JONATHAN:
LIVE FROM NEW YORK CITY, GOOD MORNING. EQUITIES DOWN.
YIELDS LOWER. BONDS RALLYING. THE COUNTDOWN TO THE OPEN
STARTS NOW. ♪ >> EVERYTHING YOU NEED TO GET
SET FOR THE START OF U.S. TRADING.
THIS IS "BLOOMBERG THE OPEN," WITH JONATHAN FERRO. ♪ JONATHAN:
LIVE FROM NEW YORK, THE TREASURY PREPARING TO UNLEASH A
DELUGE. MOODY'S CUTTING RATINGS ON
TENUOUS BANKS. TRADE WITH CHINA PLUNGING.
WE BEGIN WITH THE BIG ISSUE, THE DEBT. >> THERE IS KIND OF THAT
PERFECT STORM OF THE WORKS RIGHT NOW.
TREASURY SURPRISING THE MARKET. IT IS HIGHER-THAN-EXPECTED
AMOUNT OF TREASURY -- TREASURIES AT AUCTION. >> JAPAN INDICATING THEY ARE
EXITING YIELD CURVE CONTROL. >> ITS UNCERTAINTY ABOUT THE
DIRECTION OF INTEREST RATE. >> INFLATION IS JUST ONE OF THE
MOVING PARTS. >> THE BIGGER DRIVER IS
RELATIVE YIELDS. >> WILL DEMAND MEAT SUPPLY
GIVEN THE DOWNGRADE. >> I DON'T SEE THE DEMAND FOR
TREASURIES CHANGING. >> WE ARE BACKING UP HERE IN
TERMS OF YIELDS BECAUSE SUPPLY IS LARGE. >> THERE ARE A LOT OF FACTORS
THAT ARE COMING TOGETHER RIGHT NOW TO PUSH THAT LONG INTO THE
CURVE HIGHER. >> YIELDS COULD MOVE HIGHER. >> THEY MAY HAVE MORE LEGS FROM
HERE. JONATHAN: JOINING US TO DISCUSS IS
CASSIE, TONS OF SUPPLY FOR THE WEEK. 30-YEAR ON THURSDAY. WILL THEY TAKE THE SUPPLY DOWN
WITHOUT PROBLEM? CASSIE: WE ARE WATCHING THE AUCTIONS
VERY CAREFULLY. I THINK THERE IS A COUPLE OF
THINGS TO KNOW. EACH AUCTION YOU HAVE TO ASSESS
WHERE THE MARGINAL BUYERS GOING TO BE AT THAT INCREMENTAL
AUCTION. WHAT IS GOING ON IN THE BACKGROUND?
RIGHT NOW WE HAVE CPI ON THURSDAY.
IT WOULD BE A LITTLE PREMATURE FOR ME TO SAY FOR CERTAIN THE
AUCTION IS GOING TO GO A CERTAIN WAY.
I THINK IF YOU TAKE A STEP BACK, WHAT YOU HAVE SEEN SO FAR
IS INVESTORS HAVE BEEN MEETING THE DEMAND AT THE AUCTIONS.
END USER DEMAND HAS BEEN RISING OVER THE COURSE OF THE YEAR.
WE THINK GENERALLY DEMAND IS GOING TO RISE TO THE OCCASION
AND ULTIMATELY THE BIGGER DRIVER OF THE MARKET IS GOING
TO BE THOSE FUNDAMENTALS AND INFLATION REPORT LATER THAT
WEEK. JONATHAN: MICHAEL COLLINS, $42 BILLION.
30 HAVING YOUR BONDS, $23 BILLION WORTH.
ARE THE BUYERS GOING TO POP UP? MICHAEL:
THEY ARE EYE-POPPING NUMBERS IN THE CONTEXT OF THE SIZE OF THE
GLOBAL BOND MARKET. THE U.S. GOVERNMENT IS CONSTANTLY IN THE
MARKET OF BORROWING MONEY. I THINK THE DEMAND WILL SHOW UP.
SUPPLY HAS HISTORICALLY BEEN A LOUSY MEASURE OF INTEREST RATES
AT THE LEVEL OF YIELDS. IT IS REALLY THE FUNDAMENTALS.
IT IS ABOUT GROWTH WHICH IS SLOWING.
IT'S ABOUT INFLATION WHICH WE KNOW IS MODERATING.
IT DEPENDS ON WHETHER IT SETTLES DOWN.
OUR GUESS IS THREE. IT IS ABOUT THE PATH OF THE
FUNDS RATE AND THE TERMS. THOSE ARE THE DRIVERS.
ANYTHING IN THE FOURS, ESPECIALLY OUT IN THE CURVE 10
YEARS AND OUT IS A BUY. YOU HAVE SEEN SOME RESISTANCE
AT THOSE LEVELS. JONATHAN: GOLDMAN AGREES.
YIELDS LOWER BY EIGHT BASIS POINTS ON A 10-YEAR 4%. KELSEY, GOLDMAN IS NOT
PERSUADED BY THE REASONING FOR THE SELLOFF LAST WEEK.
CAN YOU DIAGNOSE THE SELLOFF OF LAST WEEK? WHAT WAS THAT ABOUT?
KELSEY: WE THINK THERE WAS A CONFLUENCE
OF FACTORS THAT WERE DRIVING THE SELLOFF LAST WEEK.
WE HAD THE DEBT DOWNGRADE. WE HAD THE BANK OF JAPAN.
WE HAD THE REFUNDING ANNOUNCEMENTS.
IT'S ALSO A FUNCTION OF POSITIONING.
SOME LAZY LONGS THAT STOPPED THEMSELVES OUT.
SOME NEW SHORTS GETTING ADDED TO THE MARKET.
ULTIMATELY, WE AGREE WITH MIKE AND THE ANALYSIS YOU READ
EARLIER. THERE IS VALUE IN LONGER DATED
YIELDS AT THIS POINT. I THINK IT IS NOTABLE WE HAVE
RUN UP AGAINST 4% ON THE 10-YEAR YIELD FOUR TIMES IN
THIS CYCLE AND EVERY SINGLE ONE OF THOSE TIMES WE HAVE FAILED.
WE FAILED TO TRADE SUSTAINABLY ABOVE 4%.
WE ARE TESTING THAT AGAIN NOW. WHEN WE LOOK AT THE PATH WE
EXPECTED THE FED -- IT IS LIKELY DONE WITH THE RATE
HIKING CYCLE. WE AGREE MOST IS MODERATING AND
INFLATION IS TRENDING DOWNWARD. ULTIMATELY, THOSE ARE GOING TO
BE THE DRIVERS OF LOWER YIELDS AS WE TURN TO THE SECOND HALF
OF THE YEAR. JONATHAN: MORE DOWNGRADES THIS MORNING
FROM MOODY'S ON 10 REGIONAL BANKS.
POINTING AT HIGH FUNDING COSTS, POTENTIAL REVELATORY CAPITAL
WEAKNESSES, AND RISING RISK TIED TO COMMERCIAL REAL ESTATE
LOANS. WE HAVE HEARD A LOT ABOUT THIS.
TURNING THE VOLUME UP ON THE CONVERSATION. >> THE BANKS HAVE HAD A LOT OF
PRESSURE AND WHAT THEY ARE SAYING WE KNOW THAT THERE ARE
COMMERCIAL REAL ESTATE PRESSURES AND THERE ARE FUNDING
PRESSURES. WHAT IS MORE SURPRISING IN THE
MARKET IS THE ONES THAT ARE UNDER WATCH.
