tv Bloomberg Surveillance Bloomberg July 15, 2022 8:00am-9:00am EDT
changing. i'm not sure people have latched onto that. >> one of the things we are trying to adjust is to a market that is more on its own. >> i think recession is sooner rather than later. >> this is bloomberg surveillance with tom keene, jonathan ferro commonly cerebrum a what's. lisa: bank earnings and -- jonathan ferro, and lisa abramowicz. jon ferro is off and matt miller is in. i am looking ahead to retail sales. how much could it direct on market that is taking cues from so many varied inputs that is a highly confusing. tom: i guess jane fraser will also be looking at retail sales. i will look at the control group. it was a grim number last time around. how is america doing?
lisa: right now we are seeing citigroup reporting second-quarter earnings-per-share at $2.19. they are tripping out as we get them. one thing we have noticed, and as we get some of this breaking news, we have been looking at the banks as a bellwether for a consumer that has not turned. when you talk about retail sales that will be an interesting note to understand how far along we are. tom: the headline sequence of citigroup, it is a clumsy or release of data than we see from the other banks. some of the banks boomed. jp morgan struggling. the first blush out of citigroup is not all bad. we have a tendency to go what is called thick trading, there is a bright statistic. lisa: we are looking at a headline earnings-per-share beat of $2.90.
that was against the estimate of $1.69. an estimate of $3.8 million. we are seeing a better-than-expected result trickling out from a company that has faced so much trouble and turmoil in terms of turnover and upper staff as well as mission. matt: i did not they there is any clumsy tribune is here at all. it is a beat that knocks the cover off the ball. citigroup estimate -- citigroup revenue 19.6, estimate 18.4, much better-than-expected. trading revenue 4.0 8 billion, the estimate 3.8 4 billion. these headlines come off as beat, beat, beat. lisa: and you are seeing shares go up, up, up. sonali basak, our stalwart wall street reporter parsing through some of the numbers.
sonali: a few things. the fixed income trade beat is massive for citigroup. jane frazier is trying to turn around the bank and also invest. you assume that in the results in their trading desk in an era when jp morgan missed wall street expectations. currency, commodities, these are the trading desks of the season. winning counts for something. i would say you are seeing provisions higher up. especially because you have the global waiting. are they worried about recessionary forces elsewhere in the world. i have to also say they beat on revenue. for citigroup they were trading at half of their book value relative to any other bank in the united states. they were cheapest. you see that lift in the shares off of this beat because good news is welcome news in a tough
environment. lisa: to be clear when we talk about beating expectations, it is both a call on the expectations as well as the performance of a firm. how much does this beat to a broader macro backdrop versus a specific underestimation of the turnaround affair john frazier is running a red citigroup. sonali: you and i were saying the trading desk needed to save the day because there are expectations. net interest income is baked in. there is not an expectation higher interest rates will help much more than they're already starting to help the banks. trading is really important right now because you could just as easily start losing a lot of money in that business. you guys have been talking about it constantly. volatility is not out of control. it is in a sweet spot. you are seeing citigroup meet expectations on equities, which is in a tough environment right now. matt: citi is unique among
these banks in that it is the most international. not only into europe but also russia. that has been in issue. what we know about citi's exit from russia? sonali: we spoke to jane fraser a couple of months ago in los angeles. what she said to me was we are getting on with it. they are doing as much as they can as fast as they can to exit operations in russia, but also elsewhere in the world where they said they would. lisa: thank you so much. we will give you some more time to parse through the numbers and get back to you later in the hour. this bleeds into the broader picture which is investment banking has been suffering on the deal side. trading very much an interesting moment given all of the volatility. jeff you -- geoffrey yu has been tracking all of it.
what will emerge to you as the most important data point amid earnings and retail sales and consumer expectations? geoffrey: retail sales plus u.s. corporate earnings equals the u.s. continues to outperform. this is a view that somewhat goes against our view that the dollar valuation is looking extensive. if you look at where the euro-dollar is, he look at where the cable is. you look at china growth struggling, the u.s. is still where they are at. tom: i have been dying to talk to you. you and i have read james hamilton of the university of san diego and we understand brownian motion, the randomness of a trend, and these odd words, drift, and trend. the japanese yen is looking like a zombie. i was thunderstruck on yen weakness, the way it was week.
