From New York City for our viewers
worldwide. A very good morning.
Manus Cranny. So we play the yo yo game.
We're back with two rate cuts on the slate.
Equities continue higher. Apple is slightly better often as Warren
Buffett trims his position, but it's still going to be at the very core of
Berkshire Hathaway. We're going to count you down to the
market open and that kicks in in just under 30 minutes, 30 minutes time out. Coming up, futures moving higher after
two consecutive weekly gains. And the Oracle of Omaha sending shares
of Apple lower this morning. And the bond bulls brace for a busy
stretch of Fed speak and Treasury auctions.
We begin with the big issue, Goldilocks starting to make a comeback.
This story of, you know, pressure's easing up a little bit from the right
side and that Goldilocks narrative. It feels like it's a bit of a catch up
trade for most parts of the market that have lagged.
And that's not just globally. I think you can also look at some of the
lower quality parts of the market in the U.S.
that have lagged. It's very hard for it to go directly
from too hot to too cold. So you do get that bit in the middle
where it does feel just right. That can be pretty short lived, but for
now at least, that feels like where we are.
Joining me now is Dana D'Auria of Envestnet Solutions and Guy
LeBas of Janney Montgomery Scott. So here we are.
We pivot from Friday morning waiting for the jobs report to hailing Goldilocks
has return and two rate cuts. It's all just a little bit too much too
soon to get that enthusiastic. Gee, good morning.
Do you believe that Goldilocks is making a reappearance?
Good morning. So I would describe the sort of three
core events of last week, the Treasury's announcement not to increase coupon
volumes, the Federal Reserve's announcement on Wednesday afternoon, and
then of course payrolls on Friday morning.
I would kind of attribute one thing to all three that they had in common, which
is that they effectively cut off some of the right tail risk for interest rates.
So Goldilocks is perhaps a little bit too strong or too confident of the term.
But what they did is they served to reduce some of that downside risk.
And I think that's one reason to be heartened at least, and one reason why
we think interest rates continue falling for a little while.
You're not massively so, but a little while in the short term.
And that plays right right to the thinking, doesn't it, Dana?
Which is cutting off the right tail risk, which is perhaps no further
narrative about hikes, repricing rate cuts.
But with that in mind, do we now need to reconsider deceleration relative to
disinflation? Yeah, I think that's always been a
concern. And it's one that because the fight
seemed to be centering around inflation, obviously inflation being sticky, I
would say, you know, not yet spiking obviously, but certainly not necessarily
under control that, you know, take the eyes off the ball a little bit on what's
going on with growth. And of course, GDP growth didn't come in
fantastically well. Now, of course, I mean, it's subject to
large revisions on that. So we'll see.
But also a little bit of obviously softer of an employment report.
You know, we've been in this hiking cycle for the period of time now that
suggests that if there are going to be some concerns in the economy, they would
start showing up. But with that said, these are these are
pretty lightweight cracks that we have so far.
Yeah, they are 175,000. The wages lighten up a little bit, but
then it was all undone or materially undone by the services report.
We'll come back to that in a second because traders really are bracing for a
fresh round of Fed speak. Mike McKee is with me to set that
agenda. What have you got today, Mike?
Well, what we're looking at, Nancy, is what Austan Goolsbee, the Chicago Fed
president, told me last Friday. We talked to him out in California.
It's time to sniff. Everyone thinks it's a battle between
deviousness and hawkishness. It's not about the birds, it's the data
dogs. The first rule of the data dogs is to
know when to walk and when to sniff. So we're going to have a lot of people
out there talking about what they're sniffing in the economy, starting with
Tom Barkin and John Williams. Today we had a little bit of a surprise
essay from Raphael Bostic this morning, but he did not talk about the economy in
that the yellow names there are the ones where you're going to want to really pay
attention because they are talking about the economy.
The others are talking about things like college graduation and the idea of
becoming an economist. So they won't make a whole lot of news.
But the question is, if they're out there sniffing, what are they going to
sniff? Not a whole lot this week.
It's a pretty dry economic calendar, except for jobless claims in Michigan,
sentiment on Friday, which neither of which is probably going to move the
markets unless we get a big surprise in jobless claims.
So where we are is kind of where we probably will be with the idea of what's
the Fed going to do. Even if people say something, they can't
really go ahead of Jay Powell and say they're going to go up or down.
So Fed funds futures are where they were basically before the jobs report,
talking at this point about the idea of a November cut, maybe a September cut,
but nothing before then. So we'll keep an eye on that.
But this week, a lot of talk. But can they move markets?
Can they convince investors of something?
Well, I think the market's going to be kind of down to CPI.
I mean, there will be those nuances and twitches might want that as they speak.
But it really is all eyes and ears down to the CPI numbers.
The next one, Dana and I still with me. So here we are.
We're looking at this jobs report from Friday and you can take of it from what
you want. But one thing that that struck me in one
or two reports, it came three full time hiring has breached negative levels on a
year on year basis outside of recessions.
That's only happened in 2010. How quickly can this become undone?
Let me take it to you, first of all, because the services number was the
lowest in four years. Prices paid spiked a little bit higher.
There are these incremental figures of warning on the horizon on that.
Yeah, it's hard to look at the economic data and not notice these little pieces
of downside. You're certainly right about that.
Most but there have been for the last two or three, maybe even four years
where we've been in a period of by large rebounding economic growth from the
COVID downturn. These sort of strange and was hard to
explain echoes of negative, negative economic data that just haven't been
realized. I think part of this is some of the
noise that's been introduced by the economy that's so rapidly shifting
between different components of supply and demand, as well as between
seasonality factors. So I hate to blame them in the long run.
In the short run, they can make a lot of difference and get things kind of
sloppy. So I'm not convinced there's a lot of
evidence of economic downside. And, you know, back to Dana's point, a
couple of moments ago, first quarter GDP growth on the headline was a little bit
on the south side. But on the core side, when you look at
real final sales to domestic purchasers was very, very strong.
I mean, it was a full percentage point above the trend from 2010 to 22 just
pre-pandemic. So I don't see the very obvious signs of
economic weakness. I'm not ready to accede to that point,
not yet anyway. And I mean, yes, I get that point.
But I think when you look at those post-pandemic or those pandemic savings,
they are turning negative for the first time.
So it's not about what is. Now it's about perhaps where we go in
the next six months. Dana.
And to that point, the question is, when I look back at
Friday and have the horrors of maybe that was one of the last or one of the
final moments when I could add duration very, very comfortably to the portfolio.
I think there's going to be a lot of volatility and it depends, of course,
what your time frame is. But I wouldn't necessarily say that's
the case just from the standpoint of the volatility that I think is going to come
through with that data. I think everything is very much hinging
and that's why you're seeing such kind of interesting swings in both markets
right around just data points that for the discussion we're having here.
They could be they could have meaning they could be signaling a trend, but
they also could just be kind of bumps that don't really materialize into
anything. So I think it's hard to say that, you
know, you've lost your opportunity set in that respect by any stretch.
I think we're going to be very data driven as we move through the next
several months. And, you know, again, we saw a first
rate cut expectation in December, now pulled forward to November.
There's there's plenty of chatter. We don't get any rate cuts at all this
year. And I'm drawn to the point that you
make, Dana, very clearly, which is it's almost like a silent q t has the rate of
cut is going to be drawn down from 60 billion to 25 billion?
But as you would say, that is almost a form of subliminal easing.
I mean, we were. It is, but it's you know, it's not a big
one. And it's it's you know, let's face it,
it was already happening at a glacial pace.
Right. So I don't I don't necessarily expect
that it's going to have a massive impact.
Does it cap the longer end? Does it perhaps cap the longer and the
tens and thirties? Well, I think to a certain extent that's
some of the intention, right? But I don't know that that again, you're
talking about something that we're talking in increments here on a monthly
basis and, you know, mixed in with all of the other things that move those
rates, which are many. Right.
What's going on? Just expectations about economic growth.
You could have an eye blowout that sort of changes all that.
So I think, you know, all else equal, there's there's some impact there, but
it's very minimal. And, you know, when you look at claims
that does the Fed kind of try to swing things in terms of from a political
perspective or or help, you know, one administration or that center for
another, I, I think you have to look at it and say you're not seeing a lot of
that. Right.
We've got a federal deficit where it is and the Fed coming out and saying no
higher for longer. And we're really going to be focused on
our mandate, which is inflation, employment.
So I think what's happening in quantitative tightening or, you know,
a little incremental easing to the tightening is is, you know, very
incremental also. Yeah, I mean, it's small in numbers, but
perhaps it's just there in the background.
It's interesting when you listen to Powell pushing back at the press
conference about silence to politics, that's not what they're there for.
Their job is to manage and to carry through at all costs.
And it was a very, very robust pushback. And the market has repriced, hasn't it,
In the space of 48 hours of trading, which is we've gone from practically
zero cuts to one cut in Dec to Nov to Sep.
So this momentum is building. Do you think two is a fair insurance set
of cuts? For 2022 is a good guess.
But let me just take the political comment for a moment.
At this long running expectation, the Fed is a heavily political body just
because it fit certain certain predetermined narratives over the last
11. Election cycles which terrorism has been
active in presidential election cycles. They've been hiking interest rates in
six of them and kind of having five. And there's a handful of others which
they they haven't moved them. So the data don't bear the history,
doesn't really suggest that they're particularly political.