THESE ARE LARGER MIDSIZED BANKS. U.S. BANCORP, ONE OF THE LARGEST
REGIONALS FACING THE BIGGEST DROP IN THE MARKET RIGHT NOW.
THERE ARE IDIOSYNCRASIES IN THE REPORT. U.S.
BANCORP BOUGHT MUFG UNION BANK. THAT HAD LED TO A LOWER LEVEL
OF CAPITALIZATION. THAT IS WHY YOU'RE SEEING THAT
BANK DECLINED MORE BNY MELLON, STATE STREET, TRUEST. --
TRUIST, THEY SAY AND UPGRADING IS UNLIKELY FOR THESE FIRMS.
THE SILVER LINING IS CONTRARY TO WHAT THE MARKET THINKS.
THE LONGER-TERM CAPITAL REQUIREMENTS ARE ACTUALLY NO
POSITIVE FOR THESE BANKS. EVEN WITH THE SHORT-TERM
PRESSURES THERE IS AN IDEA THE REGULATION A LOT OF PEOPLE
THOUGHT WOULD STIFLE THE BANKS ARE ACTUALLY GOOD FOR THE
CREDIT RATINGS. ANOTHER THING THAT'S A PROBLEM.
SHOULD THEY BE DOWNGRADED, THE COUNTERPARTY RISK MEANS IS MORE
EXPENSIVE FOR THE BANKS TO DO BUSINESS.
THIS IS THE PROBLEM AT STAKE. THERE HAS BEEN 10 BANKS ALREADY
DOWNGRADED. THESE ARE KIND OF IN LIMBO
HERE, WHICH IS WHY YOU ARE SEEING CHURCH PAINT -- SUCH
PAIN IN THE MARKET. THE DOWNGRADE ADDS ANOTHER
ISSUE TO THE TOP OF THE PILE. JONATHAN:
LET'S SQUEEZE IN ONE MOORE, GOLDMAN -- ONE MOORE, GOLDMAN.
MORE EXITS AT GOLDMAN SACHS. KAILEY: CH --SONALI:
GOLDMAN RECENTLY ADDED ANOTHER ADDITION TO THE BOARD, TOM
MONTAG. THERE IS A BIG CHANGE HERE IN
THE COMPOSITION OF THE BOARD THIS YEAR WITH JOHN ROGERS.
HISTORIC FIGURE AT GOLDMAN STEPPING DOWN, AS WELL AS TOM
MONTAG COMING ON. IT IS CHANGING THE SHAPE OF
GOLDMAN IN AWAY MOST OF THE PUBLIC DOES NOT REALIZE.
JONATHAN: THE STOCK IS DOWN 1%. THANKS FOR THAT.
LET'S TURN BACK TO THE DOWNGRADE FROM MOODY'S ON THOSE
10 LENDERS. GOLDMAN NOT ONE OF THEM.
HIGHER FUNDING COSTS, POTENTIAL REGULATORY CAPITAL WEAKNESSES,
RISING RISK TIED TO COMMERCIAL REAL ESTATE. WE KNOW ALL THIS.
HOW CONCERNED ARE YOU ABOUT THOSE THREE ISSUES AT THE
MOMENT FOR U.S. LENDERS? MICHAEL: THE REGULATORY CAPITAL
REQUIREMENTS, WHICH ARE GOING TO GET TIGHTER, THAT'S ACTUALLY
A BENEFIT FOR BONDHOLDERS OVER THE LONG-TERM.
WE HAVE LIKED THE BANKS. ONE OF HER BIGGEST OVERWEIGHT'S
ARE THE BIG MONEY CENTER BANKS WHICH HAVE NOT BEEN HEAVILY
REGULATED. NOW THE SUPER REGIONAL BANKS
ARE GOING TO BE MORE TIGHTENING -- TIGHTLY REGULATED.
THAT IS A TAILWIND FOR BOND INVESTORS.
IF THESE THINGS UNDERPERFORM, IF THEIR CREDIT SPREADS WIDEN,
WE ARE TYPICALLY STEPPING IN AND BUYING THEM. WE HAVE SCREENED THOUSANDS OF
BANKS THROUGHOUT THE U.S. YOU CAN PRETTY QUICKLY COME UP
WITH A SHORT LIST OF BANKS THAT HAVE A BIG DURATION MISMATCH, A
BIG EXPOSURE TO COMMERCIAL REAL ESTATE AND HAVING
DISPROPORTIONATE AMOUNT OF THAT EXPOSURE TO OFFICE.
A LOT OF THE BIG SUPER REGIONALS THAT MOODY'S
MENTIONED IN THE REPORT AREN'T AS SUSCEPTIBLE.
WE ARE ACCOUNTABLE OVER THE LONG TERM THEY WILL BE
SURVIVORS. JONATHAN: DO YOU SHARE THAT VIEW? KELSEY:
THE ISSUES HIGHLIGHTED BY THE RATING AGENCIES ARE KNOWN
KNOWNS. JUST TAKING A STEP BACK, WHERE
WE HAVE BEEN SKEPTICAL IN TERMS OF MARKET PRICING THIS YEAR IS
THE IDEA OF A SOFT LANDING. A SOFT LANDING IS POSSIBLE BUT
THE TRACK RECORD IS NOT THERE. MORE LIKELY THAN NOT THE FED IS
GOING TO ENGINEER A HARD LANDING, NOT A SOFT LANDING.
THAT IS WHAT THEIR TRACK RECORD SHOWS. IT'S INTERESTING.
LOOK BACK AT WHAT FINANCIAL MARKETS AND FED OFFICIALS WERE
SAYING IN 2000 AND 2006, HIKING CYCLE THAT ENDED IN RECESSION.
HE LOOKED BACK AT WHAT THEY WERE SAYING, THEY WERE TALKING
ABOUT THE SAME THING. ABOUT SOFT LANDING.
I WAS LOOKING AT A BLOOMBERG ARTICLE IN JULY OF 2000.
CLEARED FOR SOFT LANDING WAS THE TITLE.
ULTIMATELY A FEW QUARTERS LATER WE HAD THE RECESSION.
YES, THESE ARE KNOWN KNOWNS BUT WE THINK
UNDERNEATH THE SURFACE THERE ARE CRACKS FORMING IN THE
ECONOMY BECAUSE OF JUST THIS UNPRECEDENTED AMOUNT OF
TIGHTENING WE HAVE SEEN FROM THE FEDERAL RESERVE AND CENTRAL
BANKS AROUND THE WORLD. JONATHAN:
SEND ME AN EMAIL LATER WITH THE ARTICLE.
I WOULD LOVE TO READ IT. THIS TIME IT IS FROM PATRICK AT
THE PHILADELPHIA FED. WE CAN HOLD RATES FOR A WHILE.
THE U.S. ECONOMY IS ON A FLIGHT PATH TO
A SOFT LANDING. I KNOW YOU SHARE THE MORE
CONSTRUCTIVE YOU, BUT MIKE, WHAT IS A SOFT LANDING?
IT SO POORLY DEFINED. MICHAEL: IT'S AVERTING A BIG RECESSION.
IT'S AVERTING A BIG SPIKE IN CREDIT DEFAULTS BY CONSUMERS.
IT'S AVOIDING ON EMPLOYMENT RATE GOING TO THE SIX'S.
