tv Bloomberg Surveillance Bloomberg June 23, 2022 7:00am-8:00am EDT
recession fears. >> what seems to be praised now is a mild recession. >> this is bloomberg surveillance. tom: bloomberg surveillance international relations in this hour. a conversation with the president of lithuania is scheduled very important. maria tadeo will handle those chores. kailey leinz info jonathan ferro. we don't even want to know where he is. lisa: we definitely don't want to see pictures. we are very for happy -- we are very happy for him except don't tell us. tom: you are in aisle eight of whole foods looking at ginger ale going really? lisa: the reality that we are going to be hearing about it yet again on capitol hill with fed chair jay powell saying it's bad and we are going to find it and that seems to be the tone as
things get a little bit darker at least in markets for economic projections. tom: it is a mess of a thursday out there. we've got jobless claims. we have to drop the nasdaq. it's a bear market trend, but it's a drop. lisa: i'm not watching that. i'm not giving a lot of credence to the draw up. i'm looking at oil. i think oil is the most fascinating metric on the board today. second day of declines at a time when people still see a shortage in the market. this is pricing in demand destruction and recession. is this the last shoe to fall? are we heading to an ed morse future? how does this factor into the expectations for recession. tom: let's partition that.
-- and others including mr. morris at citigroup really push against that and say guess what, high prices solves its own problem. kailey: the cure for higher prices is higher prices. the point of the story is it's a lower than where we are now. she has been on this program in recent months talking about how oil could easily go north of 150 because of the supply-side issues related to the war in ukraine. it has been unable to preach 120 and that has been the demand concern that's out there. tom: we are going to lead off with some russia. some ruble chat out of their finance minister. turkey out moments ago holding their repo rate. in the real world futures up 27. the vix, i'm sorry. it's a draw up.
it's a 28 handle. a two year yield is 3.02%. let's go to the brief right now. lisa: we have a bunch of data coming out today. have we seen the best of the employment reports, do we start to see jobless claims take upward as we expect that to be the likely pathway of transmission to a softer economy and bringing inflation down. we also have s&p global u.s. june manufacturing services and composite pmi's. fed chair jay powell heading back to capitol hill given a second day of testimony to congress. how much does he give credence to this idea that a recession is much more likely and that a hard landing meaning a deeper
recession is potentially more likely as well as lindsey piegza was talking about. the fed announces results for its bank stress tests. how much do we get some sort of reprieve in the selloff in the bank stocks on the heels of those as the fed tries to come up with the worst-case scenarios. i'm more interested in what are the worst-case scenarios for the fed at this moment. what kinds of financial market disruptions do they look at. tom: i need that. lisa: i imagine the conversations the fed stress testers have. tom: the timing of recession, the guesstimate of its depth as well to me is hugely random. it's a difficult sport.
we will let chairman powell do that this morning with the house. for those of you with losses in bonds, head of ishares an investment strategy at america. she's been in the trenches in the bond market for a good number of years. you've never seen this and far more importantly i've never seen this. how is blackrock adapting to a general u.s. total return index? >> good morning. it's great to be here. we came into this year expecting bond yields to be higher. what has been harder to understand in the markets or react to in the markets has been this incredible volatility in the front-end of the curve so just last week when you looked at what to year yield stood just moving six or seven standard deviations to or three days in a row has been hard for investors. we are telling our clients
please don't rush to cash. please stay invested. it may be state invested in a more defensive manner. minimum volatility sectors of the market. stay invested in more defensive sectors like health care and then i actually think that moving to the front-end of the markets in the bond markets makes some sense and course inflation linked bonds my favorite asset class. it's a tough market out there. i think the main thing that we are telling investors to do is not to move to all cash. lisa: is a lot to unpack and i wanted to get interviews in oil. let's sit the front-end of the yield curve. people are taking up what you are putting down saying perhaps it's time to go into two-year bonds and send yields even lower. the volatility that we have seen, does it indicate bond market dysfunction or a complete lack of understanding of what the fed's response mechanism