Second, you know, in terms of what to expect for this year.
First of all, in the short term, the inflation data have proven really,
really hard to forecast generally. So our models have been wrong.
Frankly, the first couple of months of this year, just as they were wrong the
other way for the last couple of months of 2023.
So it's hard to say. I have low confidence, but two seems
like a reasonable number. Six heading into the year was patently
absurd. And one reason we were advocating a
shorter duration position heading into the year zero is probably unlike there
have been a handful of mid-course corrections in the Federal Reserve's
history, the most obvious of which being the 90 1995 episode.
And essentially all these mid-course corrections were 75 basis points of rate
cuts over the course of 2 to 3 quarters. Whether it starts in September or
December, it's probably going to be that same 75 basis points the last 2 to 3
quarters. And so it's a little bit easier to take
a position on that, not by necessarily betting when that rate cut starts, but
rather about how large it's going to be and what that's going to do to
intermediate to longer term interest rates.
I love your honesty pattern, patently absurd.
But then that's what that's what irrational exuberance perhaps looks
like. And a REITs market down.
It comes off with you. I mean, would you concur with me that
we're perhaps preparing for two stroke three and what does that do to risk?
I mean, if I look at risk assets that they have had a lovely extra wind
between Friday and today. Sure, because, I mean, we're pricing in
all of a sudden no rate cuts. I would agree.
I think all else equal, that's probably around where we stand.
I'd say maybe 1 to 2 right at this moment.
But that's not a lot of information content on what we're able to say right
now for what's going to happen in September, of course.
And to your point on risk assets, I think anything that suggests that
there's more costs than was previously expected could be a real boon to small
caps or obviously more interest rate sensitive.
They've obviously suffered with corporate teams having to go back to the
capital markets for funding. So, yeah, the suggestion that there
could be one more rate cut is probably going to be very helpful to assets like
small caps. Well, my favorite fact of the day from
Bloomberg News, apparently we're making $2 million per minute on Treasuries is
putting the positive back in positive. So all those times, 125 billion bucks
worth of supply. Thank you both for setting the table
this Monday morning. In terms of Fed speak and the agenda
that is Dana D'Auria and Guy LeBas, thank you very much.
Joining me now for the stocks ahead of the opening bell just mention is on
Saturday. Guess what?
Good morning minutes. We have another busy week of earnings
even though we've already had about 80% of the market cap for the S&P 500.
Having reported we have another 4% or about 56 companies.
Disney, of course, fresh off that victory from its proxy fighting arm,
Uber, Airbnb, Palantir. Of course, I have to point out Berkshire
Hathaway shares Class B looking at that stock up about 1%, pre-market trading
after Berkshire held its annual shareholder meeting where billionaire
Warren Buffett, actually his conglomerate, reported a nearly 40%
surge in year over year operating margins for the first quarter.
But the big news, of course, looking over at Apple, Berkshire did trim its
stake in the company, one of its largest positions since Buffett's deputies first
invested it in 2016, though he did say the figures do underscore the difficulty
his team have had trying to find worthwhile investments.
If you go and look at Apple, stock up actually down about 4/10 of a percent.
But it is coming off of its best week relative to the S&P 500 since July 2020.
And then, of course, there is paramount Berkshire cut its paramount exposure
entirely at a loss. This does come after The New York Times
did report on Sunday that Paramount Global has agreed to formally balloon
negotiations for a buyout group led by Sony Pictures Entertainment and Apollo
Global Management. If you look at that stock, it's actually
up close to about 5% in pre-market trading.
Jess Menton, thank you very much. Keeping an eye on the movers.
Coming up on the show, tensions are heating up in the Middle East.
I think that there are efforts that are going that are happening right now and
could reportedly be announced within the next couple of weeks that are designed
to end this Israeli army telling civilians to move
out of Rafah. We discuss next on Bloomberg. The Biden administration is working
seriously on getting a deal with Saudi Arabia that would require relations with
Israel and would also, according to reports, require that Israel wind down
this war. So I think that there are efforts that
are going that are happening right now and could reportedly be announced within
the next couple of weeks that are designed to end this.
The Israeli army telling civilians to move out of Rafah.
This is it proposed to launch an operation in the Gaza City.
A spokesman for the Israeli Defense Forces sending a warning to Hamas on
ABC's a little bit earlier, saying the army will, quote, will act with extreme
force against the terrorist organization in your areas and residents.
Bloomberg's Bobby Ghosh joins me now. So a very clear warning that this
situation, Bobby, is almost feels as if we're coming to some kind of crescendo.
This is everything that the world has been concerned about, an attack on Rafa.
And now we understand there's an attempt to move people from Rafa.
Where do they go? And how imminent is that?
Let's say that move on Rafa. Well, it seems very imminent to judge
from the warnings that the IDF is putting out.
It wants at least a hundred thousand people from one part of Rafa to move
there, suggesting that these people move to Khan Yunis, which is a city a few
kilometers east and north of Rafa. The trouble is, of course, the Khan
Yunis has already been bombed to smithereens.
There's not a functioning city to which these people can go.
They have to go from Rafa to ruins and try to set up a life there.
And then who knows for how long. And so if you are a Palestinian refugee
stuck in Rafah, you are listening to these warnings with a growing sense of
dread, but with not many options. It's easy enough for the Israelis to
say, We want you to go to this place. There's no there there.
That's the problem. Look through.
And more recently, we've questioned the leverage that Biden and the White House
have in this situation. Who has the bigger pressure point to use
here? Now, Daniel, who does not look nor sound
like a like a leader that is ready to yield in any way.
And yet at the other side, we have Hamas and Hamas and, as you say, a divergence
between the Hamas, which is in the Gaza Strip and the Hamas, which is in Qatar.
Whether the political leadership which is in go in Qatar and has been in
communication through intermediaries with the United States, with Israel,
that political leadership for several weeks now had seemed, at least on the
margins, more and more interested in a cease fire deal.
But the military command, as you rightly say, the people who are in Gaza, who are
run by a man called Yael Shinhwa, they don't see they don't seem interested in
a cease fire at all. Just this past weekend, they fired off a
bunch of rockets in the direction of Israeli.
They killed three Israeli soldiers. This is a message from the Hamas
military leadership, not just to Israel, but also to their political leadership
in Doha, saying you could talk all you want about a cease fire.
We're not done fighting in Gaza. It's a it's a really important moment
for Sinwha to be sending this message because it's basically him saying, I
don't care about those cease fire negotiations.
I have my own agenda to pursue here. And I will take my opportunities against
Israel whenever they present themselves. The other dynamic is, of course, the
Saudi axis, Saudi seeking a security relationship.
We know that that's been in the background.
That was very close to coming to fruition before before this this major
escalation between Hamas and Israel. This is not being put very firmly back
on the table, we understand, by Jake Sullivan.
But this is with huge conditionality. Yeah.
So I was at the event in Washington this weekend when Jake Sullivan made those
remarks. And I have to say, the way I heard them,
they were a little more subtle than is being made out.
He did say that the U.S., the Biden administration, would like this to be
part of a comprehensive package. The U.S.
and Israel, the U.S. and the Saudis make a deal.
The Israelis and the Saudis make a deal. And this is all part of one package.
If you look at it more closely, though, it really is what the U.S.
and the Saudis are talking about, really an old fashioned defense deal.
We sell you weapons, we give you some security umbrella cover.
We protect you from your enemies. The what the Saudis get from the
Israelis is less clear. What the Israelis get from the Saudis is
less clear. So my suspicion is that as much as the
Biden administration is saying now that this is part of a package deal, it is
painting itself with the Saudis into a corner.
At one point, the Saudis will turn around and say, listen, we've been very
patient. We've been waiting for the Israelis to
come in on this. We've we've set the table for them.
But if they don't come, we've got to have this meal between us.
We've got to make this deal between us. And I think when that moment comes, the
Biden administration will be in a difficult place.
They won't easily be able to say to the Saudis that, no, no, we have to keep
waiting for the Israelis to come in. And, of course, a constant message from
the Saudi ministers who've been here on a number of times is calling for a
de-escalation. Bobby, thank you very much.
Bobby Ghosh on the very latest in the Middle East.
Coming up, the morning calls and a little bit later, Citigroup's tukysa
joins me for his outlook on stocks for the second quarter as these earnings
continue to roll in on Bloomberg. Good morning.
Cause this is what Wall Street's writing about.
Citigroup downgrades patterns in neutral, pointing to the recent
management changes and the upcoming restructuring plans, Morgan Stanley
upgraded US steel to overweight, expecting the shares to benefit from new
growth initiatives. And finally, Baird upgraded Micron to
outperform, highlighting positive pricing trends and an attractive
valuation. Coming up, we're going to catch up with
Stuart Kizer on the rising discussions. Stagflation or not, as the case may be
on Bloomberg. Carry on with risk were better up this
morning after a pretty strong day on Friday as the market reprises two rate
cuts for this year a little bit earlier and more aggressive than we had
anticipated. Apple's a little bit better offer this
morning. Warren Buffett makes it clear that was
they've shaved their position. It's still at the heart and potentially
at the heart of one of their biggest holdings.
There is the opening bell up a half of 1% on the S&P 500.
And the Russell goes slightly better and broader bid up three quarters of 1%.
That's where the alpha is this morning. To the rest of the markets, you can see,
look, the dollar had a pretty brutal week at the end of last week, one of its
worst week in two months. The market is beginning to reprice the
potential for the dollar, the carry in the U.S.
exceptionalism still there. So the euro, so the dollar is up by 4/10
of 1% against the yen. That massive move that you saw last
week, Janet Yellen sent a message going the calls for intervention were a rumor
and that they should be rare and with consultation.
So we're just pushing back against the intervention narrative from last week.
Ten year yields flat at the moment for 49.
The duration bus has left the train station.
Are you on it? As a mark of me?
Prices, two rate cuts and Brent is up by 4/10 of 1%.
What you're seeing here is, of course, one of the biggest weekly losses since
in February last week were clawing our way back.
Saudi Arabia is raising their prices to Asia for a third straight month, but the
war premium is much, much eviscerated in the oil market.
One stock to watch it is Apple. Berkshire Hathaway, as I said to you,
reporting that it's trimmed its stake in the company despite Warren Buffett
praising the tank giant just mention is with me.
So a little bit of a shave, but it's still going to be at the core, a key
part, as he says, unless there is a major, major move in Apple.
And to your point, men as traders are looking for whether or not the worst is
over for this stock after it technically entered a correction off of those
December highs back in March. It's actually going into its earnings
report last week. That stock was already down more than
10% off of those highs. But of course, as we know, it did
announce that historic buyback program that it still has not executed yet, but
it did announce this. So when you are looking at this stock,
it actually topped 180 last week for the first time in two months where you're
seeing that stock now down just about 1/10 of a percent, still down about 5%
for the year. So underperforming the S&P 500.
But when you are looking at Berkshire Hathaway, did trimming at stake of the
company. So this was one of its largest positions
since they did initiate one back in 2016.
So all eyes are on that. And then, of course, if you look back to
last week, though, Apple did outperform the S&P 500 on a weekly basis by the
most since July of 2020. So technicians are watching closely to
see if that stock can continue to trade above that 180 level Manus.
Okay, Jess, thank you very much. A lovely piece there, Jess on the Apple
Move turned to entertainment. Paramount weighs the offer from Apollo
and Sony, The $26 billion offer to buy the company, interrupt the flow.
Alex Semenova has the details. So they've got a spoiler alert on the
deal. So, Alex, good morning.
Manners. Well, the saga around who takes the
reins at Paramount Global continues. They're now weighing this $26 billion
deal from Sony and private equity giant Apollo.
This is after it let discussions lapse with Skydance, the movie studio led by
David Ellison. It had a month long negotiation period
that ran its course. The New York Times reported that a
special committee of the board of directors at Paramount met on Saturday
and signed off on these discussions with Sony and Apollo.
The committee also reportedly pushed to continue the discussions with Skydance,
though not exclusively at this point. And the deal talks come as paramount
struggles with industry headwinds, including a fall in viewership of cable
TV streaming wars with some of its competitors.
Paramount is up about 5% this morning, Shares moving even higher right now, but
of course, down 13% year to date through Friday's close.
Important to note here that any deal between Paramount and Sony would face
major regulatory hurdles. The government prohibits foreign
ownership of broadcast networks, and Sony is, of course, based in Japan.
A report in The New York Times reports that
that Apollo would push to have a license of CBS, CBS broadcast operation
operations if this deal moves forward. Alex, thank you very much.
It's going to rumble on. Let's turn it over to the airline space
Spirit giving revenue guidance for the second quarter.
It fell short of Wall Street's expectations.
Norah Mulinda is with me. Norah, what is the story for spirit?
Good morning. Me and spirit shares are slipping after
already being on thin ice this past year and investors aren't any more pleased by
its latest results. While first quarter results were roughly
in line, the budget airline said that it expects revenue for the second quarter
to fall somewhere between 1.3 2,000,000,001.34 billion.
That's well below analysts estimates of 1.46.
The company is still facing headwinds from sluggish domestic demand and the
grounding of dozens of its air. But considering the challenging year
it's had. Management said that it expects to reach
a resolution with royalty bondholders, quote, at some point this summer.
Shares are down 77% year to date. Manus.
That is what you call a brutal, brutal move.
Nora, thank you very much and welcome to the show.
Turning to the consumer space, the former Starbucks CEO Howard Schultz is
urging the coffee chain to own its shortcomings.
Fix your operations following the biggest sales mess in years.
Katie Greifeld is with me. I mean, he has some qualification.
He's a pretty significant individual shareholder.
Katie. Take me through the narrative on
LinkedIn. Yeah, I would say that he knows this
company fairly well at this point. So let's read directly from that
LinkedIn post. Schultz saying that at any company that
misses badly, there must be contrition and renewed focus and discipline at the
core. And then they can, he continued, saying
that one must own the shortcoming without the slightest semblance of an
excuse. So tough words from Howard Schultz
there. And this coming after, of course,
Starbucks reported its first sales drop since 2020.
And as you said, I mean, he stepped down from his third stint as CEO in 2023, but
he's still the fifth largest shareholder at Starbucks and he is the single
largest individual shareholder. And in this post, he didn't name the
current CEO of Starbucks, but he did offer some suggestions saying that
management and board members should spend more time with customer facing
employees, and that also Starbucks should reinvent its mobile ordering and
payment platform. He wrote that through it all, focus on
being experiential, not transactional. So shares up slightly at the moment, up
about 1%. Remember, they plunged 16% last
Wednesday and for the year they're down 23% year to date.
Manus. When I tell you what, the analysts will
be happy when you miss that badly, there must be contrition and a renewed focus
on discipline at the core. Katie, thank you very much.
A message from the former CEO. Our next guest writes this We don't see
stagflation as the most likely outcome. And similar to soft landing in 2023, its
definition is in the eye of the beholder.
Stuart Kaiser had of US equity trading strategy and the eye of the beholder.
So give me the eye of the beholder and what their soft landing 2024 is going to
look like. Stuart, good morning.
No matter how you doing? Look, I think after that first quarter
GDP report, we started to get these kind of stagflation, you know, commentary and
questions coming from clients. And I think one of our pushbacks has
been, you know, what is that? And I think from our perspective, it
will be below trend GDP with inflation that's kind of above target and that's
probably a little bit less negative than than some other people would define it
as. So, you know, I definitely an ongoing
debate in the market about how do you do?
Do you how do you invest if you believe that that stagflation sort of outcome is
going to happen? Well, I presume commodity and energy is
going to be part of that narrative if I believe that there's a portion of
stagflation. Yeah, I think, you know, energy we
definitely energy and the materials sectors would definitely kind of fall
into that. Obviously, you end up with kind of a
trade off there. I mean, those do tend to benefit from
higher inflation. But if you were to get a significant
slowdown in growth, you know, those are parts of the market that would be under
pressure. So I think to think the commodity space
will work in a quote unquote stagflation or environment, then you have to kind of
be in our camp, which is which is positive growth that's also below trend.
You're kind of like threading this needle of you've got some growth, but
but not a ton. But you're also kind of avoiding
recession at the same time. So definitely threading the needle,
which I think is why it's such kind of a confusing investment environment for a
lot of folks right now. I like what Gila bass Ali Gilbert had to
say to me a little bit earlier, which was the right hand tail risk.
Risk, in his view, has been taken off the table.
And that that that right hand tail risk is, of course, rate hikes.
Yeah. I mean, that's what the Fed is, I think,
trying to guide you in that direction last week that, you know, the bar for
them to hike is is extremely, extremely high.
And it's obviously driven by probably a hook higher in inflation as the year
goes on. And, you know, that's definitely not the
outcome they want and it's not the outcome that they want investors
focusing on. I mean, you know, my takeaway from the
Fed last week, I know a lot of people are trying to call it very hawkish, are
very dovish. But actually the goal was was to
actually keep people in the center lane on this one.
They don't want the market overreacting to growth data.
They don't want the market overreacting to a couple of inflation prints.
And and I think they'd still like to get a couple of cuts off if they could.
So, you know, hawkish or dovish. I think what we're trying to do is keep
people kind of center lane, to be completely honest.
Look, a lot of people have used the phrase US exceptionalism, and it has
been correct and worthy. Absolutely.
For the dollar. Absolutely.
For US equities. But when it comes to exceptionalism,
this is is what we had from Academy a little bit earlier on.
I'm just going to read it to you, which is I like my exceptionalism to be
exceptional. Normally we would agree that there is a
transition period. A transition period from everything is
great to everything is bad. And I do wonder if we have more of a gap
than a transition. Of course, this is Peter.
Cheer over at economy. That's the risk, Stuart, isn't it, that
you know, everything's grand, everything's good, everything's fine.
Then you get a wee bit of a twister on Friday with wages, with jobs, with
services. And the risk is that we don't just drift
a little bit slower to the Goldilocks scenario that you've laid out, but that
we gap and drop. Do you see a material risk of
exceptionalism being squashed much more quickly?
I think that that's the chief risk to the economy.
And our economists have also highlighted the risk that payrolls can deteriorate,
you know, quite rapidly. You know, if you look historically
speaking, there are less months where payrolls is between zero and 200 K than
there are one. Payrolls is negative.
So sort of that that middle ground there, that transition period, those
tend to be fleeting and pretty short. So, you know, that is definitely an
underlying risk to the market. I'd say, you know, the labour market and
consumer spending is is the number one risk that we're focused on from a macro
perspective. So, you know, I would agree with that
logic, and I think the historical data lines up with it.
You just don't have very many transitions that are that are slow and
easy. They tend to happen, you know, quickly
and and sort of painfully. Yeah.
And and depends what kind of left terrorists come out of it.
And you very clearly focus in on the average hourly earnings as well being
sub 4% and that that's part of the narrative for you about the slight
slowdown. Yeah, without a doubt.
I mean, you know, the first quarter GDP, the employment cost index, you know,
some of these sort of subcomponents of the indices have definitely been been
hinting towards wage inflation. And I think a lot of folks were worried
about that being kind of like the next leg of inflation.
So seeing that seen that average hourly earnings kind of decelerate this month
and two of the last three months, to be completely honest with you, I think was
pretty reassuring. And I think that's why the markets
responded so positively. You know, I don't think equity markets
traded up because of 175 K or because of 3.9% unemployment.
I think it was because the headline payrolls were strong enough.
And you also got a little bit of relief on what's been the bogeyman for the
markets over the last couple of weeks. We listened to the Berkshire Hathaway
narrative over the weekend. Cash is a huge element for Warren
Buffett, possibly because he wasn't able to deploy and to do deals, but it's
earning nicely from .9 billion. How intransigent, how sticky is cash in
the CDs and in the deposits? How hard is it going to be to prices to
prise me away from cash? Stuart
I think it's good. I think it's a high bar for that right
now. US.
I mean, if you look at, you know, retail money market balances, you had about 28
billion of outflows right around tax season and then you're sort of back to
inflows. And if you look at the size of the
outflows around taxes and they they line up quite nicely with the taxes you would
have had to pay on 5% interest on the on the balances of those money market funds
for the last 12 months. So, look, you know, given the degree of
uncertainty out there, it's going to be hard to get people out of 5% cash.
And partly because we just haven't seen 5% in a while.
Right. You know, so people kind of need to get
a little bit used to it. But, you know, our view is, you know, is
generally then that if you're growing earnings 10% plus that you should have
money in equity markets. And ultimately we do think that money
will come out, but it's going to be slow and it's going to be a heavy lift to get
money out of that 5% cash. You know, I agree with that.
And, you know, 2 to 3 years point, you know, there's there's also maybe not as
many, you know, high risk reward investment opportunities there.
So from a risk reward perspective, clipping that 5% coupon has been the
right place to be for a lot of investors.
It's a sweet place to clip the coupon. And Stuart, thank you very much sir
Stuart Kizer of Citi on the markets this Monday morning.
Coming up Robinhood receives a wells notice from the FCC.
What does it mean? We'll discuss the fallout in just a
moment on Bloomberg. Let's take a quick check on some of the
stories that are moving in the world of finance.
Sonali Basak joins me for that. Checking in on Robinhood stock is flat
at the moment, so it's bad in a way. This one's notionally that we understand
this is around the crypto business. So what exactly is the world's notice
referring to and how much impact might it have?
It could have a significant impact only in that man.
As you have an issue here where crypto has been a growing part of Robinhood's
business, why is the stock shaking off the worries about analysis wells notice
really indicating enforcement actions tied to this cryptocurrency business?
At Robinhood you only have crypto as less than 15% of the assets under
custody over at Robinhood in the year ended last year.
And so Robinhood does report results in a couple days after market.
That is Wednesday after market, and we'll see whether the crypto business
has been growing just as meaningfully. But of course it's volatile business as
well. It's a really small part still of the
overall business. But you have to remember when you look
at last year in the prior quarters performance, they did show a decline in
transaction volumes for the main businesses, equities and options where
as crypto had a massive jump both by the amount of volumes per transaction and
the transactions themselves. So Robinhood is looking to fight the FCC
on this and they're not alone. As we know, other cryptocurrency firms
are also looking to fight the SEC when it comes to their concern over crypto.
Yeah, well, certainly everybody's had a few run ins with Gary Gensler over this.
And just just to make it clear, as of the CFO that Dan Gallagher has said they
firmly believe that the assets listed on our platform are not securities.
So talk to me a little bit about but we've got a new cry.
Everybody wants a piece of the credit pie.
Everybody wants a piece of this. The banks are fighting to keep it and
there's new entrants combining PNC and CW are combining to create a new
platform. What is it?
Size, scale, scope. Take a look at PNC shares this morning
as well, because you do see them hopping on the heels of this news app about 1%
or so this or paring those declines now about 6/10 of 1%.
You have PNC, one of the largest regional banks in the country looking to
pair with TCW traditional bond fund managers.
It's known for looking to get into private credit.
One of the biggest moves by CEO Katie Cox in the early years since she's taken
over. And remember the recently we've seen
this kind of deal happen with other large banks, Barclays, for example, and
AGL. This one is a little different.
They're trying to put together about $2.5 billion in equity in year one when
it comes to these deals. So certainly you see the regional
banking system pairing up with private credit in a significant way.
These deals crossing the tape at a greater speed as we head through the
year. And let's just round off I mean, we had
a weekend of theater with Warren Buffett talking about not just his his lost
partner, Mr. Monga, but talking about Apple, talking
about cash. And they're two of the big bulwarks of
this story. I mean, they're earning plenty plenty on
the cash. And apple will be a core holding in the
future you had Warren Buffett still is but it's not going anywhere unless
something materially you. Yeah he said it will be by the end of
the year so likely the largest holding and he likes it even better than the
likes of some of his other favorite stocks, American Express and Coca-Cola.
But one interesting thing here, Manas is preparing for the future.
This a hint that he gave about the idea of selling some of the Apple stock
before corporate tax rates might get larger.
Tax rates for investors might increase in the future with the government debt
load where it stands in the US needing to pay for its fiscal responsibilities,
if you will. He said that investors looking to see a
higher tax rates ahead might not be so sad that you're selling Apple today.
But of course, as you say, really, not only did they make the most of its
money, not just from the profits of selling stocks from their cash hoard and
of course, Berkshire standard of the American economy off of his operating
earnings where they saw many increases by the billions for most of its core
businesses. Yeah, it was certainly Geico and the
insurance side of the business doing very nicely.
Shonali thank you so much. That's rounding up the financial stories
here on the open to sector price action. Let's get across to Jess Wall is taking
a look at the industry groups in the S&P 500.
You have ten of the 11 groups higher. If you look, what's really driving
things is the energy sector. So this does come as US oil prices are
rising this morning, actually trying to recover from last week's steep losses.
You do have WTI topping about $78 a barrel.
Of course, if you look on the other end of this, consumer staples are flat this
morning. I have to point out, though, when you
are looking at the nice thing index, it's actually up roughly 4% so far this
month. Continuing to edge higher this morning.
Of course, have to point out there's only been four sessions so far this
month. But of course, the biggest weighting
when you are looking at this particular index is alphabet.
Also another big weighting, of course, is Tesla and Apple.
But Apple's the only one so far this month out of them that have reported.
But we do have a video coming up on. May 22nd.
So all eyes on that have to point out, though, Bloomberg's Mark Gurman has a
story coming out about the next big event for Apple, the new iPads that are
set to potentially arrive on Tuesday at a big event there.
So that's another group we're keeping a close eye on.
Manus. Okay.
Yes. Thank you very much.
Coming up in the show market, moving events to set.
You can find your trading diary on Bloomberg. I think every regulator is worried about
three topics, not just safety and regulation.
What about innovation? They're worried about competition and
they're worried about safety and regulation.
So what do you think those three together alliance and open really come
together to help you foment innovation? So I think that that actually helps the
regulators to think about what is going on here.
Well, I'll caution there will be some guardrails that are always put.
But in my experience, open technologies have always been safer and more secure
than closed technologies. It was a long time ago, five days ago.
You're trading over 5% on two year paper.
This market has repriced from zero cuts to two cuts and pulled those forward to
September. The consequence, the pro quo of this
pressure on yields, as you saw the wages slip and the jobs drop is to boost the
equity narrative and NASDAQ to the crime.
At the end of last week. Palantir is one of the most strongly bed
stocks this morning. So you are looking at a consequence of
this. We're off the lows on two year paper.
Let's just have a look at the stocks for this is the score at this stage.
Again, the Russell is breathing life into Brent because of the view of a cut
in rates is to come Palantir up 5%. Take a look at Dan Ives at Wedbush
talking about the narrative that Nasdaq up a half of 1% and S&P 500 also bid by
a half of 1%. So we're certainly pro risk at the
moment. You're trading diary looks a little bit
like this for the rest of the week. Fed speak baulking and Williams
plus the senior loan officers survey slews you'll get that today tomorrow we
get the earnings from Disney Uber results head to tape on Wednesday and
finally the Bank of England rate decision on Thursday.
We got that Monday gone down to the open from New York.
A very good morning on Bloomberg.
