Bank Earnings, Retail Sales, Dollar Weakness, and Airlines

I have so much of Shanelie's tupperware in my cover that I've never returned or like takeout containers, but I mean whatever. She doesn't even know the difference. Yeah. Alison Williams walking in studio as well of Bloomberg Intelligence also at shock at our lack of tupperware use. Anyways, you guys don't want to hear about tupper Where you want to hear about bankstocks. And that's where I want to go next. JP Morgan shares hire by get this six

point nine percent in the pre markets. Shall Let's start off with you here. What's the highlight with JP Morgan? They just dumped a lot of information on us. I'm writing my newsletter right now, and I'm like the cherry on top of the cherry, on top of the cherry, on top of the cherry. I mean, JP Morgan with twenty three percent returns on tangible common equity, blowing that out of the water. Also increasing their expectations from that interest income this year. We have not seen that yet

among the other banks. They're expecting or at least warning that rates could be higher for longer. They said, it doesn't necessarily need to be the case, but in for bank like JP Morgan, they would benefit more from something like that. We have seen what higher interest rates have meant for the rest of the banking system, So this

could be a messy year ahead. That's Aliston william Senior Global Banks and Asset Manager analyst with Bloomberg Intelligence, And I wanted to get your perspective, since you cover this so closely more broadly, what's your kind of big takeaway now that we've heard from some of these big banks this morning. So the net interest income is really the positive story and most positive at JP Morgan, as Shinale pointed out, I mean, those returns are really impressive and

you know, the net interest income. We looked like it was peaking in the fourth quarter, but it got even better this quarter, and that was across the banks. The delta at JP Morgan is so much stronger, and really what we're seeing is it's the asset yields, so that actually the cost of deposits, which is something we've been talking about, especially accelerating in the in the you know, with the bank turmoil. Those costs actually did come in

higher than expected, but the yields are even better. I think for both JP Morgan and City they're benefiting actually from card that's really the area of loan growth, that is the class of loans with the highest yield. But they're also all of these banks executing on costs as well. That was a positive story in the quarter, helping profitability. Lastly,

I'll just point out reserves. Reserves are coming in higher than expected, charge offs still better, so it's still good credit quality, but that's the negative in terms of the look ahead. Speaking of the look ahead, you know you mentioned that credit cards that's where the highest yield for the banks. That means for the consumer, it's the highest

price you're paying for debt. There's a sense that consumers are not too stretched right now according to JP Morgan, but they've also said the consumers will hit a cliff at the end of the year. Realistically, can banks keep on making more and more money from credit card loans? I think this cycle is so different, right, so we know it's so different. It's the pandemic was something unprecedented.

And keep in mind that what we saw right for JP Morgan and City Group, one of the big disappointments in twenty twenty and twenty twenty one was that those card balances were paying down, the consumer was getting healthy, and so the consumer came into this or recession, which I get is still coming, but we're already I think thinking about it as if it's here, but came in in such better shape. So I think at the margin

that that's a little bit different this time. But to your point, it is something to watch in terms of the consumer getting some better yield, finally getting more than zero on those deposits, but those who are borrowing are going to be paying a higher price. Whenever the c suite executives, especially for the banks, come out, I always think of like last summer, right when we got the

sort of weather forecasting. Always think of the hurricane comments from JP Oregan, but I was curious if what specifically stood out on some of these earnings calls to you as far as the rhetoric moving forward. When it comes to these chief executives and what they're expecting for the trajectory of the economy moving forward, they're still talking a

lot about uncertainty. And that's why, you know, if you looked at the numbers, you know, JP Morgan did increase their guidance, but it still looks like it could be conservative City Group and Whiles far Ago despite better numbers, not changing their guidance, and I think because they are being conservative because we really don't know. And part of the upside this quarter was, you know, rates, the rates coming in higher that expected, at least on the short

end of things. As we know longer term yields are coming down, and there still is a lot of uncertainty. That brings me to another business, fixed income trading surprising

in the quarter. We think that people aren't going to extrapolate that to the rest of the year, but we really think that that can continue to surprise to the upside because of the uncertainty, because of this unprecedented environment, which brings me to Shanali exactly what you actually point out to me this morning, which comes to what Jamie

Diamond said about rates. It is blowing my mind that he can actually say six percent potentially on the front end of the curve, when we're barely sustaining above four percent. I mean, except for the earnings from today, we weren't even crossing four percent for I want to say at least a couple weeks time, and really since the banking crisis. Now we're looking at four a weight on the two

year yield. To me, also, then you have to kind of square that with the deposit flows, because even though you saw that major intake, I think you pointed out that he's still saying that by the end of the year this is all going to reverse. He's even saying that the deposits that they took in in the wake of kind of this quote unquote banking crisis. Now everyone is disputing the term again. Right three weeks ago, it

was a full blown crisis. Now I'm over yeah, whatever, But anyways, what he is saying is even those deposits for JP Morgan are flighty and so yeah, I mean but that's just on the deposit story. I think on the loans story, it's very important also because he's saying, don't call this a credit crunch, and they're not aggressively tightening standards. You know, I look at that super closely.

