tv Bloomberg Markets Americas Bloomberg July 26, 2022 10:00am-11:00am EDT
the consumer getting crushed. high prices eat into what people buy and how they spend. latest on competence and home sales. walmart puts the prophet outlet, sending shockwaves through the retail industry. shopify cutting 10% of its workforce. from new york, i'm alix steel. anna edwards is my cohost. welcome to bloomberg markets. numbers coming from many markets but those with big exposure to the consumer are going to be squeezed. anna: absolutely. that seems to be a transatlantic story. walmart numbers putting pressure on retailers in europe. also in focus is the gas story. that is where the squeeze is coming from in europe. alix: if you're looking for relief in consumer confidence in home sales, you are not getting
it. michael: let's start with new-home sales, down 8.1%, a significant decline. they were up 6.3% in the months before. 590,000 annual according to the national association of realtors . housing taking it on the chin as mortgage rates rise. the confidence board, more important that it was in the -- then it was in the pastor 95.7 for the overall number. it was down from 98.4. the present situation is 141.3, a much lower number than 147.2 the month prior per the expectations outlook, down from 65.8. all of the numbers down, the third month consumer confidence has fallen and suggests people are seeing the economy slow at the beginning of the third
quarter as july began. the problem is we had still high gasoline prices and still looking at the number of people who want to get jobs. they think jobs are available starting to get tighter. anna: a big conversation about whether we are headed into a recession dared i know we will talk later about this what are you hearing with the likelihood of recession or maybe i should first ask about the definition of recession. the way the unemployment are performing, labor market is tight, is raising questions about whether this is going to be a recession or not. michael: this is a different kind of situation we have experienced four. with all that went into the economy during the pandemic from the federal government, there are a lot of people with still hefty bank accounts. the lower income strata is starting to run out of money but have gone back to work so there
are possibilities they can keep spending. the question is, do they want to keep spending. what we don't know is whether they have shifted the mix. we will find out on friday when we get the latest spending report. people have stopped buying goods and you saw that in the retail figure and in the walmart numbers that came out yesterday. the question is -- do they spend it on travel instead of buying stuff? the inflation rate, the board asked about that which the university of michigan numbers got a lot of attention, the conference rate declined. the median rate 12 month period down to 7% from 7.6%, a significant drop. maybe people are seeing the results of lower gas prices, seeing gas prices fall, but is still has not made them feel a whole lot happier about it. anna: thanks very much for that. let's get to the question of the day -- our consumers in a
recession? we were discussing walmart and the broader pressures we are seeing in this part of the economy. the walmart share price coming under significant pressure and weighing on consumer companies elsewhere. joining us is john edwards, our colleague, who leads the coverage in that sector. let's start with the question of the day. our consumers in recession. to find that however you would like. do you see signs of it? john: i would say consumers overall are not in recession for the reasons we have discussed. consumers are still relatively flush. we are starting to see it on the lower end and some of the spending mix is starting to shift and that is certainly what walmart was talking about with its concern of having to bring its prices down and bring
inventories up and that they are seeing lower sales of the high ticket, high-margin items and more of a shift to food and staples. so the margins are getting squeezed. alix: unilever was talking about cost inflation potentially peeking in the second half. do you feel are have we seen the peak impact of the high end -- prices on consumers' wallet? john: we are starting to see fuel prices moderate a bit, but food remains elevated. some of the reports we saw today, coca-cola and mcdonald's both doing well, and they are still able to pass price increases along to their customers and customers are
continuing to pay, at least for those things that are seen as relatively must-have items like soda and fast food. i think walmart indicated that are less sanguine about the back half of the year than they had been before and will have to move more aggressively to get those inventories down than they thought even a few months ago. anna: are consumer companies taking a hit on volume to take -- keep prices up or is the reverse true? on univariate -- on unilever, volumes came up less but they were able to increase guidance. doesn't just depend per business? john: that is something we are watching closely. there was evidence of the difficulties with volumes from pepsico a couple weeks ago, where they talked about being
able to again pass price increases along. prices were up about 12%, but there volumes were flat to slightly up. coca-cola today, volumes were a little better than pepsi had been, but it is definitely something we are keeping an ion. -- an eye on. in terms of the amount of stuff people are buying, it is not nearly as robust as the prices are increasing. alix: the conclusion of all of this, consumers are buying stuff and more price-sensitive and trading down to some extent. at the same time the consumer confidence number not great but you pointed out that the inflation reading is coming down, still at seven but much lower. is this the kind of thing the