what you make of the mathematical lethargy of the weaker japanese yen? geoffrey: the governor will respectfully and politely tell you this is still not the right kind of inflation japan is getting. irrelevant as far as he is concerned. he will say that will drive higher prices. he wants to see wages grow up, the japanese corporate behavior does not change, will that help his case? it will not. if we go through u.s. corporate earnings, what are the wage costs? i think that is a good thing. it keeps the u.s. consumer afloat and flourishing. that is probably not happening in japan. tom: on one level the week -- at what level of weak yen does the flourishing end? geoffrey: i am glad you asked that.
it ends for the japanese ministry of finance when janet yellen calls and says enough is enough. this is getting too close to where we were in the 1980's. tom: lisa, what you just heard is the quote of the week from geoffrey yu. secretary yellen will call up and say enough. lisa: perhaps that is the case. right now she has backed away from a coordinated effort. matt, you've been covering that. what this means in terms of this being a breaking point that will have to happen. tom: i think -- matt: she has to wait at least two weeks before a complete 180. she just said g7 currencies are not to be messed with. the free market mechanism has to be left on its own. the question for me is how long until the market can break to --
they continue to short jgb and it is unique in the bank of japan owns more than 50% of all of its domestic sovereign debt. how long can they hold on? geoffrey: the yen and jgb are very different things. if we go back to those conversations between the finance ministers, the fx policy belongs to the japanese minister of finance. jgb is where japan comes through. i am still looking for an rba like scenario. monday the market is looking for this from the boj, that is when expectations will, and that is where we get the standard deviation move. tom: this is so important. we will extend geoffrey yu. i know global wall street will love this. what we will do is focus on e.m..
damian sassower of bloomberg intelligence out with a blistering note. he minces no words on the deterioration we see in e.m. we will continue that with geoffrey yu. i do not know where to begin on e.m. we can go to something idiosyncratic like turkey, but thailand is not idiosyncratic. lisa: you are seeing pockets, how do they keep up with the fed is raising rates and how they keep up with a haven trade of going into the dollar at the same time there and -- they are facing inflation issues. basic commodities creating structural challenges. it is messy out there. tom: stepping on that and trout fishing in idaho, i believe mr. mckee will get up in the cold idaho morning. retail sales are a big deal. lisa: and later university of
michigan consumer sentiment and the empire manufacturing data. peripheral, but interesting nonetheless. tom: may be a new citigroup. dow futures up 112. the vix near a 20 year low. ritika: keeping you up-to-date with news from around the world with the first word, i am ritika gupta. president biden travels to saudi arabia. he leave the middle east without any public announcements on oil supplies. the president meets with the saudi crown prince today. he will talk with other leaders from the oil exporting persian gulf. president biden says the time is "not right" to restart negotiations between palestinians and israel. after meeting with the palestinian authority, the president was urged to take
steps towards a two state solution. in the u.k., the race to succeed boris johnson as the conservative party leader goes on tv. former chancellor rishi sunak full ahead of their rivals in the second round of voting thursday. the next round of voting is monday. china has grown at the slowest pace since it was hit by the coronavirus. gdp rose four point -- .4% in the second quarter. that underlines the impact. beijing is likely to miss its goal by a wide margin. clients at frack locks did not put as much money into the firm's long-term funds as analysts expected. it totaled $69 billion for last three months. that is $40 billion less than anticipated. blackrock's management fell to
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>> i think there misjudging neutral. the 2.5% neutral rate is a rate that exists when inflation was still a 2%. that neutral rate is probably higher and i think the fed has some work to do. tom: really on fire yesterday with brean capital. there is a gap of 2.5%, we heard that from michael collins of pgim earlier, and there is 3%? lisa: 3.7% for an end of the year fed funds rate.