I want to say, their loans or total loans are slightly down, But on the other hand, I look at their institutional checking book and how much risk they're taking on their value at risk is also down, and so I you know, again, these are not huge things, but they are the biggest ship at sea here, and so if there's any signs of contraction here from JP Morgan, you have to expect that to be multiplied by many

margins at all the other firms. And also we're specifically are you watching because William about a minute left, but we're potentially other cracks could begin to emerge as far as particular indicators you're watching when it comes to these banks. So I think that, you know, commercial real estate, I think is the longer thing that we're watching, and it is good. We're getting some added disclosures today, but we're

very very early in that cycle. But I think that's what we're gonna continue to be watching for the year. I do think, you know, after you know, we're gonna want to hear from the banks next week, But we're hearing from the big banks, right so I want to hear next week what's happening at these smaller banks. JP Morgan did gain in deposits? Is how much of that was at the expense of smaller institutions? And will those smaller institutions be pulling back? Yeah, and that's the of course,

going to factor into what we hear. I believe able twentieth is the day that you see a lot of the smaller banks report, key Corps, etc. A lot to watch right there. JP Morgan shares still climbing. Folks higher by seven and a half percent right now in about less than an hour of regular trading. Alson Williams of Bloomberg's chief equity strategist covering all those banks. We thank you as always, along Susion Alibastic, our chief Wall Street correspondent.

You're listening to the team ken'shur Live program Bloomberg Markets weekdays at ten, Amy's Daring on Bloomberg dot Com, the I Heard Radio app, and the Bloomberg Business app. We're listening on demand wherever you get your podcast. Marie Sure, she joins us talk about the retail story. Senior equity analysts over at Columbia thread Needle Investments. Marie, do you share the same view as Justice sources this is something to kind of rush off. I think it is something

to brush off. The results today from March retail sales. We're really not surprising. We know that the March period was impacted by lower tax refunds, lower snap benefits, and also unfavorable weather. But as we look forward and we see the weather turn and fewer headwinds from some of those trims a factors that I just cited, I think that there is reason to believe retail sales get a

little bit better. On the other hand, I would say we continue to see the mix shift towards services away from goods, and within goods towards needs over wants, and I think that that trend will continue breakdown. More specifically, where we began to see a bit more of the weakness within retail sales, whereas we still continued to see

strength there. Because obviously, like you were just mentioning the whole when we're debating about goods versus services, still clearly we're seeing that theme among whether it's these retail sales reports and also these inflation reports too. Yes, absolutely, and you're absolutely right. We saw it in the CPI data earlier this week, sawed in the retail sales print today.

The greatest weakness that we're seeing is in the bigger ticket durable goods categories like consumer electronics and appliances, and of course those were some of the categories that we're strongest during the pandemic. We're also seeing a slowdown in categories like apparel in home, although not as weak as what we're seeing in some of those bigger ticket durable goods categories, and still seeing relative strength in food and the consumer continues to absorb the inflation that the companies

continue to pass through in the food category. Marie, how do you then square that with margins? Because we had a Steeplesberry Banister, the chief equity strategist there joined Bloomberg Television last week and he said, look, profit margins have peaked for the entire decade, and yet this is a stock market that is trading on those margins. What happens then if you do continue to see this deceleration in

the retail consumer. How much real upside is there if you follow that train of thought, I think you will continue to see pressure in margin. As I look across my coverage group, a lot of companies have comparisons relative to twenty twenty two, but over a three year period when you think, when you think about the strength that they saw margins during the pandemic when demand far exceeded supply,

the multi year comparisons remain very difficult. And we know that they will recapture some of the benefits from freight, but I think they will continue to face pressure from higher promotions, higher markdowns, especially if demand continues to weaken. And for these companies, it's really all about the supply demand balance of inventory. And again during the pandemic, they were in a very good place where demand far exceeded supply.

But stepping back looking at these companies historically, they've always struggled to find the right balance between demand and supply, and so that should result in I believe, continued margin pressure for years to come. And we have a little less in a minute left. But was there anything surprising to you into this report that a trend you haven't seen emerged, that it was a little bit different than maybe what we would have seen the past couple of months. No,

I think everything was relatively in line with expectations. I would say the noticeable strength that we saw was in the non store retail category, and of course that was a category that suffered last We are just from very difficult comparisons, but it seems like for most companies, and of course Amazon in particular, they've really started to see the e commerce part of their business stabilize, and I think from here it's poised to grow at a more normal rate in the high single digit to low double

digit range. Yeah, certainly something we're going to be keeping an eye on. Murray Shore, Senior equity analyst over at Columbia Threadneedle Investments, we thank you as always for the insight on it decelerating retail sales report. You're listening to the Take Cans Are Live program Bloomberg Markets is at ten am Eastern on Bloomberg Radio, the tuning app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station,

Jose Say Alexa play Bloomberg eleven thirty. I just find it crazy that we're talking about of a vix at seventeen as a low volatility gauge, which is weird because a vix at seventeen is not supposed to be low volatility. It's actually still very high volatility relative to historic norms. And then you have to factor in the bond volatility with factors into the currency volatility. And it's the dollar

here that I think you pointed out to me. Yes, I was looking at the d x Y in the terminals, So the Dollar Spot index, when you're looking at that hovering around a one year low, CREATY a one year low, it's wild. I've actually been looking at the dollar the last few days and the biggest contributors outside of the Easter holiday with which the biggest contributor to that drop was the Mexican PACEA, which told you was very low volume. But since then it's really just been the euro strength

in the euro, which I think is interesting. We're looking a one ten handle and I want to say, like two or three months ago we time about parently on your own dollars. So that's kind of a wild story. Who better to talk about the fax space than Jane Folly, A true expert at All Thinks Facts. She's managing director and head f FX strategy over at Rabobank. Jane, A pleasure to have you on the show. Thank you for

joining our All Gals cast. We appreciate that as always your take on the bearcase for the dollar, well, thank you for having me. And actually, as we've been looking at these screens in the last couple of hours, we see the pulling back a little bit of ground. So yes, it has been on the back foot in the last few days and certainly I think it's a market over the last couple of weeks has put distance between itself and the banking jitters of last month. We saw this

movement back into the risk appetite. We've seen stocks doing well and the dollar performing poorly. But of course this afternoon we've had these new questions. It's about, oh, actually is going to be touching interest rates before the end of the year. The comments coming from Wallace for instance, and that something his view is certainly something that rhymes with our of you, that sticky inflation is going to be persistent due to the end of the year, to

seg may not be able to cut into foots. And if that's the case, and actually the toller may get back some ground, and I think we've seen a little bit of position adjustment this afternoon as the market feeds back into the Oh, actually maybe the FED is going to be a little bit more hawkish for longer, and that is something which I think the markets reacting to this afternoon. What do you think the risks are to

your call? Is it just the obvious of what you were just talking about where it comes to the Fed and the big question mark of whether or not that pause could potentially be coming in early May. Well, you know, I think there are various risks to this view, and the biggest one is the one which the IMF alluded to early on this week, and actually there is different

analysts and commentators have alluded to. And this is really ever we've scene last month with it with the banking jitters, as we perhaps saw in the GILST markets in the UK LUB but after the mini budget, the markets having

cheeping problems. It's getting used to this environment of a much higher interest rates of environment where you do not have quantity vision, where you do not have very very cheap money, and the items talked about a plausible alternative view and that is one where growthest dragged lower by weeks adia economies and one way the markets are looking for the next weakest link. Where is that going to be? Is it going to be an autoloader, It's going to be somewhere else. And if that is based you can

visit your scenario. Well, yeah, the US, the FED may be cutting interest rates, that wouldn't be for very good reasons. And if the US off the feed were cut in interest rates because there was some sort of stress in the market, that is not an environment whereby the dollar would necessarily be weakening. That is environment where you can see money coming in from whisky assets such as emerging

markets back into the dollar. And so from that point of view, that is a risk to our central view certainly with respective said policy, but not necessarily a risk to the view that the dollar could pick up further ground later on this year. Yeah, when the world's in crisis by America and seems to be the mantra that's been in play for decades on decades Jane walk us through. Then the other side of the equation. I think when I look at something like European currencies, for example, the

euro of the Norwegian crona, the pound. Even it feels like we've seen iterations of this recessionary call, where in a recessionary downturn it starts off obviously in the United States,

but kind of lingers in Europe a little bit. This time, I want to say, could be different in that the recovery in Europe could be a bigger kind of jump than we've seen in past post recessionary period simply because of the carnage we've seen from the war Ukraine and the recovery in commodity prices and arguably the sustainable alady of the consumer there. Since, what does that then mean for a currency like the euro or like the pound. Is one ten a ceiling or a floor for the euro?

You know, I think the market consensuses you a dollar going up maybe twee twelve. I think that could be tough, largely because of our dollar story, but also in terms of the Euro, you have a little paramount of optimism. They're particularly of course, with respective ability of the Central Bank, or maybe the necessity of the Center about the U to B to hike intrust rates. It has been very hawkish.

We have seen a lot of those hawkish views been reiterated, and certainly the UTB you'd like to be able to hike intrust rates further in order to push that inflationary pressure. But there is still a number of unknown with respect to Europe. Yes, energy prices, wholesale gas prices are much lower, thank goodness, than they were at the start of the war in Ukraine, but there's still a fair amount of uncertainty going through next winter with respect to that, so

that certainly is not free from uncertainty. You know. With respect to Sterling, and it was the best performing Kepen currency in March. That however, was a reaction I think to a slower better than expect to data, so the markets repriced for that. The UK for instance, may be able to avoid technical recession this year, but even though the markets were priced to a better outlook, the outlook is still not good. So it's less bad, but not good.

And I think Sterling, or that that position adjustment in Sterling, it's probably more or less done now. I think Sterling could struggle and probably will underperform the Euro we think in the coming months. That's interesting, Creety, because with the dynamic that could be risks to equities. The two things that have come up is different extremes when it comes to the dollar or also if there could obviously the extremes of oil as well. So those are two key

factors that could affect up. Yeah, something we're keeping an eye on. Jane Foley, Managing director and head of FX Strategy at Rabble Bank. We thank you as always, folks, keep an eye on the Do all are stronger today? Will it stay there? You're listening to the Team Cancer Line program, Bloomberg Markets weekdays at ten am, easting on Bloomberg dot com, the I Heard radio app and the Bloomberg Business app. We're listening on demand wherever you get

your podcast, folks. We're looking at markets here that are a little bit risk off sort of. I mean the SMP five hundred is lower by three tenths of one percent. I wouldn't call about a major sell off, no, And I wanted to point out if we're looking at regional banks, so the k r X index for regional banking that's down close to two percent, but obviously more regional focus.