will be? >> i wouldn't call it a dysfunction in the bond markets. i think we haven't been in a situation like this where the fed is changing the policy narrative so quickly and responding to the data as it appears. last week when we saw the cpi print and the university of michigan survey and then we got the wall street journal article about a 75 basis point rate move. we haven't seen things like that for a long time. it's not a dysfunction, it's just a market reacting to a fed that is injecting unfortunately a fair amount of volatility into the markets. it was interesting to hear in the testimony yesterday that chair powell said they don't want to inject further volatility but unfortunately that is something that they have been doing. perhaps you can argue they have had to do that because inflation has been so much higher than their expectations. i wouldn't call it a dysfunction. it's a reaction to the volatility especially in the
very front end of the yield curve. lisa: perhaps it is they're doing that we have this volatility but how much is that the doing of the back drop in oil for example? a lot of people are looking at this as a canary in terms of global growth. what do you make of the selloff in oil? >> the selloff in the oil and energy sector in the equity markets last week was sort of eye-catching. part of that is obviously pricing in of recessionary risks that are moving higher. whether or not you expect that to happen in the next 12 months or 18 months, most investors have moved their expectations of a recession higher as they have responded to this higher concept of fed funds going up. it makes sense to have a little
bit of a pullback. i certainly don't think that we are going to go back to levels that we have seen in the past like 60 or $70 just because the demand supply mismatch is so high. i think there's a structural reason we all know that oil is going to be higher for some time. i think pullback are actually healthy and it allows market participants to get back to some of those. i think the pullback allows us to reenter some of those positions. kailey: energy equities have been the one safe place to hide the myth that hasn't been true in the case of the month of june. can you really be going into some of those values more cyclically oriented areas or is it going to be a rotation back to growth? >> i think you have to be a little bit more thoughtful about portfolio construction
especially as you enter into a slowdown period. some of the things that worked in the past aren't going to work. but it can't be as simple as value versus growth or large-cap versus small-cap. i was talking to tom earlier and we were saying obviously the defensive sectors make a lot of sense. within the cyclical sectors i think we can make a case for energy equities and the reason i say that is because the balance sheet improvement that has taken place over the last decade but more recently the improvement that has happened because of oil prices staying at a higher level. tom: not that larry fink is watching, what are you predicting $150 a barrel oil? >> certainly not predicting any levels on the oil price but just saying the equities of some of these oil prices are at a better state than they have been. tom: in fixed income, not in commodities. i should point out. i look at the screen and i'm
sorry, i'm looking at a vic's -- vix of 29. kailey: remember when bill dudley said a recession is inevitable? lisa: honestly let's just put this in the record. i hope i'm wrong. i hope people think i'm chicken little and we get a soft landing. tom: jeff you in the 8:00 hour. stay with us. this is bloomberg. >> keeping up-to-date with news from around the world. it was jerome powell's most explicit acknowledgment yet that raising interest rates could lead to a recession. he told lawmakers that a recession as possible and a soft landing is very challenging. powell is back on capitol hill today.
president xi jinping reaffirmed the growth target analysts say is out of reach. it was the first reference to a target since the meeting in april. china is expected to miss its gdp goal. the government's zero tolerance approach to fighting covid and a weak housing market are the problems. a nationwide rail strike resumed today in the u.k.. talks broke down wednesday. the union once higher pay and a guarantee of no compulsory job cuts. tuesday's walkout lead to an 80% cut back in real service. ray dalio has built a bet against european companies. it has almost doubled its wager to its most bearish stance against the region's stock in two years. the chief of the school district police in uvalde texas has been put on leave in the wake of the mass shooting. the stop police -- the state's
price of gas and give families just a little bit of relief. i call on the company's to pass this along every penny of this $.18 reduction to the consumers. this is no time now for profiteering. tom: the president over his left shoulder for those on radio, the billboard $.18 per gallon. wow, what a tepid response in the washington post this morning. steny hoyer of maryland. futures up 27. dow futures up 146. the vix impresses me. it doesn't impress lisa abramowicz. talking about week sterling. 122 on pound sterling. lisa: this is the issue.