fed will be happy to see and talk about at the fed meeting today? michael: to a certain extent. new home sales dropped the lowest since april 2020, the height of the pandemic. you have to go back to 2018 before that, so a significant slowdown and it bleeds over to the consumer confidence numbers because they ask about buying plans and we saw big drops in the number of people who are going to buy cars, homes and assertively the amount of number of people buying major appliances. yes, consumers are perhaps slowing down on goods, but we have to see the services sector. that will be the big thing. if americans are still spending money on services than they are hanging in. if they cut back on that, than the fed has to think, have we gone too far are conditions such that we don't have to go much further. alix: it wouldn't be good for
>> we have a lot of affordable products in the way. a great ub alternative. chevy blazer which we just debuted is coming in at a lower price point. we talk about the equinox ev that will come at about $30,000. our goal is to really provide electric vehicles across our entire customer portfolio that is when the general motors has done well through its history. alix: that was paul jacobson talking about their lower price offering. the fmo see kicking off their -- fmo see kicking off -- fmoc kicking off their meeting.
joining us is veronica card. will be hawkish or dovish 75 points? veronica: we were thinking 100 but the fed told us it would be 75. at least dovish relatively to the last meetings. the first focus that since the last meeting in june that we have had growth data undeniably weakening at this point. anna: if we do get a hawkish tone, do you think that would be misplaced. organs are veronica: this could be a slight -- this could be a slight dovish but we think the policy rates need to get to 4%
by the end of this year, posted to 4.5%. we do see a lot of the underlying inflationary pressures and some people which could pop up last year. alix: we can see market investors expecting cuts coming through in february and march of next year. economists like yourself are looking for a higher terminal rate than the market is thinking. bloomberg markets looking for potentially a 5% terminal and you are at 4% and maybe a little above. why is no one seeing eye to eye on that? veronica: there is a tendency to think that they want to be dovish. you want to be cutting rates and the fed should hopefully be able to help out. this is a different environment
for the fed that if inflation is staying high, you don't get that opportunity to cut rates. that is what we are expecting. you don't really get inflation coming down enough cut rates. anna: what is your expectation about whether we have to get a session. i know the imf has been busy downgrading all over the place but they said no u.s. recession is there baseline forecast. that just breaking. is a recession your base case and how do you define it? i know people will be thinking about the role of the labor market. veronica: the labor market is important. we will get gdp data later this week and it could be negative but most people know that it will not officially be a recession and the labor market was strong early this year. into next year, we see a mild recession as the base case and
the result of hawkish fed policy from this year. we will see the unemployment rate rising and gdp growth. alix: with that, when does -- what does the unemployment rate get to freak everyone out. what is calling everyone is that we are at three -- 3.6%. as it was pointed out, as long as consumer spending is continuing, people will feel relatively ok. what is the number that changes that conversation? veronica: the fed is hiding behind the strong labor market right now. but we do have the unemployment rate coming up a percentage point by your, closer to 5%. it could even go higher who usually when you see unemployment rates rising a couple tenths of a percent, it
could stop it. if you see it coming up to 4% by early next year, i'm sure people will get more worried. anna: not just central bankers talking about it but politicians hot -- hiding behind it. let's talk about the guidance. we started by asking if is it -- asking if it was good to be dovish or hawkish. what value will you attach? it seems like there is a gap between this meeting and the coming meeting. veronica: the dovish tone we can get tomorrow is how the fed talks about growth and maybe some optimism on inflation slowing but not anything dovish and explicit guidance for september. i don't think they will guide towards 50 or 75. i think they want to keep options open. we do think that the inflation
data that we will get between now and september could mean another 75 in september but they won't guide toward anything specific. alix: 75 tomorrow, 75 in september, after that, what happens? veronica: then we have a couple of 50s and then one mark 25 basis point hike early next year if the policy rates come in at 4.5. anna: thanks for spending time with us. still ahead, general electric, we will see how the country did it. this is bloomberg. ♪
biggest business stories in the news. united parcel service reported a second quarter profits and revenues that beat expectations. the service reaffirmed the outlook for the year. ups raised prices and focused on its most lucrative customers and squeezed out efficiency, even though package volumes cooled off from last year. canadian shoppers, 10% of the workforce being let go, at shopify. the coming out of the pandemic did not pay off. general motors closed -- posted second quarter profits weaker than expected. semiconductor shortages limited vehicle production. gm maintained its guidance.
it signals optimism that gm can get the chips it needs. that is your bloomberg business flash. alix: ge out with earnings earlier today, stock up 5%, second quarter profits top expectations. joining us is david westin. thank you for doing this. was this a lowered expectations? david: it is aerospace, aerospace. everything did better but aerospace shut the lights out, 46% up in aftermarket. this is what they would say is a resurgence of aerospace. new units were down a little bit. it was all the aftermarket. anna: good to see you. supply chain issues and the
stock goes up. we have spoken to other businesses where supply chain issues have been dominant and they told a much worse story. how does ge tell the story? david: i don't know if it is better but they would say they have real supply chain issues and aerospace and power and health care, the other two major lines. they are trying to actually send 20% of the engineering staff out to suppliers and suppliers to suppliers to take care of this. they also are using up a lot of cash. although they had cash flow they took down the estimate for the rest of the year because they are putting cash into things like building up inventories to deal with supply chain issues. alix: how long do they think that will have to last? david: they said to me is that it will end at some point but won't tell you when. the other problem is, it is all
of the above. it is all around the world and supply chains. it is a really profound problem that they are aggressing -- addressing. they are spinning off and dividing into three companies and said they are on where they should be and they think they will meet the timetable. anna: in the context of other businesses and thinking about 3m spinning off their health care, analysts watching and asking are the companies getting cash balances in place to try and whether a storm that light becoming paired that doesn't necessarily relate to gm but something analysts talking about. talking about the renewables business. they no longer expect profitability improvements in renewable business. this is something i know you can talk about. david: i was curious that president biden said they would have an executive order to move
up the wind turbine which is the essence of ge's business. ge saying they are not seeing it and taking down estimates on the effect of the policy on washington expediting the energy transfer. a lot of it has to do with what we are talking about, which is russia's war with ukraine and resurgence of also feels impinging on something alix knows well, the energy transmission. anna: and we are certainly seeing that in crisis in europe. david westin talking us to talk about ge. coming up, the ime drops outlook for the third time. we will get more with pierre-olivier gourinchas . expectations brought down for the u.s. economy that they do not see a recession. who also get his take on what is happening in the euro zone.
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kailey leinz has called in a favor and is tracking in these moves. i am happy to be here. it is a day where growth concerns are dominating and we are seeing a bid into haven assets like treasuries. risk assets down, nasdaq 100 down point or percent ahead of those big tech results. consumer discretionary sector, dragging. you can blame it on walmart. it is technically in staples, but the things it was talking about when it cut its profit outlook the second time has reached across retail. it is dragging down amazon and shopify. they announced a 10% drop in their workforce today, they are cutting about 1000 jobs due to the environment they are facing. that is weighing down the stocks across the board. walmart talked about the idea that in consumers are faced with inflation, their energy bills are going up. it takes more to cool their homes in the summer as hot as this one. they are spending more on things they absolutely need to spend money on, they are spending less on things they may want. things like clothing, electronics. all the things we are seeing so
much inventory retailers have, they have to mark that down in order to work that inventory down. energy issues, higher costs people are facing is the story in europe, as well. one that could get worse instead of better. you have bloomberg reporting today the kremlin is going to keep the squeeze on gas flowing from russia to europe, planning to reduce its flow from nord stream one into germany by 20% capacity. as a result, we are seeing natural gas benchmark prices up 24% over the last two days, fueling concerns about growth in europe. anna: that is a big focus in europe. thanks to kailey for the update on where we are in the market. ims cuts its growth outlook for the third time. ims chief economist joins us next. this is bloomberg. ♪
congresswoman and this thing which fellow at the wilson center joins bloomberg tv at 12:30 p.m. new york time. this is bloomberg. >> ♪ angel: here is the first word. the european union is preparing for the possibility of a -- of russian energy supplies. the eu agreed to cut their supply of 15% through next winter. it reflects the rapidly deteriorating workforce from russia. the nord stream one pipeline are said to drop about 20% of capacity. former president trump returns to washington today for the first time since leaving office. he will make a speech -- for a possible second term. his visit to the capital comes
as the january 6 committee has been detailing his attempts to remain in power and his refusal to call off the violent mob of his supporters. house speaker nancy pelosi's staff is not ruling out plans for her to visit taiwan next month. that trip has already drawn more attention for the u.s. and china. if it takes place, it would happen within days of an expected phone call between president biden and china's xi jinping. beijing has been warning closing not to visit taiwan, which it considers part of its territory. global news 24 hours a day, on air and on bloombergquint take. powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. alix: drop in the u.s. home sales last month, more than 8% to an annual rate of 500 90,000. we have not seen that rate since
april 2020, that is when the world was shut down. here is john fish, construction chairman and ceo, chair of the real estate roundtable. it is great to get your perspective. when you take a look at the housing market, we know the fed once it to cool. are we looking at a cooling? are we looking at a slowing? what does a recessionary housing market look like? john: thank you for the opportunity to be here this morning. what happens is, because real estate runs on credit, high interest rates drive down the ability to people who want to invest in real estate. coupled with the fact we've got cpi running at 9.1%, you mix that in with labor and material growing almost at 20% over the last year, it makes it challenging. our industry as a whole does not like lack of protect ability. if it is not predictable, it creates problems. people want to hold back on investing.
anna: good to speak to you. you say it -- into credit. we know that is true. is it less sensitive than it used to be, speaking of the transmission of monetary policy through the u.s. economy, have mortgages become longer duration? is that the way consumers are sheltering themselves from higher credit costs? tell me how that has developed in recent years. john: you see interest rates jumping almost 50% over the last nine months or so in the industry, about 3% mortgage up to 6%. with the fed raising interest rates productively three quarters of a point tomorrow, you can see further tightening overall. at the end of the day, this is a short-term issue in our industry. i think people focus on what is going on today in the industry. the long-term issue for the home industry is the massive, structural problem we have today. there is a fraction lending
policy, no one wants a building in the backyard. you get a massive supply short of -- shortage right now in america, over 70 million units need to be built and we are only building 1.5 million to 2 million a year. we have never seen costs explode the way they have exploded the last 12 months. alix: we talk a lot about demand and mortgage rates. construction materials, concrete, glass, tile, you name it. i wonder if the return you look for when you buy property and construct a house, how is that return profile changed as construction costs have risen so much and look much stickier than we thought? john: it is challenging. the more interest rates rise, the compression of these crated in the industry as a whole. the more risk that is introduced. at the end of the day, what you are going to see as a result of these activities is that people are going to slow down.
the fed by tightening monetary policy is going to restrict to a level of interest in what people want to do. i would say, this is a short-term challenge we are dealing with. at the end of the day, real estate is a phenomenal asset to be involved with. year-over-year, decade over decade, it is one of the most valuable assets an individual could invest in. anna: the challenges you see in the labor market in the united states and construction industry, are they sure -- short-term in nature? john: there are people in the labor markets and construction industry and real estate side of things, i think that is going to be a short-term problem. right now, our industry for the first time, is introducing and allocating a lot of capital towards innovation. we are currently using data for the first time, nobody thought of using data in baseball back in the 1980's. all of a sudden, people in the
construction industry and real estate industry are using data at a phenomenal pace. people are realizing, if you do not measure it, you cannot manage it. over the next three to five years, the increase in productivity, because the factor of managing productivity on a on-time basis is going to drastically improve our ability to increase. anna: that is a great analogy. alix: i am wondering if the way that we build stuff is going to change. am i going to go to the smalltime construction place? is it more like going to a place that has module buildings, where it is like, here are the four things i can choose from. they build it there and plop it on your property. does that help the supply profile going forward? john: let me explain where i think the industry is going up. things are becoming digital in our industry on a global basis. in one shoe, create digital
drawings. you can use those drawings to incorporate artificial intelligence and sheen learning so drawings become smart. all of a sudden, you will be able to access labor and materials around the world that can manufacture and -- jobsite and install much more cost-effectively. we are a firm believer on a going forward basis that innovation and -- in technology is going to drive down costs, increase productivity, and be able to address the shortage of housing in the long term. i would emphasize what we need right now in washington is smart, land-use policy to allow us to incorporate things like transit rights developments. density. this issue of -- has had an impact on the overall real estate industry. i am bullish of the future. i am bullish about our industry-leading the way with innovation in technology to drive down costs. anna: dealing with new b is him
-- that is something you have been dealing with. in your backyard, smart land-use policy. what is the one thing that needs to change to get there? john: the mindset. what we need to understand, the federal government and the state government have to be much more aligned with policy in order to drive incentive to create workforce affordable housing. if we do not have the line between the federal and state governments, i do not think we will be ever to overcome this particular obstacle. i am bullish because the demand right now for housing, we will see a solution in the near future. only because there is a supply and demand issue at the end of the day. anna: thanks for joining us, don fish, suffolk construction chairman and ceo. coming up, we talked to the imf on their view of the global economy. this is bloomberg. ♪
anna: welcome back. we have european gas rising above 200 euros per megawatt hour. for the first time since march the ninth. this is the latest installment of a long-running series. we have seen this natural gas benchmark and europe arising, taking out 190 earlier, taking out 200, dropping up to 198. the story is the kremlin, our colleague suggesting the kremlin is going to keep up the grief in that europe. which has been the planning assumption for some time here we have saw them wrestling with that, energy ministers coming together to try to craft a plan. alix: this is why i am surprised at how much the market reacted. it feels like the base case, we go to zero in some form of
russian gas or used as some kind of economic weapon. the reaction, quite steep. we saw french benchmark power pressing jumping to 5%, and the immediate impact of what we have seen in gas flows has been swift. unit per reporting they are about 33% of russian gas, versus 40% yesterday. it has been fast and quick, i think that is part of the reason we are seeing prices react so quickly, despite the fact we have this agreement. anna: let's get another perspective. the imf cut its global growth outlook for this year and next. it warned the global economy may be on the cusp of a global recession. imf chief economist, thank you for being patient as we try to get your mind to where it is good. let me ask you about the european economy, have seen this headline saying we have seen a new level on european gas prices, or at least back up to levels we have not seen since
early march. this is alarming for those following the european gas story. what are the downside risks are the european economy for you? pierre-olivier: it is a significant downside risk. in our baseline projections we just released today, we forecast the growth in the euro area is going to slow down to 1.2% next year in 2023. we highlight that, in case there would be a full shutdown of russian gas flows to europe. the downgrade could be much more severe by another 0.8% to 2% point in terms of economic activity for the area. alix: what are the chances of that being even lower? if you had to revise the forecast in the last 12 months, what is your worst base case and how quickly could we get there? pierre-olivier: this is why this time we have released both our baselines, what we call an
attorney of scenario that highlights another -- an alternative scenario. one of these plausible downside risks is the scenario for a full shutdown of russian gas flows to europe. we viewed it as quite likely, but not as likely as the baseline where there is hope that somehow, gas could still be flowing to the euro area. anna: are there parts of the eurozone you assume will be in recession? we focus a lot of our thinking on germany. can european countries ease -- working together, can they prevent the worst case scenario through developing here? pierre-olivier: yes, in some separate set of simulations, we look at what happens if we have effective sharing of gas resources. it can mitigate and absorb some of the impact, as well as securing alternative supplies, lng supplies from other countries. all of these mitigating policies
will have an impact and will help the european economies. alix: how close is the u.s. going to come to a recession? pierre-olivier: baseline, we are not seeing a recession in the u.s. in 2022 or 2023. we are seeing a significant slowdown from two point 3% in 2022 to 1% in 2023, this is a significant slowdown. to give you an idea, if we look at q4 to q4 in 2023, growth slows down to 0.6%. what we are seeing is a narrow path for the u.s. economy to avoid a recession at this stage, a small shop, a small downside risk could be enough to knock it off. anna: that is where we are on the united states. what about the definition of recession? it seems as we sit on the precipice of perhaps seeing a technical recession in the u.s., that will provoke a lot of conversations about whether it is possible to call it that when unemployment is as low as it is
and the labor market is as healthy as it is. how do you tie in the labor market and week growth? pierre-olivier: the u.s. is in a situation where the labor market is tight, unemployment rates are at levels we had before the pandemic. 3.6%, hiring, a bunch of job vacancies. the labor market is very vibrant right now. we anticipate it has some factors we have highlighted in our update, are coming to play out. the fact that inflation is rotating power, there is more uncertainty, consumer confidence is coming down. central banks are tightening monetary policy. the labor market is going to evolve and soften and we may see an increase -- sometime in 2023. alix: i wanted to understand what the base case for the fed in your base outlook. pierre-olivier: what we are recommending at this point, we are saying, look. inflation at the levels in which
we are seeing them in the u.s. or the european economies and other parts of the world, it is just something that generates a lot of instability. macro canonic instability. eroding power is creating uncertainty, it is not conducive to a solid economy growth going forward. it is very important that central banks bring back price stability. this is what the fed and other central bank's are doing around the world. our recommendation is, they need to stay the course until inflation is tamed and rocked back to lowe's or to the central bank targets. anna:
happening right now. pierre-olivier: in our opinion, it is. it will have an impact on the economic activity now, but it will secure that her foundations for growth and macroeconomic stability down the road. you want us to remember, the era we had the last 40 years of low inflation, high stability, has been an important ingredient to macroeconomic conditions. we need to make sure that we do not enter into an era of high inflation, early critical. anna: you had a ton of risks in your outlook. alix: it did not feel good after reading report. what is the one wrist people are not talking about that we need to be talking about? pierre-olivier: we highlight a number of risk. i think one of the ones that worries us, it is not that people are talking about it. so far, it has been holding up pretty well. if the impact of financial tightening on emerging market in developing economies, there has been a significant amount of tightening. we have been seeing capital slowing out, the dollar appreciating against most other currencies. we have seen spreads increasing in any countries. so far, it has been quite orderly. i think it has been good news, but we are concerned that we could see some more dislocation in global financial markets on the back of this strong,
monetary tightening we are seeing in a number of advanced economies paired we need to be vigilant on this. anna: thank you, we appreciate it. pierre-olivier, imf chief economist joining us. coming up, we take you to data which illustrates some of the threats we have been talking about with regards to the european economy. the central bank -- 1% today, and a lot of pressure on the german economy as a result of concerns about recession and the things you see in the next column, natural gas prices in europe. that is up by 12.7% in today's session following a big rise in yesterday's session. all of that being heavily on the euro, back up 101, against the dollar as we head towards that fed meeting. coming up on the european close, paul -- joins us, head of an quest -- head of equities.
what is his expectation around u.k. markets? given what we have seen in oil prices, energy stocks are doing better and basic resource stocks are doing better. german markets and -- are underperforming because of what we have been talking about around gas. alix: the playbook in the u.s. is a buying bonds, buying fx currency, selling stocks. that is the playbook, despite the idiosyncratic factors of particular earnings named. nasdaq off 1.5%. despite the fact the last few days have seen some stabilization within big tech. the swissie and yen, best performing stocks within the s&p are g e and gm. general electric and 3m. if you do own earnings, you get