IT'S AVOIDING EARNINGS GOING DOWN 10 OR 15% ACROSS -- 10% OR
15% ACROSS THE CORPORATE SECTOR. I'M DEFINITELY IN THE CAMP THE
HARD LANDING SCENARIO IS A VERY LOW PROBABILITY, BUT THE FED
COULD SCREW THIS UP. OUR VIEW IS THEY WILL KEEP
RATES LONGER THAN WHAT IS PRICED IN.
WE ARE SHORT INTEREST RATES AT THE FRONT END.
TWO AND FIVE-YEAR MAY BE INCHING HIGHER.
THEY COULD SCREW THIS UP. IF THEY KEEP THE FUNDS RATES
TOO HIGH FOR TOO LONG AS INFLATION FALLS YOU WILL GET
THIS THING CALLED PASSIVE TIGHTENING.
THE REAL RATE GETS HIGHER AND HIGHER AND IT DOES START TO
WEIGH NOT ONLY ON BANKS BUT OTHER BORROWERS.
THE LONGER THE KEEP THE FUNDS RATE HIKE, THE BETTER CHANCE OF
THAT HARD LANDING. JONATHAN: IT'S A REALLY INTUITIVE CONCEPT
EXPLAINED BY PRESIDENT WILLIAMS EARLY THIS WEEK. IT MAKES SENSE.
THE RISK THEY RUN IF THEY SIGNAL MAYBE IT IS TIME TO KIND
INTEREST RATES -- CUT INTEREST RATES, YOU MIGHT SEND THE WRONG
KIND OF SIGNAL AND THEN ENGINEER THE TRIGGER --
ENGINEER A TRIGGER OF A RE-ACCELERATION OF INFLATION
ALL OVER AGAIN. HOW CLOSE ARE WE TO RUNNING
THAT RISK? MICHAEL: THAT IS WHY THEY ARE PROBABLY
GOING TO KEEP RATES LONGER THAN WHAT IS PRICED IN.
THEY DON'T WANT TO TAKE THE RISK.
THEY DON'T TO GIVE MARKETS THE GREEN LIGHT TO GO AHEAD AND
SHOOT RISK ASSETS HIGHER. THEY WANT TO MAKE SURE
INFLATION DOES NOT REBOUND AND THIS DISINFLATION IS NOT
TRANSITORY SO THEY DON'T MAKE THE SAME MISTAKE ON THE WAY
DOWN. I THINK THEY WILL ERR ON THE
SIDE OF CAUTION AND KEEPING RATES HIGHER AND KEEPING POLICY
TIGHTER FOR LONGER. I THINK THAT IS PROBABLY THE
RIGHT THING IN THE NEAR TERM. WE ALL KNOW THAT TYPICALLY IT
ENDS BADLY. MY GUESS IS THE KEEP RATES IN
THE FIVES FOR A LONGER PERIOD AND WHAT IS PRICED IN AND IN
THE NEXT 12 TO TWO ANY FOR MONTHS THEY ARE NOT CUTTING 50
OR 100 BASIS POINTS. THEY ARE CUTTING 200 OR 300.
JONATHAN: FINAL WORD? KELSEY:
I WOULD JUST SAY WHEN WE THINK ABOUT IT RIGHT NOW WE THINK THE
FED IS SUFFICIENTLY RESTRICTIVE. THAT RISK YOU WERE JUST ASKING
MIKE ABOUT IN TERMS OF ARE WE AT RISK OF THE FED PIVOTING TO
QUICKLY AND CAUSING THE ECONOMY TO RE-ACCELERATE, THE SAN
FRANCISCO FED HAS A PROXY FED FUNDS RATE WHICH IS ESSENTIALLY
A MEASURE OF POLICY RESTRICTIVENESS THAT GOES ABOVE
AND BEYOND WHAT THE FED FUNDS RATE IS TELLING YOU.
ANOTHER WAY OF LOOKING AT REAL RATES. THAT LEVEL IS AT 7%, THE
HIGHEST IT HAS BEEN SINCE THE EARLY 2000. -- 2000'S. WE THINK POLICY IS RESTRICTIVE
ENOUGH TO GET LOWER GROWTH AND LOWER INFLATION. JONATHAN:
KELSEY IS STICKING WITH US. COMING UP, CHINA'S RECOVERY
LOSING MORE STEAM. >> IT SURPRISING. THAT'S BAD. IT REFLECTS THE DOMESTIC DEMAND
WEAKNESS AND THAT WEAKNESS OF THE CONSUMER EVEN MORE.
GENERALLY, I THINK IT IS NEGATIVE NEWS. JONATHAN:
TRADE DATA COMING IN WEAKER THAN EXPECTED. >> IMPORT IS SURPRISING AND
THAT IS BAD. I THINK IT REFLECTS THE
DOMESTIC DEMAND WEAKNESS AND THE WEAKNESS OF THE CONSUMER
EVEN MORE. MORE SO, THE MANUFACTURING
SECTOR AFFECTS INDUSTRIAL PRODUCTION.
THAT IS IMPACTED BY BOTH DOMESTIC AND EXPORTS BEING WEAK.
GENERALLY, I THINK IT IS PRETTY NEGATIVE NEWS. JONATHAN:
THE LATEST NEGATIVE NEWS. CHINA'S ECONOMIC RECOVERY
TAKING ANOTHER HIT. TRADE PLUNGED IN JULY WITH
IMPORTS FALLING 12.4%. EXPORT SEEING THEIR FIRST
DECLINE SINCE FEBRUARY OF 2020. WAS IT THAT BET? >> IT IS FOREIGN COMPANIES
OFFERING AND CHINA DOWN 14% VERSUS 3% YEAR-TO-DATE TO DATE
FOR THE BROADER EXPORTS. IT IS FOREIGN COMPANIES,
MITSUBISHI, MAZDA THAT ARE SCALING BACK OPERATIONS. ON THE IMPORT SIDE, IT'S ALL
DOMESTIC DEMAND THAT IS FALLING OFF A CLIFF.
TODAY WE ARE SEEING THE LARGEST SELLER OF CONTRACTED PROPERTY,
COUNTRY GARDEN, POTENTIALLY DEFAULT THING AND ANOTHER BOND
SO THERE ARE PROPERTY WOES. WE HAD A BAD BASE EFFECT GOING
BACK A YEAR AGO WHEN CHINA OR SHANGHAI WAS EMERGING FROM
COVID BUT IT IS PRETTY WEAK. JONATHAN:
THE TEAM A BLOOMBERG REPORTING THE FOLLOWING, THE VALUE OF
CRUDE OIL IMPORTS FELL 12% IN THE FIRST SEVEN MONTHS OF 2023
FROM A YEAR AGO. THE VOLUME OF CRUDE OIL
ACTUALLY JUMPED BY AROUND 12% IN THAT TIME.
IS THERE A COMMODITY DISTORTION IN THE NUMBERS WE LOOKED AT
THIS MORNING? DAMIAN: WE HAVE BEEN PICKING THAT UP IN
THE PPI DATA. WE WILL HAVE FOR THE FIRST TIME
SINCE THE END OF 2020 A DECLINE OF BOTH CPI AND PPI IN CHINA.
IT JUST MEANS THESE PRESSURES ARE TAKING HOLD. I'M TALKING BEIJING HERE, THEY
HAVE NOT STEPPED UP WITH A WILLINGNESS TO SUPPORT THE
CORPORATES OPERATING WITHIN CHINA. JONATHAN:
WE BOTH KNOW YOU CAN HARDLY TALK ABOUT RECESSION AND A
COUNTRY SET TO GENERATE 5% GDP GROWTH. ARE THERE ELEMENTS OF A
SO-CALLED BALANCE SHEET RECESSION STARTING TO GRIP THIS
ECONOMY? D.C. THAT TAKING PLACE? -- DO YOU SEE THAT TAKING PLACE?