as we see $.18 behind biden's children. how much is this an international issue that in germany is being dealt with so profoundly differently. we go from europe to washington, d.c.. as you await your interview with the lithuanian president, we hear about germany preparing to ration gas supplies to start rationing who can use energy and when if they fall below a certain point. how is that being read in the german population as we talk about the u.s. pushing back even for $.18? >> you can hear the panic in the voice of the german economy minister today who now says we are in a situation where russia can decide unilaterally to completely cut off gas from now until the winter and the timing of this is very particular. we have seen that over the past two weeks russia has limited in
major ways. the italians say they lie about the technical issue and the germans don't believe it either. we have seen a reduction in gas supplies to the big clients they have in europe. the timing is very peculiar because it's really this time of year in which europe prepares for the winter. they try to work on the storage. they want to be in good shape by september. we know that is not the case and come winter there is a real concern we could see the german industry could take a big hit and this is now a perfect storm that's facing the european economy. there is a real sense of concern that russia could really turn on the heat as a geopolitical weapon. in many ways this is a penny drop. for years he relied on russia. and now prepare to pay the price. tom: tell me about the domestic
political weapon the biden administration has. what is the next step for the president? >> geopolitically regarding oil and natural gas they are broad conversations about what they can do in terms of exports. there's not a lot of progress being made in washington on how to approach those issues. it's a tough political issue domestically for the president which is why you saw the seemingly already failed attempt to get the gas price holiday. but in terms of what they can do with europe, with european allies, that has been put onto the back burner because of the domestic concern. there's not much of a plan being proposed regarding the u.s.'s ability to help internationally. kailey: listening to the hearings on capitol hill yesterday with jerome powell and elizabeth warren asked him directly and the federal reserve
bring down grocery prices. he answered no. can they bring down prices at the pump? he answered no. is that undermining the biden administration's whole entire thesis that it is the federal reserve's job to bring it down? >> it may undermine the talking point from the president emphasizing how much of inflation falls on monetary policy, on the fed. it doesn't necessarily undermine the argument that the president's hands are still tied to some significant degree because those issues that senator warren is getting at our about international supply chains and a lot of things that are also beyond his control. that speaks to the lack of a cohesive narrative response from democrat and that's one area to look at in these hearings from progressives. any amount of pushback on the
fed trying to pump the brakes in terms of interest rate hikes, that's what to keep an eye out for especially as they go to the house financial services committee with another vocal progressives, aoc and others. it speaks to the lack of a coherent cohesive answer from democrats. lisa: when we talk about the issue on a global level, how much pressure is there in europe , on the u.s. saying give us more it comes to gas? help us weather the storm more in the u.s. saying we can help you a bit, but we need to help ourselves. >> they are very aware of the internal dynamics in the united states. we are about to see it next week. the g7 is all going to be about energy. it's very difficult to separate for europe at this stage of
security and energy. i think the europeans are well aware that this is something they have to fix. the reality is i have asked multiple people this morning what is the plan be and they don't have one. and that's a real concern. the clock is really ticking here. tom: we are really looking forward to the baltic states and lithuania plan be as we await the president of lithuania. jack for patrick -- jack fitzpatrick, thank you as well. futures elevated. the nasdaq up a sprightly 1.1%. lisa: the nasdaq is what's catching my attention. yields lower. how much are people looking for some entry point to go into big tech after the selloff that way
outstripped what we saw in the s&p. is that the deciding factor. it could change in a couple of tang -- a cup of tang. tom: what's so important here, we haven't even talked about it. get out the calendar. june 30 is upon us and 30 days later the banking ballet starts in earnings. we are not even there to that reset of the guesstimates of earnings. kailey: you haven't seen the earnings revisions coming down as much as you would think they would given how far this market has fallen. the analysts feel like they are behind the curve a little bit. jp morgan is in three weeks from now. i can't believe the first half ends a week from today. tom: it will give enough time for ferro to have another vacation. stay with us. we speak to the biden administration. this is bloomberg. ♪
well. it is an equity lift in the markets. futures up 33, spx futures up 1% rate nasdaq is one point. the individual stock story matters this morning. mr. bostic of the close. >> the individual stock story lost steam. it is interesting to see how folks reset today. the all clear when it comes in, economic data or commentary to hang your hat on. host a big cap tech stocks are up. tesla, up a couple percentage points. a lot of activity in the energy stakes. a boost today, despite saying the boom has come off the road. occidental petroleum, up 3% on the disclosure that warren buffett has increased his stake in the country.
up to 153 million shares. sentry aluminum shares down 3%, they shut down one of their main plants in kentucky, laying off about 600 workers due to power prices. the main power hub in indiana in the united states, paying to 13 per megawatt hour more than quadruple they were paying a year ago. aluminum prices down 40%. earnings that did cross the wire, kb homes, orders down overall, but the backlog was up. stock shares up 3%. d.r. horton crossing the wire a few moments ago. average sales price, what people are doing -- buying at the restaurant. olive garden did show strength,
shares up 6%. have you set foot in olive garden? lisa: unlimited breadsticks. romaine: unlimited breadsticks. what about unlimited martinis? tom: thank you. lisa: fedex is interesting. i think they have a call today. that will be instructive. perhaps forward, very much parsing through a hard landing versus a soft landing. what does that look like, are we there in a recession? before someone accuses me of being overly gloomy, is that the better case scenario to be? gregory staples, how much are we seeing a slowdown that reflects a near term shallow recession, may be the best case scenario
for jay powell? gregory: you are looking at housing starts, we are seeing demand instruction, i think some of the leading indicators are indicating we are in a slow patch. we think that is going to continue into the third quarter. it is going to give powell and the fed leeway to adjust. it is too early for them to get off their hock wish -- hawkish guidance. the markets are forward-looking. that is why we see certain -- strength in on prices. lisa: they are looking into a suit of unknowns. the exhaustion is factors are moving fast. how much would you lead into credit? because of some of the recession fears? gregory: the fundamentals remain strong within the credit patch.
upgrades to downgrades our prosody of -- positive. the flows are coming out of that space. technically, i think it is still a dangerous position. you get wider, more time, it is a space we are thinking of going back to the long side soon. tom: this is important. to have you here with your esteemed career, a blistering note goes to the theory. you have to watch the fed and watch how they express their reaction functions. are you getting clarity from the fed? mr. lincoln says we are getting a new dynamic understanding of how the fed is going to move forward. do you feel that, that we have a better understanding of how they will adapt to reaction functions? gregory: i do not think it is clear for powell what the
terminal rate is now. he has got to continue to guide the market towards hawkish and us and he cannot go wobbly on the resolution to tackle inflation. if he does, i think you backslide into economic conditions. he is going to watch real time data. tom: price up, yield down. it is within the drift function of a bear market and bonds, price much lower, or can it tangibly catch a bid like it does in equities? gregory: if you are talking purely because of the returns of lower price action, i do not think we are there yet. i would be cautious. we are in the seventh or eighth inning of that, and as we get closer to the july fed meeting, that could be a trigger point. if the market reverses saying they are going as far as they going -- they are going as far as they are going to go, that may be the time to get long credit. kailey: she sees value in
treasuries at these levels currently. you are not there yet? gregory: i am not. one thing about bonds, they trend -- tend to reflect currencies. a lot of us thought to 95 on the 10 year was a time to get in. is it possible we get to three and a half over the summer? no. is it possible we saw the highs last week? it is. i want to see confirmation we are slowing before we get long in terms of our portfolios. kailey: given how much hawkish and as has been baked in, is it harder to have a catalyst for higher yields than low yields? gregory: yesterday, in powell testimony, he was hawkish. we might be maximizing positioning in terms of divisiveness -- defensiveness. we could see data it reversed
itself, you want to get on that trend early. lisa: if you do not like long bonds and are not overwhelmed by credit, what are you buying? gregory: short duration overall in our portfolios. still cautious on risk. we are more than willing to miss the first five or 10 basis points of tightening. once we see definitive nest, that is where we want to put positions on. lisa: are you in cash? gregory: no, up in quality. tom: up in quality, that says full faith and credit. what is the partition now in the analysis in full faith and credit versus investment-grade corporate bonds? gregory: you want to abide -- avoid parts of the industrial space that are more cyclical. tom: are they giving you a coupon? do i get paid to own debt? gregory: you can get tenure debt
-- 10 year debt at close to 5%. lisa: do you see adequate default risk out there that things could get so bad in credit that it means jerome powell is pressing pause at some point? gregory: i have had the never -- never heard the term recession by so many people without defining what it means. a softer session is basically a zero growth, plus or -100 basis points. we are probably going into a soft growth, or a soft patch. i do not see much worse than that. we are not talking about a first quarter of 2020 recession or a fourth-quarter 2008 recession. if that happens, all bets are off. i do not see that happening. tom: futures up 31, nasdaq up 1.1%. he is in fixed income with dw's.
greg anderson, steven cowell, are writing piercing notes. they gave a number, i know this is wicked inside baseball, but to consider india ruby at 80 stops me. we are seeing a real e.m. a lotion -- erosion out there. they are looking for weaker india efforts. lisa: this is a liability socially when you import oil, when you import food this is an oil importing nation, a food importing nation, even though they produce a lot of their own food. how do they deal with the idea they've got less buying power? tom: this is stuff i realizes outside the box of what everybody is talking about. all of a sudden, jay powell is central banker of the world. lisa: he is central banker to the world in the opposite way he was before.
this is why i talk about the idea of a currency war being turned on its head. you are racing to the bottom to attract capital, no longer. that, i think, is going to be difficult for jay powell to parse when he's got a domestic view, and only one consideration. to get inflation down, when a lot of it is not in his remit. tom: nasdaq up 1.1%, five days in a row. lisa: can't stand it. it was down yesterday, fractionally. the question is going to be, at what point does the buying stick? we haven't seen more than two updates in a row on the nasdaq 100. kailey: usually, it is followed by a down day. when do you see the dip that you want to buy, and that buying power stick around, given the uncertainty? tom: futures up 31. vix, 28.98.
we would not normally do bitcoin, but 20,633. hey rita send on oil, next. ritika: republicans and democrats in congress signaling there is little support for president biden's call to suspend the federal gasoline tax. the president blames much of the increase on russia's invasion of ukraine. germany triggered the second stage of its natural gas emergency plan as russia cuts back supplies. that has european gas prices rising. the german government warned
this week there could be further cutbacks in russian gas. ghislaine maxwell should spend 30 to 55 years in prison for engaging in a sex trafficking scheme with the late jeffrey abstain -- epstein. a court will sentence her next --. ways to verify user's age, and artificial intelligence that can determine if they are adults. to keep children off the app, and prevent teens from seeing harmful content. tesla taking steps to output. it will partly suspend manufacturing in early august so it can upgrade production lines, with the goal to original it's target to one million cars a year. global news 24 hours a day, on air and on "bloomberg
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>> minority mcconnell through cold water on it. this is another rhetorical tool of the white house to show they are doing everything they can on inflation. tom: libby can troll -- cantrill with pimco, we are thrilled to have her. that construction, futures up 29, dow futures up 150. nasdaq up a full percentage
point. this is hugely anticipated now, amrita joins us now. from energy aspects. i want to speak about demand, which the fears are premature. what i love about the energy aspects note is on geographic, it is. the elasticities of responsiveness of demand, it is different on the pacific rim than it is on europe -- in europe, etc. what part of your oil demand study is more important for our listeners and viewers? amrita: thank you, kind words indeed. we have to focus on asia, all the focus right now is on the u.s. in terms of the market. where the u.s. is raising
interest rate, everybody is expecting a recession. questions have moved from, are we going to be in a recession, the how deep is it going to be, how does it compare to past recessions? nobody is looking at emerging markets. asia is 18 months behind us in their reopening cycle, they have just started to reopen from covid. china hasn't even started to reopen. there is quite a lot of upside to those -- even our own demand numbers for 2023, depending on the cadence of the chinese reopen. tom: the hyper analysis of microeconomics, different from jp morgan. both are focused on demand responsiveness on the pacific rim, that is the common feature of two different houses. lisa: there is a lot of distinction in each region. overall picture is a tight oil market. how much is what we are seeing right now a brief cooling in
some of the fears of the tightness of the market before we reassert price up for a barrel of crude, especially as some people think there already is a recession baked into the price of oil? amrita: look. have the balances necessarily turned out to be exactly what we have forecast after the russian invasion? no. russian supplies are hitting the market, probably about one million barrels a day or more than what we expected. they are down about one million barrels a day. we have had the spr. at the same time, demand is coming in higher. the market is incredibly tight, despite some moving hot. underlying inventories are so low, bare capacity is so low, you only need a little bit of movement, such as libya going off-line a couple of days, and swing balances from being solvable to unsolvable in a
matter of hours. what we are seeing is the fear of a recession turning people to doubt the demand recovery and say, we have got the spr barrels, but if demand does not keep up, prices go down. we tend to get solvent to hedging at this time, large producers in north america, even asia, that has started. it is a loan liquidity environment. take away the fundamentals, there will be downward pressure on prices in the near term. ultimately, especially going into the winter, we think prices are going to head back higher. kailey: if you believe this is hedging by sovereign entities, how much of a head fake could it be? how much do you see energy prices rising heading into the winter? amrita: do we think rices are going to go back to 125, range
for crude? absolutely. i think we could go down first, i think for traders, that matters a lot. it is about the entry point. in terms of consumers and refiners, the trajectory is higher. forget crude prices, think diesel and gasoline. those prices have barely moved because the underlying fundamentals are so strong. crude tends to move more with macro headlines, product prices do not. that tells you where the fundamentals are, and i think going into the winter, the risk of a deeper price hike is much higher. lisa: let's talk about whether or not europe is going to be adequately prepared for the cold weather. kailey: germany today triggering face two of its emergency gas plan. what happens if we start to see actual gas rationing in europe? amrita: i think there is a risk of that. we believe that.
we have put together a list of which industry is going to be hurt, so steel, cement, fertilizer. i would say that we are starting to see countries restart coal plants. the choice has been made. it was always about green energy versus energy insecurity. i think we are starting to see the move toward guaranteeing, let's keep the lights on. as long as whoever has coal capacity decides to bring coal capacity back, i do not think the downturn in industry is going to be as severe as we are expecting right now, assuming gaskets turned off. tom: amrita sen, a brilliant note out of energy aspects. part of that note down at the bottom is the summary. i would say it is in the zeitgeist. if we get a china reopening, what does that do to the recession gloom in the united states? energy aspects does not mince
words, it will delay recession. lisa: because of the supply chain issues, starting to improve. with respect to oil, it might be the opposite if demand picks up, you might get oil prices go up. i'm not saying it will delay the r word, but it is complicated. considering it could be the factor for whether it is a hard, soft, up, down. this shows how much uncertainty when you look at a crystal ball. it is murky. tom: look at the gloom out there. i do not mean to beat on bram o-gloom. chairman said we have a strong economy, that is what came out of his mouth. kailey: he doesn't think the chances of a recession are all that high. he cannot rule it out. tom: of course he can't. kailey: while we are talking about china, there is a question
of how long it will take china to reopen. you had the president of china talking about reaffirming that five-and-a-half percent growth target. there are a few economists who think china can achieve 5% this year. tom: i would agree with that. energy aspects, it is about logistics, nuts and bolts of shipping and containers. we have a better market, futures up 31. nasdaq -- i am doing a ferro data check. lisa: not mentioning the dow. tom: two-year, 3.04%. this is bloomberg. ♪
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