But if you're looking at the KBW Bank Index, which includes regionals but as well as these bigger banks like GP Morgan that's up more than one percent, so you're seeing a little bit of a divergence there on the financials creating. Yeah, I love that you brought that up, because the only sector that's in the green right now on the SMP five hundred is the financial exactly, and

there's really thanks to just a handful of banks. But the question here is what is the ripple effect to the regionals, because at the end of the day, I first Republic was supposed to be the first bank to report it then pushed their earnings back to I want to see the twenty fourth if I'm right, and now it looks like the big banks are benefiting. The question is for how long? Who better to ask than our regional banks. Expert Herman Chan, senior analysts for US regional

banks and fintech over at Bloomberg Intelligence, joins us here. Herman, your take on this as one of the kind of pieces of the earnings report out of JP Morgan city Will Spargo that really caught my eye was JP Morgan saying, look, we're sitting on a lot of deposits. We knew that this was coming, but by the end of the year this is going to reverse. Is it going to reverse

into regional banks. It's gonna reverse from two aspects. So we're seeing continue deposit inflow into money market funds, so that that will absorb some of the deposits that JP Morgan's probably seeing, and also some of those deposits can revert back once we're already starting to see the industry stabilize.

The emergency lending measures from the Federal Reserve of those actually declined again, and the liquidity the new liquidity measure that the Fed unveiled after SBB that actually declined for the first time since the inception of the bank term funding program in early March. So all those things point to some stability, and the hope is that for the regionals that some of those the deposits that they that

left in the first quarter does come back. And I just double checks so first Republic there was a results, so they did get pushed back. It'll be Monday, April twenty fourth is what they're going to So we still have a little over a week obviously till we get them. But when you're thinking about these regional banks from in what are you expecting that we're going to get with these results, which these are rolling in so we're going to expect some a lot of commentary on deposits and

the stickiness of the deposits. P and C. The first regional reported today and showed some stability in their deposits, which was a great sign. And also more importantly probably is the funding costs and how much do they have to pay up for a deposit. So there's two issues there. The deposits that there that some of these banks are gaining are the form of higher cost CDs, so you

have to pay up more for ely CD balances. And also um the zero cost deposits, those operating accounts, the non interest sparing accounts, those continue to decline, so there's been a mixshift happening. And also how much are banks paying up for to retain these deposits. So that's one of the factors that drove some negative guidance for a p and C for for the four year coming ahead, Well flu coming ahead. I got to ask about kind of buybacks for a lot of these regional banks here.

I mean, look, if I was sitting on a healthy flow of deposits, which a lot of these regional banks are still saying, look everything is fine, We're okay um, and yet the shares are selling off as much as they are on sympathy, I would dive into the market and buy back those shares. Is that something that we're going to see from these visual banks. It'll be interesting

because there's still a lot of uncertainty. PNC actually just came out and said they're going to dial back some buybacks given the market incertaincy for at least the second quarter, and they took celebrity to say that they might change their stance going forward depending on how market conditions change. But there are some banks that still are sitting on

really strong capital ratio, strong credit quality performance. So it's going to be a bit of a choppiness going forward, and we could see some aggressive buybacks, but overall, it's going to be maybe some conservatism from some of the larger ones until this uncertainty recedes. And we're specifically when it comes to these regionals, are you keeping a close eye to monitor where other cracks could potentially be emerging

for them in other quarters? Right? So the big focus from a credit quality standpoint has been in office commercial real estates. That's something that that PNC had talked about and gave some new disclosures in a new extra emphasis in their slide deck in the first quarter. We'd expect

more of that, just focusing. The market's been focused on it, so we'd expect the banks to talk more about it and what they expect from performance going forward, how much is going to be needed to be refinance over the next couple of years. Those sort of statistics will will help alleviate or at least inform the market in terms of what the exposure is. Herman, you mentioned the P and C earning specifically. Can you put those into a

little bit of context? For US P ANDC in my view at least is a little bit more well known, a little bit more kind of protected than say your first republics, etc. That's right. What is the broader read through from the PANC earning? Sure, the stock is down today, so it just seems like that there's a lot of negativity towards the regionals despite a beat in the first quarter numbers better performance from deposits, I would say, but

the guidance was a bit was a bit negative. I would say that if we do see HEPNC, like the others, show some deposits stability, that would be great but the markets focused on what's ahead and in terms of how much do you have to pay up for a deposits, So it could spell some negative revisions going forward and some net interest margin contraction for further regionals. Yeah, and if you're looking at PNC stock this morning, that's ticker symble pn seeds down more than two percent on piece boards,

worsty since March twenty second. But what about when it comes to some of these other smaller banks, when you were thinking of like Western Alliance, how much concern is there still potentially lingering with these other banks and what potential problems could be around the corner? Right, I would say that overall the regional banks are are probably out of the woods from a liquidity and funding risk standpoints.

There's a hand banks that we continue to monitor in terms of how how are they going to protect their at a positive base. Western Alliance comes to mind, Pack West comes to mind, and also First Republic. The banks that sort of operate on the West Coast and maybe have some exposure to tech or start up deposit taking. Those are the ones that seem to be more in the crosshairs and still have some question marks about how they're going to manage their balance sheet going forward and

how drastically their margins are going to suffer. So PNC is already seeing a bit of margin pressure, but some of these banks that are in the cross there's probably have more, and there's some unanswered questions as to how much and what they're going to do in terms of shoring up their balance sheet. Well, herman, now let's talk about kind of what some of these regional banks are

exposed to. Signature Bank, for example, very famously supposed to crypto, and Barney Frank, the creator of the Frank Dodd Act or one sponsors of it, at least very vocal on the board Seaure Banging, very vocal saying, look, we were targeted by regulators because of that crypto exposure. To what extent is that true? Yeah? The New York State regulators said that wasn't a factor and closing that bang down over that weekend after Signatures SBBs failure. We've written about it.

We would say the crypto issues didn't help their cause, right, because there was already some compliance matters that they had to shore up in terms of knowing your customer and what sort of folks were operating within the framework of signatures balance sheet and the real time crypto payments network that they operated. So I would say that it didn't

help matters at all. But really the crux of the issue for Signature was that they were facing a lot of deposit outflow given the concern related to what happened with SVB and some of these larger, chunkier deposits, they had the same thing and that ultimately is what created

the fallout and the closure from the regulators. Something that's come up in a lot of my conversations is trying to monitor specific data points like say the Senior Loan Officer Survey, which actually won't come because this is quarterly, right, won't come until May seventh, so that is after the fed's two day meeting, which is on May second, me third. But obviously that's going to gauge bank lending in credit conditions.

What do you think as far as if we're not going to get that until after the next FED meeting, what else are you watching to kind of monitor where credit conditions stand. Yeah, it's going to be it's going to be listening to the guidance from these banks that are going to report starting today and next week, next week is the bulk of the large cap regionals that report, so Wednesday Thursday are the big days you should get some really good takeaways from in terms of their appetite

for lending and whiles. Fargo actually said today that they were starting to be a bit more conservative with their underwriting credit underwriting criteria. JP Morgan said on their call this morning, said it's not a credit crunch per se, but it's more of a putting the thumb on the scale and being maybe a bit more cautious, but not overly cautious. So I think those types of antidotes anecdotes will be something that will be monitoring, certainly something we're

keeping an eye on. I'm just going to be a very intense next week for Herman Chan is what hits super Bowl, I think, so we are very grateful to have him around. Herman Chan senior analysts US regional banks and fintech over at Bloomberg Intelligence, walking us through exactly the ripple effects of this banking crisis turned turmoil turned hangover. Jess, you're listening to the tape cancer our live program, Bloomberg

Markets weekdays at ten am Eastern on Bloomberg Radio. The tuning app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Jose Say Alexa play Bloomberg eleven thirty. So, you know, it's an interesting markets day, but it feels like all the action was in the morning. But then you look at some of the other stock movers. Here, just Boeing catching our eye. It is looking at that.

Take your simple BA down now about five point four percent on pay sports worst Staceince October twenty six, that data had dropped close to nine percent. So seeing a bit of pressure still there on Boeing. Yeah, certainly something to keep in mind. And look, Boeing has had its troubles, it's also had the successes, and none of that has to do with why it's moving today. To explain the story, we bring in Bloomberg's Simone Foxman, she is all over it.

I've rather been covering the airline's head to toe for us on Bloomberg Television and Radio all week. Simone, let me have you walk us through what's going on with Boeing. Yeah, I seem to be an aviation reporter this week, but this is a really Boeing specific story. So there's a production issue on the rear end of its aircraft, has to do with non conforming brackets tied to the fuselage. They're non conform arming. But this doesn't seem to be a major safety issue, or else the FA would be

grounding these planes. So the concern here is how long it takes to bring aircraft in from the field to kind of address these nonconformity concerns. And there's really a wide window of what it could be because earlier this year, late February, we saw a nonconformity issue with the seven eighty seven that was solved in fifteen days, but previous

issues took a year to resolve. Jeffreys, for one, believes that Bowing will cut about twenty percent of its deliveries this year, and then that ties into how much airlines are affected. Southwest and United specifically have a lot of Bowing orders they're expecting to receive overall. You know, if that twenty percent cut is what we see, then we see eighty planes not delivered out of the four hundred and twenty that Boeing is expected to deliver this year.

Anytime we see moves in these types of names, especially when you have Bowing, I obviously will think of its rival Airbus, and it comes to these aircraft manufacturers, I mean, there's only so many of them, right, It's right. You see a pullback like this a lot of times. When it's longer term investors that I'm speaking with, they'll use that as a buying opportunity. Do you think there's a

situation here? I mean, just looking at where if you use the comp function in the terminal for the stock year to date, looking at Boeing ticker SMaL BA, it's up about six percent. But looking at its rival, when you're looking at what's happening with Airbus, this is the US ad R. It's EA d s Y it's about seventeen percents. Move well. I mean Airbus has just won the reputational game. Yeah, and it resolved some of its issues with its own buyers. You think clutter airways for one.

But frankly, this is going to add to concerns that Bowing doesn't have its supply chain under control. You know that said you believe in the air travel rebound that we're seeing post pandemic, especially with China coming back online. If you think that Bowing can kind of engineer a turnaround, then perhaps this is a buying opportunity. Sure, so what are more of the nearer terms here when it comes

to investors as far as kind of what is happening next? Well, I think a lot of the attention well, look Bowing Airbus, these are sort of long term plays where you want to know about the future of the market. Will they, you know, will airlines you know, continue buying the sort of narrow body that are more flexible to fly around the world. I think near term when you think about aviation, though,

it's all about what happens this summer. Cret and I in particular have been talking about American Airlines Delta a lot on TV this week, and really what happens with the consumer near term? Do they see themselves as being confident and having enough money to continue flying as much as you know, Delta in fact is hanging its hat on you know, that's the near term concern when you're

thinking about the trading in the next couple of days, weeks, months. Well, when we talk about just some of the broader moves in the space, aerospace and defense specifically, I'm obsessed with airlines I think they're very cool. But we're talking about Bowing. But another stock with moving off these spirit aerosystems, that makes that faulty part spr I believe down far far more. Someone talk to us a little bit about that stock. Yeah.

I mean, I think if you get find yourself in a situation where you have made a faulty part and that's very that you're very reliant on that you're that that kind of complicates the relationship with you know, the buyer. UM. But you know, I think for all these stocks, and that's one that you know, this part specifically very important UM for that company. But UM, you know, obviously that's

a reputational damage as well. I think the idea from from a Boeing perspective is certainly that you can move past this a little bit easier, they can find another supplier, they can potentially um that it's not as much of a hit to their business model. UM. But certainly if this is a part that someone's relying on you for you on you on UM, then that's more problematic. I

think you were talking about obviously the airliners. So we did hear from Delta early this week and obviously they still saw strong demand for the second quarter, so you would think that obviously could be a key gauge for the consumer. But then on the other side of that, we did hear from American Airlines and unfortunately it profits

forecast was disappointing. Where do you see things kind of headed when we're thinking more geared toward these airliners as far as obviously as things continue to reopen from the pandemic and people are traveling, but inflation is still a big key issue right when it comes to those prices, right, I mean, the airline play at this moment is all about deleveraging, pulling down the amount of debt you have so that in the long term you can pay lower

interest rates. Particularly we're an interest rate rising environment that's going to last for a little while. But you see things on their bound that they're going to have to work against, like higher labor costs. That was something that was flagged both in higher non oil costs, was flagged

in Delta yesterday American Airlines. We were looking at higher non oil costs, United saying, and it's higher labor costs last month are specifically going to lead to the reason that it may report a loss though that's a problem for the airlines, and then you know, play that against the consumer that I was mentioning earlier. Is the consumer enough to offset some of the weakness if prices continue to rise? Yeah, Simone Foxman covering everything from the consumer

to airlines, to Boeing to engineering. I think somewhere thrown in there. We thank you. You're listening to the Team cancer Line program Bloomberg Markets weekdays at ten am Eastering on Bloomberg dot com, the I Heard Radio app and the Bloomberg Business App. We're listening on demand wherever you get your podcast. Jess, We're going to kind of go full circle here because we started off this program talking about banking stocks. We started talking about what the read

through is into the economy. And look, we're looking at SB five hundreds down about six tenths of one percent in the green. Though, is those financials and obviously the key question is still being deposit flights, paying up for funding, looking at tightening financial conditions. But so far, when we're looking at especially these bigger banks, it looks like things have been holding up a lot better than what people

were expecting. Obviously for the first quarter. Yeah, and remember one of the big concerns here is to what extent do we see that credit crunch? Jamie Diamond came out and said, look, we might not be seeing that credit. It would be a credit crunch necessarily tightening lending standards. Sure does that even read through into the consumer? We still don't know. So a lot of the panic perhaps a little overdone there. Let's get some true expertise here.

Hugh van Stinas joins us from Oliver our Wyman. He's a vice chair and partner, but he's also spent tons and tons of time really digging into the banks. He was a senior advisor from Mark Carney over at the Bank of England. He's worked over at UBS as well. Hugh, A pleasure to have you on the show as always. Yesterday you came on to Blomber Television and talked about just kind of what the equivalent rate hike would be

to accumulate all of the bank stress. I think you said anywhere from one to one hundred and fifty basis excuse me, a one hundred to one hundred fifty basis points excuse me, worth of a raid heights. That's how much the financial stress is showing. What is your takeaway from the bank earnings we got this morning, we'll look pretty Thanks for having me back on a a terrific panel with Tom earlier. Look, I think it's one of

the early signals. So I mean, first, as Gesture said, I think that they're the super legal banks is pulling away. They seem at least my hypothesis is that they're benefiting from not only not having to pay up as much for deposits. I mean, the deposit beaters came through a little bit better today, but also the deposits they're benefiting from sort of shifted deposits from some of the MidCap banks. And obviously the key question has just said it like

how long this continues. I still fear that there will continue to be a bleed from the MidCat banks because the opportunities switched from a couple of basis points to four point eight percent, and the money market fund, as you heard with Black Proper to day, is just so appealing. But I think that that means that for the larger banks, I think that they're in a much more stable position.

But obviously, just looking around the corner, all eyes on credit, all eyes on the stickiness of that funding structure, you, I know you were also tuning in to this great panel that Tom Keene was hosting. What was your sort of big takeaway from what you had heard so far on that? Well, look, it's such a rich panel. I don't want to There are a lot of good points, but I mean, first, you know, I think there's two

things here. One is, you know, what does this mean for the FED call to these tightly the financial conditions really lean against them? Or have we seen the final rate hike? Or is there is there any one more to come? Or they carry on batting for more? And I think that's that that is the big tough call.

And you know, yesterday Christie and I were chatting about, you know, the parallel with Volca where after he had the largest bank failure in history at at that time, at eighty four, you know they did, they paused, They then put up rates a bit more. Within six months they were cutting rates. And I think that that rate that call, I think is really important. I think the second thing came out as Muhammad was saying, was what this means for the kind of reshaping of the financial infrastructure.

You know, how will the system deal with less liquidity with higher rates, with quite frankly, a very uncomfortable shape of the yieldker for a bank to enjoy earnings. And I think that reshaping is something which we've only just started seeing today in the numbers. But I think is that's the real tension that as I engage with banks, it's that focus about how sticky is this liquidity and

how they're going to adjust. And then the third thing, which the thing which didn't come out of the panel at least so far, and obviously it was such a rich panel. I don't want to pick on them for not mentioning it, but is what does this mean for the kind of liquidity schemes the central banks offer? You know, Christie and I were chatting about how the feds overnight

repo facility is de facto subsidizing money market funds. I mean, forty percent of all money market funds are now being parked at the FED overnight, giving them a huge advantage over the banks. And I think that's one area where I think it would be prudent for the maybe less the monetary policy guys, but the financial plumbers at the FED to really reassess. I love that you brought up the repo and yes, folks, I do chat and nerd out with Hugh and see us on the repo facility

over at the Fellow Reserve. That's what we do in our spare time. Hugh talk to us a little bit about kind of the comments that Jamie Diamond made this morning. Again, I'm going to kind of harp on what he says, because so much of the market hangs on his every word. He specifically said that when you're looking at deposits, we of course saw this major inflow into the deposits when you look at the larger banks. But he said, look,

this is not going to last. This is going to kind of you're going to end up seeing deposit outflows by the end of the year. Where does that money go? Does it go back into the regional banks, does that you start to see some sort of re emergence of confidence in that sector of the economy. Or does it go into the money markets and then straight into the repo facility like you just mentioned. Where does that money go? Oh well, I think it's a great question. I think

I look up with humility. I don't think there's an easy answer this. So look, I think first the continued bleed from deposits into money market funds. I think it's highly lightly and obviously heard Larry pick Up, think pick up on that today as well. If you take it the banks have lost nine hundred billion from the peak and the deposit roughly half of that loss was in March, and that the money market funds took in two thirds of what they lost, so that that probably is still

the dominant trend. And the difference between two basis points and four point eight is so get big. It will tempt some companies more for yield pick up because they're panicking about what's in the system. And I think that's consistent with what you know Jamie was saying on his call today. I think in terms of the MidCap banks, I think it's a tough call because I think it

comes down to, you know, how they respond. Will there be you know, mergers, will there be the stress test that the Dinant administrations proposing help, How will the FED facilities ease? And I think there's a complex run there, but I think it's going to you know, whenever you have a shock like this, it typically takes quite some time to work through. So I think the banks, treasurers and CFOs are going to be planning that this is easy come, easygo, and therefore they will be more cautious

about giving it granting loans. And that's why, at a minimum, I think as we go into the full we have a credit squeeze. And the key call is it is that is it a really big squeeze or is it a crunch? Yeah, Hugh Off the retail sales data this morning, we were looking at a two year yield that has crossed significantly above four percent. We're looking at four about four eleven, we'll call it on the two year ye old,

thet front end of the curve. One of the arguments you made in your peace in the Economists, and I want to say in the Financial Times as well, was simply that there needs to be more stress tests that take interest rate shock into account, and even that might not be enough. Jimmie Diamond, again we're going to quote him, said there might be a scenario where the two year old could reach his high six percent, that higher rates for longer could keep yields along treasury curve significantly higher

than what we're seeing right now. Are the banks ready for that kind of move to the upside? I think so. I think so first, I think it depends which banks, and I think what you're seeing here is that the larger of super league banks have you know, might be bleeding some deposits because uh, you know, corporate treasurers, you know, individuals are trying to just get chasing a bit of

yield quite you know, quite rightly. And I think what was interesting to me is that that yield chasing really accelerated when FED funds had about four percent lost ball. And so if we do head towards six critie, then I'm sure that would accelerate in you know, people looking for a better alternative. But of course, you know, now that the banks have had this big shock to the system,

they will be redoing their models. They will be think even before any regulator comes to their door, they're going to be rethinking their own internal stresses, and quite frankly, many of them have been doing that in the last two to three weeks. So I think already that's why

there's going to be less lending. I think the really interesting question, which you should you know, which I'm sure you're you you've picked up already, but with other guests will be you know, will the private credit market in fill some of the gaps where the mid market banks aren't going to be lending, and I think at particularly around commercial real estate, there's gonna be some really interesting opportunities,

you know, from this dislocation. I think some of the private market players will also be able to pick up opportunities. But I do think for the banks that they will be plenty more cautious going and obviously we'll need to stress themselves for a range of painful scenarios. Hugh. And as you were just talking about mentioning commercial real estate, that comes up in so many of my conversations as oh, this could potentially be the next shoe to drop. What

are you watching regards to that? And also even beyond that and other corners of the system that you feel like are showing some signs of potential weakness at this point. Look, Jess, it's a it's a great question, and like you, a lot of my conversations around trying to segment this market. It's a huge asset class and it will be foolish for us to say it's all going to be impacted

if you slice and dice it. I mean, I'm coming across asset managers and private credit managers and privacty firms who are really interested in refinancing or taking advantage of some dislocate. But you know, there are two buts. I mean, one is the cost of capital has significantly increased and the terms of leverage may have deteriorated, so that actual,

you know, the clearing value can be impacted. But secondly, I think what we're all trying to I mean, effectively from sly beyond ward, we're all trying to sift for is where are the some carry trades which have gone wrong? Or where are there some carried trades with weak hands? And I think particularly some of the office parts of CRI are an area which I'm sure U jess and

we are having conversations about where are the weaknesses? Has that vary by city by location, but it's but that's that's one of the hot potatoes, and obviously snarias around some of them. There are more recently some of the vintages of private equity deals as well where they need to be some refinancing. But as ever, you need to sift for the week hands and the weak trades rather than think about the whole market. So the conversation about

commercial real estate specifically. You know, it's one that several people have brought up. We had the deputy chief econists over at Kushment or way Field, a massive real estate firm here in New York and of who has of course a presence across the country as well. And look, she said, yes, the commercial real estate piece of the equation could come under pressure, but it already kind of has for the last nine months. And a lot of that has to do with the extreme tightening you're seeing

from the Federal Reserve. A point that Muhammad al Arian made in that panel at the IMF with our very own time team as well, that because the Federal Reserve started so late, the moves were far more dramatic. To the upside something that has already been kind of caught in the commercial real estate space. How much more pain is there really due in that part of the economy. What we'll look So I don't want to profess to

be your commercial estate experts. I mean I'm thinking about it from the point view of the banks and how they think about the lending. Certainly as I engage with the larger banks's and also talk about it, some of the given the very high inflation in the area there are there's good coverage, there's you know, strong covenance. But you know the cost of capital has gone up plenty some as Mohammad said, it's the fastest increase in rates in history, and so that took a few people offside.

So I think it's more looking for the weak hands and the weak properties rather than the whole market. But you know, given the shifting cost of capital, it would be amazing if there aren't going to be some areas of weakness. And you saw that as well, with some of the banks today taking slightly higher charges, not yet seeing major source of pain, but anticipating that there will be. Hugh, we've talked about commercial real estate in the cracks that

are there. We were talking about this potential more deposit flight. So the big question how does this end up affecting FED policy? Look, I think this is so we've we've already seen a very sharp move down as as you saw, and obviously a little bit of retracing as Krittie just mentioned in a two year you know that that weekend around SDB where we moved you know, we moved over

a point three sessions. So think there's as a huge move Um, I think this is one of these things where you know, there's no good historical parallel, but if it rhymes with anything, it rhymes mostly with the nineteen eighties where we've got a very big increasing interest rates, where the banks were the wrong way round. You know, their funding costs were very you know, super complicated with where there the eels and the assets were. And again many of the banks were squeezed in the same way

and you saw runs. So look, you know, if I go back to that parallel, I'm not suggesting history repeats, but there, you know, within six months of the shock to the bank failure, which that was sort of the bank rescue. I'm sorry, you know, rates were coming down,

credit was tighter. But you know, the other thing I think we learned from there is that once the really big bank had been saved, even though there was another nine hundred thirty odd regional banks who sadly did fail, over the following seven years, you still had the Roaring eighties. So I think, you know, we shouldn't be completely dooming gloom. I personally think there will be significant tightness and credit standards,

there will be a credit squeeze. I think of the fall it will be quite highly to be much much tougher. But but the larger banks navigating this means we just need to make sure who's who's filling the gap that the MidCap banks are providing. I think the really interesting question here for me is is that going to be some of the private credit players or some of the other banks, or would they just be a lack of

a vtibility of credit? Huvan Stina's everybody making a reference to the eighties, which if Paulsweenia Matt Miller here would make some obsture comment about like warmers or something like that. But I gotta say I love that he's talking about the eighties here, because Jess, if you remember, well, you weren't around in the year I was born, but it was around perhaps not monitoring the banks in the federal

reserve at the time. It's certainly a really important piece of the equation has been that in the eighties, even though you had this extreme tightness from the federal reserves, as you just pointed out, you also had extreme spending from the fiscal side as well, think Reagan and the defense budget. Yeah, so there's there's a lot of things to consider their human Stina as the Vice churm partner over at Oliver Wyman, of course, the former senior advisor the CEO EUBS, as well as the Governor of the

Bank of England, Mark Carney. We think you as always. You can check out his work over at The Economist at the Financial Times, and he's a very active Twitter feed as well, which I find it very interesting, so definitely check that out. Just as we talk about again the eighties, I wonder how much of the parallel really is there, because look, it is a completely different economy it is. It also makes me think of whenever Join tried to compare last year with everything going on with

inflation to the seventies. Right, it's not Apple's apples. Yeah, yeah, a little bit of a hangover. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three and on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio