tv Bloomberg Markets Americas Bloomberg October 22, 2021 10:00am-11:00am EDT
guy: friday the 22nd, it is 3:00 in london, with 30 minutes into the trading day in the united states. in london, i'm guy johnson. alix steel has the day off today. taylor, stocks going sideways, and the story is snap. it taylor: take a look at the s&p, 4549 was the record high we had yesterday and we are trying to hold onto those. this is sort of moving sideways. technology is the big underperformer because snap is off 23% 24%, and the five-year yield, we will talk a lot about the inflationary pressures, yields are falling, but this has been an inflationary story.
yesterday, the five-year yield tipped off because of inflation. i think you said it meant that snap was the big story that i went to bring in mandy, our analyst for bloomberg intelligence. i think what is so interesting, facebook had been warning of the change of the apple ios, and snap said it was not a big deal. did we wake up yesterday and figure out it was a big deal? >> yes. i think this was a function of the snap valuation. what we saw yesterday was snap trading at peak valuation, taking a hit because it's at such high expectations that they came out of nowhere and said apple's changes will have a drastic impact going into next quarter.
some of this may have a readthrough on facebook and alphabet, but look, snap is one of the smaller players. i think this will have a bigger impact on the smaller companies like twitter, like snap and pinterest. the larger ones will continue to do whatever they can to fend off the idea of the changes or handle it better. so i think what we saw yesterday from snap was a function of just stocking price to perfection, expectations too high and valuations being so rich that there was no room for a miss, and that is what they did. some of the compression was warranted, we saw that with pinterest, and i think it will be interesting to see if the other companies cooperate, what snap told us yesterday. guy: i thought it was interesting what they were saying about advertising.
why does gm need to advertise a car that it cannot sell? we will leave it there. big drop. president biden acknowledging that he does not have enough democratic support to back his increase for the u.s. corporate tax rate. let's go to d.c. now, amory hard earned with the latest from the white house. >> really that town hall, not a lot of news about what is going on with the economic agenda, almost an era of the dirty laundry, and he admitted that they will not be able to raise those rates because he does not have the votes. he has to get every single democratic senator to vote on board and he gave a nod to how difficult it was yesterday. pres. biden: and you are in that
united states senate and you are the president and you have 50 regrets, everyone is a president. anne-marie: a little bit of insight into the power each individual senator has right now, when you look at what is going on with the taxes, it is really honing in on kyrsten sinema, she is not on board with the original plan of lifting that corporate tax rate, and potentially some other options, potentially a tax on buybacks, but they are going back to the drawing board to figure out how to pay for this because the president said he would not add to the deficit. the negotiations continue today. we have nancy pelosi at the white house this morning having breakfast with the president and senator schumer will be virtually zooming in. we pivot to some of the news in d.c., the economic news, broken u.s. services picking up
expanding the most in three months. there are supply constraints. ira, this is sort of what we were thinking. we have been -- we have seen these numbers, and we have seen these constraints. ira: i think one of the big questions is how much will the supply of labor constrain the growth of the services sector, so even though there might be better pmi's for services, can it be sustained without additional hiring? we will be watching how many entrants come back into the workforce and at what wages they are needed to come back. you mentioned earlier at the top of the show that the auction went pretty well yesterday for the tips. some of that ratios actually fell from the previous auction and we had a pretty weak 20 year
auction as well, so the demand for treasuries is waning, so i think -- i don't think the demand will be sustained, and we will wind up probably seeing higher yields in the future particularly if the federal reserve does taper as we expect on november 2. on top of that, higher inflation will wait on yields temporarily. guy: interesting what you say about what is happening in the services sector. just to go back to the data, u.s. manufacturing pmi's down from 60, services up from 54, and the comp number up from 55. both actually relatively strong data, though you are seeing some quite alarming situations developing and it comes to the shortages. european pmi's this morning a
mixed story, but that manufacturing issues absolutely present. let's talk to the man who put this data together to give us some insight, chris williamson. let's talk about what the message of this should be, what is your take away? chris: you really do have to lift the hood at the moment, the manufacturing pmi, this is an index based on a variety of data , output, delivery times, inventories, employment, and delivery is the key one. normally that is a good signal [indiscernible] but at the moment people cannot get any supplies at all, so this is a negative thing. this is unusual at the moment.
look at the output data, and you can see what production it self is doing, a much weaker story in the u.s. and in europe at the moment, so you have manufacturing growth slowing to where we were at the start of the rebound from the initial lockdowns in 2020, so the weakest gains we have saw for about a year and a half, and we are seeing that in europe as well and that is due to the supply chain constraints which are getting worse. we talked last month about how they seem to be getting worse, and that is the case in october. now across the g4 economy, put all of that together, the lengthening of delays is the worst that we have seen in 20
years, and it is getting worse. taylor: what does that mean for prices? chris: going higher and at an increasing rate, so unprecedented rates. that will be bleeding through to prices going up and not just manufacturing, services, and there is a load of endpoints into the service sector, but we are also saying especially in the u.s. and the u.k., wage growth. the labor shortages driving up wages, and you saw some [indiscernible] and that reflected companies being prepared to pay more to get more stuff in. if you want to face reality, you got to pay more. it is less and issue in the euro
zone, but it is definitely a big factor in the u.s. and the u.k.. the signal here is we still got some further increases in inflation coming through in the coming months. guy: how much of this is coming out of china? we are seeing an economic slowdown there and that is where the supply chains seem to start. chris: it is not just china, but it is across asia as well. we have had a lot of issues due to the delta wave that rampaged through asia. in september we saw some turnaround, but i think it will be a while for these supply chains to improve, but we are getting some production data out of china from september and it will be interesting to see if that persists into october when we get those further pmi's at
the beginning of november. it looks like they might be beginning to improve, but this is where this is -- we need covid to be under control in those economies to ensure consistent projection -- production over to the s and to europe. there's no sign of coming through with any sort of consistency yet. taylor: the economists and the federal reserve keep telling me this is transitory. they looking at different data? chris: they have been saying that for quite some time, but how long is transitory? this will go on through to next year. nobody's individual interest rates can do anything about the supply chain. you need lower interest rates to try to stimulate more investment
and get more production capacity , so this is an usual -- an unusual dilemma, but this is not transitory or short-term. this is the first will sign that this is still getting worse, no sign of these forces abating yet. taylor: chris williamson, thank you. we appreciate your time. coming up, the next guest also says inflation is not transitory , kathryn rooney vera joins us next. this is bloomberg. ♪
>> the choice of doing nothing is not an option. >> we have seen an increase month after month of a surge in demand of guards driven by e-commerce but also this shift away from services towards goods. >> it is a market influx and unlike the recession or the bankruptcies of the tsunami that have caused shortages, this is really different. >> the cost has gone up 40% and the volume is running up probably 20% right now and will be more as the year goes on rs the fourth quarter hits us. >> the bigger issue is the labor force in the united states specifically, getting more truck driver and capacity and more warehouse capacity through the distribution centers. guy: keep voices from the logistics industry speaking to us about what is happening. we were just talking to chris williamson's about this.
catherine remind -- kathryn rooney vera joining us now had welcome back. you see a world in front of you that you say has been progressing towards this narrative for a while. you repositioned for it. the rest of the market is now behind the curve. kathryn: we repositioned for a year ago, a combination of both an opening of the spigot from the physical side, and of course the monetary site has been open for more than a decade, but the reopening trade and the bottleneck that we have seen in the supply chain have exacerbated what we have foretold would be an inflationary scenario for 2021. so yes our inflation attached call has done very well come along on commodities and financials and energy, which are the sectors that are most benefited from an inflationary environment. where do you go from here?
i think part of the first half of yes -- year we should be trending way above the target 2% which we now know is an average rather than a specific target for the fed. we are looking for rate sensitive sectors as well, so we have materials, financials, energy and industrials on the overweight list. taylor: we are looking at 5-10 year breakevens and 16 and 15 year highs but i am curious, you talk about stocks being a good inflationary hedge, but is there a point where we start to react to some of the higher yields? kathryn: yields will continue to tread higher -- trend higher, absolutely. we are so overweight on equities at this point underweight fixed income in general, and we have an allocation they have been
promoting for some time, bitcoin , which has a nice correlation with the depression of the u.s. dollar. i think a lot of us are expecting yields to go higher. we know the fed is more likely than not going to taper and end that by the second half of next year. the question is maybe the fed is behind the curve must've then we get into the question of stagflation, which i think is not a risk that we need to discord for 2022 and the following year, if the fed loses additional credibility and does not do what it needs to do asap, i think that could be the part that would precipitate the next correction. it is on the fed to do what it needs to do. guy: if i am selling bonds and credits because i am worried about the interest rate risk and i am not interested in crypto,
what do i buy? kathryn: and allocation of overweight to equities. guy: within equities, what do i do to provide some balance within my portfolio that normally would be provided by bonds, but i need something like that in my portfolio? kathryn: i think you need to [indiscernible] to give you what you are looking for, but utilities, i would not be recommending at this point because of that interest rate. so i would say go into the higher evidence, increase allocation into staples or equity sectors that can give you that higher premium. and maintain a balanced position. you should be overweight equities at this juncture were and underweight fixed income in general. taylor: guy said he was not
going to be in bitcoin, but what he does not know maybe is that you are in miami. that might be a better inflationary hedge than gold. do you agree? kathryn: the market agrees because gold has suffered and bitcoin has taken the luster from gold. there is a correlation of increased -- u.s. dollar so i do think bitcoin should have a place in an investors portfolio in that alternative portion of a portfolio. you should be in both. i think gold has inflated and bitcoin has inflated in portfolios. taylor: thank you. if you don't want bitcoin wrigley, you can get the bitcoin
>> live from new york, i am taylor riggs. guy, we got you -- we got to get you want the bitcoin train. guy: i may be on it. you never know. taylor: we know matt miller is on it. i just have to stock you on facebook to figure out if you are too. we had the first bitcoin etf earlier this week, and another one today trading on the nasdaq ctf. this is dave wilson here with
more. dave: we know the valkyrie strategy has made its to view but you are not seeing the kind of trading that you are in the proshares etf that began trading earlier this week paid it let me tell you, it was quite a day -- debut for the one from proshares. just look at the numbers, assets under management exceeding $1 billion in two days, the fastest for any etf ever. if you look at the trading, 1.2 billion dollars of shares changing hands in the first two days. an inflow of $567 million on the first day. should note that indeed the proshares fund is down today for the first time since it began trading, nonetheless, the activity is really there and that ticker bito, and they are
spillover effects we look at where venture capitalists are putting their money, certainly they are looking at cryptocurrency and trying to find ways to take advantage of that market pride and then beyond that, what we have seen already, you could argue was just the start. we are due to get another etf next week, galaxy digital also has one in the works. it is getting so active that invesco withdrew its proposed etf just before it was supposed to start trading. guy: i think wagner is probably the right theme and tune for this. there is a problem when these funds get too big as much as they start having to move into different futures and as a result the costs in's --
increase significantly. dave: that may be the case because you got jp morgan pointing out your argument in terms of what is happening with the particular bitcoin futures etf as they buy contracts. you look at numbers in terms of proshares, they certainly are in the november contract more than october and there are all kinds of concerns that jp morgan has about the potential of distortion for the futures market. guy: thank you very much, dave wilson on what is happening these etf's. what a wild ride. coming up, gas traders watching closely what noaa has to say about the weather forecast. this is bloomberg. ♪
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taylor riggs is over in new york. i have always wanted to be the weatherman. we get to talk about the weather, which is every brit's sort of genetics. have a situation similar to last year for the united states, this is a forecast we got yesterday, we are still in la nina, the big concern is with some of these we see some of the huge weather events that we saw last year. this is kind of the broadbrush story. the broad outlook is drier, but we are going to be wetter up here in the north and that will creep down into norther california, which is good news, and we will get somewhat or whether there, so that will improve the situation, but still dry down here. so we are going to see that
continuing in this area of the united states, still likely to see hot and dry weather and that will be problematic. the real story is what is going to happen, are we going to get a continuation of what we got last year, we had this huge polar vortex they came down into texas and because that really big deep-freeze and the huge implications in terms of heating and energy. are we going to continue to see some of the problems that we have had in california, maybe there are some optionality there, but this is a big weather forecast and the real story is in the details. the central forecast looks pretty similar to last year, but we see these events coming through? taylor: 10 out of 10, our producer say you are the best weatherman that we have seen today. guy: today.
but -- we joke, but this will be one of the critical stories this year. you have an energy crisis, particularly here in europe. is this milder weather means that are heating needs will be less because there are more supplies globally in terms of gas that could be can -- can -- distributed. this will be critical. we need this warmer weather to become a reality and if it does not, europe would be in real trouble. these weather forecasts are critical for the markets. taylor: they are. the man who can talk? is jon gottschalck -- talk to us more about this is jon gottschalck, about the rising
gas prices and will this be offset, any of it by perhaps maybe fewer cold days on the horizon? >> that is a great question. we are generally favoring better temperatures, but during some events there is more changeable conditions and we saw that last year in february where much of the continental u.s. was quite warm, but within that span of two or three weeks we had that cold surge that was mentioned and pretty much totally impacted the energy concerns much more than that first two months, so giving those events and the similar forecast, the likelihood of another extreme event like that at this time range is really not reliable per se. it is not something that will not happen, and what we can also
cannot say for sure it will. for the most part, just very changeable conditions expected across that battle zone area and the planes and the great lakes. as we move closer to what is more likely to occur similar to last year in the winter say in january or february, when there could be changes in the high latitude variability. guy: the critical question that a lot of people in the financial markets are trying to work out is what is the demand for debt -- gas going to be that is what we are try to figure out right now, and that gas is pretty scarce around the planet. what do you think in terms of your expectations for the number of days that we will have to have the heat on? jon: like i mentioned earlier, over the winter we think the demand for heating with respect
to the eastern united states will be limited. the greater threat or concerns as we get into the later part of that december period, it will switch mark zone only across the northern tier of the united states including the northeast. earlier on, we are favoring more normal temperatures in the pacific northwest and the northern plains and the rockies, so there will be some impact earlier, but it is hard to say for sure exactly how the variability will eventually play out. we are thinking later in the winter will be a higher demand, but also potentially more options for below normal temperatures over longer periods. taylor: what is the reliability of that forecast? jon: great question. during the first part of the winter, we think things will be on the warmer side, compared to
normal, but the future scene is all outlooks -- seasonal outlooks that go through the spring, you will notice greater decrease in the odds of the above normal temperatures and they also sink further to the south some of the -- western great lakes, and then even more so with the uncertainty. the reliability and the forecast as we get later into winter, it's when we also have these cold air outbreaks, at this point those are high. early on we feel like we have more confidence and perhaps less demand in those areas. guy: what is the read across into the wider northern hemisphere from what you can see happening in the united states? jon: i guess it will depend on what the weather is later in the winter, for the u.s. you saw our
general prediction, but one thing we have noticed further back to the west across parts of canada are march -- are much colder events and temperatures then last year especially across alaska, western canada and the pacific northwest. it will depend as you noted earlier on how the stratosphere will impact the critical modes of variability such as the arctic oscillation. during those events, the circulation of the higher latitudes in the polar region can increase the likelihood of extreme cold events not here -- not just here in the u.s., but also across asia in general. taylor: we really appreciate it. jon gottschalck, we really
>> you are looking at the principal room. christina hooper joined wall street week at 6:00 p.m. in new york, this is bloomberg. let's check in on the first word newsprint the federal reserve bands top officials from buying individual stocks and bonds as well as limit active trading, following an embarrassing scandal that led to departures
and clouded jerome powell's path to renomination. this quick action could improve his chances. and queen elizabeth the second spent one night in the hospital this week after canceling a trip to northern island on medical advice. buckingham palace said she went to a private hospital on wednesday or what it called preliminary investigations and that she returned to the castle on thursday and is in good spirits. authorities investigate after confirming alec baldwin shot two people in an incident involving a prop gun on the set of a film in new mexico. the movie photographer was killed and that director was wounded. one spokeswoman said it was an accident but production of the film has been stopped. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am john hyland. this is bloomberg. taylor: i want to bring you
breaking news. nancy pelosi and chuck schumer were meeting with the president to get an agreement on the economic agenda, some of the headlines coming up is nancy pelosi says she is positive saying that they are close to a deal on spending, and they are talking about possible votes next week and there are some outstanding issues over health care in the plan had again, this is coming out of that meeting with the president and nancy pelosi saying they are hoping that a deal is close and they are up this -- optimistic. let's take a look at some of the industrial giants, honeywell, they released their unadjusted earnings. joining us now is karen. we love having you. what are you hearing about the impact on some of the cuts and that?
karen: they cannot ship because they cannot put their missing components, having a lot of shortages come and sing this is going to be an issue. i think the question about the supply chain how long will that persist? this is not their fault. if you cannot get the parts, you cannot make the equipment. they performed on margins as they always do and that is how they made it up. guy: thank you very much. it will be interesting to see how many of these other industrialists -- industrials are talking a similar narrative. now cameron dawson joining as -- cameron joining us. every report that i am reading is speaking from the industrials about two things, what is happening on the input story, basically kind of labor energy, supply chains on one side and just superstrong demand on the
other. let's talk about the input story. do you think that these companies can continue to pass on the higher costs that they are seeing at the moment? what would normally happen when we start to see rising costs? cameron: there is no sign that these companies are having trouble about passing prices on to customers. the companies that have reported thus far in earnings season are putting up some pretty incredible pricing numbers and even saying that pricing in 2022 will be barely strong. some companies are saying they're going to get pricing increasing for intermodal next year. there is no sign that those customers are pushing back on higher prices, but we need to look for is in the orders numbers to see if we are reaching that pain point where customers are saying enough is enough. at this point in orders were not
seeing any evidence that customers are pulling back on spending, but there was something very interesting that came out from the philadelphia fed manufacturing survey yesterday, and that orders numbers remains -- very robust. but if you look at the survey question about orders in the next six months, that number actually plunged this past month. so it is not enough to call it a trend or say that this manufacturing cycle is over. we really do need to watch to see if there's any more signs that orders are starting to slow down. taylor: what is that breaking point in terms of prices that you said if these companies have the pricing power, who do you think we get to that point when consumers push back and say maybe not? cameron: it depends who you are and what kind of margins you have. we are not seeing in the u.s.
that we have reached that point, but in the u.k. we are. if you are a low gross margin producer or someone that does not add a lot of value into your manufacturing, what you are seeing is that energy prices are enough to cause you to curtail production, so think of things like fertilizer, glass manufacturing, we are seeing that kind of production get cut. but if you are an industrial company in the u.s. you have really high growth margins and let's say you play in niche areas with strong pricing power, you are not having trouble pushing prices through. you are exactly correct that we need to watch the consumer very closely because the consumer really is the end of the line for pricing increases. they have no one else to pass that increase onto. if we start seeing praying in
consumer spending, that could be a sign that things are slowing down. the interesting thing is that we have been talking about the university of michigan consumer confidence survey and how consumers are saying it is no longer a good time to make big purchases, but we are not seeing it show up in a big hit to retail sales yet. that is something we have to watch, but we are not seeing it yet in the sales. guy: in terms of what would normally happen at this point, you would normally see -- i have spent a lot of my time talking about airplanes, energy prices starting to go up, the companies in the aviation sector would look for more efficient ways to do things. they would figure out how to manage fuel costs better. to what extent is this time going to be different? cameron: exactly. we usually do see this trade up into better efficiency type of
equipment, and we also usually see a big boom in energy cap acts related to higher oil and gas prices. but what could be different is that those industrial companies that typically benefit from better fuel efficiency and things, if their customers cannot get hands on orders, it really does not make much of a difference if you cannot deliver it. the other part is energy companies really are not spending on capex like they have in prior times where we have seen big spikes in oil prices. there is a few reasons for that, one we know that there is esg mandates causing companies to divert investments from fossil fuels into more green investments. the really important one is that equity investors in those energy companies are going to the
energy companies and saying we do not want you to spend as much in capex. we want you to live inside your cash flows and do not spend more than you are making, and take a look that cash and give it back to us. companies are now saying instead of increasing capex to get benefit from higher prices, we are going to appease our equity shareholders because if we don't, we could get our multiple hit, so we are not seeing that same kind of increasing capex which would normally be good for industrial companies, but likely is going to be more muted the cycle. taylor: will it be good for investors if we are thinking about a return of cash to investors versus investing in the company? cameron: in a sense, yes, because hopefully you will not see the same sort of boom and bust where you have the peak of
a cycle, so hopefully we will see a little more discipline to these cycles on the investment spending. there's something really important to note from these energy companies, which is the reality that come at peak in 2014 when we had that frack boom, to date the rate count is 75% lower than it was in 2014. the crude oil output is actually 30% higher in the u.s. than it was in 2014 which means we are generate 30% more crude, with 75% fewer rigs. in your question about that, yes, we are proving that we can do more with less. taylor: cameron dawson, really appreciate your time and your thoughts. we will have much more. this is bloomberg.
>> time for the bloomberg business flash, i am john. the china evergrande group has made a business payment ahead of the deadline tomorrow. the payment offers temporary relief for the most indebted developer giving it time to sell assets and ration -- raise cash. the u.s. department of justice is accusing -- in 2019, ending a corruption probe, the company says u.s. prosecutors told the manufacturer that it failed to provide documents and information to the department of
justice and that erickson will now be given an opportunity to explain the breach. reno will lose out crippling global chip shortage. the french manufacturer said it will make close to 500,000 fewer vehicles in 2021 due to the lack of components. that is your bloomsburg -- bloomberg business flash. guy: in a moment, something you do not want to miss. coming up, my good friend and colleague francine lacqua will be sitting down with the fed chair jerome powell and the south african reserve bank governor come and that is coming up shortly. it is interesting to date we've seen the russian central bank significantly outperform expectations when it comes to rates, 75 basis points. the expectation is that south africa will be following, the
big question is what about the fed? taylor: and coming up the data we got this morning and the reaction of the five year the 10-year breakevens now going back to 15 year highs, and this idea that the markets are seeing inflation that might not be transitory, the federal reserve continuing to say it is and they are not behind the curve. you really wonder how we start to digest all of the inflationary data. guy: are we going to be in a wait, wait, hurry up scenario? we are starting to figure that out as a possibility. we will dive deep into all of this paired we are looking forward to this panel. this is bloomberg. ♪
this is bloomberg markets: european close with guy johnson and alix steel. ♪ guy: friday the 22nd. bank of england's new chief economist warns that inflation could reach 5%. germany's case count climbs sharply. it today was the largest one-day jump in months. russia's surprise 75 base point height, sending the ruble higher. on the day though the stoxx 600 is up by 6/10 of 1%. we are watching what is happening in russia, an indication of