Industrial Recession In The U.S. Is Not Over: Booth

a press conference with Chairman j Pale. So we are very fortunate right now to have our next guest to help us preview what we might hear. Danielle di Martino Booth. She's a CEO and Director of Intelligence at Quill Intelligence, former advisor at the Dallas Federal Reserve, and a Bloomberg opinion columnist. Danielle, thanks so much for joining us here

in our Bloomberg and Actor Broker studio. So FED Day today, and as Lisa was suggesting, how do you think the FED chairman will address maybe one of the newer uncertainties in the marketplace, which is the coronavirus. How do you

think Mr Powell will react? To that. Well, he probably won't be a front and say that the insurance premium has gone up on global risks um, but he might tow the same type of line and say that in order to maintain the economic expansion, the FED is going to do whatever he needs to do, including any kind of global economic disruptions that are brought on kind of the same line that he was using with reference to the trade war. He's just going to pick it up

and assign it to the coronavirus. Alright, So let's take it out of J. Palell's at mouth and let's talk about what the potential economic impact is on the United States. We're seeing, for example, Starbucks closing down more than two thousand stores in China in response to this, Apple said that they could take a material hit. They're looking at ways to divert their supply chain away from the Wuhan area.

Do you think that markets are under pricing the potential impact on the US economy from the coronavirus has spread, in particular with how much's defecting the China economy. Yeah, And I think that you actually hit on the critical element here, right, because Chinese, the Chinese economy is quadrupled in size in terms of its global footprint. It's now sixteen percent of global GDP compared to four percent back when Stars broke. And now it is not a link,

it is the link in the global supply chain. We've learned this the hard way throughout the trade war years. And I speak with Leland Miller, he's a friend of the show's China Beije book. You know. He points out that the virus is in every single province, so this is not isolated to one province that is the seventh largest um because Bloomberg actually ranks all of the supply chains, and over the weekend had a great story out. Bloomberg had a great story out that said, the UN is

number seven in the country. But right now you've got a lot more than that being affected in the Chinese economy, and it will have blowback effects first in Germany and then back here in the United States. I mean, given what we learned, I'm not sure you know the the analogy for Stars. I'm not sure how strong it is or tenuels it is. Is there a sense of a lag time when we start seeing some of the Chinese issues bleeding out into some of the economic data across

the globe. What are you looking for? So it's really difficult to say because I mean, obviously markets are completely disregarding this. But I am no scientists, and I cannot tell you how bad this is going to get um because you're starting to have cases crop up in countries where the person has not visited China. So it's for me,

it's a gigantic unknown. I saw a few charts out of the cell side today and it shows kind of a huge v V shaped recovery that retail sales in China are going to take this big hit and come roaring right. I'm not I'm I'm just not buying it because like brought in capital for example, they feed casts the freight index that's followed so closely. Now. They came out with fresh data this morning that showed that they're leading indicator of leading indicators, which is Shanghai air freight.

Air freight contracted you over year again prior to this virus outbreak. So it's still less is less is less bad is good? But you're kicking the global reflation trade before it quite reflated. Well, okay, this is the key question here. How much are people using the coronavirus as an excuse to sell at a time when they're a little bit wary of whether this reflation trade is actually

taking off. And I wonder if there is sort of a a different story being told by bonds and stocks given the rally that we're seeing in treasuries, do you think that that sort of foretells a weaker economy that's being priced in the next Look. Absolutely, it's in a matter of three trading days, we've gone from being inverted on the three month five year two days later, three months, seven year today, three month, ten years, five basis points away.

I mean, j Pal just spent over four billion dollars to uninvert the yield curve, and the bond market is telling him, and pending home sales are telling him both. And the auto sector in the United States and really messy earnings out of Detroit. And by the way, we're all ignoring Bowing because they did they had kitchen sink earnings.

