tv Bloomberg Markets Americas Bloomberg August 3, 2022 10:00am-11:00am EDT
treasury yields climb for a second day. hawkish fed speakers pushing back on the narrative. and meda looks to borrow. looking to hold investor meetings for a bond sale. other companies were in the spotlight. from new york, more data just crossed the wire. >> we have the number and it is a strong one. services coming through the index. that is up from 55 point three. a significant beat at a headline level. it is still incredibly elevated.
let me see if i can get further details to come through. mike will break it down for us. factory orders as well and a significant revision to the upside. >> he did -- 2%. up about .4%. 56.7 is well above what the estimates were. you have seen a move in the bond market holding. this after a monster move that we saw. quite a big move on the back of all of that hawkish commentary. we are continuing with that today. pointing to a significant move higher by the year end.
the fed is data-dependent and watching the numbers very carefully, but they have not been on the same page. but after that recent pushback that we have had, are we on the same page? let's talk about that question. we are also joined by bloomberg macro strategist. let's talk about the data that we are seeing. tough to me about the number. it looks strong. but is unusually strong, given that what we had seen was a shift away from services spending. new orders are up to 59.9. employment is up. still a little bit in contraction territory, but the
same thing that we saw with the manufacturing number, prices roll over to 72.3. obviously still a high number, but a big drop in prices. it does look like going into the making of products and provisions of services, they are starting to fall, which will help companies with the need to raise prices. we had looking at some revisions in the second quarter. he does suggest that it might be revised a little bit higher, so that is also good news and it pushes back against the idea of two quarters of contraction.
>> we have a headline crossing the terminal. how are they likely to look at this, coming in that strong? >> pay no attention to what you are seeing. wait until next wednesday when we will see the numbers because you are looking at a number that will move around a lot based on the data that we will get. a lot of people think it will be in the opposite direction but we will see it move higher and even stronger into a basis point loop. we get another cpi before the meeting. there will be a lot of data between now and then, but it is not telling you what the fed will do on september 27. >> let's get a direct answer to
what is happening. they are saying we should wait and see what happens with the data but it has been fairly aggressive so far. as the market now on the same page? >> i'm not sure what page the fed is on. mike made a good point about the services and manufacturing. the cpi number is looking at next week with a moderation in prices, once again, so this notion that the fed needs to raise rates aggressively to stave off inflation, where you are starting to get a better supply balance and improvements in consumer spending. i do not get the reasoning behind squashing the recovery of some of the fed speakers.
it just does not appear that way. this is not the 1970's. this fed has more credibility. i had the pleasure of meeting him and the market absolutely adores him. i think the fed is making a policy mistake to correct the transient policy mistake. there has been an error with their inflation forecasts, which has been awful. >> right now i am looking at the bond market. yields are moving higher and were back around the 280 level. >> i think the fixed income guys have it right. we really believe that if the
fed was on course, the hike in september, to hike again to be more times, but we really see them with this inversion? because political -- people believe that it will raise rates , but they do not believe it will be here into next year. think about the logic of this and how silly it sounds. expecting a recession so that they have to cut rates in 2023. that is not what the monetary policy is supposed to be about. markets should be dictating where the rates are going. the fed is dictating in the two years. they are on the same page in a sense, but they do not believe that the fed will stay at that pace.
>> the critical question here is, what will be the data story that we are looking at in six months time? there is a debate about whether the labor market can see a tighter situation with a continually tight labor market, even if the openings come down. where should we be looking? there is a number coming up on friday. there is this argument about a v-shaped story and this l-shaped story that we are looking at in terms of the market. how high could we see rates stay at, if we are going to find ourselves in a situation where it remains elevated? what is the fed looking for?
>> they are looking for a continual decline. we will be looking at the numbers to get a clue as to what is coming because they want to make sure that inflation, even if it goes down a little bit, that it will continue going down . the point that they are trying to make is that they have gotten interest rates high. they need to make them a little bit higher. and then they will sit there until they are sure that inflation is going down. the market has decided, but how they know, i have no idea. the said does not know, so they will keep their options open. we can raise it. we have a lot of data between now and then, but we can cut
back, if we need to. the problem is that the fed is wanting to see what is happening in the economy and people have decided that they already know what is going to happen in the economy. >> michael mckee, thank you so much for joining us. we will continue the conversation on the fed and the market. almost like the last three months did not even happen. this is bloomberg. ♪
>> i would like to see the policy rate gets a 4% this year. i think that inflation has come in hotter than what i would have expected during the second quarter, so now that it has happened, behind to go a little bit higher than what i was saying before. >> he made headlines earlier today saying they are still some distance away. that brings us back to our question of the day.
joining us to answer that question is our chief strategist. >> right now, the market is saying that inflation has already peaked and you see that in the 10 year and the yield curve. the fed is also seeing, we are not done yet. there is a little bit of a headwind. they want the yield curve to be higher. that is why they said, we are nowhere near neutral. the market has said, we think that inflation has already passed and we think that the fed is going to end up cutting labor. >> if the fed does what it says, how missed do you think equities are? >> if the fed does what it says,
they are fairly priced here. even 20 23, they come back down by about 5%. that is one of the things that we had pointed out a couple months back that estimates were too high, given the slowing economy, but estimates have come down and they might have a little further to go, but we think they have come down what they need to. the s&p is fairly valued right here. >> on the bond side, we have seen a monster move. the 10-year is now up more than eight basis points. it is interesting how we continue right around this time. what role do bonds play in a portfolio because it seems like there has been a switch.
and now i am confused. >> bonds absolutely have a place in the portfolio, but it is best if they have positive we'll yields. for them to serve most effectively, it would be helpful if inflation came down to where we are getting a positive we'll yield on bonds. they are not perfectly correlating with equities and even in the first half combo they declined, they did not provide that negative correlation benefit. they declined much less, so they can provide a rebalance in a portfolio, to go ahead with equity. right now we think that the opportunities in bonds are to the credit and treasury side. the probability of a recession looks like it is increasing.
bonds are more interesting for us as a diversifying asset. >> what is your degree of certainty right now? >> it is highly uncertain. part of being a good fiduciary for our clients is to be humble in the face of uncertainty, to understand what we can and cannot know and we believe that inflation will come down. we have seen energy prices come down, and when looking at a number of different economic models from different forecasters, they are forecasting that inflation could come down, going forward.
it is something much lower than what we saw earlier, but given the uncertainty and that we cannot predict the future, our role for clients, having some exposure to value, having some exposure to inflation protection, we still have security in client portfolios because we cannot know for sure what will happen. we like to have eggs in multiple baskets. >> where is it safe to put your money? >> the whole world is slowing right now, but i think the u.s. is in a relatively better position because is slowing relatively more slowly. japan looks fairly interesting
from a yield perspective, so that is an area that we are looking at. of course, the gdp is closely tied. what we are really staying away for the most part because of the significant negative fall off repercussions from the ukraine war and the russian gas situation. >> thank you very much. yields are continuing to climb sharply. all that other data is rolled into that as well. the decision to have a new share buyback plan. up over two days. we will look at the details, next. this is bloomberg. ♪
>> time for the uber -- bloomberg business flash. moderna faces -- moderna is hoping to expand the reach of its shot. they cleared the vaccine for children under the age of six years old. the drugstore chain also raised the outlook for the next four years. facebook parent meta is considering its first ever bond sale. they will arrange a series of fixed income that will lead to
an offering. they have assigned meta a aa minus rating. >> meta shares are up about 4% right now but it is a bigger boost for jay powell today. helping with the boost in the shares. it is now one of his largest shareholders. clearly, the market is excited about this. why? what are they trying to achieve? >> people tend to listen. he spoke and appreciated his input. of course, the firm --one is that they are cutting costs. but they are cutting costs while giving you a massive share buyback. paypal announced 15 billion
dollars. morgan stanley is not seeing even half of that price decline. to be able to do to be things at once means a lot. they are cutting back on spending, on stock trading, and those are higher risk businesses. they want to see a company like paypal making it through a downturn like this because they are really the gorilla in the room. >> a question being asked about paypal's management, why has this not happened before? >> this year is when we have seen the brunt of the damage because people are worried about a future downturn. but you look at other companies and paypal trying to expand.
also, doing that very nimbly. one interesting question is the interest --relationship between them. >> he said the phrase expanding. robinhood saying, we over hired. >> what is interesting is that it is not the first time we have seen them cut. we are talking about different businesses here. i keep making the example. they already had crypto. hundreds of people on their staff rather than thousands. we are seeing this done more nimbly. maybe now they can play the catch-up game. paypal is also giving that money back to shareholders.
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>> we are one hour into the u.s. trading session, yields are up at stocks are flying, especially tech stocks. abigail doolittle is tracking the moves. abigail: they are packed after a two day decline with the s&p 500 up .9, but on the nasdaq 100, the tech heavy index of 1.6% despite yields surging, the two year yield up 10 basis points on the day, back at 315. we have had this surge higher and yields, but tech and stocks
in general seeming to be ok with it, digesting it. have seen that the last year, yields going up, hitting an unspeakable level, and then stocks drop, come back in, and when they rise again, stocks handle it. when we look at bitcoin, it suggests that sentiment from other is on board. let's take a look at what could be one of the key tells could be if the rally continues or falls. this is the bloomberg dollar index. you can see this beautiful uptrend, one of the big pressures on risk assets, of course, u.s. dollar nominated assets tend to be weaker when it rises. that has been a deal as the fed has been raising and supporting the dollar. if the trend continues and raises higher, that would be a negative thing for u.s. stocks and commodities, perhaps commodities, tough to say at this point. if it were to fall, basically going below the 50 day moving
average, it could be all the rally needs, with some big movers on the day, all about big tech. let's look at moderna, up 14%. there is a light after the brutal part of the pandemic as we move into an endemic, and we are talking about a 3 billion-dollar buyback. 10.5% up with a good quarter on earnings with 900 million dollars worth of cost savings for the year, more than one billion for next year, elliott management on board, some say the firm's tough love will help out. meta up with the possibility of its first-ever bond offering, meeting with banks in new york today on the possibility or maybe the banks are going to them. apple 2.3%, the biggest gainer for the s&p 500. the nasdaq, they announced their fifth bond offering over two years earlier this week, the stock higher. finally to see where the rally could go, the nasdaq 100, it has crossed above support. this may suggest the dollar
index will break up today's moving average above the 100 day moving average, going toward the 200 day moving average. looking at rsi, nowhere near oversold territory yet. maybe august is going to be against what it usually does, usually down, but maybe this will be enough august. today certainly risk on. guy: volatility, more volatility and probably more after that, thank you. abigail doolittle with what is happening in the markets. big mover the bond market post data. manufacturing heading hit with data, as well. let's return to the story part of the narrative yesterday. u.s. house speaker nancy pelosi has wrapped up one of the key elements of her asian trip. she has had two key stops. she has been to taiwan, south korea, japan, and the huge focus was that taiwanese stop. the other elements certainly did not have the same impact. she met lawmakers and taiwan's
president. she pledged that the u.s. would not abandon taiwan. >> we want someone to always have freedom with security. and we are not backing away from that. >> these measures will be strong, firm, and effective. >> i want to always stay open to constructive dialogue and work with stakeholders to bring about stability and peace in our nation. guy: the u.s. view, the taiwanese view, the chinese view. let's get an assessment of that stopover in taiwan. former u.s. diplomat ryan klein, the founder and chief global strategy to the advisory firm bridge point global. great to see you. now that it is over, what should we make of the trip? >> i think on the symbolism
side, it was positive. you see that plane landing in taiwan, speaker pelosi going and meeting with high-profile diplomatic or pseudo-diplomatic efforts to engage with taiwan. it is the speaker of the house. the biden administration did not really want to back the trip for a number of reasons, but she went anyway. that has been the hallmark of her entire career. the highlights of the importance taiwan has within u.s. foreign policy and ends in era on ambiguity for many decades. the status quo has changed. kailey: to that point, speaker pelosi was insistent this trip did not mark a change in u.s. policy. you are saying that is exactly what it did. brian: there has been a game going on, kind of a word game with three communiqués all the way back to the nixon era and its administration with the u.s.
saying, the executive branch saying one thing, and then taiwan relations that came several years later and it said something slightly different. the u.s. has been selling arms to taiwan to provide a defensive oh lock against chinese aggressive action. they recognize there was only one china, in beijing, ruled by xi jinping. so two things can be true at the same time even though they are contradictory. what this does is and a certain sense of ambiguity and whether or not the u.s. would support taiwan sensibly. no one has come out and said it lately like that because there is too much diplomatic wordsmithing going on, but the reality is, if china took extremely aggressive action, the u.s. would be hard-pressed to sit idly by and do nothing. it is not mean that there is going to be a nuclear war or anything like that, but just
like russia and then ukraine, the u.s. could not sit idly by. it is similar if china decides they want to use force to try to bring taiwan to its rule. guy: the response from china, it appears to have been relatively weak. yes, there are some of the biggest exercises we have seen in recent years, nevertheless, she is facing criticism at home but the response has been weak. is that the correct interpretation here? brian: he is in a tough spot. he cannot look weak to the point where he does nothing, but he cannot take such a strong action and appease the china talks within his own country that says, now is the time, china is strong, we can do whatever we want. he cannot do that either because china is not quite strong enough to pull that off. honestly, it does not really matter what people are saying,
xi jinping is going to do what he wants to do, solidifying his control, and he will most likely get a third term, so, yeah, in reality, he is in charge, still. no matter what is said. kailey: what is the appropriate policy response from the biden administration? president biden was not enthusiastically in favor of nancy pelosi making this trip, so what do they do now that it is done? brian: if china continues to keep ratcheting up the tension, so the military drills are provocative. they are not the same as, say, an embargo around the island, easing an outline island or direct attack. any of those three things happen, the biden administration will be forced to act. right now, he does not really have to do anything. maybe this will calm down in a week, and it goes back to a
fragile balance, but realistically, there is going to be a push, i think, to do something more significant now, especially if china overreacts and becomes more aggressive, and at a minimum, the biden administration should seize the opportunity to reengage with taiwan for economic relations. guy: what can congress do? brian: they could suggest higher funding for defensive weapons for one thing. they could promote and push the administration to have a free-trade agreement with taiwan. they could try to counter china's embargo against or sanctions in some way against taiwanese goods by allowing more goods to come into the u.s. they could make clear, and i don't know that they will right now, we will have to wait until the midterms are over to see what the shape of congress looks
like, they could make clear that congress -- and it is bipartisan. they already came out with strong support with what pelosi is doing. this is one of the few issues the u.s. policy in this environment where both parties generally agree. congress could come out with a statement that says, look, the u.s. is not going to back away from maintaining relations with taiwan and keeping taiwan safe from an invasion. it is not mean the u.s. is going to be aggressive to china, but it means they are going to maintain at least a minimum level of effort needed. what is really important here, whatever congress does, it has to keep in mind with the taiwanese people want. this is not just a playground for the u.s. and china to work out there global rivalries. it matters what taiwan ones. right now, -- taiwan ones. right now status quo is what they want.
that needs to be kept in mind. the u.s. should not just take action to counter china in some grand juror political strategy. kailey: back on the policymaker and political leader side, what about business leaders? if you are running a company based in the u.s. with operations in china, as many are, how do you straddle this line knowing that there is increased tension and we have already seen will it out -- retaliatory pushback against companies like nike when it comes to the stances they have taken in the province? brian: that's a really goodbrian: point -- brian: that's a really good point. u.s. businesses in taiwan and china need to take it seriously. things are going to get better. it is a matter of how long does it take until something worse happens? and how bad could it be? a lot of businesses were caught flat-footed when it was russia and ukraine. a lot of people said russia will never invade. russia has to take care of its own economy.
there are so many reasons russia would not do it, well, they did. then they had to run and figure out what are they going to do now? well, companies now have some time they would put it at about a year, maybe less, nobody really knows, but they need to start planning for what they would do, and i would expect that the business environment already deteriorating in china and other u.s. firms and foreign firms, who have run afoul of what china wants, like australia and several countries in southeast asia, when they pushback against china's encroachment of the south china sea, all of a sudden, it is not just for u.s. businesses but they need to take it seriously and have contingency planning and say, if this scenario plays out, we are going to do this. and other scenarios, we will do that. planning is the best they can do right now.
some companies are shifting production, but you need to have a plan for what is going to happen. kailey: brian cline, thank you for joining us, bridge point -- bridge point global founder and chief strategist. logistics in general have met difficulty to companies as of late. we will talk about the stance of logistics as a company surrounding that, gsl reports a stellar quarter. we will talk to the cio next. this is bloomberg. ♪
from around the world, here's first word, opec+ members agreed on an increase in oil production in september, the smallest in its history, and thousand barrels a day, which comes after president biden took a political gamble with his visit to saudi arabia and asked for more oil to be pumped. voters in kansas refused to change the state's constitution to declare there is no right to an abortion, the first referendum on abortion since the supreme court said each estate can set its own policy and sets the tone for what is on knife or other states with similar votes in november. it may be months away from peeking, turkey central bank is sticking with its monetary course. the rising consumer prices have forced economists to rewrite the forecast multiple times this year. global news, 24 hours a day on-air on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. kailey: thank you.
record profit due to surging rates, and in an interview with bloomberg tv, the ceo discussed how the war on ukraine continues to weigh on the supply chain. >> consumer confidence in europe is low. i think it is the slowest it has never been because we have a war on our doorstep, and that does not make people optimistic. secondly, ukraine is a big provider, and so was russia, big provider of truck drivers into european markets, and they are not here anymore. that is why we see some of the conditions we see. it is hard to get out of the ports because of capacity, and congestion in the ports, capacity hopes to keep flight rates very high. kailey: of course, a big marine shipping company, which speaks to the issues the world is facing. he will speak to someone else.
chief investment officer, mark manduca, we have been talking about snarls, snags to supply chains for so long now, what is your real read on how much dings have improved? mark: i think there are a lot of things that the largest shipping company in the world look up that are interesting. i don't know how things are slowing as dramatically as we have spoken about, but globally between chinese ports and the russian war mentioned, and the chronic lack of capex in the system, it is clear that the supply chain has been stressed, but what is happening is things are passed the worst. you see it to a certain degree in the shanghai data that that is getting better. outbound shipments were up 18% year-over-year, the best we have seen since january this year, with fast growth coming out of there, and the fear with the ukraine conflict is ongoing, but
certainly sounds like once again we are passed the worst and you will see some port days supported to that narrative. my message here is i think things are getting slightly better in global supply chains as we head into what i think will be a buoyant pink season towards christmas. guy: let's talk about where that leaves you, gxo. you described the latest results as stellar, one year on from the spinoff. the stock is up nightly today, but down over the last months. what you need to do to convince the market that the message you are talking about when it comes to gxo and when it comes to global logistics, you are one of the few players out, how do you convince the narrative of what you are talking about here? mark: i cannot echo your sentiment more. this will be about category creation. we are finding our feet with investors and showing them what
the largest company in the world -- logistics company will do in the world. you have to get through the courses, prove to people that what we said is what we are doing, and what we are doing is what we are saying, and we will get the results of that. a phenomenal quarter. i'm not sure use the adjective stellar, but phenomenal is a good one, as well. we are optimistic. we have organic growth up 20%, the highest we have seen in the market. 55 separating eps we are ultimately saying what we are doing and doing what we are saying, and that will get us the nod we deserve at the time. guy: in terms of where we go with the business next, in terms with the way the sector develops from here, what are the key touch points you are looking for? where are we in this economic cycle? clearly, companies are finding it hard at the moment to manage costs. they are looking for opportunities to streamline
processes they have to deal with. is an economic slowdown going to come look it matters? mark: i think an economic slowdown is on everyone's lips at the moment. everyone talks about second-half slowdowns, and it is definitely something we are watching closely but as a business with an address in the market of $9 billion in revenue as the single largest player, you can see the total address markets in the market share opportunity we have going forward, so we are almost forced people to ask from that standpoint. we are taking so much share, but i hear your points in regard to what is going on in the macroeconomic environment. everything going on with inflation that supply guest talk about, food, energy, labor, we monitor closely but our job is to execute for our customers and make them the best themselves. efficient, accurate, and fast for customers. kailey: let's talk about making sure your customers have the right inventory in the right places because we know that because of the supply chain
issues, inventories were a big problem. now companies like target and walmart, who have told us this, have plenty of stuff, but not what they want to buy now that they are seeing inflationary forces at the gas pump and grocery stores. how well calibrated our inventories and how do you help improve that? mark: this has been a theme we have followed closely. retailers have been continuing to run at elevation levels of inventory into the second half of the year, and we have seen a lot of discounting, and they mention the fact that they have never seen such pressure in excess inventories at the moment. we have heard from retailers across the second quarter that inventories are up 30% to 40% over the last year. that clearly sends a signal went consumer patterns are changing in terms of discretionary spending. for us, we need to optimize inventories. customers come to us and they need help in making sure they lower their inventory. we step in and help them deliver
guy: close to wrapping up the wednesday session in europe, equities well bid right now, not convincingly big, but tracking higher as we seek strong showing in the u.s., stoxx 600 up by .3. dax as it was yesterday once again in the bond market, ahead of the bank of england tomorrow, are we going to get 50 basis points? certainly we have seen yields rising rapidly around the world. the u.k. is no exception. just up to percent right now in
the u.k. 10-year. the other factor to bring to your attention is another lift higher in prices but crushing the story, france. we will focus on that the next hour and talk about what is happening with the bank of england story. and the president of the peace institute will join us the next hour. the close is next. this is bloomberg. ♪
guy: wednesday, european stocks track higher and we are led higher by technology. the countdown to the close starts right now. >> the countdown is on in europe. this is bloomberg markets: european close, with guy johnson and alix steel. guy: 30 minutes till the close, this is how indices look europe,