Bloomberg Daybreak Holiday Edition

tell you why it's now flashing signs of a recession. Plus, we'll take it to Geneva, where one of the year's biggest events in the luxury watch industry just wrapped up. First, though, it was a shock to commodity markets to begin the week at surprise production cut from OPEC Plus for more on the short and long term implications of this move in the oil space, We're pleased to welcome Stephen Schork, who of course covers energy markets as president of the

Short Group. Stephen, thanks for being with us. How big a surprise was this for you to hear OPEC plus come out and say we're going to take more than a million barrels off the market every day. It was a surprise, but but not shocking surprise. Actually, I thought we would have more hawkish rhetoric out of OPEC in their prior meeting, so this did come out of the blows. So I was surprised that we didn't get a hawkish rhetoric the last time and the last go around, and

I'm surprised that it happened now, but not shocked. So the real shocking thing is not the cut itself, but what the cut tells us. And first and foremost, it isn't a political move. Yeah, there's the old Saint on Wall Street that bulls and bears make money, hogs get slaughtered. And OPEC is very aware there's a limit to how high they want prices to go. And what they're telling us now by this production cut is they're very skeptical about the economy, the global economy, and therefore they want

to get ahead of any sort of demand destruction. So they've decided to pull that supply off of the market. So it's more of a kind of a canary in a coal mine, and for all of us, that canary is sucking wind right now, telling us that there are

some economic headwinds in the nearby future. Is that a concern that you share with the oil ministers at OPEC, Plus that we could see demand concerns for energy in the months to come here, Well, it really seems that the OPEC and kind of the all the language we were getting out of China is China was full steam ahead with regard to summer demand. And so I didn't quite buy into that. I don't buy into anything that

comes out of official reports coming out of China. They did raise their quotas they did, they did signal some some demand uptick and they have been buying for an

oil they have in buying US crude oil. But that said, I cannot argue with this when we look at sort of the the headlines that are coming out, the I S numbers, n numbers, the industrial production numbers, record credit card debt, uh, you know, so forth, there are a lot of indications out there that the economy has a big up uphill battle and the thing really shaving kind of the the you know, the bulls, you know, the on the economic front was strong, you know, strong job numbers,

which are battle you know, to me, they are baffling. But look, we just got the job, job opening, and labor turnover surveyed. The Jolts report out of the BLS the other day and it disappointed. It was a downer um and then the ADPEP report came out today with jobs again another downer. So if that if we get confirmation you know a month, oh you know, this month, next month, so forth in the in the BLS employment numbers, then yeah, we we Yeah, I'm certainly buying into the

theory that we got trouble ahead. Okay, so we have a lot of these economic potential head wins moving forward. Here. What's the potential that if we do start to see commodity prices spike with this level of production coming off the market, adding even further to those macroeconomic pressure Stephen, Oh, if we see the spike, and you know, keep in mind we had a significant sell off over the prior two weeks related to first with Signature Banking then SVB.

So there are those issues and the banking system, as Jamie Diamonds just said, there are troubles there now. A banking crisis has been an antecede into two of the prior three recessions. Of course, what we all can remember what happened during the mortgage backed securities in Great Recession, but we also had the recession that was brought on by the SNL crisis. So right now we have one of the fuses lit for an implosion in the economy.

What also, going back to two thousand and eight, what we saw was oil prices one hundred and fifty dollars, massive increases and energy costs, which of course hampered US spending this time around. Yes, we did get to one hundred and fifty dollars last year. We didn't stay there, but we've stayed high on the energy front and also on the entire inflation front. So consumers, I think it's thirty three straight months that they're purchasing power has decreased.

So for thirty three straight months, we're getting poorer each month. I just intuitively, logically, I have to think that is going to have a carry on. Now, if this spike goes any higher than what we've already seen, than yeah, the odds are for a significant downturn. But what I want to point out now is Sunday night, the first opportunity to trade the OPEC number, the market surged higher. Okay, hasn't gone any higher since then. So all we are right now is right back to where we wore prior

to the of the S ANDDB a catastrophe. So kind of like the market is kind of like pumping the brakes here. The bulls are not getting any carry over momentum. Now if you're bullish, if you bought Sunday night, you're out of the money right now. And you know, with us allegedly bullish, this headline was you're not getting any followed through and that is a very clear telltale that the market is skeptical. I don't think skeptical of the

OPEC decision that they'll carry through. I think they are skeptical of what the OPEC decision is telling them about the economy. Speaking with Stephen Short, oil analyst and president of the Short Group here on Bloomberg Day Break, So we talked about the short term implications here. Stephen, what's your longer term view on what this could mean for oil prices? Are you changing your target for where barrel

accrude could go from here? Well, I run probabilistic models and ate Nathan that that kind of gives you a range and likelihood based on uncertain giving odds of prices happening, and we've been in the upper range since the beginning

of the year. What I've shared with with with with clients and analysis for clients, and that was oil bottoming in the seventy dollars area, that is the Brent crudal market more of a global market, which means that w TI would would would bottom some near somewhere around there, you know, high sixties. And that's exactly where where we've bottomed. UH. And the catalyst was that for was for that major headline, the SVB. But we we've ricocheted back. We're back around

hovering eighty dollars a barrel. So we're right in the middle of where I expected to meet and we'll call it the sixty eight percent. That that one standard deviation of where my outcomes were coming out. They were coming

out between seventy ninety dollars. Now, when we move further out on the tail and we factor in a potential UH demand destruction going forth for at least this month, UH in the what we can get down into the low sixties and in the first quarter oil below fifty dollars in a severe recession ALLAH akin to what we saw in O eight oh nine that we're talking about oil back down below fifty dollars barrel. Do you see a move like this having an impact on diversification of

the energy mix. Do renewables get a lift if we start to see more pressure on fossil fuel prices? No, because renewables have been one of the catalysts for the rise in fossil fuel. I mean nothing, nothing brought coal back or wood burning back in Europe this winter than what we've seen, the manipulation that we saw with carbon

credits and renewable prices. So, for crying out loud, Germany was cutting down ancient forests for fuel this So no, I don't I think what's going to happen is not diversification. We need national security. And the problem with renewables, which I'm a big fan of, Nathan, you and I were just having an off phone talk here. We both have versions of you. You have all electric, I have hybrid electric. I'm a big fan of it. But it can't do it alone, nowhere near alone. So the renewables are part

of the answer. Fossil fuels hydrocarbons are more of the complete answer. And I'm not even go to nukes because that's the hundred percent answer. We're not there yet at this point. So no, given I think renewables are a big driver with the lack of money so forth going into hydrocarbon infrastructure longer term out, they're the catalyst, that's

the catalyst for high prices. So as long as we continue, we in the West, continue to pursue a zero sum game where we don't want any investments in hydrocarbons and we want it in a source that is not reliable. Wind solar not reliable, and they're terrible. They're just as bad for the environment, Believe it or not, when we talk about non recyclable plastics in windmills, we talked about batteries, we're talking about landfill fill ups, We're talking about degradation

of the environment. We're digging up these rare earths, and we're digging up rare earths in countries that are not exact be friendly to the United States. But yet we want all of our investment to go into this one commodity, and it's it's it's a terrible risk we are taking. So to reiterate my answer, no, you'll see the political moves. But with the crash of SVB and the lack of return on HT that we are seeing both from an

economic and a social cost. I would think this would be the catalyst to diversify more towards and bring hydrocarbons that conversation back into the mix. Now we're going to be keeping an eye on the crude market very closely as we had even closer to summer driving season. Thanks as always, Stephen, good having you with us. Thank you, Nathan. That's Stephen Short, the president of the Short Group. And

up next, time is on our side. One of the world's biggest events in the luxury watch its has wrapped up. We'll get the highlights from Geneva. Next. I'm Nathan Tiger and this is welcome back to the special edition of Bloomberg Daybreak. I'm Nathan Hagar. US markets are closed on this good Friday, and speaking of time and the future, let's talk about time and how we keep track of it on our wrists if you can afford it. We just wrapped up one of the biggest events of the

year for the luxury watch business. It happened in Geneva, and Bloomberg's Andy Hoffman was there at this event and joins us for some of the TikTok I had to say it, Andy, thanks for being here. What better place to join us from then, the home of luxury Swiss time pieces. Tell us more about this event. For those who are not in the know, it's called Watches and Wonders, right, indeed it is. It's called Watches and Wonders. It is, without a doubt, the biggest industry event for the watch

industry each year. It's where most of the top brands, including Rolex protect for the old Richmon's own brands come together and they present their new watches, their new wares, to retailers, to their best collectors, and of course to the growing watch press who come. And it was five days this week for that private event, and then it was two days open to the public for the first time. Overall, I think there was something like forty thousand people who

attended this event, which was twice as many as last year. Wow. So that gives you something of an idea of just how high demand continues to be in the luxury space even with all the macro head ones we continue to talk about here on Bloomberg. What are some of the highlights for you? What really stood out let's start with I mean Rolex. I mean, that's one of the biggest brands in Switzerland. What's new from them? Rolex is always sort of the focus in the center of attention. They

are the biggest brand. Their sales or something like nine point three billion Swiss francs a year. They have about twenty nine percent market share. And so what role X does at watches and Wonders is it shows everybody it's new models each year, and they also would reveal which models they will be discontinuing, and this has a great

impact obviously on demand and supply for certain models. And then what we often see is that, you know, models that are discontinued, their value on the secondary market will generally increase because we know there will be less supply going forward. So what are some of the most notable new designs that you saw from Rolex? It was quite interesting.

I mean, it is an anniversary for the Rolex Daytona, their chronograph, and they did a new model which has an open case back so you can actually see the movement and this is a first for Rolex, They've never

done this before. They also did a really wild surprise version of their day date watch that had a sort of a puzzle um pattern on the dial, and then instead of days or um there there are sort of words like love and emotions and things like that, and there's emojis in the in where the date wheel normally is so fly one different emojiss. Those quite bold and strange for Rolex to do, which is generally a very

safe and conservative brand. Yeah, I mean that really sort of flies in the face of what you think about when you think of a Rolex. Did you get a chance to talk to any of the officials from Rolex about what their strategy might be with some of these left field ideas. It's a good question. I mean, we get we do get to speak to some of the people from Rolex, but their CEO is known for not

giving interviews about rolex Um. But yeah, I mean, you know they're they're very careful and garden with what they say, but they you know, for those who get the invite, you do get the chance to come and see the new models in the flash, So you get to hold these things in your hand and put them on your wrist and you know it's you and you can feel the weight as it were. So indeed, quite interesting. Yeah,

anything to dream. We're speaking with Andy Hoffman of Bloomberg News talking about the Watches and Wonders event in Geneva, Switzerland for luxury time piece collectors. Now, I know you did get a chance to talk with the CEO of another well known Swiss brandon that would be Potech Philippe. What did he have to tell you? We were very fortunate. My colleague Chris Rosar and I sat down with Terry Stern, who is the chairman of Protect Philip. But it was

really quite interesting. Mister Stern was very talkative and he was in a very good mood, and he revealed to us that, you know, they have a prototype ready and they you know, they want to get all the final designs in place before they start producing. But they are going to introduce their first model line for the first time since nineteen ninety nine, so it's almost a quarter century.

So this is a major deal for them. And what Potech is trying to do, and we don't know what the watch is or what the design is, but what they're trying to do is, you know, give their customers and the collectors who buy their time pieces, you know, something to look beyond the Nautilus and you know those great complicated watch that's watches that they're known for. They want to be more diversified, you know, like a portfolio or something, and they don't want to be just a

one trick pony. We'll see if they're a new design includes any emojis as well, that'd be something. I know, you broke some news as well, Andy with another legendary Swiss brand, ottomarp Gay and an effort to fight watch theft. This is becoming something that's become quite a big concern for watchmakers. Yeah, I mean, you know, we've been writing stories over the past year. I mean, you know what's going on with watches the is you know that more

of the world is paying attention to watches. People are, you know, showing off their watches on Instagram and social media. And at the same time, the problem of watch theft, people getting mugged for their watches has become a huge issue. You know, this in fact, could present a sort of existential crisis for the major luxury brands, most of which are here in Switzerland. If customers are afraid to wear their time pieces, you know, they just might stop buying them.

And you know, nobody wants. Everybody buys a watch because they want to wear it. It's just an unprecedented thing that they're doing. They've got a new program where if you bought an Odemarpgay watch such as the Royal Oak, which is the watch that they're known for in twenty twenty two, which was the fiftieth anniversary of that watch, or in twenty twenty three this year, you can register that watch with Odomarp Gay and become part of an extended service program. And if that watch is stolen or

lost or damaged. You know, the language they use is suddenly and unexpectedly i e. And a robbery, they will replace, refund or repair that watch. No one has ever done this before in the luxury watch industry. It's quite unprecedented. We don't know how it's going to play out. It's indeed quite a bold move. Yeah, interesting that there hasn't been something like that before, But lots to think about coming out of the Watches and Wonders event in Geneva.

Thanks for this, Andy, great having you with us. That's Bloomberg's Andy Hoffman from Geneva, Switzerland and still ahead on Bloomberg day Break is a US debt default really a risk. We speak with Bloomberg government reporter Emily Wilkins. Next, I'm Nathan Hagar, and this is Bloomberg. Welcome back to the special Good Friday edition of burg Daybreak. I'm Nathan Hagar. It is a holiday not just on Wall Street, but

on Capitol Hill. Lawmakers in factor in the middle of a two week spring recess, getting a break from a debate that is going to get even more pressing for the markets as we get closer to summer. It's over the debt ceiling, the risk of an unprecedented default on the nation's obligations. House Speaker Kevin McCarthy says he has a message for the White House. Mister President, I'm ready

at any time, at any moment, I'll come tonight. It doesn't make it difficult to sit down and negotiate and find common ground to make America a little stronger and make sure we stop overspending. But the message from White House Press Secretary Karine Jean Pierre is President Biden's shown Republicans his budget. Now they should show him theirs what we have seen, our is and heard our excuses after excuses after excuses. But they should be transparent to the

American people. They should lay out what is it that they want to cut Karne, Jean Pierre and Kevin McCarthy drawing their lines in this debate over the debt. Let's bring it. Bloomberg government reporter Emily Wilkins, who's going to be keeping a very close eye on these negotiations once lawmakers return to Washington from their home districts. Emily, I know you're paying attention to this, but how much attention

should market participants be paying at this point? I think you do have to pay some attention because the agreements that they're being worked out right now. We all knew that this was going to take time, but at the same point, and we're getting kind of early indicators now about how easy or difficult this will be, and it's going to be quite difficult, as we're seeing now. You know,

initially saw the meeting between Biden and McCarthy. They sat down, it was pretty pleasant, and then Biden kind of said, hey, I'm going to release my budget and he expected Republicans to do the same. For a minute, it did look like Republicans we're going to release a budget either this month in April or potentially even next month in May,

that now seems a little bit less likely. Kevin McCarthy sent a letter to Biden with basically four bullets points of what Republicans want to see in a Deadlomit agreement, and they're basically now saying that they're not going to move forward anymore until Biden sits down with them again. So it feels like both the sides are a deadlock right now. Of course, there is some time to work it out, but remember Congress is not a body that

moves particularly quickly. With any sort of agreement. You're going to have to have at least a couple different weeks for it to go through the Senate, go through the House, have the debate, go through the process. And so I don't think we're in a spot yet where we need to panic, but things aren't looking super great at the moment for getting this agreement done well. I wonder if they're feeling any more pressure to move forward on this

when they get back. Given the turmoil we saw in the banking sector with the collapse of Silicon Valley Bank and Signature Bank, it's raised all these questions that you know when you have a financial system that is so reliant on treasuries. If there is a concern about those treasuries default, we could be in some trouble. Emily, Oh, we definitely could be in some trouble. And I feel like every lawmaker understands the states for not raising the

debt limit. I don't think they're really particularly among leadership. A lot of Republicans who don't want to see the limit raised in some capacity. They just want to be able to say that they've also gotten cuts to do so. And so when we think a little bit about you know, what is coming next and how the banking crisis relates, I think it's also just important to point out Congress

is certainly taking the banking crisis seriously. You have Financial Services Chairman Patrick McHenry, who I think is interested in holding more hearings, kind of looking into banking from a holistic perspective and seeing what needs to be done there. At the same point, a Congress is kind of done with like the crisis mode on the banks. They're feeling free to kind of look at other issues, look at

other concerns. There's a sense now that because we haven't seen more bank shutter that the bleeding has at least been stopped, even if the wound hasn't been fully healed. And so I do question you know exactly how much pressure the banking is going to be putting on the debt limit, if only because I don't think Congress can use that as an emergency situation anymore, even though they still see it as an important situation that they'll continue to focus on. So what are you going to be

looking for once lawmakers do get back. You mentioned that list of bullet points that Republicans put out before the break. Are you expecting that we're going to see any further details of what Republicans are looking for when it comes to cuts before they get into these negotiations with the White House. So I think two things that I'm looking for.

Number one is that if the White House and House Republicans, if Kevin McCarthy does sit down with Joe Biden again at this point, that seems unlikely because the White House is saying that Republicans need to put out a budget before they sit down and talk. That just does not seem likely. So it'll be interesting to see kind of the balls in both courts. I'd say the White House could make a move that could change things, so could

House Republicans. But look, Republicans acknowledge that if they are going to pass some debt limit deal through, they want to do it through what they call regular order, and that basically just means a longer process. It means they actually want to bring legislation to committees. The committees, they hold a hearing, they mark it up, they bring it to the Rules Committee, they prep it for the House floor,

they bring it. This is all things that take time, and at this point, it doesn't really look like Republicans have a lot of this legislation written yet. And of course, the more details that Republicans begin to put down on paper, the more they risk isolating various factions of their conference into saying, hey, we're simply not going to support this, and that's where things are going to get really tricky and really messy. And we just haven't even gotten to

that part yet. Because the four bullet points that Republicans have put out, I mean, they're pretty vague all things considered. I mean, it's things like clineback COVID nineteen funding, having stricter work requirements, passing bills that's basically all of them agree to but some of these things aren't going to

be no goes with the White House. And to get more into details on that, you know, it's they only have a four vote majority, so it really does not take a lot of members to decide, hey, we don't want this to completely stall the process. Speaking with Bloomberg government reporter Emily Wilkins, who keeps say, a very close eye on what's happening with the debt ceiling negotiations that

are going to be ramping up really heading into the summer. Here, I want to ask you, specifically, Emily, about that four seat majority in the Republican Party and the factions and the difficulty that how Speaker McCarthy has keeping his caucus in line. Are there certain lawmakers that you're looking at in particular who could potentially go one way or the other to try to come to some kind of majority that can get around the idea of doing something either

about spending cuts or raising the dead ceiling. So I think in the case like this, you always kind of have to look at what the extremes are on either side. I mean, certainly on one end you have hardliners, conservative hardliners. It looks like Lauren Bob and Matt Gates, who have shown before that they are willing to buck Kevin McCarthy until he gives them what they want. And you know, it's the question of sort of exactly what do they want?

What are they going to be willing to accept. We've seen the Conservative Freedom Caucus put out a couple of proposals at the same point. Ki McCarthy's majority rests on a number of lawmakers, Republican lawmakers who won in twenty twenty two in districts that Biden carried in twenty to twenty and so these are Republican lawmakers representing moderate districts. They need to make sure that they're continuing to get

support from independence and Democrats there. And so there's really only so far that they can go with various cuts. And so those are kind of two groups that I'm keeping a very close eye on. But the fact is sort of anyone could potentially move or be a mover or shaker here for various reasons. Tony Gonzalez, a congressman from Texas who's been pretty vocal on bills dealing with

border security and immigration. He tweeted out something the other week basically saying, look if if any bills come to the floor that he deems his anti immigrant, he's not going to support the debt limit. And usually if you had a bigger majority, it would be a kind of a thing where it's like, you don't have any leverage here.

But all he needs is three more Republicans with a similar mindset to join him, and that again is going to pose another hurdle for McCarthy to have to navigate around as he tries to figure out what the denlop it's going to be. So this is definitely a thing where if you've got you know, if you're a lawmaker and you've got three other lawmakers and you all desperately care about an issue, when you want to have leverage on it, and this is a point where you can

really use that leverage. Of course, it comes at the risk of potentially defaulting on our national debt. So when do you expect this to really start to heat up, Emily, do we have a really clear idea of what that X state is and when we could potentially face that risk of debt default. So initially we had all talked about the X state as being June sets, and I think that date is still in many lawmakers minds, but it is not the It is kind of considered on

the early side of things. It's now looking like the X date could occur a little bit into the summer, potentially even into the fall. At this point, I still think we don't quite know. Me Jenny Yellen is updating Congress as much as she can on it. But I think there's a sense that, you know, as far as things getting really intense, it's when you're going to hit June and you kind of hit that first projected deadline.

Is that going to be the deadline? Maybe not, but it's going to sort of be when when people realize that, Okay, now is the time that we need to move. Yeah, so we have several more weeks, if not months, to keep talking about this. Thank you as always, Bloomberg Government's Emily Wilkins. And up next on this Good Friday edition of Bloomberg Daybreak, recession signs from one of the key

areas of the US economy. I'm Nathan Hagar, and this is welcome back to this special edition of Bloomberg Daybreak. I'm Nathan Hagar. US markets are closed for this Good Friday holiday. We now want to turn to the economy and a key area of the country that has traditionally been a pretty good indicator of the nation's economic health, and right now it is flashing warning signs for recession. Bloomberg's Augusta Suriva's been covering this and is here with

us now for more on this story. Thanks for being here, Augusta. So, where is this geographical economic indicator in the US? Thank you for having me. So, this is an area called the Inland Empire, and it's located next to La and it's called an empire because it's so big. Gets started as a farming location and then because of its because of its location so close to the largest port complex in the country, which is located in LA, it gave prominence.

They started building warehouse after warehouse until we became North America's warehousing mecca in a way. So it started as

a farming mecca, now a warehousing mecca. Obviously, we've come out of penn Emmic where we've had supply chain issues and is that what we're seeing here in the Inland Empire that it's starting to come into focus where goods get stored in this country exactly in the way this region was storried of a post her child of the pandemic, Most of the goods we were buying in places like Amazon and Target passed by this region before they were

shipped out to the rest of the country. So there are more than four thousand warehouses in the region, so pretty much everything we buy online is stored there at some point nowadays. And you mentioned it's close to Los Angeles, which is of course the Port of Los Angeles and the Port of Long Beach. What are the changes that we're seeing between the end of the pandemic, when we sort of had this glut of supply chain issues to now.

So one of the things that we're seeing now economically is the slowdown when it comes to good spanning rain. It could be both because people are starting to tight under belts, but also because people are going back to spanning on services. We were always a service economy, and now people are spending more on experiences and less and

are spending lost time buying things online. Right, So for a region where now one and three people now work in the broad transportation sector, that's a warning sign, right, what's going to happen to this place when people start buying less? What does this mean, for the economic health of that part of the country. How does it compare to the rest of the country when it comes to the quality of jobs and wages that people get in that part of the country. So this is a region

that is used to boom and bus cycles. When we had the Great Recession, it was hardly hit. The unemployment rate spiked to above fourteen percent, it's a rampant foreclosures. So it's a region that's used to that. But right now it's a region that has become overreliant on a single industry, and that's why people are concerned. And not only that, but as you mentioned wages, it's a region where the warehousing workers specifically make on average eight dollars

less than the national average for all occupations. So some people say that these jobs, even though they're booming and they do provide jobs for workers in the region, they're not sustainable in the long run. So are there efforts underway to try to diversify the economy and the inland empire away from warehousing or is it even possible to

do that. I would say right now the region is very reliant on a single industry, But of course you have efforts to not only diversify to other industries, so healthcare for example, as an industry that's a major employer to They're trying to bring more more jobs in the scientific sector for example, and not only that, but also efforts to improve education levels in the region, which tend

to be lower than another parts of the country. But right now it seems like the focus when it comes to governments is to invest more in the warehousing sector in an effort to make this a more sustainable industry, not necessarily straight away from it. An interesting insight and good to have you on with us to talk more about it. Thanks for this, Augusta, really good at having

you with us. Thank you for having me Bloomberg's Augusta, Sorry Eva joining us on the special edition of Bloomberg Daybreak, and our thanks as well to Bloomberg Government reporter Emily Wilkins, Bloomberg's Andy Hoffman with us from Geneva, Switzerland along with oil industry analyst Stephen Shark. We want to thank you for joining us as well on this good Friday. I'm Nathan Hagert. Stay with us. Today's top stories and global business news headlines are coming up right now.