The industrial recession in the United States is not over period end, and the yield curve is telling j Pal that not only do they want him to move out to cupe on purchases and away from treasury bills, which is Lele Brainerd's that's her, that's her blueprint, that's the framework, go out to twelve months first, out to twenty four months later and then put the cap on. But it's also telling j Pal that it wants a rate cut,

and that's where he does not want to go. And just to sort of put the bow on Bowing, they did put the kitchen sink out there. They were they're doing well and uh in trading at least when you look at their stock price. And meanwhile they're borrowing tons of money with the letter demand for that Bowing loan that we've been reporting on for the past few weeks growing to fourteen billion dollars. People eager to lend to

this company, calling Molly Smith, where are you? It's just amazing well, and we can get into the duopoly and this sort of question of whether the governance was less strict as a result of their mark a position, but

that unfortunately have to be another conversation. Danielle Dmartino Booth always chief executive officer and chief strategist for Quill Intelligence, former advisor to the Dallas Federal Reserve, and a Bloomberg Opinion columnist, certainly leading the charge has been Apple after they're better than expected earnings, showing that the iPhone is still strong, it's still dominant, producing profits that are to

be envied around the world. Frankly, uh, and not to mention a cash pile of two hundred and seven billion dollars. David Garretty joining US now chief market strategist for laid Law and Company and a partner at bt Block. David,

thank you so much for being here. What was like the sort of most interesting aspect of Apple's earnings to you in terms of the guidance for the March quarter, which was showing the revenue range of sixty three to sixty seven billion dollars, indicating their own uncertainty with respect to the impact in China of essentially the quarantine, which it certainly is immobilizing the population there and certainly keeping people away from Apple stores, where they've cut back a

number of ships of shifts and actually um closed a number of locations. UM. But I think overall, if we have to look at um, Apple is abell Weather for the tech sector, to the extent that Apple has pretty much sort of seemed so hard to have dodged the bullet from the Wuhans Stars, Contagion, Uh certainly some of the names we're looking at elsewhere Facebook after the close today, UM, Twitter, Google, Alphabet, Amazon, We we think that you know, the Paul from China

isn't necessarily in the cast itself so wide. We look as if we've had fairly decent results in the US, certainly with respect to going back to Apple, their iPhone eleven a strong introduction, returning to growth in that category. We have seen global smartphone shipments and decline in two thousand nineteen down I think about three percent. That was a first for that market. But looking forward um to say one, we're going to have the role out increasingly

of five G cellular communications networks. Apple will have a five G enabled phone coming out later this year. This arguably is going to be a significant product transition, not just for Apple, but for the tech sector as a whole. So the Apple, I guess the services revenue came in a little bit weaker than expected. Is that an area of concern for you? Given that that a lot of investors feel like that's going to be the longer term

growth driver for this company. Certainly, looking at Apple's success in growing the subscriber base for the Apple UM services operations. They ended the year at what fordin eighty million subscribers, at a third from three sixty million a year ago, and their target is six million by the end of Granted, you know, thirty three growth in growth in people might say, well,

things are gonna slow. My argument here more is that this is going to be the base of customers off which Apple is going to be driving increasingly larger amounts of recurring, high margin revenue, which I think is going to be important for the valuation which they do. That there are two hundred and seven billion dollars of cash.

Clearly there's always going to be arguments made with regards to UM what do they do around you know, continuing to buy back their stock, But certainly there's temptation as far as acquisitions are concerned, and we think certainly if you look at the Disney Plus streaming service that's out there, uh, you know, does Apple take this opportunity to come in uh and possibly enhance their own abilities by looking I

know people have talked about Netflix for ages UM. You know, there are a number of possibilities and obviously having two hundred billion dollars in loose change Um, you know, isn't such a bad place to be stocks essentially doubled over last twelve months? Are you evaluation concerns yet? How do you think about the evaluation of the stock? I mean, certainly people who have raised the concerns. You know, is

a trillion dollar evaluation sort of a ceiling? Uh? You know, is it possible for public companies to go above and beyond that? Um? I don't necessarily want to try and minimize or or the other way around. I'm not trying to exaggerate perhaps the importance of five G but and the rollout, but I think that this is going to be something quite significant in terms of the range of

services that this might open up. So we're at a point in time analytically where we need to look forward and and see what are the potential new revenue streams that might be gotten as a result of having this greater bandwidth and the ability to move larger amounts of data faster. All right, let's look ahead, because we're getting Facebook reporting earnings after the ballot, Amazon reporting earnings tomorrow after the bell, and I'm wondering with Facebook in particular,

the shares up nearly two percent today, How concerned. Are you about the political liability? No, Senator war in his job voting Facebook yet again, and they're sort of the immediate crosshairs of some potential regulatory oversight. Yeah, I believe that we've commented, you know, previously, we've said certainly that as regards UM social media companies, Facebook in particular, in

the regulatory cross hairs. UM. The issue is that most likely significant regulation may not necessarily be seen until after we get past the presidential election, which, if one wanted to be cynical, one would say that given the amount of money that's being put into social media around the general election, that certainly argues positively in the margin near term for Facebook perhaps as a stock. UM. However, you know,

does that make it merely a trade? And to the extent if the prospects become clearer as we go into November, you know, would you necessarily want to fade Facebook going into the general election? That might be a very short term trading call against the longer term perspective that clearly is going to be more negative. There were some other elements apart from President Um Senator Warren Um. There had

been hearings held in the House. I think over the last two weeks just talking from smaller technology companies of what it's been like to go up and compete against these larger companies, whether it's a Facebook or an Amazon or others, which argues that within the tech sector, the prospects of regulation become more significant as we go past the general election, So is where the hammer comes down.

So assuming that it kind of plays out as you think, these tech names are still going to be the drivers for the overall market like we've seen them in you know, in the year's past, and we've been talking about now maybe rotate into some maybe more cyclical names or things

like that. UM. In terms of sort of stepping back and looking at things more broadly, UM, you know, the things that drive the drive GDP growth, it's population growth and productivity growth UM two thousand nineteen, the United States, our population growth was zero point. We had forty two states where the population actually declined. We look globally Japan, uh death rate exceeds birth rate, which is essentially the

formula for declining population growth. If we're going to have GDP growth, this is going to have to rely upon productivity growth, which argues for disruptive technology innovation, I would argue against that backdrop. You know, this move towards five G. You know it has many facets in terms of what

this might do around productivity growth. So if technology remains significant from the standpoint of economic development, I would argue it still will maintain significance in terms of investors positioning. David Garritty, thank you so much for being with us today. I really appreciate. David Garrity, chief market strategist for laid Law and Company, also a partner at bt Block Consensus Trade. Heading into among them was that the dollar would weaken

and that emerging market corencies would outperform. So far, that has not panned out quite the opposite. In fact, you've seen dollar strength and emerging currencies are currently at the weakest versus the dollar since December twenty five. This according to the ms c I index data on the Bloomberg And I'm wondering how long this could persist. At Al HUSSAINI joining us here senior interest rates and Currencies analysts for Columbia Thread Needle Investments, and I you know, this

just really is a conundrum with the coronavirus. Is the reversal in this consensus trade, something that has legs for the rest of the year, or is this a budding opportunity heading into the rest it Yeah, thanks, well, well I think it's it's early days, let's be fair. But to the extent that two things happened into the end of last year. First, MFX was one of the worst performing asset classes, so look relatively relatively cheap, particularly versus

other pockets of risk. And Second, the recovery in in data that we saw globally, at least the nascent recovery and into the end of last year was in Asian p m I data uh and and really the cementing of the Phase one agreement gave it a lot of impetus. So we saw the remanby start to react positively and then lead high baying e m f X into the beginning of the year. UM, all of that's been beaten

out now. Obviously, the fundamental risk here is that what's happening in China and potentially a slowdown in China spills over into broader Asia in the first half of this year. UM. And then a broader reassessment of risk, which is you know we're seeing happen right now, you know US drisuries back at one six UM very early stages. But if we do see a broader reassessment of risk E mf X,

will again UH look as as relatively unattractive. Is there are there any pockets of opportunities out there, I'm assuming we're going to steer clear of Asia, perhaps, Yeah, I think interesting a couple of UH relatively high yielding names. They're relatively closed economies where the fundamentals are good, particularly from a fiscal and external account perspective. Russia is a great example that stands out, and the ruble has been um in in in the eye of of of the

weakness here. UM do stand out as places where there's value. Let's take the flip side of that, South Africa, where fundamentals are weakening. We're weakening into the end of last year. The currency looked rich last year, UH, and now we have a high beta em currency that that's going to leave the sell off, so that currency looks particularly vulnerable. I'm looking right now also at the yield curve flattening

that we've seen. I mean, it's basically every consensus trade is getting hit really hard in January, and I'm trying to think you know, given the fact that you guys oversee almost four hundreds and seventy billion dollars at least that was as of September, Given the fact that you deal with hundreds of different institutions and get their read on what's going on, do people have a sense that this is just a bad January or do they have a sense that perhaps their assumptions for the year are

inaccurate too early, there's not been a real wholesale reassessment when it comes to risk in particular, I think especially if you look at you know, growth expectations for the US, earnings expectations for the yes, they really haven't moved uh and in fact, what could it be um early days? And again I tend to think, you know, particularly when it comes to you know, markets like equities, you know, people sell first and then build a narrative around that

later valuations are on the rich side. Going into the beginning of this year, we did not see value, for example, in places like high yield UH and and now that that there's been a bit of a sell off, some of those sectors are starting to look a little bit more attractive. But again, in the grand scheme of things, that we take a step back, credit spreads are pretty compressed.

Treasury yields are you know, one, one six. Uh. It's very consistent with an economy that's slowing, and it's very system with an economy that needs significant amounts of stimulus just to stay where it is, not to slow further. Uh. And and that's where we are. And that's not an environment where you you really want to stick your neck out when it comes to risk. So at every time we chat with a currency strategist, trader, investor, I always have to ask the question, is there a bearer case

for the dollar? I think so, And I think the bear case was starting to form at the beginning of the year, and and and it went something like this, look to the extent that we've seen a significant bid for the dollar, a safe haven bid for the dollar. It came from two points. First, US growth was superior to that of Europe, and second, US rates were seeking afinitely higher. So is it was a positive carry trade with the Phase one deal, with US data starting to

stabilize and European data starting to actually outperform. If you look in the surprise in the sease, European data is surprised to the upside significantly faster than than U S DAD in the last six months. UH. There was a case that that those flows would reverse in Europe's favor. UH from an asset flow perspective as well, European assets relatively cheap to to the U S when it comes to when it comes to risk, and so some of

the flows could have potentially reversed. All of that has taken a back seat, in part because it was a consensus position at the beginning of the year and it's really getting beaten out. You said that because hy yield has come off a but you didn't like hy yield heading into UH. It has sold off a bit in the past few sessions. At what point would it be

enough for you to see opportunity? UM. You know, obviously the interesting thing about HW yield is the sector level of corporate level work, right, you have to get into the individual bonds at an index level. If you just look at you know, like HID the highl td S index, it's it's it's very early. Obviously to the extent that we were short. We're covering someone that short as it sells off, but we're not really going going along at

the stage. How about pounds Sterling brexits. You know, we're getting to the point where it's gonna UK is gonna come out of Brexit. Then you'll start the long work of actually doing trade deals and things like that. What is your thoughts on sterling right here? It's around one thirty right now. Pretty pretty vulnerable, you know, in in part because we did a really good job of pricing in UM the reduction and uncertainty that that that followed

the election last year. We priced that in pretty aggressively last year. UM. And what we have now is is a new catalyst in the form of the Bank of England. We'll find out tomorrow, but but clearly there's been a shift the threshold in terms of the accumulation of data weak data in the course of last year has now reached the threshold where a cut or potential shallow easing cycle is on the table for them. Uh. They're behind the curve relative to the ECB and and and the Fed.

Uh and that could really damage damage Sterling's prospect. One thing that you said earlier that this market needs a substantial amount of central banks stimulus to keep it going. What do you think that means for the FED as we await J Powell's testimony today, or not testimony, but his press conference at two thirty pm Eastern. Well, look, the FED is going to be on hold. They've telegraphed

that pretty well. It's been priced by the markets. In fact, we have easing now in the curve through the end of of the year. There's not a lot of heavy lifting to do there. I think we're the the challenges really communicating at the moment with respect of its balance sheet um. One of the narratives in the market is because the FED is engaged in rebo and buying tea bills, the balance sheet is optically growing and that's stimulating risk UM.

I personally, I'm not convinced that that's the case, but a lot of market participants buy into that view, and from the Fed's perspective, it presents a challenge because these operations will presumably seize at some point this year and then the balance sheet just start to shrink. Explaining that is going to be challenging it all who say any thanks so much for joining us. It is a senior interest rate and currency analysts for Columbia thread Needle Investments

joining us here in our broken active Broker's Studio. The spread of the coronavirus has dominated world markets, although less so in the United States. A key question facing markets, especially considering that the consensus heading into was that the world economy would outperform the US economy this year in

terms of growth. Does the spread of the coronavirus potentially threatened that and potentially indicate that world growth is going too slow substantially while the US remains more immune joining US now I'm so pleased to say. Stephanie Flanders, senior executive editor for Bloomberg Economics and former advisor to US

Treasury Secretary Larry Summers. Stephanie, do you think that the concept of world growth outperforming the US is threatened based on what we're seeing by the spread of the coronavirus. I think it pends. I mean, we're obviously looking at cut in potentially the Q one or Q two growth forecast for China and some of the other parts of particularly Asia, where you're seeing the most impact in terms of people not going to work, shops being closed, etcetera, etcetera.

I think the basic story we had at the beginning of the year, which was around the world kind of getting better a bit more than the US, the US seeing slower growth this year and the rest of the world actually coming out a bit out of the slow spot it had last year. I think that basic story is still there. But obviously one reason why the markets are nervous is that we don't yet know quite how

big a deal this is going to be. And that's obviously gonna we'll keep debating that over the next few months, Stephanite. We've seen or some reporting and some signs some data

suggesting that Europe has seen some stabilization in their economics. Outlook, are you seeing that as well in the day to you look at yeah, and if you look at that, we even saw with some German data in the last week or so, and we're going to at the end of the week we'll get even a better sense because we've got some GDP numbers coming from quite a lot

of the key Eurozone economies. But I would say that's right that we were sort of we were taken aback by the speed of the downturn in Germany, particularly last year. But now we're seeing activity come back a bit, You're seeing wages pick up. It's still, you know, the yardstick is always pretty low when it comes to the Eurozone. You know, you got to interviewed the German finance minister and he was happy on a day where there was

zero percent GDP growth because it was potentially negative. So I think it's not the kind of growth that the people in the US would be happy with, but it's certainly looking better. The momentum is they're compared to last year. The FED meets and has been meeting in Washington. The press conference later today at two pm, two thirty pm, two pm is the statement release? Well, street time, what are you expecting them to say with respect to exogenous risks,

among them the coronavirus. Well, it's interesting. I mean that is a sort of boilerplate statement in part of their statement where they talk about external developments. And I suspect that the assumption is that the virus will not be men shouldn't specifically, but it's obviously is potentially included in that. And I bet the first question, or one of the first questions to J. Pow will be how are you thinking about the virus? And so we'll hear a bit

more about their thinking. But it has not it has not come to the point where you would say this is something they're going to respond explicit to explicitly too, in the way that maybe they would have responded to worries about China in the past. So, Stephanie, this Federal Reserve has described it stuff as data dependent. Do you think the data supports them kind of sitting on the sidelines for the next couple of quarters. I mean, if you look at the futures market, that not really looking

for a rate cut or maybe sometime later in the year. Yeah, And I think he's indicated that he thinks that's a bit premature to be a suit to be counting on that rate cut over the course of this year. But there's certainly there's no expectation of a rate cut in the first half. And I suspect we will hear that phrase again. You know, the good place. We are in a good place. The US economy is in a good place.

There's not been a big shift in the data relative to the Fed's expectations since the last meeting, and in fact, a lot of the action, as far as there is any action coming out of this meeting, is going to be more about that what's the FED doing to increase reserves and how far is it going to go on increasing the balance sheet. You've now seen that significant run up, in effect a big injection of liquidity to respond to that problem in the repo market that we saw a

few months ago. Some debate about whether that's quantity of easing not quantity of using, lots of sort of philosophical arguments about that in the markets. But I suspect if there's any fire out of this press conference, it will be in j Pal's response to questions on that the future path of the balance sheet, how much more can

the market expect to get on that? I want to focus on this gap between the Fed saying that there on hold for the remainder of markets that are calling their bluff, and saying we are expecting at least one rate cut this year because that's what's being priced into

the market. Over the past decade, the market has been right or perhaps has job boned the Fed into action on numerous occasions, as an example of what happens when they don't when when they don't get what they want, do you expect that that's that's basically what's going to happen this time? And I think there's a number of ways you can read those that the forward pricing, because you could argue that a lot of people that that that that sort of average expectation actually encompasses two things.

It encompasses, you know, a reasonably high chance of no movement from the FED plus a chance that if they do move, they're going to move quite a lot. You know, they have made clear because we don't have very much AMMO. If we see a problem, we're going to respond might be more than we would have done in the past, maybe sooner than we would have done in the past.

If you think that that if something goes wrong this year, that they would actually respond with a half point, not a quarter point, or even more than that in response to a slowdown, then if you average out the sort of you know, say a thirty percent possibility of that with then you can get if you look at that market.

I mean, obviously the numbers are rough, but I think that is there's still if you ask a lot of people in the markets, I'm not sure what you're seeing in the pricing is that that is what they expect. It's the average of two different scenarios. Stephanie Flanders, thanks so much for joining us. We appreciate you joining us here. Stephanie Flanders, Senior Executive Editor for Economics ahead of Bloomberg Economics, based in London, but joining us here in our Bloomberg

Interactive Broker Studio went ennivers Seas in town. Look forward to having her. Thanks for listening to the Bloomberg p L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abramloyd's I'm on Twitter at Lisa Abram woyds One. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio