tv Bloomberg Surveillance Bloomberg August 4, 2022 8:00am-9:00am EDT
>> i think the fed is trying to say we didn't give it. you may have thought that we did but we didn't. >> it is possible to pull the economy without seeing a large increase in the unemployment rate. >> we will go through disinflation. i cannot tell you when it will happen. >> we are just suggesting patience. >> this is bloomberg surveillance with tom keene, jonathan ferro, lisa abramowicz. tom: good morning, everyone. tom keene, jonathan ferro, lisa abramowicz. jobs report tomorrow. all eyes on the united kingdom. history made this morning as governor bailey speaks now. jonathan: what a moment to see a central bank forecasting a recession that starts in 4q and goes through the whole of next year together with 13% inflation. that is a pretty original moment. tom: i go back to 1995, john
major is prime minister, coming off of the 1992 chaos. that is when arsenal acquired bergkamp. it harkens back -- seriously -- it harkens back to the early 1990's certainty. jonathan: i would go further. this is the biggest rate hike of the central bank since it became independent. people forget, 1990's. the last 10 years we were talking about this independent central bank story. that has changed over the last several years, and there is political pressure building on
the bank of england and the federal reserve. tom: the governors saying, not for the independent bank of england to get involved in leadership election. maloney. -- baloney. they did this morning. jonathan: how big is the fiscal effort? what does that mean to the bank of england offset that may come down the road? tom: bond market, lisa, it is real simple. fixed income speaks. lisa: speaking and not a nice way. stocks have taken notice, as well. a lot of gains this morning. bond yields coming down. how much of this is in anticipation of the weakness that people are expecting from the move the central banks will make. curve inversion, 37 basis points. the two year yield was already
seven basis points above the 10-year yield moments ago. it is really flashing some red signs. tom: we have so much talk about this morning. i am going to the continued equity lift. resiliency indicated by the vix. jonathan: 13% from the lows on the s&p 500. yields unchanged on the 10 year. sub 2.70 the 10 year. hawkish for to speak disrupting the bond market. on the bank of england, mohamed el-erian writing this. the bank of england continuing with "what have been the most direct and honest commentary of any central bank."
we have not heard this from anybody at a central bank about how dire they think this outlook is. tom: lee ferridge joins us now from state street corporation. i will cut to the american chase for those on radio and tv. can the angst come across the atlantic and become the angst of chairman powell? lee: almost certainly. the bank of england is being the most honest. they are predicting recession that the last five quarters. yet, they feel the need to hike by 50 basis points with more to come. that is the reality facing central banks. the fed is still, we can avoid recession, we don't think we will hit a slowdown. come on. we are going to go into recession. major economies are going to go into recession. the squeeze on the consumer is significant.
jonathan: so why is consumer discretionary rallying this hard? up more than 20% on the s&p. why? lee: you have got a big split between income levels. lower income levels are really struggling with this increase. a large proportion of the spending goes to food and energy, the heart of much of the inflationary pressure. consumer discretionary, if you are on the higher end of the income spectrum, there are still savings. consumer discretionary is that higher end. consumer staples is that lower income end. that is why you are seeing that divergence. lisa: are you seeing it priced in in terms of what people are predicting? is consumer discretionary responding to the other side of the cycle because people have gotten that far ahead?
lee: it will not be a deep recession in the same way of the financial crisis, but it will be prolonged. the bank of england has told us that. this idea that we could have a technical recession for a quarter or two, no, this could be a drawnout prolonged recession. i don't think that is christ in. -- priced in. you talk about the nasa rally we have seen in the last few weeks, that is reflecting the soft landing. we have taken out the peak for rate hikes. the fed does not need to hike as far, we have this slow down, and off we go. that is not how this will play out. it will be much more prolonged than that. lisa: how have you changed your allocations at a time when many see the haven as being longer-term u.s. bonds?
lee: i think it still is. this is why the curve is inverted. the most inverted since 2000. forget the financial crisis, this is the most inverted since 2000. you want to be at the longer end. in terms of fx, it is the dollar. weakened a little bit over the last few weeks but it is coming in hard now. the fed message will be clear in that will lead to dollar buying. jonathan: our audience has been clear, we keep on adding more weight to this rally. earlier this morning, hsbc put out a note. saying it is wishful thinking but he also says, what if we are wrong? what is the risk factors in your view and whether this rally could continue? lee: the biggest risk factor
around the negative view -- it would be a positive development -- the conflict in ukraine comes to a rapid end. does that lead to a reduction in sanctions, inflationary pressures? we could all revise that our inflation forecast, what we expect from central banks. if it does not end soon, it is hard to see how central banks will backup. -- back off. i think this is a real the weather moment, the first central bank predicting a prolonged recession, saying that is how it will be. we are still hiking 50 basis points. jonathan: an important moment, for sure. lee ferridge of state street. i mentioned hsbc. here is the quote.
market pricing of risk assets is now very much out of line with our cyclical growth indicators. you have all heard that a million times. this is the conclusion. if inflation surprises to the downside or growth stabilizes much more quickly than we thought, then the recent rally and growth over value continues. tom: the separation here this morning is like earlier this week, certainly what we have seen from governor bailey, versus those who see the goods, disinflation, service sector, going from 9% to 6%. jonathan: what i think about going through these notes, what if marco at jp morgan is right and this continues? they talked about the crowding
in effect. sometimes the biggest factor of sentiment is price. lisa: especially when you look at the savings rate, look across the income spectrum, that the upper end, still a lot of people with money getting pay raises and they don't know where to put it. where do they go if not for the market? companies are delivering on their revenues, still growing, so at what point does that become a haven in light of the inflation that will affect some of the bonds? tom: you are going through your notes in the evening? i was watching the padres last night. it was just great. jonathan: 8:00 in the morning. it is late enough for great guest to come on the show.
someone like jim zelter? tom: hebought a 747 today. not every day that you buy a 747. jonathan: you can talk to him about it. this is bloomberg. ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. a warning today from the bank of england. it raised interest rates by the most since 1995 and said the u.k. is heading for more than a year of recession. policy makers say recession will begin in the fourth quarter and predict inflation may peak at 13.3%. china has begun military drills around taiwan in response to nancy pelosi's visit. taiwan is downplaying the effects of the drills on shipping and airplane routes. in russia, a prosecutor has
asked for a 9.5-year sentence for brittney griner. closing statements are being made today. she admitted to having cannabis oil in her luggage. there have been talks about a prisoner slot. investment banking bonuses on wall street are likely to plunge this year. incentive pay for those underwriting debt and equity could plunge 45%. those advising on mergers and acquisition could see bonuses fall by one fourth. shares of alibaba are rising in premarket trade. the chinese e-commerce giant posted revenue that was better than expected. the cloud in media sales missed estimates, while sales and commerce shrank for the first time. the company said it did see
signs of recovery in june. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm 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
indicating they expect us to cut interest rates next year. i don't want to say it's impossible, but it seemed like a very unlikely scenario given what i know about the underlying inflation dynamics. the more likely scenario be continue raising and then sit there. jonathan: the central bank doesn't want to offer forward guidance spending a lot of time yesterday offering forward guidance. futures are positive. good morning to you all. tom keene, jonathan ferro, lisa abramowicz. futures up .1% on the nasdaq. 2.68 on the 10-year yield. tom: weaker sterling this morning. jonathan: down .6% of the back of a 50 basis point hike. tom: i like that, very good. we have earnings but nobody
cares. when you do a transaction this important, recovering world from the pandemic, it is good to talk to jim zelter of apollo global management. i will go beyond earnings to your new transaction, acquiring the leasing efforts of the largest fleet of 747s in the world. this is a cargo business mostly of atlas air. how do you dive into such a troubled industry as covid, asia, moving cargo, and see the opportunity is now? jim: good morning, thanks for having me on. that is a classic apollo transaction. we have been around the industry for decades, navigated it well, no pun intended. it's a classic opportunity for us to use our great industry skills, capital formation skills
, and do some things that will add fundamental value. a lot to talk about at apollo today. that is one transaction. very happy with what we've done in that situation. jonathan: $36 billion in inflows. as you look at the opportunities in front of you, where are they? what can you do that other banks cannot do that you are excited about? jim: as you say, it's a reallyfoggy environment, dispersion on where rates are going. that is where we do well. record sre, capital formation, origination is strong. for us it was a great quarter in terms of investor dialogue. we closed $13 billion on our new flagship. this is the kind of market that we prize. when others are paralyzed, markets are closed, we bring our
flexible capital, ingenuity. i know you mentioned atlas air. for us, new fortress energy was a great transaction. we had been with this company for couple of years, financing partner. they put their liquid lng vehicles in. typically, most folks would have to put their pencils down. we really did our work and raised a billion for financing. these are the markets where we thrive. the firm is hitting on all cylinders. lisa: you say the markets are closed, and they were for the most part until last month, when everyone flooded back to the market, money piling into the most speculative debt. what do you make of that, how do
you adjust your view, when you were talking about not taking that duration or liquidity risk? jim: i think you have to differentiate between a rally in credit at the markets being open. it has been well publicized, a lot of financing commitments, nowhere near what they were in 2008. do financing commitments are very challenging to secure today. we are a leader in private credit, we borrow from those markets, but the reality is, the ig market is open. lower quality, few transactions are still being done. fewer commitments are being made on buyouts. please don't differentiate a rally in credit versus an open, thriving, financing market.
jonathan: what do you think of that rally in credit? 140 basis points. we have guests calling that wishful thinking. what are you calling it? jim: when spreads go to 600, we have to buy historically. they rally to dramatically. -- rallied dramatically. i would say they are the richer side of fair value. but interesting to contrast that to the private market. a year ago, high yield indexes or maybe touching 5. you can be a part of a senior club in private credit right now with spreads at +650, which is touching 10%, high quality first lien position, 30, 40 ltv.
that is an interesting marketplace. we have been open and active. the generic on the run market, not particularly interesting. lisa mentioned, i was of the view that recession was in the cards in 23. we still think it will be. i don't think it will be a deep and historical recession. right now you have negative gdp numbers with 400,000 new employment per month. it is a different kind of environment. from our perspective, if you have the ability to navigate, it is quite interesting, as many are on pause. jonathan: 20 questions to get this -- 20 seconds to get this question in. you were thinking about financing elon musk's twitter bid. does this leave a bad taste in your mouth or financing in the
future? jim: we are a big player in the global financing markets. we are thoughtful about what we do. we have a long-term track record to prove that out. jonathan: everyone in the room will be happy with that answer. tom: he read that off of a cue card. like powell in a press conference. jonathan: fantastic to catch up with you, jim zelter. from new york city. jobless claims in america our next. we are up .1 on the nasdaq. 2.67 the 10 year. mike mckee is ready to break down the data. this is bloomberg. ♪
here is mike mckee. mike: it is the same story with the jobless claims that we have seen the last couple of weeks, a small rise. 260,000. last week, 256. that is not the revised number. the revised the number we are waiting to come up. we will see what that was. trade balance comes in lower than forecast, $79.6 billion, down from 85.5. the forecast was 80. that is another addition to second-quarter growth, which is not a bad thing. we are down 5000, decrease in the jobless claims number last week. this week, we are waiting to see where we come up with a new number in terms of what the change was.
the important number here is becoming different. continuing claims from now on. if you lose a job, are you getting a job with all of these openings? we see continuing claims ris. o an increase their. re. with all the job openings we have, the fed's theory is that if you lose a job you can get another one. last week, 260 they revised it to -- 254, rather. an increase of 6000 from last week. tom: with all your years of experience, i want to know your tip point on claims. 280? or is it a higher number?
mike: i think a higher number, but i would be watching the continuing claims now. if we see people lose jobs, and this is the fed's theory, with so many job openings, you could probably get another job. we will keep our eyes on the labor force, see if people who move into unemployment are moving off again rapidly. lisa: on the trade balance, i've been looking at the shipping costs which have gone down dramatically especially in the u.s. much of this is a foreign-exchange component, where the u.s. can export a lot more in dollar terms based on the adjustment there? mike: it is interesting because we are seeing a larger percentage rise generally in exports than imports, which is not what you would expect on a foreign-exchange basis. that is helping the u.s. bring down its trade deficit. we have to see if that will
continue. i know we have seen more boeing shipments, and those are more expensive than anticipated, but it is kind of interesting. last month we saw a drop of imported cars into the u.s. nobody can build them. that may be what is accounting for that, as well. jonathan: mike mckee, thank you. 254 is the revised number. claim setting in the wrong direction. 6000 on the week. futures up .1% on the s&p. the nasdaq up a little bit more than .1% as well. tom: very importantly, look at what 2/10s do. 39 basis points. further inversion. jonathan: when priya said that
on the show a few weeks ago, and there we are. tom: tom porcelli is from rbc capital markets. an absolutely brilliant study of the wage dynamics in the united states of america. i want to talk to you about what we just heard from david blanchflower, a linkage of these tumultuous times into wage growth is unfounded. give us your update on america's wage growth in this 9% inflation we are facing? tom: i completely agree with his assessment. people who are comparing today to the 70's, 80's are doing us a disservice. i think this has much more in common with the 40's than the 70's. i don't think this is some wage price spiral that the fed can
impact. i think that effort will bear very little fruit. i think that that is hiking pretty aggressively into an economy that is slowing down. i don't know how that ends well. if their thought process is we have to tamp down on wage pressures, i don't know how much more you want to tamp down on those. in real terms, they are deeply in negative territory. i think very few people appreciate, disposable personal income, in nominal terms, from the beginning of the year to today is only up modestly. in real terms, you are deeply negative. that whole idea is sort of foolish. one last thing. mike was talking about this a moment ago, and he is right.
the fed keeps hanging their hat on the idea that people can find a job really quick. in certain industries that is true. but job openings are not the thing we are supposed to our hat on. it is a lagging indicator. we are already seeing them slow down in a more meaningful way. one last thing on that. this idea, too, that there are two job openings for every person employed. that is not correct. you have to look at people that are not in the labor force want a job, a completely separate metric, and when you add that to the unemployed, you see that the ratio is actually 1:1. it was prior to the recent openings number, and now it is less than that. i have no subtheme for that kind of you. lisa: translate that into what
we are expecting in the jobs number tomorrow, reports from companies that they are starting to cutback workers. tom: exactly right. i know you were talking about jobless claims. what number starts to scare you? i don't know why you are not scared now. you don't have to wait for some magical 280. you are up from 166,000. that was below in march. now we are up 50%. i know the standard retort that is, we are coming off a low levels. you are coming off a low levels in 2001-2002. the levels thing is not compelling to me, it is the delta. you are up 50% from the low. if you look back, every recession, the one that started in 1969, if you look at the low
into that recession, you are up about 30%. here we are at 50%. there are seasonal things, i get that, but even if you adjust for that, you are up wildly. lisa: a lot of people would argue that you are coming from a point where everyone was brought out of the workforce and then brought back in because of the pandemic, global economy shutting down. is your argument that the fed should look through this, not raise rates much at all, and wait to see what happens, even in the face of 9.1 headline cpi? tom: i have a lot of sympathy for lifting rates. you have heard me say this before. i think the fed was very late to this. i would argue that today we should be one that basis points higher. -- 100 basis points higher. i just think that we have to be careful and ask aloud, do you
think these interest rate hikes are going to scale back on inflation? i think inflation will slow organically. i know that is a tough pill to swallow by the fed, and they cannot stand idly by waiting for that to happen. i just think that we have to be careful about the level of rates that we get to. i don't know that we need to get into wildly restrictive territory. prior to things turning squishy over the last few months, the backdrop did not need any accommodation. we should have been at neutral a while ago. now in so many ways we are fighting yesterday's war on inflation. there are certain components of inflation that have been doing some pretty heavy lifting that the fed has zero ability to control, food and energy. some of the inflation components over the last month or two, like auto insurance, car repair. i know it may sound like small
things but they added .1 or more to the month on month gain. the fed has no ability to control that. people bought a bunch of used cars. they are breaking down and they need insurance. what can the fed about that? i think the fed needs to be honest about what they can and cannot control. jonathan: where do federal funds peak for the team at rbc? tom p.: we think the midpoint is 3.75. they hike over the balance of the year. we think that is reasonable still at this point. i know it is sort of in line with what the market is saying, i don't know if i like that or not, but that is where we are. jonathan: thank, tom porcelli. strong thoughts on jobless claims, heading in the wrong direction. tom: it is a trend.
far more important is the jobs report tomorrow. are we all here for tomorrow? jonathan: lisa and i are always here. it is you that is questionable sometimes on fridays. tom: it is a serious day. jonathan: you are going to prep. no baseball. tom: no, baseball. tang will be stronger. jonathan: coming up in the next hour, troy goyeski. this is bloomberg. ♪ ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. the bank of england is warning about the u.k. is heading for more than a year of recession. the central bank raised interest
rates by the most in 27 years, a half percentage point. they also estimated inflation may peak at 13.3%. liz truss has rebounded from an embarrassing policy you turn to regain momentum in that race to become prime minister. she received the backing of the former chancellor, a blow to her rivalry she sooner. javid wrote that truss would deliver immediate tax cuts. the biden administration is lobbing democratic senators against a bill that would alter u.s. policy toward taiwan. it would designate taiwan as a major non-nato ally. tensions between the u.s. and china were exacerbated this week by house speaker nancy pelosi visit to taiwan. in response, china began military drills around the island today. amgen has agreed to pay 3.7 billion dollars for chemo
>> we are trending around 9%, maybe 8.8, for the next few months. by year end, 7%. euro-yen comparison get much easier next year, and that's the key. you don't need outright price declines. the level don't need to decline, just the month over month change has to slow. tom: she was absolutely lights out yesterday with oxford economics. i thought she was great piling into this jobs report tomorrow. lisa: an interesting moment when
a lot of people say this is the key indicator the fed will be watching to determine how quickly they can back away from some of those rate hikes they basically forecast. tom: sterling with a little bit of a rebound. 1.2105. claim support coming out. u.s. futures up seven. also the churn in washington. right now we have greg valliere, chief policy strategist at agf investments. i want to go to the broader tone, away from what i read in the washington post, the great bloomberg people, to the senator in wisconsin who is talking like he owned the high ground. ron johnson beat feingold by 52% of the vote the last time around. ron johnson is coming out with statements that you and others would suggest really because
risk to the republicans. greg: i tell you, this has to be mitch mcconnell's worst nightmare. he has some bad candidates in georgia, pennsylvania, ohio. they have overdone the abortion issue which has backfired on them, as we saw in kansas. you are right. here comes ron johnson of wisconsin who says yesterday, maybe we have to change the structure of social security, make it something that has to be renewed every year, which would be a nightmare. people would use that as hostage for other legislation. are they trying to blow the senate election this fall? the house is going to flip to the republicans, i think that is likely. but all of a sudden the senate is very much in play. johnson is a factor in this. tom: is there a middle ground with republicans? with taiwan, we saw that with mr. romney, taking another tack.
jan mcconnell and the republicans find a middle ground to salvage their senate election? greg: i think so. there are an awful lot of republican candidates who say they would not support mitch mcconnell for another term as the leader of the senate. it is a very divided party right now. i think this is a shocker to all of a sudden see five republican seats look shaky, and maybe only a couple of democratic seats. in a50/50 senate, the democrats have a path to keep control. lisa: this comes when the democrats are trying to push through the inflation act of 2022, build back better reframed why new moment. how do you view this as a likelihood or as helping the democrats into the midterms? greg: all of a sudden you have
to include that this bill is in trouble. some provisions will have to go. kyrsten sinema does not like anything on carried interest. i have been joking, carried interest is like rasputin, cannot be killed. this may end up staying in the bill. i think she also had problems with the corporate minimum tax at 15%. the bill will have to be rewritten to a certain extent. they were planning to leave tomorrow in the senate. that cannot be done, hoping to get a bill. it could be after labor day until a bill is done. i think the bill could get even smaller. lisa: there is a broader question about this washington's ability to take physical action into what a lot of people are saying is recession. you see this at the bank of england, they are hiking rates
today, expectation on the fiscal side that there will be aid to offset that. in the u.s., is that kind of fiscal support off the table because of the politics right now, how the spending was perceived in the pandemic? greg: how is this for irony? you have very restrictive monetary policy right now, restrictive fiscal policy just as we close to recession, when you could use some stimulus. i think the mood in congress is to not spend much more money. tom: one last question, so much going on today. what is the legacy that speaker pelosi earned from this trip to taiwan? greg: i cannot figure it out. i don't know why she did it. a lot of people in the biden administration asked her not to do it. i know she feels strongly about human rights and tiananmen square, but i think she stir the pot in a way that was not constructive. tom: thank you so much, greg valliere. agf investments, toronto.
he is somewhere in new hampshire somewhere. agf can get you the reports. i don't know where to begin on today. what is your thought as you look at the bloomberg screen? lisa: the resilience of stocks amid consensus of gloom. stocks are not the economy. you see a bifurcation in terms of the income tiers. an article recently highlighted the savings rate with a lower, middle, upper tier of american households. the wealthy are doing well, savings are being built out. the poor built up more because of the checks. the upper-middle-class is getting squeezed on every level. building debt, not being able to spend on real terms, and how does this bleed out onto an economy, and economy of averages? tom: tom porcelli mentioned that
with the real wage, a lack thereof. i hate to do this but we have to talk about ferro's united kingdom. the language that we heard from governor bailey. for those tuning in, absolutely original, he would never see that by the fed. lisa: lee ferridge came on and said it was a bellwether moment you have a central bank come out , hike 50 basis points, and project a deep recession that has staying power. this shows the conundrum of the central banks are in as they face a stagflation environment. incredibly difficult. something that you will see in different tones around the world. tom: three of us will be with you tomorrow morning. i have to believe it will be a more that important jobs data. i'll be looking at the revisions, adjusting those
revisions into the numbers that we will see. lisa: i will be watching wages. that gives a sense of how much pressure there is. walmart cutting back about 200 corporate jobs. a number of companies have talked about retracement. how much of it is industry specific, how much are people demanding higher wages and actually getting them? tom: with the bloomberg reporting, perhaps a small cut back in zurich. credit suisse. that will be one of our themes on radio. we are steeled for the jobs report tomorrow. looking forward to that. alan blinder at 12:00 noon today. this is bloomberg. ♪
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>> this market is laughing in the face of the hawkish fed talk. live from new york city, good morning, good morning. another rally on our hands. the countdown to the open starts right now. announcer: everything you need to get set for the start of u.s. trading. this is bloomberg, the open with jonathan ferro. ♪ jon: live from new
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