tom: brean capital is at 4.5%. lisa: tim reidy at deutsche bank saying 10 year treasuries should be below 2%. talk about bifurcation. tom: there is where we are into the weekend. some of that tangential. let's say you are secretary yellen and you need a brief on e.m.. no one better to do that with an geoffrey yu, senior market strategist at bny yellen and he carries the heritage from jonathan anderson at ubs. i want to talk about the 20% depreciation off of the pandemic, and all of that is strong dollar. as i mentioned to mohamed el-erian earlier this week, jp morgan emfx is on a decade-long 48% decline. how fragile is jerome powell's bangkok?
how fragile is his jakarta? geoffrey: all roads lead to beijing. there are no chinese tourists. it is still going to be a struggle. countries anticipating reopening , you cannot stand around an economy like that from service based into something more reliably contained. it is still going to be quite tricky. a lot are hiking. tom: on a relative basis, with the arthur burns like magnitudes of american central banking it witness banking of canada, how does e.m. adapt to that besides lifting rates like we saw the philippines this week? geoffrey: there were two ways. what is you have to move on rates which has been seen above and beyond market expectations. you have to realize how the rest
of the world is doing. we are in a world of deglobalization. your previous sources of revenue will not be there anymore. invest domestically. no talking about 1998. there is no dollar leverage globally. as that barbell with u.s. equities on one side and u.s. dollar cash on the other side is this if the middle, e.m. in asia will be in a good place to hold that but it will take time. lisa: and the cross price of e.m. and dependency on the dollar, how connected to something like the retail sales figure we will get in about 10 minutes or even the university of michigan confidence survey because of how much permission it gives the fed to raise rates further than what people are currently expecting. geoffrey: it is no longer a story about u.s. consumers. it is how that will push ahead.
if it pushes the fed towards the 100 basis point hike, then whatever expectations the 10 year central bank has for their next meeting, you at 25 on top of that, you have 50 on top. you need to run faster to stay still. in asia you're not getting any help from china. look at eastern europe. 200 basis points in kites -- in cuts priced in by poland and the czech republic. matt: are we going to see 100 basis points? the market pricing has gone up and then back down, now may be headed back up. neel kashkari unveiled his dot plot with 3.9% at the end of this year and 4.4% next year and he is a dove. geoffrey: i think 75 should be the consensus. we should have markets pricing and 4% terminal or above 4%
terminal. pricing in does not mean we get there. pricing that it is tightening financial conditions. that contains expectations as well. that process needs to run the course. tom: thank you so much. generous of you to join us for this extended visit and he is watching the pacific rim. we need to stop midway through our bank extravaganza with sonali basak, and i take issue with the idea that the short-term good news report on citigroup i get, let's remember this was a chain -- a train wreck in jane fraser is picking up the pieces. this is a one for tent reverse split is billion years ago. a $44 stock is four dollars. if you look back to 2007 is the other banks coming on and citigroup is a train wreck. as sonali basak mentioned, where
you see it is in book value, that ancient old world ratio. citigroup less than half book, jp morgan premium price 1.25 book. wells fargo near one times book. this shows the task jane fraser has. sonali: it is amazing how quickly she is starting to pivot to the bank. tom: she just remained? is she running around the table screaming? sonali: she has a different style. it is an effective communication style. she calls of the school of empathy. that is a different style from the wall street of old. it is an effective style. tom keene is laughing at me. tom: is jack black going to be in this movie? sonali: you can ask her who she wants to play mark mason. her and mark mason, the cfo,
they operate as a tight group. they are highlighting thousands of employees. tom: how are they doing it? sonali: they have also said they are going to be spending not just exit certain operations, but than the fixed income numbers, you see it in the advisory numbers, you see it being out in the expectation advisory where many have failed. they have a long way to go. however, their investments paid off at least for this quarter. tom: let's go to the professor at the school of empathy, lisa abramowicz, for evaluation. lisa: thank you. i want to pivot to retail sales. sonali basak, thank you so much. i want to turn to what we are looking for. the headline number for the control group is for a gain of .3%, which trails inflation.
it will be compelling to look at the gas expenditures mixed with some of the other expenditures and how that parses out to indicate how much people are deciding what they by given the price of something. tom: lisa brings up the key point. like a lot of statistics, these are inflation phased, inflation-adjusted, inflation beaten up. we will get the retail sales and michael mckee will give us the inflation-adjusted perspective as well. then outstanding on wage inflation. thomas per sally will join us -- tom porcelli will join us with rbc capital markets. read on the screen. stay with us. ♪ how will your business adapt to change?
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i was never a big fan of this, but the university of michigan statistics at 10:00 a.m. as well. this comes out the way mike mckee fishes. he is on the south fork of the snake river and t takes the fly rod and drifted out and launches it etsy -- launches it to see how the water moves in then the data comes out slowly from the fish, he fills it in and takes it out. lisa: this is tom's way of saying the data is late. tom: they wait for the data for the river, out. i have little spinner with the red and white thing that floats along. lisa: here is. you caught something. tom: with the worm on it i get the bites they do not. let's go to michael mckee as we finally get a little bit of data
on retail sales. is america buoyant? michael: it is america buoyant, retail sales of 1% on a month over month basis, little bit better than we were expecting and is certainly better than it was the prior month. retail sales down .3% on a headline basis. ex autos and gas, up .7%. gasoline taking a bite out of that. the control group, we are still waiting for that calculation to be made. that comes in at .8% after being flat the prior month. a .8% gain which is good news, even given the fact you have to deflate all of this on an inflation-adjusted basis, all of your retail sales are going to be negative for the month. the empire manufacturing index
to show improvement. 11.1 from -1.2% in the price index fell during the month. import prices up .2%. you take out gasoline he is down .4%. petroleum is making a big difference. look at the revisions to retail sales. we thought they were down .3 last month, they were only down .1. that will not make a lot of difference to the fed. they were down in the control group. we thought that was flat. bad news on the controlled side and better news on the headline
for the prior month. what we are looking at today in terms of retail sales. i've been squinting at the numbers. up 1.1%. lisa: we will let you parse through the data with more granularity. we want to bring you the reaction in markets. the knee-jerk reaction is fascinating. it seems to indicate a bit of better news would give more leeway to the fed to hike rates. you are seeing a pop of front end yields price down. the knee-jerk response and equities was lower, crossing into the negatives and then going positive, fluctuating around zero for the s&p with the nasdaq down .1%. how much does a data point like this that comes in marginally better-than-expected change anything at the federal reserve? michael: it probably does not change a lot.
most federal reserve officials have said 75 is there base case and they would consider going to 100 if things look bad. right now things look about the same as they were. is it a green light? no. maybe a yellow light for 100 basis points. they will have to make the decision based on something else , maybe the michigan numbers later today. tom: michael mckee, thank you very much. safe travels. this is a joy to speak with vincent reinhart. he and his wife wrote the essay of the pandemic on the global slowdown that is now very much clear and on a global basis they nail the pandemic slowdown, some of it due to political and social policies seen in asia. he is chief economist at dreyfus and mellon. last time you are on you are lights out on domestic analysis. this morning i have to speak to you about jerome powell and his
good fortune to have janet yellen assisting in the m crisis. moments ago the nation of chile intervened in the currency markets to provide for an appreciation of the chilean peso. what is shocking is even with the intervention by chile, the strengthen the chilean peso barely move the needle, moving two standard deviations at best 27% appreciation across what they need to accomplish given the damage. however urgent is it for secretary yellen to speak to christina gordy ava of the imf about e.m. falling apart? vincent: when the federal reserve raises interest rates, and we know the federal reserve is raising interest rates, that for into financial centers away
from e.m. e.m. had a tough pandemic that they could smooth over by fiscal largess and deteriorate balance sheets. we are going to be seen that in the year to come. it will be a tough time for e.m. any time the fed is in a firming cycle it is tougher financial conditions generally. this will be an extremely tight firming cycle. tom: across all of your academic work, there is the immature compare and contrast with 1998. i will call that a time of naivete and a time of leverage. we have comfort now we are less naive? we have comfort we are less leveraged than august 1998? vincent: any time financial prices move a lot you learn something about somebody's balance sheet. you do not know who that is and what you learn.
i will not say it is all clear, but we know big bangs -- big banks are much better capitalized, witness the stress test. there is a lot more transparency. lots were reliant on the big utilities of clearing and settlement. that is all good. we also know the treasury market is less liquid now than it was then. that is part of the consequence of q. week, part of the consequence of big treasury issuance, and it is also part of the consequence of asking big banks to have a lot of capital they do not really want to commit as much trading as they used to. it is a mixed bag. matt: what a great position from which to go into a recession. the big banks shoring up there balance sheets. the consumer has money in the bank and the unemployment rate
is 3.6%. do you think we are in a recession? vincent: technically might we be in a recession? i await the atlanta fed gdp later in the day. retail control was better-than-expected. last month it was revised down in the quarterly arithmetic counts that more important. if we are, it is not much of one because we have had 400,000 jobs each month the last four months. i worry about recession later in the year and next year. that will be more significant. if we are in a recession right now is mostly an inventory and trade cycle. it might just mean the slope is going down the more significant problems we have later in the year as the fed tightens more. lisa: given the consumer data we have seen and the fact they continue to spend, whether it is
with credit cards or not, there balance sheets look like they are in a good position. how quickly could they turn over to achieve negative scenarios a lot of forecasters have out there? vincent: added to the list of retained savings from all the fiscal largess of 2021. that is still over $1 trillion. that helps houses. it is skewed to higher income households who manage their balance sheets better. i think there can be issues going down the road. whoever also the employment rate today. real wages are declining. real household income is going down. that will be a problem. the last thing to note is some of the benefits households have had with government policies are
more forbearance, not forgiveness. that is going away. that will expose the balance sheets more. it will not be a household recession, i do not think. i think households are better positioned in the u.s.. not as obvious as the other places of the world, but u.s. has more of that fortress balance sheet. tom: vincent, thank you very much. vincent reinhart has decades of work at the federal reserve for the nation. i looked at a chart i have never looked at, which is julian gdp and u.s. dollars. they have been in the malaise for six years. we do not talk about this enough. lisa: i love it. while you were speaking i was looking at the julian -- at the chilian peso as well.
having lived in chile i understand what a big move this is. we will cover some of the turmoil in markets on the open as anastasia amoroso will be joining us. we look at a relative calm after a tumultuous week. from new york, this is bloomberg. ritika: keeping up-to-date with news from around the world. president biden wants saudi arabia to increase its oil output to help curb soaring gasoline prices in the u.s.. he traveled there from israel. bloomberg has learned there'll be no public announcements on boosting oil supply. a person familiar with the matter says talks will continue regarding output for members of the opec-plus cartel. joe manchin has delivered a huge blow to president biden's economic agenda. mansion told party leaders he would not support new spending on climate measures or tax increases. joe manchin says he will back
proposals on health-care and drug prices. the eu is set to propose a new slate of sanctions on russia for the invasion of ukraine. bloomberg has limited -- has learned the new measures are expected to target russian gold. the eu also tighten previously approved sanctions. well-known luxury brands are being hammered by china's covid zero approach. richemont says sales in mainland china plunged 30%. the british company burberry saw its china sales while 35%. both companies of the situation started to improve last month. the share of delays caused by airlines as opposed to the weather or air traffic control has risen to the highest level on the kurt on record. through april, airlines took in
percent of flights in 2022. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪ what if you were a global bank who wanted to supercharge your audit system? so you tap ibm to un-silo your data. and start crunching a year's worth of transactions against thousands of compliance controls with the help of ai. now you're making smarter decisions faster. operating costs are lower. and everyone from your auditors to your bankers feels like a million bucks. let's create smarter ways of putting your data to work. ibm. let's create
>> a price cap on russian oil is one of our most powerful tools to address the pain americans and families across the world are feeling at the gas pump in the grocery store right now. tom: i would guess she would have an international weekend and close discussions with the international monetary fund. an important report out moments ago. in lincoln at -- ian lingin at capital markets leads retail
sales inconclusive for the 75 to 100 basis point debate. we protect all of the research of our guest. check with bmo capital markets. right now the wisdom of kriti gupta on the oil fields of saudi arabia. kriti: saudi arabia where you are seeing spare capacity get lower and lower. if president biden goes to saudi arabia, opec and its partners, we have a fair production capacity. can they turn on the tap and keep the global energy prices in the wake of the war in ukraine. i have my chart of how much ability they have to do that. here we are looking at the entire production capacity versus how much production they have. how much spare capacity does saudi arabia have? we are going back 20 years.
the first 10 years you are seeing an uptrend in a downtrend and then it goes further and further. a lot having to do with the attacks from yemen. the end of the chart is saudi capacity the stock where it was at the beginning of the century and that is dangerous for an oil market. if you are in the oil business, you must read dan europeans -- dan yergin's classic "the prize." still a definitive read. will kennedy joins us now. he has read the prize three or four times. chapter 21, the postwar petroleum order. how is president biden want to change the petroleum order on this historic afternoon in jeddah? will: he wants to make up with
saudi arabia and he wants saudi arabia to have americans back and helping them manage the oil market in a way that seats the u.s. economy. those conversations have been happening. he wants them to keep happening. as kriti explained there is not as much help as the u.s. would like. the conversations have evolved in an important way. in washington there is the recognition they should not pump all of the oil they can. it is in everyone's interest to maintain some measure of spare capacity in case we get a bad hurricane. notice expecting a flood of opec oil. matt: what it looks like is candidate biden wanted to
project an image of someone who is going to change the petroleum world order. president biden realizes he cannot do that and must maintain the status quo. is that the case? will: i think you could put it like that. one of the things that has changed in the petroleum order and will probably shape the order is the war in ukraine. that is forcing people to reevaluate things. matt: in what sense? it looks like europe is not buying russian oil so russia sells it to the indians and chinese and they turn it into the kinds of products the europeans need. in the end they do buy it. will: there is some truth in that. we should remember the war has meant we have lost about a million barrels a day. that is quite a lot. that is 1% of global production. that is had a big impact. we have lost a lot of access to
russian refining capacity. it is a big impact on the price of diesel. the impact has perhaps not been quite as huge as people expected at the start of the war. it has been significant nevertheless. tom: the level of surprise of brent crude down to wherever we are, down to 102. we are down $20 on brent crude. should we be surprised or is that normal in your world? will: there are two things that have put a lot of pressure on brent. they are related. what is people are concerned that means demand may not shrink , but it will grow as quickly as people expected. secondly we have a strong dollar and that is bad for the oil price. what is important and people are trying to understand is the contrast between the futures and what we are seeing in the market, where things look very tight.
that has to be resolved. tom: thank you so much. our senior executive editor for hydrocarbons here with the president visiting jeddah in short order. in the time we have left, we have to take it manage of matt miller's encyclopedic knowledge of a germany not flat on its back, but a germany to use the cliche, and original territory. what is the story you are hearing about the panic in july as germany confronts celeste heated november and a rigid january? matt: the real concern is what they will do about powering their factories. in january they have to heat their homes, but rationing is a big concern you hear about now. finding alternative sources of energy does not seem like they're having much success. you are falling back on the big coal reserves but they're not
turning down plans to shut down nuclear. tom: is an image from jetta. in reordering on the white house charter with the president. not sure if she is sitting with the president or a couple rows back. it is a shock to see tel aviv to jetta. we see the president looking over a number of conflicts, back at least 1948. for me it is about the shock of 1967, the shock and surprise of carter and sadat in the sadat assassination. we saw in japan this week. now we see diplomacy. matt miller, what is so important is diplomacy and a president with the courage to go south to jetta.
matt: i think it would be interesting, and a lot of people have said he may want to go to south texas and look at how he can boost oil production here rather than there, although as we can see the truth of the matter is he is in saudi arabia and not oklahoma. tom: a historic moment on the red sea. our annmarie hordern will be speaking throughout the day. i believe the temperatures will be 100 degrees. the heat of the saudi arabia summer. stay with us on wall street week. our guests david d'arco, lori calvasina, and professor summers. also lisa abramowicz. this is bloomberg. ♪ at cdw, we get if your network power goes down, your business goes with it.
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lisa: i am lisa abramowicz in for jonathan ferro. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. lisa: we begin with the big issue. a monumental two weeks for the federal reserve. >> inflation trend is a problem. >> inflation has to be taken very seriously. >>