china have on the outlook? romaine: they have a huge
10:04 am
impact. a lot of it is directly tied. the gap that you looking at in china has the potential to slowdown the input. companies are going second to have to charge more for product. alyx: we are also hearing from bank executive saying the outlook looks great. romaine: one year from now, i do not think we are seeing the same amount of vizio them. we are talking about household balance sheets not as strong as
10:05 am
they were a year ago when all the stimulus was moving through the economy. credit card balances are relatively intact. that is good for now, but over time, it diminishes incapacity. do you have economic conditions that are favorable enough? >> a massive amount of stimulus is still being spent, to that point. on that point, is it so much a question of if a u.s. recession is coming or when it will ultimately come? if it is the latter, when you think it will be? tom: there is always a question of wayne, not if. will it happen this year? i think the answer to that is almost certainly no. the economy has a lot of
10:06 am
momentum now. they have this fortress balance sheet reinforced by all those stimulus funds that they received over the last couple of years and they should be pretty robust to start the tightening cycle. i think it will be a 2023 or 2024 story that is looking robust. the impact of the fed tightening will be greater and risks from russia and china will have time to crystallize. >> that was the morning from bill dudley, who had a great piece out on the terminal today. we talk a lot about consumer balance sheets but let's talk about corporate balance sheets as well. what is that mean on the corporate side? romaine: we have not gotten into the heart of earnings season.
10:07 am
it will be in the next couple of weeks where we will start hearing from come these that are more tethered to the consumer space. things like apparel makers as well. once you get a read of how much cost to have gone up, the other question is how much they have been able to pass onto the consumers. when you look at some of the research, they seem to think that we will start to see companies shoulder the burden pass onto the minimal for revenue growth. >> what are we seeing for the remainder of the year? romaine: you still have -- once we get into q3 and q4, there are expectations that you will see more contraction.
10:08 am
the question is, how much contraction will you see, and will that be enough to knock evaluation down? >> i was speaking to the mat earlier this morning on early edition. he said if wall street economists put 35% off on recession, he needs it is greater than that, that they will always play it down to some extent. do you think they are too low? what are the odds of that happening? tom: a recession is an unusual event that is almost brought on by a shock that we cannot see. if a recession was triggered by something that we could see, we
10:09 am
could be smart enough to move fiscal policy in a way that prevented that shock from occurring. could a recession occur this year? absolutely, it could occur this year. fed tightening could trigger an adverse reaction from financial markets. russia could cut off all of europe's guess supply. china could go back into a national lockdown, combined with real estate prices. there are a number of risks that could crystallize. what they mean is yes, we see those risks from the fed, russia and china, but the labor market so robust, our base case is those are not going to strike
10:10 am
this year. >> thank you for joining me today. we will see later on the close. there is another story that we want to keep on top of. the supreme court has rejected a challenge on the deduction cap. it was challenging that $10,000 limit. it has been rejected by the supreme court, so we will stay on top of that story over the next couple of hours. world bank just cut its forecast, so we will talk more about the threat to growth in the u.s. this is bloomberg. ♪
10:11 am
10:12 am
10:13 am
>> everyone the labor market has not been this tight and a while. that is the problem. wages will continue to strengthen and if wages continue to strengthen, we are not going to go back to 2% inflation. >> that was bill dudley earlier on bloomberg tv. let's get back to our question of the day. what is the biggest threat to
10:14 am
u.s. growth? joining us now from pittsburgh, there are a lot of factors at play here. you have cost pressures that companies are facing. which one is paramount in your view? >> all of them. >> fair enough. but if you had to pick one? >> i hate to try this out. i did a lot of math. it was aia. the markets are mathematical. in any kind of season, what you have to understand is market can reflect a handful of items. a lot goes into it it is
10:15 am
shifting priorities. some days it is inflation, some days it is earnings. overall, it is over weeks and months, certainly years, all of it goes into it. >> when you put it all together, it is not just about the markets . where do you put the odds of recession? goldman sachs says -- >> i think the under of that and here is why. i am hopeful for the future. with the real answer, it is that i heard the bill dudley comments about a small labor pool. the fact of the matter is that companies are going to deploy technology in as many places as they can. that is not a bad.
10:16 am
so i think that is not factored in. it cannot really be factored in. inflation cannot keep growing. markets work. supply and demand works. the price bases, it does its job. it falls back. you just have to have a longer view of the markets understand that these short-term problems come in the long run, i going to be problems. >> that brings me to the company's power. he says margin expectations look overly optimistic for 2022, given the myriad of pressures companies face. we think they have reached their
10:17 am
peak and are more likely to be a headwind to growth. why are you not more worried about margins? >> i am thinking about demand. i am thinking about the things that people really want like tv's and cars. it is unclear if they will be able to get the materials that they need to make the battery. thus, you can only pay so much for that car. i think the demand for products is going to slow down. i do not know. >> made you want to be putting your money? >> we are going to have companies monitoring things.
10:18 am
that is the big story this morning on energy and all that good stuff. i think the amount of technology that we are going to deploy is going to make our head spin. this is probably a pretty good place to start for that. >> thank you for joining me on this monday morning. i want to focus on one in particular. elon musk just tweeting that board salary will be at -- he tweeted cryptically over the weekend about love me tender. what does it mean? we will dig into tails on this continuing saga, next. this is bloomberg. ♪
10:19 am
10:20 am
10:21 am
quicktime for another bloomberg/. there is a new twist. an indication of interest. southwest will now explore other options. the evergreen container ship for more than a month is moving again. several attempts. they offloaded some continues to lighten the load. elon musk messing with investors over the weekend with a tweet saying love me tender. it could have been that he was listening to elvis pressley, but
10:22 am
it could also be referring to a tender offer. >> elon musk making more news. he said board salaries would be zero dollars, if twitter did succeed. that would be about $3 million a year in savings. give us some context around this statement. quest twitter's board of directors earn a salary, right? it is part of their compensation for a part-time position that ranges from $200,000 to $300,000 a year. over the weekend, there was a tweet about a table of the direct, not only about salary compensation, but also a thin volume of shares that the board held. his point being that no matter how fractional, that
10:23 am
conversation would be trimmed. >> the operative word is if. he had that cryptic love me tender tweet over the weekend as well. probably a not-so-subtle signal. quest bnl 4% on twitter stocks. there is volatility here. remember friday that twitter went through with introducing -- it would allow existing shareholders to buy more shares at a fraction of the cost. he could tender an offer to shareholders directly to buy their shares at a certain price, at a certain time. it is not hugely surprising whether it was successful or not.
10:24 am
we had trading at $46 a share and the current bid is $54 20 cents a share. that is significantly discounted. so one theory out there is that this is a lowball offer. the board might hold tight because they do not think this is in the best interest of shareholders, if there could be a higher bid. bloomberg reporting that thomas bravo is considering a bid of his own. >> elon musk could potentially get a partner, even though he has adequate funds to buy twitter at whatever price he wants to. >> he said he had the necessary financial assets to make it happen. after leaving the stage, we just had a constant stream of tweets
10:25 am
and the common thread is that elon musk feels that it would be indefensible for the board not to take his offer to shareholders. it would not be democratic or against duty. that will be one thing to watch for. it would come in the form of regulatory filing. everybody should be getting up extremely early the next three days to be looking out for that. >> i do not wish that on anyone. how significant are the sides that have chosen? >> it is interesting. it is a hypothesis that elon musk is one bid. we know that equities might come in. the wildcard is how many other social media giants or investor groups are phoning their bankers and lawyers saying, why don't we
10:26 am
make our own offer? there could be a rival bid, a competing bid separate from his own. >> we will leave it there. twitter shares are up by about 4%. coming up, we were talking about this. we have to talk about bank of america as well. big banks are back to pre-pandemic levels. we will talk about the results with bob diamond. this is bloomberg. ♪
10:27 am
10:28 am
10:29 am
>> we are about an hour into the u.s. trading session.
10:30 am
you want are working today. a lot of people around the world are not so volume is light. kkriti: you are seeing some mixes. that does not mean there is no volatility. it really shows you how with fed is leaving -- leaving. i think a lot of the action is going to be in the bond market and economically sensitive markers as well. the bond market flat on the surface, but take a look at what it is doing and it to the etf space. tlc, the longer-term treasury etf. in the last month, it saw a pretty big inflow. if you see a massive bond selloff, wise the etf seeing and flows? a lot of it has to do with -- if you start to see yields higher, you start to see more coming at the end of the second quarter?
10:31 am
that is going to be something we are going to see on the macro front. didi is one of the main stocks to be watching if you want to take a break from twitter and tesla. didi taking quite a bit of a hit this morning down as much as 20% in the premarket. shooting for a meeting may 23 talking about finally delisting their shares from the new york stock exchange. we know a lot of politics around the listing has been ongoing amid tensions around the u.s. and china. kailey: thank you so much. that is what is going on in chinese tech. let's talk about what is going on with american banks. bank of america has joined its wall street rivals. at the same time lending increase in the first quarter. the ceo says consumers are still wanting their money closely. >> consumers are sitting on lots of cash. high wage growth, high savings, what it means is longtailed consumer spend growth.
10:32 am
kailey: sonali basak is with me now. what were the big takeaways for you? >> the big thing is where consumers were spending. it is a huge jump when it comes to travel, entertainment but less when it comes to retail and restaurants. gas prices eating at some of that spend and that was a big jump as well. he was asked about a recession a couple of times and what that would do to consumer spending and loan growth and what executives at bank of america were saying is that consumers were to flush to cash. they had a note of cautious optimism. it was really quite a bright spot here when they were talking about the scenarios. this is not a quarter you expected banks to really talk about records in many businesses. bank of america, because of the healthy growth in the commercial businesses, loans grew much faster on the commercial side
10:33 am
and equity trading actually hit a record. kailey: bank of america obviously rounding us out. you have had an exhaustive couple of days. when you put it all together, what was the big theme for you? >> the banks being ready for any scenario. trading is holding up despite everybody's worst fears. when it comes to this consumer growth, even if you are worried about it getting into the second quarter, an interesting thing they said was that it would probably be a long way before the interest rate hikes stopping valuable. that is the key and why bank of america stock is up today because they are not as worried about a lending slowdown even though you are already seeing some of that slowdown in mortgage businesses where rates are much higher than they were in the last decade. kailey: great work over the last . thank you so much. let's get more on earnings. we welcome bob diamond. the former ceo of barclays.
10:34 am
she was just talking about the kind of line that exists between where higher rates are good thing for banks because it means more net interest income and the line where higher rates are actually a bad thing because it could slow down the economy and therefore, loan growth. how far away are we from that line? >> i think when you look across the bank earnings, i think it is to tails. in the core banking business of taking the bonds and making loans, i think there is an awful lot of headwinds. i think there is the cost of running a bank just with the tightness in the labor market. the competition with technology. also, the cost of revamping the technology in the digital economy. i think it is an awful lot of headwind and i think that core banking business feels a lot more like utility. i think it has for a while and i think that is increasing.
10:35 am
certainly, the positive is higher rates. i think on the other sides, those banks were turning up operations. this volatility, rising interest rates would provide a little bit more uncertainty. what a great environment for a trading operation. i think that is the way i would look at it slightly differently. the core banking business versus the trading business. kailey: bank of america has seen zero days of trading losses in the entire quarter. i think that was one of the remarkable stats that came out this morning. the consumer side is the question. is that why we have seen banks over performing to such a large degree even in the face of higher yields? >> for sure. the more it is goldman sachs or morgan stanley with the maryland shop -- operation and there, the
10:36 am
more you have a wealth asset business, trading business, the better you are going to look. the more you are a core bag, and look what else happened last week. you saw capital group from the west coast selling a very large stakes in european banks. these european banks have a price-to-book below 50%. compare and contrast that to kind of a utility look. they are outperforming the europeans, but i think that core banking business has a lot of headwind. kailey: let's talk about whether or not the consumers the headwind. you heard executives not just from bank of america but over the last several days talking about a resilient consumer. is it so much cautious optimism or over optimism? >> one of the most positive things is you look forward and another has been a lot of talk on the show today about the potential for a recession. one of the real positives for
10:37 am
our economy is that the balance sheet with both consumers and businesses, i don't ever remember up period where both of them were this strong. on the other hand, it is quite clear that we have been easing monetary policy in a recovering economy. we still have fed funds below 50 basis points. we have a balance that has expanded during the last two years. the fed is clearly behind the curve. the fed is clearly going to have to increase rates i think faster and further than the market even now is anticipating. you add that versus the very strong balance sheets of consumers and businesses. the economy is not going to slow down on its own. i think the fed is going to have the put the brakes on a little bit more than we would like. we will see how this goes forward. kailey: can they put the brakes on to the extent you think they need to and also execute a soft
10:38 am
landing while doing it? >> it would have been much better if as inflation got over 2%, 2.5% to three point 5%. the feds brought up at the time that rates were raised at that time, but that was not the case. i think there is some risk they allowed it to get too far ahead and the amount they have to raise rates right now will have an impact on the economy. we will see. i do think we are going to see more activity. i think the way i said it is right. i think the fed is prepared to go a little further and faster than we were anticipating even a month or two ago. kailey: obviously, one of the things the fed is looking at is the labor market. you alluded to in your first answer, but the competitions for talent, how persistent do you think the pressures are going to be on the expense side for that very reason? >> we have never had -- i think
10:39 am
the statistic is right, but i think it is like 11 million job offerings and 6 million unemployed. we have never had a gap like that since we have been recording these numbers. the talk about a tight labor market and the talk about stable prices is real. the fed has a dual mandate. it is full employment where we are well below -- well beyond full employment. we have the most ability or least ability in prices in probably 40 years. i think with the banks are facing in terms of the market is real and that is why i think you have to keep it real close eye on the cost line even in more difficult quarters. another thing i would say about this quarter, if you look at j.p. morgan's numbers, the difference between 14 billion in last year's quarter and 8 billion in this quarter is almost 100% difference in provisions. last year, they added 4.5
10:40 am
billion because the credit provisions were not coming. this year, they took 1.5 billion including some provisions around ukraine and i think we are going to have a much tougher environment going around corporate credit and provisions and i think that is a swing. if that is correct and you have pressure on cost because of labor and i would add in technology and the need to compete with stable coins and digital and everything else going on in that space, i think the challenges for core banking are real. kailey: on that note, we will leave it. thank you so much for your valuable insight today. coming up, we will turn to geopolitics. russian troops have and the keyport city of variable -- mariupol. this is bloomberg. ♪
10:41 am
10:42 am
10:43 am
rigo: coming up, richard
10:44 am
bernstein cio of richard bernstein advisors. this is bloomberg. ♪ kailey: -- ritika: the u.s. supreme court has rejected the cap to state and local taxes. that is a $10,000 limit was imposed by congress as part of the 2017 law. in the u.k., boris johnson faces another rocky week following newspaper reports about the partygate scandal. the prime minister's office has declined to comment. russian central banks say they have found no clear alternative to the world s major reserves.
10:45 am
in addition to investments in both pounds and yen. that made it possible for intricate -- international governments to see his half of the bank's stockpiles. this is bloomberg. kailey: thank you. in ukraine, defenders of mariupol have been encircled by russian forces but they have not surrendered the port city yet. we also obviously know that the devastation in mariupol has been tragic during we are talking thousands and thousands of people who have died. president zelenskyy of ukraine has invited president biden to see firsthand the devastation in his country for himself yet the white house said he is not going to make the trip. >> that would be unlikely. the secret service has a great feel about putting the commander in chief in the middle of a war zone even though the white house has said they are considering
10:46 am
sending officials as a show of solidarity. the city to the west, we saw the first fatalities, the first casualties of the war earlier today as russia opens this new week with a barrage of missile strikes across the country. in live viva, --lviv, several of them touched down. russia has said it has hit hundreds of targets. this is an important spot. the west, major city to the west about 43 miles from the border of poland. it has been a base for refugees leaving the country, for government officials and of course for news media. many reporters are based their right now so a lot of questions about what this might be leading to. to your point, russia continues to tighten its grip on mariupol. president zelenskyy says if the forces remaining in mariupol are
10:47 am
killed by russia, taken out in this war, you can forget the future of talks as negotiations will likely come to a formal end. it would be the first major city to fall in this war and would likely mark a significant turning point for russia. kailey: thank you so much and i'm sure you will continue with this conversation later today. you can tune in on his bloomberg radio program. for more on the worn ukraine which has now gone on for nearly two months, let's bring in mark, senior advisor for the international security program at the center for strategic and international studies. let's talk about mariupol first. it has not been surrendered yet. if and when that day comes, how significant a moment will that be in this war? >> the valiant defense of mariupol is coming to an end. the russians have tightened their grip. they have isolated the remaining
10:48 am
ukrainian forces. i think it is a matter of only a couple of days. but the defense has been significant. a lot of casualties on the russians, reinforces conditional wisdom that cities soak up armies. and it bought time so that ukrainians have been able to conduct successful defense in the north and move forces to the east. on the downside, it is going to allow the russians to free up some forces that will certainly push north and try to link up with other russian forces pushing from the north down to the south. it is a threat that they might be able to cut off the ukrainian forces in the east, expand russian territory into donbass, the next great battle in this war. kailey: we heard from the ukraine foreign minister who said the city basically does not exist anymore, but the russian army has decided to raise it to the ground at any cost. is this russia's model now?
10:49 am
should we expect to see this in cities across the rest of ukraine if and when mariupol does fall to the russians? >> there is no question the russians have used a great deal of firepower. i think the one good thing is that the russians have learned their lesson and taken so many casualties in trying to capture the city. i don't think they are going to try this again. i think they will not try to capture in the future. i don't think you're going to see this level of destruction in other ukrainian cities. kailey: we talked about the fighting, but what about any potential end to the fighting? we had president zelenskyy say talks are at a dead end. where you put the odds of any kind of resolution through talks at this point? >> unfortunately, the prospects look very poor. both sides are digging in on where positions where putin has
10:50 am
not indicated any willingness to fall back from his war aims. zelinski had put an offer on the table at the very beginning to make ukraine neutral and basically go back to where they were before. neutral to give up the possibility of joining nato but putin did not respond to that. right now, both sides are far apart and i don't think there's much chance of resolution. i think the war's going to go on for an extended period of time. you see that actually in the latest u.s. aid package. the united states is doing some things that indicate that the war make a want for weeks or even on's. kailey: let's talk about aid since you brought it up. at this point, what is the west need to do for ukraine? is that aid needed in the form of weapons echo are we talking just straight financing at this point? what is your assessment? >> the latest a package i think
10:51 am
indicates where the aid program is going. we have been providing aid steadily at the rate of about $50 million a day. i think you are going to see that continue. this current aid package will last for about two weeks. first, it contains some soviet era equipment we are getting from various allies and partners. we are doing that explicitly. the packets has mi 17 helicopters but we are also providing tanks and likely aircraft. even a larger expansion, providing u.s. equipment. we have never done that before. we have provided munitions, but now, we are providing army personnel carriers. those are needed for the war in the east and the more open spaces there and for the artillery to counter russian
10:52 am
artillery. but it also requires trading for ukrainian servicemembers because they need maintenance, they need supplies. they are much more complicated. there are ukrainians trading in the united states to learn how to use these weapons and that is an expansion since we now have ukrainian servicemembers and u.s. directly involved. kailey: to this point, there has not been any confirmable reports of the use of chemical or biological weapons in this war. the u.s. had promised a severe response to that if russia would indeed use that. what would you guess that response would be when the president has not committed to actually putting american boots on the ground? >> i think the united states is going to be in a very very -- very tough spot if that were to happen. we are providing protective gear and are a package and i think we will do a lot more to mitigate the effects of chemical weapons. the problem is that will help
10:53 am
military forces but civilians will still be very vulnerable. the problem for the united states is that we don't have very many tools. we could take a little bit more risk on the aid packages. not clear what we could do if the russians use chemical weapons. the one hopeful item is to do that, they would really have to get a battlefield affected and have to use them massively and the pushback would be severe. kailey: thank you so much for your insight. this is bloomberg. ♪
10:54 am
10:55 am
kailey: just about an hour and a half into the u.s. trading session. it is a little quiet out there. the volume a little bit lighter than normal.
10:56 am
about 16% below the 20 day average. moving higher on u.s. equities at the moment. not too much action in the bond market. 28392 is where we sit. more action in the commodity space up .8%. natural gas really where i want to focus. up 6% on those futures today. a lot of concern about demand that is still high and a question on supply with a lot exacerbated by the ongoing war in ukraine. we will talk about the war in ukraine slowing roads and china. scott wren, senior global market strategist will be joining me next. this is bloomberg.
10:57 am
10:58 am
10:59 am
> from a financial centers of the world, this is bloomberg markets with alix steel and guy
11:00 am
johnson. ♪ kailey: here are the top stories we are following for you at this hour. goldman sachs put 30% odds for the last two years. bank of america executives essay consumers remain resilient after the lender delivers strong results. gdp does not fully reflect covid lockdowns as consumer spending hits a and hits levels not seen since 2020. and come see for yourself, president zelenskyy wants president biden to visit ukraine to survey the devastation of russia's invasion but the white house says he won't make the trip as war continues to wage. welcome to bloomberg markets. let's first talk about the u.s. economy.
11:01 am
the central bank is facing a dilemma, how to slow down inflation without causing a recession. >> it is not consistent with the fed's 2% inflation objectives so how do you get inflation down? you need to push the unemployment rate up and that is the problem. every time the federal reserve pushes the an up -- on up limit rate up, they've ended up in a full-scale recession. kailey: so what are the chances for a u.s. recession? goldman sachs sees the odds at 35% in the next two years. scott, 35 percent is goldman's number. what is yours? >> we have been debating this on the investment strategy committee over the last month or two. 25% to 35% i think is the consensus on our committee.
11:02 am
probably that 30% to 35% range is probably what our economists would be more honed in on. kailey: let's talk about what the forces are that potentially could drive to slower growth if not an outright contraction. what is the biggest risk to u.s. growth? >> really, this is been the same for us for quite a while. i think it is inflation, inflation that is higher than what we expect which causes the fed to do more, the magnitude of the hikes then what we expect. i think inflation is still probably the number one risk out there. clearly, that has impacted. real wages are down. we slap supply chain issues, but when we look out there, inflation is higher than what we thought it was going to be. it has stuck around for longer than what we thought it was going to be. we still think it is going to accelerate as we look over the next 12 to 24 months, but it is hanging around for longer than a
11:03 am
lot of people would like. kailey: mike wilson over at morgan stanley put out a note over the last 24 hours basically saying there's a threshold which inflation stops being good for companies and we have reached the peak which means it is going to start being a bad thing. what is your view on company's ability to exercise pricing power in this kind of environment and what it ultimately needs for this equity market? >> the margins for the s&p 500 have been extremely high basically near record so i think the market would give companies a little bit of a margin hit given their cost. for better or worse and if you talk to people, just consumers that you cross paths with, have accepted to some extent that prices are going higher. that is necessarily not a good thing, but i think companies are going to see some demand of structure going ahead if prices keep going up. as i said, wages are down,
11:04 am
people cannot keep going out that are paying for higher prices. we see that in everything from housing to brand names that we see in the supermarket shifting back to generic items that are cheaper and then of course, in the housing market, just going to rent or not buying. kailey: and yet at the same time, executives from bank of america talked about the resilience to a consumer whose strength is one of the most striking factors in this current environment. i know you recently downgraded the financials. what was your reason for doing so? >> if you look back historically over the last eight or 10 cycles, financials are early cycle performers. people are more willing to take on risk. there is more long growth. businesses coming out of a slowdown or recession. that is typically what the appeal is in financials.
11:05 am
we bounce back 35 or 40 basis points here more recently, but that is still a pretty flat curve and i don't think you can really expect it to steepen much. i think we are further along in the cycle. the cycle is moving along pretty quickly. loan demand. it will be ok, maybe not great. that curve is usually not good for financials when it flattens. i think there is a few things going on that make us less enthusiastic about financials as we move forward. kailey: let's talk about what you are enthusiastic about. where would you be putting your money if it is not an angst or communication surfaces? >> our enthusiasm has narrowed here over the last eight weeks or so. we have taken some risk out of portfolios and moved hard toward stocks. cyclicals, growth. for the last really 20 months, we have backed off of things like financials and industrials.
11:06 am
those types of sectors. we still like technology. clearly, technology has stumbled as rates have risen. we don't thing rates are going to get much higher than where we are right now as far as the 10 year yield. if you look back at past cycles, things like that, really, technology does it pretty well. we bumped up health care so that gives you a little bit of a defensive component. it also has good growth component whether you're looking at equipment or pharmaceuticals or things like that. our enthusiasm has narrowed but what we don't want our clients doing, we are still underweight staples so they have clearly performed well as of late but those are the run for cover types of sectors. we think the market is going to be modestly higher. it's colette 7% to 9% higher than where we are right now. we will see what happens and if
11:07 am
that does happen, we certainly need technology to either leave the chart or anticipate and it is not going to happen if utilities and staples continue to be out performers. kailey: let's dig into technology a little bit more than. obviously, we're looking at a nominal 10 year yield. the 10 year real yield just -10 basis points. is your assumption that it won't go positive and therefore, growth like technology can still do ok? >> over time, inflation is going to decelerate but it is not going to happen quickly. if you look at what the real yield is, we are expecting the yield on the 10 year to be closer to 250 at the end of the year. so no, we are not expecting it to move positive at least certainly in the near term. we are starting to see what is happening through 2023 and the story may change but at least through 2022, we are expecting inflation to be higher than what
11:08 am
we would like and expecting the real yield to remain negative or not meaningfully positive. >> we talked about where you seep -- see positivity in the bond market. does that mean you would be a buyer of treasuries here? >> we did some things we have not done in a long time and took money out of stocks. we put it into the intermediate part of the bond curve. we like the exposure there. we moved money into short-term fixed income and is that a defensive move? it sure is. those portions of the yield curve are not really impacted by inflation like the longer-term thing. we are very underweight the long-duration assets as far as treasuries go. i think you need to take some risk out of these portfolios. you're going to have to back off of some of these sectors.
11:09 am
when your moon the -- moving money into fixed at -- income, that is going to have to be part of the verbiage. kailey: what about commodities? >> we had light commodities for the past 15 months or so, but we also recently backed off of that. we felt like the move, not that we don't think over the next 10 years commodities are going to do ok, but the move happened so fast and the magnitude was so big that we felt like ok, let's back off tomorrow for neutral rating where we might see some of these commodity pricings come off as things start to slow down and would give us an opportunity to get back in at a better level. i think that is what we're looking at right now. we want full allocation and commodities whatever allocation is standard for our clients or your viewers. but we want to look for a spot to get back in because we do
11:10 am
think commodities are going to be on a longer-term positive run. kailey: thank you so much for joining me today. i just want to point out the headlines that just crossed the bloomberg terminal. the new york fed has released a survey. u.s. households saying they are less likely to buy a house if they move. maybe the reason why, mortgage rates. on rent, an increase of 11.5% over the next year. selfishly, i have to move in a couple of months and those are the exact kind of headlines i would really like to see. coming up, we are going to turn from the housing situation here in general to china. the central bank is offering support to small businesses and individuals hurt by covid lockdowns. we will talk more about the data we got out overnight. this is bloomberg. ♪
11:11 am
11:12 am
11:13 am
kailey: china reported its biggest decline in consumer spending and worse unemployment rate since the early days of the pandemic. investing -- investors are adding pressures on policymakers. growth actually beat, how much can we trust it. kriti: a lot of the numbers you are seeing don't take into account the most recent lockouts. specifically, the one in shanghai.
11:14 am
those are really the plans, the factors you want to see ramped back up. the last quarter was actually good. the estimate at 4.2% but how much can you really trust it? i think another piece of the equation is how strong is the chinese consumer. we don't view them as the same lens as the american consumer when it comes to what is powering the global economy but you actually see a decline in retail sales down 3.5% worse than the estimate of down 3%. are you seeing some of the momentum charlie had -- china had in the early days of the pandemic actually get lost? another thing is what can they do about it and cannot be a stimulus -- and can there be a stimulus environment. a rate cut is what is expected to be ease going into friday. they did not cut rates but did cut the reserve requirement ratio. if you look at what analysts are
11:15 am
saying, they are saying how can you really be stimulative with any of these measures in the environment where you have a fed hiking are planning to hike as aggressively as the market is pricing in. kailey: two central banks going in very different directions. let's get more on the chinese economy. first question, how much do you trust these numbers specifically on gdp? >> that is a loaded question. you cannot really trust numbers all that much. you have to kind of disregard it because it did not include the lockdowns from shanghai and shenzhen. that rate cut, that triple archive is only 25 basis points. they usually cut by 50 basis points. that tells you everything you need to know about where beijing sits to offset decline in gdp or trends within china. to me, that is part and parcel to the fact that if you look at the combined balance sheets, it
11:16 am
is going to move. as the evaluations and prices don't really react well in that environment. kailey: but would your expectation be? >> because they did not move the medium term lending facility over the weekend. we are actually looking for another 30 basis points cut in the lpr before now and year-end call it. something more on the triple weight between now and year and possibly, at the end of the day, it is not enough in the economy is rbc struggling within the retail sales print. 29% year-over-year decline in march in new year home sales. 92 billion in debt the need to pay back this year does not bode well for the sector or the economy. kailey: essentially what you're telling me is china is not capable of easing to the extent it really would need to to turn this situation around. >> i think they are choosing not
11:17 am
to. i think much of the crackdown we have seen over big tech and other sectors within the economy is not to bailout investors. $644 billion over the last three years of foreign investment has found its way into the equity market. now, as was pointed out earlier and as i've been talking about for weeks, if you look at the yield differential between the u.s. and china, they have all inverted. you now have higher yields in the u.s. then you do and i markets such as china and how is that going to track capital? kailey: that risk premium is gone. what is the significance of that? >> it is both of that and if you really want to get into the longer, let's talk about japan. lifers and pensioners are the biggest in the treasury market. the fact of the matter is, they can carry so much better. the biggest risk takers in
11:18 am
treasury, you can basically carry in u.s. treasuries as well as you can in a long time. we are moving very closely to see if the long and gets the bid from foreign investors. again, those dollars which were earmarked for places like china are not going to find their way in anymore with u.s. yields trading like we have seen. kailey: what about china in relation to broader markets? are we seeing a sentiment shift here? >> i have been running those numbers literally five minutes ago. what you are seeing is hard currency actually accelerated for a bit but have now come off. but phil afflict cliff and 2020 and have yet to recover. that is kind of an issue and it has much to be with the fact that dollar strength has been very persistent. you know what is going on in dollar-yen and yuan.
11:19 am
are we going to see what everyone is calling for? this shift away from the dollar? i'm not buying that, certainly not in the short term. the dollars place went to 59% most recently. it has come down a lot and over the period, it has depreciated. kailey: the dollar is stronger since july of 2020. thank you so much. our guru on emerging markets. we were just talking about emerging market etf's. we will have more conversation broadly today at 1:00 eastern time. i'm filling in for katie on "etf iq." coming up here, goldman sachs has lost its youngest black partner. we will discuss that next. this is bloomberg. ♪ ♪
11:20 am
11:21 am
11:22 am
kailey: -- ritika: there is a new twist in the battle between billionaire investor carl icahn and southwest gas. the company says it has received indication of interest well in excess of his final offer. southwest will now explore the sale of the company and other options. air serbia will continue its controversial flights to russia as a matter of principle. that is according to the serbian president who says frequent bomb threats makes the move unprofitable. serbia is among a handful of european countries that have not joined the international sanctions against russia over the war in ukraine. bank of america joined wall street rivals and capitalizing market volatility.
11:23 am
the best results were in the equity business. that is your latest business flash. kailey: let's stick with wall street banks. goldman sachs youngest black partner is leaving to start his own funds. that adds to a string of exits in the past year for the bank's already small pool of top ranking black executives. first, tell me about darren dixon. >> clearly someone who was on the rise really quickly and managed to be a director before he was 30 and was in contention to be a partner when he was just 31. may partner in 2020 when he was just 33. clearly, someone rising rapidly. kailey: this is not really so
11:24 am
much about just the man himself but the indications more broadly for what it means for diversity at goldman sachs. how much were they struggling with this issue? >> goldman clearly has a problem but so does the rest of wall street. everyone out there, especially in the last two years, has come out and made big pledges about diversity, about the need to improve the diversity of their workforce especially at the senior ranks but goldman's numbers show you the challenge. at the start of last year, they only had about a dozen black partners in their ranks of about 400 partners globally. five have left in the last year. when you have moves like this, it becomes that much harder to keep peace and keeping pace is not good enough. they have to make up ground to rectify for the lack of black executives in their senior ranks. kailey: that brings up the question that the pipeline. it is everyone else that could intentionally rise to the upper echelons. >> you would remember about a year and change ago when the ceo came on said the problem is
11:25 am
there is not a great biplane above executives to choose from. very quickly, he realized that was not the right remark to make. he apologize for but that is the problem here, when you don't have enough in senior ranks, where the people look up to? where did they see the opportunity for growth? that is why you need more diverse executives in senior ranks so that those who are in the firm see there is opportunity for them to rise. that is why you have to make sure you are able to repay like this. kailey: that brings me to the broader question of talent and talent retention. we heard it alluded to again on the bank of america call. this feels like something becoming more challenging for these banks by the day. not less so. >> it certainly has been challenging. if you are a successful partner at goldman sachs. the opportunities on the outside have always been lucrative. you always had different things
11:26 am
you could possibly do. when someone makes that decision, when someone decides to leave the firm, clearly, they are making a call and decide they have better opportunities on the outside rather than staying on the inside. that reflects on the fact that a lot of these black partners have left goldman recently. they are leaving very quickly. that is much faster than what you see for your average partner. kailey: great scoop once again. coming up, we will turn to other american companies being warned to tighten their defenses against possible cyberattacks from russia. we will speak with ross from cybersecurity firm next. this is bloomberg. ♪
11:27 am
11:28 am
11:29 am
kailey: in ukraine, defenders of
11:30 am
mariupol have been encircled by russian defenders but they have not surrendered the port city. joining us is bloomberg's joe mathieu. we were talking about how critical the fall of mariupol is in this war. what would it change? joe: it would effectively cut off the country from the black sea. it has also become such a scene of devastation to see only 100,000 civilians left in this major city on the brink of falling, while ukraine says it will not back down. it has become a cause for both sides. if it does fall, it is believed russia will have a new breath into its assault in ukraine. they have been on their heels for so much of this assault. this could bring new life to the
11:31 am
advance in russia. regrouping for an advance in the east. we saw missile strikes in lviv. that is only about 40 miles away from the polish border and where government officials, refugees, and western news media have been based. kailey: you talk of missile strikes. we are watching tanks will across the screen. let's talk about what you cannot see. cyber warfare. how prepared is the u.s. for potential russian cyberattacks. that could extend beyond ukraine's borders. joe: is an important question and hard to have an answer. we've not seen the u.s. respond to a major cyberattack. we have had a lot of warnings. when you ask about the u.s. you want to delineate between the government and private companies. as recently as last week the homeland security department issued warnings to u.s.
11:32 am
corporations, including energy companies. we know russia has the ability to knock down power stations in ukraine. a group of agencies, including homeland security and the fbi just last week issuing an alert to companies that russia has the ability to achieve access to industrial controls and could take over entire computer networks. they are urging them to harden their defenses, and with some of the more obvious things we have heard about, one in particular is double authentication, something a lot of people have on their standard emails. a lot of people have surprisingly lacks security and the government is trying to fix that. kailey: bloomberg's joe mathieu. you can listen to joe on sound on on bloomberg radio at 5:00 in new york. let's get more on the war in ukraine. ross brewer of the cybersecurity firm attack iq is joining us now.
11:33 am
vice president for india and asia pacific and japan. how large are our vulnerabilities, how wide are the gaps in our cybersecurity? ross: we have been in cyberwar for some time. this is raise the profile in the public domain, but the amount of vulnerabilities, there about 20,000 new vulnerabilities announced a year. the systems we are now running are very complex. we are moving to the cloud and putting more data online. the systems are complex and there are a lot of vulnerabilities. organizations need to pay close attention to this. kailey: what kind of investment does it take to heart your digital defenses, to lock your digital doors? ross: the first thing is organization needs to identify their key assets and make sure control is strong around those.
11:34 am
joe mentioned two factor organization. or than just a password. then making sure employees are trained and they have adequate controls and not testing those defenses to make sure they find the gaps before the organized criminals do. kailey: let's talk about the actors. a lot of the focus is on russia. the potential for them to be executing cyberattacks, not just in ukraine but across borders in the u.s.. are we seeing that borne out in reality or are we talking about hypotheticals? ross: there are over 100 criminal gangs operating, some of which come from companies i've been mentioning today. a lot of the techniques and procedures and the tools they use can go to public bodies in the u.s. and local countries,
11:35 am
where they can identify the activities they need to watch out for and make sure they have defenses in place to protect organizations and their assets against those scenarios. kailey: is there a risk putting your i only on one ball and opening up doors to other bad actors? ross: this is a real concern for the industry that we run from headline to headline. we talk about a cyberwar coming. we have been in a cyberwar for a number of years and we are seeing millions of attacks on a daily basis at a lot of it is driven by organized criminals. with money there is crime. the headlines that grab our attention, we start focusing on one country or another, that is actually a distraction. organizations need to look inward and look at how their
11:36 am
infrastructure is being developed, how they are managing it, how they are responding to incidents and ensuring that bad debt a fine gaps in their protection in solving those issues without worrying about who the actor is going to be, there are many actors. it does not matter what country. we are seeing onslaught of crime. kailey: if i am an individual, not just someone who is the leader of a company or organization, how great is the lit -- how great is the risk to individuals versus broader infrastructure power grid at a larger scale? ross: critical national infrastructure is the key focus, but individuals, especially when they're working in those environments, making sure they're not sharing the information between their work life and their personal life. do not use the same password, keep your email separate, so you do not have a situation where if you are compromised at home,
11:37 am
which is a lot easier to do than compromising an organization, what you use to authenticate at home can be used to go after the organization you work that, and then i think it is important for employees and members of institutions to make sure the organizations they represent are taking appropriate steps, not just to secure their customer data but the data of the employees themselves as well. kailey: i am recalling from last month apple and meta disclosing they had been hacked because hackers emailed people and pretended to be authorities saying we need this information. how much of the vulnerability is on sheer human error versus more systemic issues with cyber infrastructure? ross: in terms of verizon's data breach investigation of 2021, 85% of breaches was related to human error or some human
11:38 am
mistake that had change the system that allowed hackers to get in or provided information that allow the hackers to use that information. human is the biggest offense but our biggest weakness. kailey: that is encouraging to hear. [laughter] we talked a lot about defense, the need to bulk up defense and diminished vulnerabilities. what about on offense. what can be done offense of lee versus defensive play? ross: that is interestingly -- that is an interesting question. in the industry we were focused on being proactive. then we added our reactive approach, which is the instant management side, said those defenses be got through, but i think we've missed a step and it is looking at the infrastructure through the eyes of the actors and then using their behavior to test our environments, to test
11:39 am
our defenses so we ensure those investments we made initially are working in the way they should, but more importantly we do not have to use that reactive incident management because our defenses are solid. i think that is the missing step in the industry that organizations are starting to focus on and address. kailey: interesting stuff and an important conversation. ross brewer, thank you so much for joining me. coming up, we are going to take a look inside a factory. the rivian electric vehicle factory in illinois, and how the company is overcoming supply-side challenges. that is next. this is bloomberg. ♪
11:40 am
11:41 am
11:42 am
ritika: you're looking at a live shot of the principal room. coming up, jennifer hyman, wrong way ceo and cofounder. this is bloomberg.
11:43 am
keeping you up-to-date with news from around the world. the u.s. supreme court has rejected the new york led challenge to the cap on state and local taxes. that $10,000 limit was imposed by congress as part of the 2017 law. today's order may encourage the state to redouble efforts to obtain relief from congress. shanghai is reported its first death in the midst of china's biggest covid flareup. tens of billions have been barred from leaving their homes. it has led to criticism china's covid zero policy is inflicting too heavy a toll. boris johnson faces another rocky week following newspaper reports about the party get scandal. a newspaper report says that downing street lockdown party only started after johnson arrived and started pouring
11:44 am
drinks. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. kailey: back to the markets. shares of rivian are lower. the electric vehicle maker has been hampered by the global chip shortage. it is still trying to ramp up output despite the supply-side shortage. ed ludlow went to rivian's factory in illinois and chatted with the ceo. ed: production is ramping up at rivian's 3.3 million square-foot factory. >> our biggest challenge today is around the supply chain. it is a small set of the components in our vehicle which we do have on a constrained basis and it is elevating the overall -- it is limiting the overall output. ed: a big part of the problem is the lack of semiconductors. the plant has does go separate body lines and does do general simply lines. one is dedicated to consumer will -- also working on small
11:45 am
volumes of the art one asked. the other assembly lines are building two versions of an electric to very van for amazon. >> to share between the battery pack, the tribe units, the electronics, the perceptions, is what fuels the ability to go quickly. ed: we got behind the scenes look at the plant where 5200 workers worked alongside hundreds of highly automated robotic arms. sheet-metal is brought in. mastiff industrial stamps generating force shape the metal into panels that fit the products. the body shop fuses all the panels together using advanced welding techniques, that it is to a high-tech paint shop where multiple codes are applied. next, general simply, where the top half or body is married to the motor, the battery pack, and telematics.
11:46 am
everything from doors and windshields to the steering wheel and entertainment systems are added. after final tweaks and quality checks it is off to await delivery. rivian forecasts it will build 25,000 electric vehicles this year across the consumer models and vans for amazon. despite the challenges, the production rate is improving. >> it is exciting to see records being set in terms of daily output or the production rate almost on a daily basis. ed: to meet that demand, rivian plans a second plant in georgia and hopes lesson learned in illinois will help it hit the ground running. ed ludlow, bloomberg news. kailey: the man himself is joining us now with more. we will talk about rivian's business and what you saw in the factory. i understand you also got to drive one of the things. how was it? ed: i have covered rivian for
11:47 am
quite a while. i finally got behind the wheel. you saw in the tees video that steep slope and the computer just takes over. you can hang off the cliff edge and the wheels would just hang tight. zero to 100, i did 110 on the test track. at the end of the day, you would expect that. we have been working on this for what feels like a decade. interesting to finally see them coming out of the factory doors. kailey: as you said, 25,000 vehicles this year is the goal. 2500 in the first quarter. they have a lot of work to do through the remainder of the year. ed: which is interesting. 25,000 is half of what the company is capable of doing. the limiting factor is part
11:48 am
shortages. we saw the activity in the plant , particulate the stamping of the metal panels, the welding, the paint, but it is the higher tech components that are suffering. they cannot install them without those chips. because rivian is still a small player it has no negotiating power. it has sent its own employees to key suppliers. chipmakers go on historic inventory, historic volumes. they look at their customers and thinking those guys are selling a lot more vehicles than rivian is. kailey: -- even the larger scale ones? ed: tesla has proved it is nibble. it pivoted to semiconductors it was not using and rewrote the code on the back end in-house so they could use other semiconductors. other automakers are not as
11:49 am
nimble. tesla is the biggest volume player. they can go to their suppliers and say we need these chips because we are building the most vehicles and we need them yesterday. kailey: while we are talking about tesla, restarting the shanghai factory as of today. housing of get is that? ed: they had a robust first-quarter delivery, $380,000. those usually are weighted towards the back end of the quarter. shanghai was shot down in the back end of the quarter. it will be interesting to quantify that when we get earnings on thursday. shanghai is the engine. we want to know how things are going, how disruptive has this been. kailey: looking forward to those results later on this week. you are talking about how with rivian you could take the hands off the steering wheel, it will stay where it is. let's talk about what happens when you take your hands off the steering wheel in a tesla.
11:50 am
autopilot is getting regulatory scrutiny. what can you tell us about that? ed: gloat -- go on the bloomberg terminal and lead -- and read this, -- and read this column by craig trudell. regulators are hinting they will take more serious action. the national highway traffic safety administration has always had this line. there is no commercially available vehicle that can drive itself. if you look at the time of actions they have taken, they started requiring automakers to disclose crashes where some kind of automation technology was involved. is this administration under joe biden, is this the next spark point between tesla and the administration? it is relatively few instances. there are instances where a tesla using autopilot has crashed into a park emergency
11:51 am
vehicle. that is the case study we are looking at. the actions taken by these regulators and the comments made in interviews suggest we might see the expansion of that investigation, the expansion of actions that could be taken. kailey: something we will continue to watch as the days and months on fall. bloomberg's ed ludlow with our ev roundup. in new york, this is bloomberg. ♪
11:52 am
11:53 am
kailey: this market is moving and kriti gupta is tracking it. kriti: a lot of volatility, just not in the stock market. because there is such little volume there is more volatility. just 30 minutes ago the stock market was in the green by a lot. that was going to be a quick
11:54 am
reversal. twitter is going to be a big part of that. we will come back to that in a second. in other places not seeing a ton of movement. that is when you see yields only up one basis point. we will come back to that because inflation will be an ongoing theme. what is catching my eye as the commodity space. natural gas up 8.9%. this is u.s. natural gas. usually we are seeing volatility in the european space because the u.s. natural gas market is not as developed. you see inflation, but not today. upwards of 9% when it comes to natural gas. it is not just the commodity space. you also see corn futures up eight dollars a bushel, the highest since 2012. april is planting season, not just in the united states, but also in ukraine, where we know planting is getting more
11:55 am
challenging and exports harder as we see the war in ukraine continue. let's talk earnings. that will be something to watch. bank of america of 3.2% after positive earnings. a lot of this growth you are seeing from bank of america is driven by long growth. in some ways that is a good thing because if you have higher loan growth that means more consumer strength, more strength from the american economy. the question of how long it lasts -- let's it some other movers. i want to kick it off with twitter. a 5% is the ongoing bid between elon musk and twitter. how the share sales happen when you're potentially trying to take the company private? we will keep you updated on all of the developments. eq is another one i want to keep an eye on. as natural gas prices getting
11:56 am
higher. eqt is the largest natural gas producer in the u.s.. didi global taking a hit as the delisting conversations go on. kailey: here's what we are watching the next 24 hours. st. louis fed president jim bullard will be talking about the economic outlook and event hosted by the council of foreign relations. johnson & johnson and lockheed martin before the valve. -- before the bell. netflix after the bell. central bankers will be gathering in washington the imf world bank meeting. that wreps up for me on bloomberg markets. coming up on balance of power, leon panetta will be joining david westin on bloomberg television and radio. ♪
11:57 am
11:58 am
11:59 am
>> from the world of politics to the world of business, this is "balance of power" with david
12:00 pm
westin. david: from bloomberg's world headquarters in new york to our tv and radio audiences worldwide, welcome to "balance of power." we start in washington, where officials from ukraine are attending the imf world bank meetings asking for more economic support even as president zelenskyy is inviting president biden to visit. we turned to joe mathieu, a host of sound on on bloomberg radio. what is the response to the invitation from president zelenskyy? joe: likely the same we've been getting as we've been asking of president biden might go to ukraine. the answer has been we have no plans to make a trip like that. not saying no, but nothing is in the works. the secret service would likely not take kindly to the idea of putting the c


info Stream Only

Uploaded by TV Archive on