DAMIAN: ABSOLUTELY. THEY DON'T KNOW WHERE TO PARK
THEIR WEALTH. THE MIDDLE-CLASS USED TO PARK
THEIR WEALTH AND PROPERTY. YOU ARE NOT SEEING THE EQUITY
MARKET PICKING UP. WHAT YOU DO WITH EXCESS CASH ON
HAND? YOU SIT ON IT AND KEEP IT IN
YOUR CUPBOARDS. THERE IS JUST NO DEMAND FOR
REALLY SOFT GOODS OR GOODS ON THE SERVICES SIDE.
YOU HAVE SEEN TOURIST REVENUE AND RESTAURANTS AND WESTERN
PICTURES PICKUP TO SOME EXTENT, BUT IT'S A VERY WEAK
ENVIRONMENT FOR CONSUMPTION IN CHINA. JONATHAN:
THANK YOU, SIR, ON THE LATEST IN CHINA.
A GOOD CONVERSATION AS THEY BEGIN TO CUT RATES IN PLACES
LIKE BRAZIL, CHILE AND OTHER PLACES.
KELSEY, YOUR VIEW ON WHAT IS DEVELOPING IN CHINA RIGHT NOW?
IT HAS BEEN WORSEN EXPECTED. HOW BAD IS IT? KELSEY:
OUR TEAM AND CHINA HAS SET A VERY PRESCIENT CALL.
VERY SKEPTICAL ON THE REOPENING TRADE FOR CHINA THIS YEAR.
SO FAR, IT HAS BEEN VERY DISAPPOINTING.
FROM THE PERSPECTIVE OF A GLOBAL INVESTOR, WHAT THE KEY
TAKEAWAYS ARE AS YOU CANNOT RELAY ON CHINA AS AN ENGINE OF
GROWTH THAT IS GOING TO PULL UP ANY OTHER COUNTRY OR GOING TO
PUSH INFLATION HIGHER. IF ANYTHING, THEY ARE EXPORTING
DISINFLATION TO THE REST OF THE WORLD. ONE AREA THIS CREATES
OPPORTUNITY, A TRAIT WE HAVE LIKED THIS YEAR, E.M.
LOCAL DEBT. YOU MENTIONED CHILE AND BRAZIL,
TWO CENTRAL BANKS THAT STARTED THEIR RATE EASING CYCLE.
THAT IS GOING TO BE EASIER IF COMMODITY INFLATION IS COMING
OFF THE BOIL. I NOTICED TODAY COPPER IS DOWN
ABOUT 2%. THIS IS GOING TO HAPPEN FOR
GLOBAL INFLATIONARY DYNAMICS. JONATHAN:
YOU LIKE THE SAME TRADE? MICHAEL: YES.
IT'S THE SAME TRADE AS EVERYONE ELSE, JONATHAN.
IT'S THIS MACRO WORLD WE ARE OPERATING IN.
OUR VIEW IS SIMILAR ON CHINA. THIS IS NOT YOUR FATHER'S
CHINESE RECOVERY WHERE THEY BOLSTER ALL THE EMERGING
MARKETS AND THE EXPORT CHEAP GOODS TO THE REST OF THE WORLD.
THAT TRADE IS OVER. THAT IS WHAT HAPPENED OVER THE
LAST 30 YEARS. THEY ARE RELYING ON THE
CONSUMER THAT WANTS TO GET THEIR MONEY OTHER COUNTRY, THEY
WANT TO GET THEIR FAMILIES OUT OF THE COUNTRY. HE IS A CONSUMER.
THAT DOES WEIGH DOWN GLOBAL GROWTH.
IT DOES WEIGH DOWN GLOBAL INFLATION.
ULTIMATELY, THESE HIGH INTEREST RATES AROUND THE WORLD,
INCLUDING SOME OF THESE DEVELOPING COUNTRIES, ARE
PROBABLY GOING TO BE A LOT LOWER A YEAR FROM NOW. JONATHAN:
HOW UNSYNCHRONIZED IS THE GLOBAL ECONOMY AT THE MOMENT?
MICHAEL: IT IS. THE U.S., GLOBAL MANUFACTURING,
RECESSION. YOU ARE SEEING THAT IN THE
CHINESE NUMBERS. IN THE U.S., YOU ARE SEEING A
MANUFACTURING RENAISSANCE TO SOME EXTENT.
EUROPE IS ALWAYS CLOSELY LINKED TO CHINA.
AS CHINA WEEKENDS, EUROPE WEEKENDS -- AS CHINA WEAKENS,
EUROPE WEAKENS. YOU ARE SEEING THE LEISURE
SECTOR KIND OF BLOOMING ALL AROUND THE WORLD.
THE REOPENING TRADE. YOU HAVE A MANUFACTURING
RECESSION. IT IS NOT JUST COUNTRY BY
COUNTRY. IT IS SECTOR BY SECTOR, WHICH
CREATES A LOT OF RELATIVE VALUE OPPORTUNITIES FOR FOLKS LIKE US
TO ROTATE INTO THE RIGHT PARTS OF THE WORLD. JONATHAN:
AWARD ON THAT PLEASE TO FINISH. -- KELSEY, A WORD ON THAT
PLEASE THE FINANCIALS KELSEY: -- TO FINISH. KELSEY:
WE HAVE SEEN A VARIETY OF THINGS HAPPENING AROUND THE
SECTOR. IT IS CERTAINLY IMPORTANT TO
UNDERSTAND THE BUSINESS CYCLE IS NOT ALL HUMMING AT THE EXACT
SAME TUNE THROUGHOUT THESE DIFFERENT SECTORS.
AREAS WHERE WE HAVE SEEN A LOT OF STRENGTH YOU HAVE MENTIONED,
LEISURE, HOSPITALITY, BUT AT THE SAME TIME THERE ARE AREAS
THAT HAVE BEEN CHALLENGED FOR THE LAST YEAR AND ARE REALLY
JUST STARTING TO RECOVER. JONATHAN:
KELSEY, WONDERFUL TO CATCH UP WITH YOU.
BANK OF AMERICA WRITING ABOUT THE SAME THING. "THE U.S.
IS MOVING HIGHER, CHINA LOWER. THE EURO ZONE -- THE EASING
CYCLE IS NOT AROUND THE CORNER. SOME CENTRAL BANK OF ALREADY
STARTED CUTTING." IT IS NOT SYNCHRONIZED AT ALL.
BROUGHT ABOUT BY SOME OF THIS REGIONAL DIVERGENCE.
EQUITIES AT THE MOMENT ON THE S&P NEGATIVE BY 0.7%. COMING UP, DWS GROUP'S DAVID
BIANCO ON AVOIDING BIG TECH. JONATHAN:
A LITTLE BIT OF RISK AVERSION AT THE MOMENT.
S&P 500 NEGATIVE .6%. FIRST UP, THE LIKES OF TRUIST
UPGRADING DRAFTKINGS TO BUY, SEEING A SUSTAINABLE PATH TO
PROFITABILITY. DOWNGRADING TO HOME DEPOT WITH
THE CHALLENGING MACRO ENVIRONMENT WEAKENING HOUSING
MARKET TRENDS. FINALLY, BEYOND MEAT DOWN TO
$13 AFTER EARNINGS, EXPECTING LIMITED SALES GROWTH.
THAT STOCK IS NEGATIVE BY 18%. $12.56 IN THE PREMARKET.
COMING UP, DAVID BIANCO RECOMMENDING INVESTORS START
DIVERSIFYING AWAY FROM BIG TECH. THAT CONVERSATION IS UP NEXT.
PURE OPENING BELL IS JUST AROUND THE CORNER.
♪ -- THE OPENING BELL IS JUST AROUND THE CORNER. JONATHAN:
SNAPPING A FOUR-DAY LOSING STREAK YESTERDAY.
THIS MORNING, LOSING AGAIN. DOWN BY .6% ON THE S&P.
NASDAQ DOWN BY ABOUT .7%. TRADE DATA OUT OF CHINA,
DOWNGRADING U.S. BANKS, THE CPI ON THURSDAY AND
PPI ON FRIDAY. THERE'S THE BILL. COMING INTO THE DATA LATER THIS
WEEK. YIELDS UP BY SEVEN BASIS POINTS.
ON THE 10-YEAR, IN AND AROUND 4%.
GOING INTO A TON OF ISSUANCE AS WELL.
LOTS OF THREE-YEAR DEBT COMING LATER. 10-YEAR TOMORROW. 30-YEAR AUCTION TAKING PLACE ON
THURSDAY. RISK AVERSION COUNTERED BY AN
EQUITY MARKET THAT IS LOWER, A BOND MARKET THAT IS RALLYING,
AND A DOLLAR SLIGHTLY STRONGER AGAINST THE EURO.
THE EURO 109.48. CRUDE DATA $80.81 ON W TI --
DOWN TO $80.81 ON WTI. THE REVISION WAS "PRIMARILY TO
REFLECT THE VOLUME IMPACT FROM LABOR NEGOTIATIONS AND THE
COSTS ASSOCIATED WITH A TENTATIVE AGREEMENT."
REACHED WITH TEAMSTERS LAST MONTH. ABIGAIL:
MOMENTS AGO THE STOCK HAD BEEN LOWER IN THE PREMARKET, DOWN BY
ABOUT 3%. INVESTORS ARE RECOGNIZING THE
FACT THAT THIS IS NOT THE BIGGEST SURPRISE.
THE ARGUMENT WITH THE TEAMSTERS WAS HIGHLY PUBLICIZED.
THE TENTATIVE DEAL THEY HAVE IN PLACE WITH MAKES SENSE THAT IT
WOULD COST MONEY. THEY ARE BLAMING NOT JUST
REVENUE BUT ALSO RISING COSTS ON THE DEALS RELATIVE TO COSTS
RISING. OPERATING MARGINS COMING IN BY
100 BIPS. 11.8% TO 12.4%. FOR REVENUE, THEY ARE TAKING IN
THE FULL-YEAR FORECAST DOWN BY 4% TO 93 BILLION DOLLARS FROM
$97 BILLION. THEY ARE SETTING THE VOLUME
IMPACT FROM LABOR NEGOTIATIONS. THIS OFFERS A NICE COVER FOR
THE POST-PANDEMIC TRENDS WE HAVE SEEN OUT OF CONSUMERS.
SHIPPING LESS, BUYING LESS OFF THE INTERNET.
PERHAPS BUYING LESS OVERALL TO SOME DEGREE.
WHETHER IT IS A LABOR DISPUTE OR THE CONSUMER DEFINITELY
TAKING IT IN, NOW THE STOCK IS DOWN SLIGHTLY. TRYING TO FIGURE OUT WHAT THIS
MEANS. PACKAGE VOLUME DID SLIDE IN THE
QUARTER THAT WAS UNDERPERFORMING ON THE YEAR TO
THE S&P 500. UP JUST SLIGHTLY ON THE YEAR.
S&P 500 UP ABOUT 17%. COMPANY STILL HAS THE WORK CUT
OUT FOR IT. THE STOCK HAS BEEN STUCK FOR
MORE THAN A YEAR. JONATHAN: IT IS ALL OVER THE PLACE THIS
MORNING. WE ARE NEGATIVE HEREBY .9%.
TONS OF CONFUSION. THE SOUTH SIDE TRYING TO FIND
CLARITY. THIS IS FROM J.P. MORGAN REITERATING ITS NEUTRAL
RATE ON THE STOCK AFTER EARNINGS.
"EXPECTATIONS WERE INCREASINGLY NEGATIVE COMING INTO THE EVENT
BUT IT APPEARS THE TEAMSTERS NEGOTIATIONS WAS MORE
DISRUPTIVE THAN EXPECTED GIVEN THE IMPLIED IMPACT ON THE
VOLUME AND OPERATING COSTS. WE EXPECT THE STOCK TO
UNDERPERFORM AFTER A LONGER WAITED GUIDED UPDATE."
THE STOCK IS NEGATIVE .9%. MOODY'S DOWNGRADING 10 U.S.
BANKS. EXPOSURE TO COMMERCIAL REAL
ESTATE ARE CITED WITH MOODY'S SAYING COLLECTIVELY THESE
DEVELOPMENT HAVE LOWERED THE PRODUCT PROFILE OF A NUMBER OF
U.S. BANKS, THOUGH NOT ALL BANKS ARE
INCLUDED. THERE MIGHT BE MORE TO COME.
SONALI: THERE ARE ALMOST A DOZEN BANKS
PLACED ON DOWNGRADE. -- RATINGS WATCH AND THOSE OF
THE ONES TO WATCH BECAUSE THEY ARE FACING PRESSURE BECAUSE OF
THAT UNCERTAINTY. THEY SAY NOT ALL BANKS ARE
CREATED EQUAL. THEY'LL ALL HAVE THEIR OWN
REASONS FOR WHY THEY ARE FACING SUCH PRESSURE.
NORTHERN TRUST, THE RELATIVE WEAKNESSES TO BANK OF AMERICA. AND JP MORGAN FOR ITS FUNDING
PROFILE. U.S. BANCORP FOR CAPITAL LEVELS.
WHAT IS AT ME FOR CAPITAL LEVELS AS PEOPLE TRY TO GET
BIGGER AND SAFER IN THE MIDDLE THE STORM?
M AND T BANK ALSO FACING A DRAWDOWN BECAUSE YOU SEE IT AS
ONE OF THE LARGEST MIDSIZED AND REGIONAL BANKS HERE WITH MORE
THAN $200 BILLION IN ASSETS. CURRENTLY THAT IS RIGHT UNDER
THE THRESHOLD FOR THE U.S. STRESS TEST. WE KNOW THESE
BANKS WILL FACE LARGER CAPITAL RULES AHEAD.
EVEN WITH MOODY'S SAYING IN THE LONG-TERM THESE RULES CAN BE A
GOOD THING, AND THE SHORT TERM WE DON'T HOW LONG THE OVERHEAD
WILL BE. IT'S ANOTHER BLOW TO THE KBW
BANK INDEX. SOME OF THESE BANKS WERE JUST
FLIPPING TO THE POSITIVE AND TODAY FACE ANOTHER DAY OF
DECLINES. JONATHAN: THERE WAS SOME HOPE THE RALLY
WOULD BROADEN OUT AND REACH -- SAID THIS A FEW TIMES ALREADY.
RATHER LIKE LAST WEEK, THERE ARE ISSUES WE KNOW ABOUT AND
THE DOWNGRADE TURNED THE VOLUME UP ON THE EXISTING CONVERSATION.
WE WILL TALK ABOUT IT A LITTLE MORE. WE ARE NEGATIVE BY .6%.
I WANT TO TURN TO MEDIA. PARAMOUNT'S SECOND-QUARTER
REVENUE BEATING EXPECTATIONS. AT FOX, FOURTH QUARTER REVENUE
FELL IN LINE WITH EXPECTATIONS. WHAT STOOD OUT FOR YOU? >> I THINK THE CONSISTENT THEME
ACROSS THE MEDIA EARNINGS IS WE HAVING MUCH BETTER FREE CASH
FLOW NUMBERS ACROSS THE BOARD. IN IS BEING HELD BY LOWER
CONTENT COST BECAUSE OF THE STRIKES.
ANOTHER THING FOR PARAMOUNT WAS THEIR PRICING POWER IN THE
DIGITAL PRODUCT. 47% STREAMING SUBSCRIBER GROWTH
IN 20 TO 20% GROWTH FOR NEXT YEAR. GOOD PRICING POWER FOR
PARAMOUNT. YOU COME TO FOX AND YOU SEE
GOOD PRICING POWER IN THE TV PRODUCT.
THEY HAVE HEAVY EXPOSURE TO NEWS AND SPORTS.
EVEN THOUGH WE SEE PRESSURES IN THE LINEAR TV ADVERTISING
BUSINESS, WE ARE SEEING BOTH POST STRONG DIGITAL ADD NUMBERS.
THAT IS HELPING THEM RECOUP SOME OF THE LOSSES ON THE
LINEAR TV SIDE. THERE IS SOME BAD NEWS BUT ALSO
PLENTY TO CHEER ABOUT AT THIS POINT FOR MEDIA. JONATHAN: FOX UP ALMOST 5%, PARAMOUNT UP
BY ONE PERSON'S POINT. DISNEY AFTER THE CLOSE TOMORROW.
WHAT IS REPORTING -- REUTERS REPORTING THERE LOOKING INTO AI
AND CUTTING COSTS. GEETHA: THEY ARE LOOKING TO CUT DOWN ON
CONTENT COSTS. CONTENT CAUSE FOR DISNEY IS THE
HIGHEST INDUSTRY, $32 BILLION. A LOT OF THAT IS SPORTS AND
THERE'S NOT A LOT THEY CAN DO. WHEN IT COMES TO ENTERTAINMENT
PROGRAM, YOU CAN USE AI TO TRIM DOWN PRODUCTION BUDGET
SUBSTANTIALLY AND THAT IS WHAT THEY ARE LOOKING TO DO HERE.
JONATHAN HOW YOU. -- JONATHAN:
HOW DO YOU THINK PEOPLE STRIKING HOLLYWOOD ARGAN IF YOU
LIMIT THAT? GEETHA: IT'S NOT GOING TO GO WELL.
JONATHAN: THE PHARMACEUTICAL ELI LILLY
RAISING ITS OUTLOOK AFTER ITS DIABETIC DRUG HIT NEARLY $1
BILLION IN SALE IN THE QUARTER, COMFORTABLY TOPPING
EXPECTATIONS. >> WE ARE SEEING THE REACTION
IN SHARES, UP 13.5%. TWO MAJOR DRIVERS TODAY.
A CRUCIAL STUDY ON GOP1 DRUGS -- GLP1 DRUGS FOR WEIGHT LOSS
AND REDUCING THE RISK OF HEART ATTACKS AND STROKES BY 20%.
IT IS NOT JUST FOR DIABETES ANYMORE.
THIS IS THE FIRST LINKING WEIGHT LOSS AND REDUCED RISK OF
HEART DISEASE. THAT INCREASES THE LIKELIHOOD
INSURANCE WILL PAY FOR THESE DRUGS.
IMPORTANT NEWS FOR ELI LILLY'S DRUG APPROVED FOR TYPE 2
DIABETES, BUT IT'S LIKELY TO BE APPROVED AS A WEIGHT LOSS DRUG
LATER THIS YEAR. STRONG RESULTS FOR MUNJARO THIS
QUARTER, BOOSTING THE FORECAST BY $2 BILLION. EXPECTATIONS FROM 970 TP 990.
THE ONLY DRUG THAT UNDERPERFORMED ON ELI LILLY'S
SHELF WAS TRUELICITY. JONATHAN: THAT STOCK IS DOING NICELY THIS
MORNING. SIMONE THIS MORNING ON ELI
LILLY. EIGHT MINUTES INTO THE SESSION.
NOT OF QUITE AS MUCH AS ELI LILLY.
DOWN BY THREE QUARTERS OF 1% OF THE S&P.
THE TECH STORY IS THE STORY OF THE YEAR.
DEAR TODAY IS BEEN PHENOMENAL. DWS'S DAVID BIANCO SAYS TO LOOK
ELSEWHERE. IT'S IMPORTANT TO CONSIDER
DIVERSIFYING AWAY FROM THE LARGE AND CONCENTRATED GROWTH
PREMIUM AT TECH. WE ARE UNDERWEIGHT ON TECH AND
ARE SEEKING LESS DEMAND AND GROWTH STOCKS AT HEALTH CARE,
SELECT INDUSTRIALS AND CONSUMER STAPLES.
DAVID BIANCO JOINS US NOW. WONDERFUL TO CATCH UP WITH YOU.
LET'S START FROM THE TOP. EARNINGS RELATIVE TO LESTER NOT
GREAT. RELATIVE TO EXPECTATIONS ARE
PRETTY DECENT. WHAT IS THE MORE RELEVANT
BENCHMARK FOR YOUR TEAM? DAVID: THE ABSOLUTE LEVEL OF EARNINGS,
WHICH WILL BE $53 AND MAYBE $.75 FOR THE SECOND QUARTER OF
THIS YEAR, WHICH WILL BE DOWN 3% OR 4% FROM LAST YEAR.
PERHAPS MORE IMPORTANTLY EARNINGS ARE FLAT AGAINST TWO
YEARS AGO. WE HAVE HAD A LOT OF INFLATION
IN THE PAST TWO YEARS. THE REAL EARNINGS GROWTH IS
QUITE NEGATIVE. I WON'T EVEN GET INTO IT BY
EARNINGS QUALITY IS CONCERNING AS WELL.
FOR THOSE WHO ARE TALKING ABOUT BEATING US VACATIONS, MOST OF
THE EXPECTATIONS WERE BEATEN ONLY BECAUSE THE ESTIMATES WERE
CUT AT THE LAST DAYS BEFORE REPORTING.
LONG STORY SHORT, EARNINGS ARE GOING TO BE FLATISH PROBABLY
WELL INTO NEXT YEAR. THAT'S ASSUMING WE DON'T SLIP
INTO A RECESSION. THIS IS A DIFFICULT ENVIRONMENT
FOR PROFITS. IT WAS A GREAT ENVIRONMENT FOR
PROFITS IN LATE 2020, EARLY 2021.
THIS WILL BE A LONG DIGESTION BEFORE WE SEE HEALTHY EARNINGS
GROWTH AGAIN OUT OF THE S&P. JONATHAN:
I HATE TO PICK ON ONE NAME. I'M NOT AN APPLE ANALYST BUT
IT'S THE BIGGEST WAITING ON THE S&P 500.
IT SERVES AS AN EXAMPLE FOR THE BROADER STORY WE CAN DISCUSS.
THERE IS A NAME THAT IS POSTING NEGATIVE GROWTH, STILL UP
DOUBLE DIGITS HERE TO DATE -- YEAR-TO-DATE, AND THE BIGGEST
WAITING ON THE S&P. WHAT IS THE TAKE AWAY FROM THE
STORY LIKE THAT ONE? MULTIPLE QUARTERS OF NEGATIVE
GROWTH TRADING IT 30 MULTIPLE. WHAT IS THAT ABOUT? DAVID:
YOU MAKE IT REALLY GOOD POINT. APPLE IS THE BIGGEST COMPANY IN
THE INDEX BUT IT IS PROBABLY REPRESENTATIVE OF THE THINKING
AND WHAT I'M CONCERNED ABOUT IN THE EQUITY MARKET.
EARNINGS GROWTH IS FLAT. SURE, THERE WILL BE A RETURN TO
HEALTHY GROWTH PROBABLY NEXT YEAR.
IN THE MEANTIME, LOOK AT THE VALUATIONS WITH A NAME LIKE THE
ONE YOU SAID BEING ABOUT 30 TIMES THIS YEAR'S EARNINGS AND
THE BROADER S&P ABOUT 21 TIMES EARNINGS.
IF YOU EXCLUDE TECH, ENERGY, AND FINANCIALS, THE S&P MORE
THAN 20 TIMES EARNINGS THIS YEAR.
I WANT TO ASK THE QUESTION. IF YOU ARE BULLISH NOW, WHY
WEREN'T YOU OUTRAGEOUSLY BULLISH IN THE LAST 10, 12
YEARS? THERE IS EITHER SOMETHING WRONG
WITH THE VALUATIONS AND INVESTOR SENTIMENT RIGHT NOW OR
THERE IS SOMETHING WRONG WITH IT OVER THE PAST 10 YEARS.
PEOPLE WERE TOO BEARISH FOR A LONG TIME AND THEY ARE TRYING
TO MAKER FOR THAT BY BEING BULLISH NOW.
NOW IS JUST NOT THE RIGHT TIME FOR THAT.
IT IS NOT A GOLDILOCKS ECONOMY. I WOULD ARGUE IT IS A LONG TREK
THROUGH A DARK WOODS FOR CORPORATE AMERICA AND SMALLER
COMPANIES BECAUSE THE PROFITABILITY GROWTH IS GOING
TO BE HARD TO COME TO FOR ANOTHER FEW QUARTERS.
I THINK IT HAS BEEN A GIDDY SUMMER FOR THE EQUITY MARKET.
IT WILL BE BACK TO REALITY IN THE AUTUMN AND YEAR-END.
THAT IS WHY WE WILL HAVE A CORRECTION.
I THINK TECH DESERVES TO BE PART OF THAT CORRECTION.
MY BIGGEST CONCERN IS REALLY HARDWARE AND SEMICONDUCTORS,
LESS SO SOFTWARE. YEAH, THE HARDWARE, INCLUDING
THAT NAME YOU MENTIONED AND THE CHIPS WERE, THE GLOBAL CHIPS
WAR. IT IS REAL AND THERE WILL BE A
LOT OF CAPEX SPENDING. I'M NOT SURE THAT WILL WORK OUT
WONDERFULLY FOR SHAREHOLDERS. JONATHAN:
LET'S GET THE SERVICES. YOU LIKE SELECT CONSUMER
INDUSTRIES. I KNOW THIS IS HIGHLY
SELECTIVE, BUT I WILL PICK TWO. JETBLUE AND SOUTHWEST. AIRLINES
THAT ARE FLAGGING. I WONDER WHETHER WE ARE
LEARNING ANYTHING ABOUT DOMESTIC PRICING POWER IN THE
UNITED STATES OF AMERICA. IS IT FADING IN CERTAIN SOAKED
INDUSTRIES -- SELECT INDUSTRIES? DAVID: IT IS FADING.
IT SHOULD BE FADING. THE LABOR COSTS ARE STILL HIGH.
WE HAVE TALKED ABOUT UNIONS. THESE ARE HARD-WORKING PEOPLE.
THEY WORK ON SITE, NOT FROM THE LIVING ROOMS. I DON'T BEGRUDGE
THEIR ANGST, THEIR REAL EARNINGS POWER HAS BEEN ERODED
BY THIS INFLATION. I THINK WHAT YOU WILL SEE IS A
LOT OF SERVICE INDUSTRIES WILL SLOW DOWN ON THE VOLUME GROWTH,
SLOW ON PRICING POWER, AND THERE WILL STILL BE SOME
PASS-THROUGH OF RISING COSTS. WE HAVE ARGUED LEANING TOWARDS
SERVICES AND AWAY FROM GOODS MANUFACTURING.
WE ARE TRYING TO GET MORE SELECTIVE IN THAT AND RECOGNIZE
THERE IS PROBABLY MORE UPSIDE ON RESTAURANTS.
I THINK MANY OTHER SERVICES ARE FULLY VALUED.
WE'RE LOOKING AT THINGS LIKE INDUSTRIALS AND HEALTH CARE.
AEROSPACE, DEFENSE, LOGICAL AGREEMENT. ALL OF HEALTH CARE, PHARMA,
BIOTECH, MANAGED CARE HAS GOOD GROWTH AND VERY UNDEMANDING
VALUATIONS. LET'S LOOK AT HEALTH CARE.
THE TOPIC OF THE WAS THE COMMUNICATIONS SECTOR.
IT HAS DONE VERY WELL BUT OUTPERFORMED BY BIG CAP TECH.
IN THE BACK HALF OF THE YEAR MOVE AWAY FROM BIG CAP TECH,
STICK WITH CERTAIN COMMUNICATIONS STOCKS AND ADD
TO HEALTH CARE AND INDUSTRIALS. BUT BE UNDERWEIGHT -- BUT BE
UNDERWEIGHT INEQUITIES OVERALL. I'M ALWAYS TRYING TO FIND THE
ARE PRETTY -- OPPORTUNITY IN THE EQUITY MARKET.
RIGHT NOW HARD-CORE EQUITY INVESTORS HAVE DONE REALLY WELL.
DO YOURSELF A FAVOR AND TAKE ADVANTAGE OF THE OPPORTUNITIES
IN THE FIXED INCOME MARKET. MOVE AWAY FROM EQUITIES, TARGET
FIXED INCOME, AND I DON'T THINK YOU WILL REGRET THAT. JONATHAN:
APPRECIATE YOUR THOUGHTS. 14 MINUTES INTO THE SESSION.
EQUITIES NEGATIVE. FED OFFICIALS CONTINUING TO
DEBATE A PAUSE. >> THERE IS STILL A PLAUSIBLE
STORY INFLATION NORMALIZES IN SHORT ORDER AND THE ECONOMY
DODGES ADDITIONAL PAIN. JONATHAN: THE WEEK AHEAD.
CPI ON THURSDAY. MIKE MCKEE IS UP NEXT. THIS IS BLOOMBERG. ♪ >> INFLATION DOES REMAIN TOO
HIGH. THERE IS STILL A PLAUSIBLE STORY THAT INFLATION NORMALIZES
IN SHORT ORDER AND THE ECONOMY DODGES ADDITIONAL PAIN.
THERE'S A LOT OF TALK ABOUT THE POTENTIAL FOR WHAT IS OFTEN
CALLED THE SOFT LANDING. CERTAINLY FAST MONTH'S
INFLATION RATE WAS A GOOD ONE. TO BE SURE, THE FED'S OBJECTIVE IS NOT THE COST RECESSION -- TO
CAUSE RECESSION. JONATHAN: THE SOFT LANDING IS QUITE
PLAUSIBLE AND QUITE POSSIBLE AT THIS POINT.
THE FED'S BECOMING HEAD OF THE MAIN EVENT LATER THIS WEEK. U.S.
CPI ON THURSDAY. PPI DATA ON FRIDAY.
LET'S GET TO THE TEAM COVERAGE. MIKE MCKEE, WRAP IT ALL UP FOR
US. HOW MANY MEMBERS OF THE FOMC ARE LEANING INTO THE IDEA IT IS
TIME TO PAUSE? MIKE: ABOUT TWO IN THE UNDECIDED CAMP.
THERE ARE TWO WHO SEEM TO THINK WE NEED TO RAISE RATES FURTHER
IN TERMS OF VOTERS. PAT HARKER, AS YOU JUST
MENTIONED, COMING OUT AND SAYING AGAIN HE THINKS THEY CAN
PAUSE ABSENT ALARMING NEW DATA BETWEEN NOW AND MID SEPTEMBER.
HE BELIEVES THEY ARE AT THE POINT THEY CAN BE PATIENT AND
HOLD RATES STEADY AND THAT MONETARY POLICY ACTIONS THEY
HAVE TAKEN DO THE WORK. YESTERDAY WE HAD JOHN WILLIAMS,
THE NEW YORK FED PRESIDENT WHO SAID BASED ON WHAT HE HAS SEEN
TODAY, THE DEBATES ABOUT GOING WITH ANOTHER RATE INCREASE OR
NOT. MICHELLE BOWMAN REPEATING YESTERDAY AFTERNOON SHE THINKS
THEY PROBABLY NEED ADDITIONAL RATE INCREASES.
YOU HAVE GOT THOSE THREE AND AUSTAN GOOLSBEE TELLING DAVID
WESTIN HE THINKS THEY MIGHT NEED TO PAUSE AND KEEP RATES AT
A HIGHER LEVEL FOR A WHILE. NOTHING CONCLUSIVE BUT WE DO
SEEM TO BE SEEING SOME MOVEMENT OUT OF THE FED TO AT LEAST KEEP
THEIR OPTIONS OPEN FOR HIGHER RATES. JONATHAN:
IRA, ARE WE LEANING INTO A PAUSE ON SEPTEMBER 20? IRA:
I THINK WE ARE, CERTAINLY IN SEPTEMBER.
WE WILL GET MORE DATA BEFORE THE NOVEMBER MEETING.
THE MARKET IS NOW PULLING FORWARD SOME HIKES -- EXCUSE
ME, SOME RATE CUTS FOR THE FIRST HALF OF NEXT YEAR.
STILL PRICING FOR A COUPLE OF CUTS IN THE FIRST HALF OF NEXT
YEAR. THE IDEA THE FED CAN BE ON HOLD
FOR A WHILE, I THINK TRYING TO DEFINE WHAT A WHILE MEANS
WHETHER IT IS 12 MONTHS OR 18 MONTHS, WHICH IS NOT
UNPRECEDENTED IN TERMS OF THE FED BEING ON HOLD, THAT COULD
HELP THE FED'S GOLD TO KEEP INFLATION DOWN.
IF WE CAN PRICE DOWN SOME OF THOSE CUTS.
PRICING OUT A CUT NEXT MARCH IS AS GOOD AS PUTTING IN A HIKE IN
TERMS OF FINANCIAL CONDITIONS GOING FORWARD. JONATHAN:
WHAT DID WILLIAMS SAY ABOUT THAT IN THE NEW YORK TIMES?
THE ABILITY TO HOLD IF INFLATION IS FALLING? MIKE:
HE ECHOED WHAT JAY POWELL SAID. AS INFLATION FALLS IT PUSHES
REAL RATES HIGHER. KEY DON'T TO HAVE A STEALTH
TIGHTENING. THE FED WOULD LOOK TO CUT RATES.
NOT TO ZERO AGAIN BUT TO SLOWLY BRING THEM DOWN IN LINE WITH
FALLING INFLATION AND RAISING REAL RATES.
WE WILL BE LOOKING AT THE YIELD CURVE WITH A LOT MORE INTEREST
IN THE COMING MONTHS ONCE THE FED LETS US KNOW THEY ARE ON
HOLD. THEN IT BECOMES A QUESTION OF
WHEN DO THEY START CUTTING RATES.
THAT WILL DEPEND ON HOW FAST INFLATION FALLS. JONATHAN:
MIKE MCKEE, IRA, THANK YOU. STILL SOME DATA BETWEEN NOW AND
THEN. CPI ON THURSDAY AND ANOTHER
INFLATION PRINT LATER ON THE MONTH ON THE 13TH.
WE HAVE THE PAYROLLS PRINT IN BETWEEN TO SET UP THAT DEBATE
ON THE FOMC. I WANT TO TALK ABOUT BANK
STOCKS BRIEFLY. THIS DOCTOR DOWN BY 3.60% IF
YOU LOOK AT THE KBW BANKING INDEX.
EARLIER ON, DOWNGRADES FROM MOODY'S ON 10 NAMES.
POTENTIALLY MORE TO COME. HIGHER FUNDING COSTS, POTENTIAL
REGULATORY CAPITAL WEAKNESS, RISING RISK TIED TO COMMERCIAL
REAL ESTATE. KBW BANK INDEX DOWN 3.5%.
LET'S GET MORE SECTOR PRICE ACTION. ABIGAIL:
THE DOWNGRADE CERTAINLY WEIGHING ON THE MOOD MUSIC.
THE S&P 500 DOWN ABOUT 1%. DOWN FIVE OF THE LAST SIX DAYS.
DOWN MORE THAN 2%, THE WORST STRETCH SINCE MARCH.
WE ARE LOOKING AT BEAR SECTOR COMPOSITION.
FIVE SECTORS DOWN MORE THAN 1%. KIND OF A RANDOM MIX.
MATERIALS, FINANCIALS, SOME OF THE TECH SECTOR.
HEALTH CARE HELD UP BY ELI LILLY.
IF YOU LOOK AT THE LAST FIVE DAYS WHEN WE HAVE BEEN TALKING
ABOUT BREADTH. REAL ESTATE, MATERIALS,
UTILITIES AND TECH ARE THE WORST OF THE LAST FIVE DAYS,
WEIGHING ON THE S&P 500. JONATHAN:
THANK FOR THAT UPDATE ON THE SECTOR PRICE ACTION. THE SESSION LOW LOWER BY .4
PERCENTAGE POINT. UP NEXT, YOUR TRADING DIARY. JONATHAN:
BANKS ARE DOWN, TECH IS STRUGGLING. .
NASDAQ DOWN 1.2% APPLE NEGATIVE FOR THE SIXTH CONSECUTIVE
SESSION. THE LONGEST DAILY LOSING STREAK
BACK IN JANUARY OF LAST YEAR. KEEP AN EYE ON THAT NAME AS I'M
SURE YOU ALWAYS DO. HERE'S THE TRADING DIARY. U.S.
TREASURIES SELLING THROUGH HAVING YOUR NOTES AT 1:00 P.M.
EASTERN. WEDNESDAY, 10-YOUR NOTES.
THERE IS A, 30-YEAR BONDS. U.S. CPI AND ANOTHER ROUND OF
JOBLESS CLAIMS. ROUNDING DOWN THE WEEK ON FRIDAY WITH U.S.
PPI. THE CONSUMER SENTIMENT SURVEY.
THAT ROUNDS OUT THE MORNING FOR ME. THANK YOU FOR CHOOSING
BLOOMBERG TV. THIS WAS THE COUNTDOWN FOR THE
OPEN. THIS IS BLOOMBERG.
