This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. Tiens Nordvik joins us right now an important moment with accente data.
Yen's perfect timing. Here we see the arch other pair Euro yen breakout. Strong euro weekend weekend technically through one forty eight is a huge deal against strong euro. Explain to mere mortals what the significance of a euro yen breakout means.
Yees.
So, we've had a situation here over the last month or so right where we had significant banking tension. It was not just in the US. We also saw pressure and credit Swiss, Torture Bank and so forth, and we've had a significant relief from that. So we've had euroen essentially go up four to five percent from those lows. So it's a very significant bounds as those banking tension concerns and the Eurozone have really been pushed in the background. In the US, it's a little bit more complicated, but
so we have a very significant movement. At the same time, we continue to have this elevated speculation about whether the Banquet Japan is going to do something right. We've had incredible volatility around Bank oft Japan meetings. We have another one this week, and now the new Banquet Japan leadership
is essentially signaling that they will still be patient. So I wouldn't say it's still the same as Corona, right, but they are sickling that they are not in a rush to exit from the easy So those are the things that's really pushing Uri in pretty significantly high.
He ends your book on the Euro ten to fifteen years ago was definitive on what the euro needs to be. Europe escaped eurosclerosis? Has Europe you know the experiment coming out of the advent of the Euro. Have they escaped that permanent unemployment? Have they found a more Anglo saxon prosperity.
We continue to see that when there's a crisis in Europe, the leadership tends to come together and do more stuff that they've been willing to do in the past, right, So the Corona virus episode was another example of them doing more and next generation EUO funds are still being dispersed around the European Union to support countries that needed.
So we have essentially a degree of physcal union building, right, So that was something that was missing and we're having a degree of it and that certainly is certainly helping on that front. There's a lot of talk about having a banking union as well. Right when you have banking tension, there's focused on supporting the banking system in various ways, and we're having that discussion again, right So we're not
there yet. But I think the one thing that's really important that is different from when I wrote that book is we have those political tension that caused uncertainty about Okay, do the different countries have the willingness to do what it takes to stay in the Eurozone. We don't really have those debates at the moment. There's no debate in Italy about leaving the euro right now. There's no debate
in Spain or other countries. Right So, if you do opinion polls, do people want to stick with the euro there's actually rising support for the euro, So that's something that cements the Euros status despite all the difficulties there is with economic integration and so forth.
This was the reason why a lot of people earlier this year said that European equities in particular were a real place of brightness for the full year, given not only all of this potential optimism, but also this idea that they're not as tech heavy at a time when there would be a rotation out of that, well it hasn't really worked out that way, and you've seen actually big tech continue to lead in the US. What is
that going to shift? Is Europe ever going to basically create some other common plex like it to rival the tech giants in the US.
Well, so the European stock trade, like for example, in banking space, has worked out right. So BNP has recovered twenty percent from the lows, is up significantly in the year. So the fact that interest rates arising is creating a different environment for equities and banks have done very well. Obviously Europe doesn't have a tech sector, so on that front, tech sectors speak of, So that front, the US is
going to be leading. But I think overall we have a situation where European equity markets have outperformed the US equity market, so the first time in a long time, Right, you can argue whether it's europe outperforming of the US underperforming outside of tech, and that's something that's very interesting. Don't forget that we've had a situation where last year we had like a very very serious energy crisis in the Eurozone, right, and now energy prices have dropped very notably, right.
So part of the reason why we have the eurostrong, European stocks also can can do relatively well this year is that that energy crisis has abated, consumer confidence has come back. You look at services PMI. Services pmis have just resent resen over the last couple of months, right, So we've really recovered from that energy shock in a way that the support of the European economy, and obviously
the ECB is still facing inflation, right. So the combination of too high inflation and growth that's actually getting better means that it's very very hard for the ECB to relax. They have to continue going as we heard today as well.
So Yen's basically it sounds like you are still very bullish in European banks and European equities more broadly as well as the euro.
So I was certainly very I was treating very aggressively about it a month ago, and I actually did a summary tweet yesterday about it on my handle, like like there was no particular reason to think go to a bank was just about to go under, right, And we've recovered from that dramatic shock, and I think there's still some reasons to think that we're out of serial interest rate world. That's supported for the banking system overall, and for the euro. The ECP is going to continue to
support it. So I think the big quest question here is what it's global growth is going to do. That's super important for the dollar, and we have some question marks in Asia now. So that's the new things that we're starting to really focus on in our research right now.
Okay, let's go there on China. How does China fit into speculating or betting on a given currency pair, Which pair gives you the greatest efficacy to play your China guests.
So typically when we've had you know, China stimulus, China growth recovery has been currencies like ARSI dollar that has benefited from Korean wan and we had a period in January and February where China linked assets all around the world from casino stocks to tourism stocks and so forth, all rallied hard. And now we've come to a point where it feels that some of those trades are very
fully priced. And actually it's sort of the longer term growth concerns that are starting to feed into price action. We can see that in Chinese equities rolling all see it an iron ore rolling over. So it's kind of one of those things where perhaps we got it very fully embedded and we start to look at the more medium term past, it's just that short term shot.
So are you saying au DKRW is the most efficient pair to play a China guess?
So, I think when you have a growth bound in Europe,
those are the assets that I'm moving. And I think right now, if we look at we have like very high frequency tracking of Chinese growth where we look at, okay, what is the momentum, and we can see at the end of March that's when we kind of had a peak in Chinese growth, and since then, over the last three four weeks, we've started to see the real momentum in the Chinese economy potentially peak out, and therefore you have to be a little bit more careful with those
sort of China growth sensitive assets.
Right now, Yen wander for to get your perspective on that. Yen's Nordic then Efic Santa Data joining us now, Markey Ptel of Allspring Global Investments, Markey, wonderful to catch up with you. Tom mentioned this conversation at the very start of the program. Pushing forward to tech earnings later this week, Mark, you still hold a lot of tag. Can you walk us through where you're taking that equity exposure at the moment go and gets results later this week.
Well, this is going to be a huge week for stocks. A huge number of companies are reporting. We still like the tech sector because certainly the understanding that there's a lot of inventory to be worked off, that we may have to wait for the second half of the year to see a turn in demand is well understood, and the stocks have anticipated that. Most have performed really well. So the question is can they have a decent results
in the markets really go down because of that. We think we'd rather ride that out and say these companies have long term growth, they have good positions in the industry, strong balance sheets to withstand even if we do have a deep recession.
Mark ya, look at tech and the rep here this how many people are afraid of. Is tech conservative? How do you determine a measured conservative cash flow from a high flyer that could be trouble.
Well, I don't really know about the high flyers. I like to avoid the high flyers that might have trouble. But just looking at companies that have improved their market position, who are you know technological leaders that have a lot of cash on their balance sheet and also they pay a dividend. A lot of tech stocks pay. That's a good sign.
You give us a name, Come on, no one's watching.
Well, we think Broadcom is a is a good stock because it's diversified in a dividend.
All right, Well, going forward, we talk about when to know when the cash out marquee. We have seen a huge run in some of the big tech names that are profitable. They've really been, frankly the backbone of any gains that they've gotten so far this year. When do you say that's enough?
Well, I think that's true, But on a relative basis, we really don't know how deep of a economic correction we're going have, will be mild, will be more severe, and so tech prices may come down because it's pees have expanded. However, we don't know if other sectors will have very disappointing earnings if we have a big recession. So that's kind of the push and pool in the market of where you want to be positioned.
Have you been surprised at the market's reaction to some of these earnings Marketie and I asked, because people if it's waiting for the earnings recession and in certain areas it's come and markets don't care. I mean, what do you make of that?
Well, so far this earning season, which is really only about twenty percent or so, the results have been surprisingly good, and the market was really looking for signs that companies would tone down their earnings expectation the quarter would be disappointing, and it hasn't been. So we're still waiting for that correction we haven't seen.
We have seen a correction though, in nen interest margins at the smaller banks. Lisa talks about this through most of the last week. Is we've got to drip feeded news from small and medium sized lenders in the United States market, just in terms of taking a step back and trying to understand the broader economy. What is the relationship between declining the interest margins and bank lending to the rest of the economy.
Well, I think everything rolls back to the Fed, and they're super aggressive policy last year that really put the banks kind of in a box on the interest margin. So we think we have to see the yell curve get not so inverted as a big thing, and see
a little more stability from the Fed. And we think we've already seen even before the distress we saw in the first quarter, bank lending standards were tightening up, so they have already been on the watch and I think are in pretty good shape as far as that.
Is, expecting that to continue. Potentially we get some more data on that early next month. Markie, thank you for that. As always, Marcobada of All Spring Globe and Investments, we.
Feel that we need to pursue any good conversation with Dana Peterson, chief economists at the conference. Border really joins us now in the state of America, Dana, where's your GDP statistic that we're going to see this week? We sort of come down. We're all at three point two ish and we've come down. Give me the conference board statistic that you're working with right now.
Well, we're probably looking at anything between one and a half to two percent growth in the month. Certainly, we had a very strong January in terms of consumer spending, but then February and March we're pretty pathetic. And also we think business investment continued to shrink, as well as residential investment. Of course, the wildcards are trade and inventories, which have been exactly wild well.
Wor's domestic final sales. If you take out inventories and trade dynamics, you get into a domestic view of Y. We'll see plus I plus G plus NX And Dana, are we in domestic final sales recession now?
Probably not in the first quarter, but we do think that the second quarter we definitely will see some negative readings. Certainly that'll be negative consumpt consumer spending, also business investment, and of course residential investment.
Dana, have you been surprised to consumer confidence hanging in there at the fact that the economic data has not turned around more than it already has.
Well, our overall measure of consumer confidence continues to just kind of move back and forth. It's definitely down from where it was at the peak last year or even the year before, but still not When you look at expectations, consumers still expect a recession at some point, and they've been signaling that for the last twelve out of thirteen months, and so something is about to happen. And certainly when we ask CEOs, they continue to believe that there is
going to be a recession. It won't be long and it won't be deep, but it's going to happen.
How much is this consistent throughout industries versus specific industries giving this signal very strongly, whereas others are a little bit more iffy on just the prospect.
Well, when I look at the labor market and by industry, it's kind of split into three pieces. You have those former pandemic darlings that are not doing so well, like technology and retail and transportation, ware housing and finance. But then you have the ones in the middle that are
just kind of hoarding labor and not doing anything. And then you definitely have those industries that are still adding workers, and that includes healthcare and hotels and restaurants all those experiential types of services.
With inflation coming down, do we get an inflation adjusted wage, however you want to define it, that's level or increases, or do we still have negative real wage growth?
Well, real wages are actually slightly positive right now, and that's because headline inflation has come off, but still underlying inflation less food, energy is still pretty sticky, and again wages are just slightly positive. So we think that with that, consumers are saying to themselves, well, you know, at least energy, at least gasoline is not as expensive as it was and so not eating some of my budget as much as it was. But certainly food and other services are still pretty expensive.
I looked in a at the back and forth here of all the economic data coming out. I believe we have to get to a FED meeting May third. What matters for Chairman Powell and the rest of the voters at the FED towards May third? Which part of the new economic data will matter.
Well, certainly this week's GDP report for the first quarter, but also the PCEE deflator inflation, whether or not we still continue to see stickiness in the core, or if it's just a function of what we saw in CPI and also daily lending data from banks to businesses and consumers and seeing how much that dips, because if it dips considerably, then that tells the Fed that, well, maybe this is the last hike that they'll need to implement, but certainly if inflation continues to be a problem, we
might be looking at two more hikes.
We're speaking with Dana Peterson of the Conference Board at a time of great uncertainty of exactly where we are in this economic cycle and data. There was a lot of discussion earlier in this year about whether we'd be going back to the low flation, low growth kind of environment that we had for so many years, and with the race, could go back to that in the next few years, do you see that as a likelihood akin to what IMF was saying last in the past couple of weeks.
Well, we certainly do think that growth over the well beyond this year is going to pick up, but still be materially below what we're used to seeing, probably closer to potential between one and a half and one point eight percent growth, and that's not certainly not to two and a half to three percent growth that we saw before the pandemic, but inflation will be tough to keep down because they're going to be these structural drivers of
higher inflation. So that means the FED will have to keep interest rates higher for longer in order to get inflation back to the two percent target and maintain it there.
What does it say, Dana that so many people before this period of time said that this economy could not handle higher interest rates, and that suddenly we are seeing ongoing growth in the face of interest rates that that are the highest they've been going back to the nineteen eighties, and that people believe that the FED will eventually have to cut But you're saying not really that much, given how much inflation is going to pick up. What does that mean about what the right rate is.
Well, when I look at the economy, different aspects of it are behaving differently, so I use different a lot. So if you look at the housing market, residential investment that's really come off, and that really moves first when interest rates rise, and then business investment has come off a little bit, and consumers have pulled back on spending on durable goods, which are things that they need to finance.
The last shoot to drop really is services, And I think it's going to take some weakness in the labor market or even belief that people consumers believing that they might get let go even though they may not, and that's really going to bring things back into balance.
Dan, I one final question. We've got to go to some breaking news here, but Dana Peterson, it's too important you open this conversation by talking about sub too percent growth. Can I assume that with sub two percent growth x percent of America's in recession, how big is that part of America that feels recession even if the GDP statistic is positive.
Well, I think definitely people with lower incomes because much of their paychecks get eaten up by inflation. But also we're seeing worries among people who have higher incomes, especially the middle class, because they're the ones who pay the most taxes, they also pay a lot of in terms of inflation. They're still very much affected, and so I think it's those groups that are definitely feeling the pinch right now.
Dana, Thank you so much, Dana Peterson, with a conference board. This guy leads the way. Rich Greenfield had to wear a flat coat, flat jacket and helmet here years ago media as a cell side analyst who was one of the courageous guys out there in a really vicious time for IPOs and secondary offerings in that he's aged nicely like Shud Partners and joins us this morning, Rich, I got to cut to the chase. I've never seen more
capital deployed and misallocated in fourteen different ways. How bad will the rationalizations of labor be across all of the rich greenfield space.
I mean, look, you know, I mean, look, the reality is is, you know, we saw a lot of what I would call over hiring during sort of the pandemic, where I think there was just this sort of you know, incredible surge of activity around a lot of these companies. I mean, obviously they were first depressed for like a nanosecond and then we just saw this massive explosion in a lot of these digital businesses. And you're seeing a
right sizing now. I mean, you know, look look at what's happening to companies like Meta and Google, you know, Alphabet et cetera, but even Netflix and others. I mean, you've seen sort of across the board head count reductions, not because business is collapsing, but I think more than anything else, Tom, is just that they got a little ahead of themselves in terms of hiring and just brought on too many people relative to your overall revenue growth.
Rich, you and your team have been leaders in trying to monitor the consolidation of what we call entertainment. I think I saw a photo this weekend, folks of people buying Taylor Swift's merch and it was like four miles long to buy you know, Taylor Swift t shirts and coffee mugs and that Rich, I want to talk about monopsony or the consolidation here under monopoly and where price is set. Are we just going to have one or two or three entertainment vendors at the end of the day.
I mean, right now, things are pretty amazing for the consumer, Tom, I mean, yes, you have the legacy multi channel bundle that you and I have been sort of watching melt down over the course of the last ten to fifteen years. You know what people like to call cord cutting. But we're really in this era and now of where the consumers in the driver's seat. I mean, think about what used to happen in the cable and satellite world. I mean having to wait you know, call up to change
your service. Someone had to come out swap out a box. Like canceling was a pain in the neck. Nobody did it now with things, whether it's Netflix or Disney Plus or Paramount Plus or Peacock, all of these things, click of a button sign up. If you're not happy with your Peacock service, or you're tired of it, orf you watch enough content, you literally click cancel, click of a button. There's no waiting for someone to come to your house.
I mean, I don't think we've ever been in a better time in entertainment for the consumer than we are right now. More content, and you're in control of what you pay for for the first time.
It goes to this kind of frictionless ability that we've been talking about with banking but also with respect to entertainment. Given those options, does it make sense to you that simply cutting workers like what we're seeing at Meta, like what we're seeing at Disney, is enough to engender a new era of growth. I'm just wondering, basically, to put it more bluntly, does Meta's cutting of staff justify a seventy seven percent gain so far this year?
Absolutely? I mean, when you think about what's happened at Meta They've sort of gone back to what they're good at, which is selling ads. I mean, they're one of the best companies in the world for helping small businesses around the world move products off shelves like that is what Meta does. They are incredible at direct response advertising. Nobody
does it better than what Meta does. There was a lot of distraction, a lot of focus on the metaverse and virtual reality in the future, and I think Mark very much correctly realized he needed the street support, he needed investors to believe in this story. He can still build his long term metaverse vision, but he has to do it in line with.
The growth of the company.
But I think that's what got disjointed is refocused, reallocated capital more appropriately, and I think the team has never been more focused on selling the core product, and that's you know, AI driven content and AI driven advertising. That's what's making MetaStock work right now.
Does the same kind of thesis hold true for Disney, which is I believe cutting about fifteen percent of their staff in the entertainment division. Does it also give the same sort of optimism.
I mean, you don't have the underlying growth at Disney that you do. It's something like meta, right, I mean, the meta story. While it's had an amazing growth over the last decade, there's a lot to come, you know, with Disney, the challenge is really threefold.
Right.
We're trying to figure out what do you do with Hulu. They've got this sort of extra streaming service. Don't know whether the you know, sort of NBCU news over the weekend changes that process at all, But you've got Hulu situation. Then you've got what do you do with the ESPN? As Tom pointed out, the cable network business is not exactly a growth business anymore, and sports costs keep going up, So what do you do with the ESPN? And then the big problem, honestly that the two of you, you know,
should think about, is the Disney content. That engine of growth that you know, really that is the lifeblood of Disney really hasn't been working over the last couple of years. Marvel and Lucasfilm don't look as strong, they look a little tired. And the animation crown, I mean, we're all talking about Super Mario Brothers. What was the last time you were talking about a blockbuster Disney animated title Raiger's got a lot of work. He's got a lot of
work to do across Disney's businesses. He's obviously incredibly talented, but he's got to figure out all three of those big issues as well as fine as successor in the next eighteen months.
Rich green it's not easy, you comment Rich Greenfield on what I saw twice over the weekend was his fondest desire of Tim Cook to the rescue. And it can be Apple, Disney, Apple, this, Apple, that whatever. But in your world, there's seems to be the savior transaction for troubled companies that Apple would buy you. Why would Apple buy any of this stuff?
Tom, I don't know. I mean, why would you want to own cable networks that are disappearing? Why would you want to own all of these assets? When Apple has enough capital, they can make movies, they can make TV shows, they can hire the best talent. They essentially if they want to become HBO over the next decade plus, they can spend and get there. I think it'd be very
hard to imagine them buying a big media company. Sure would they love to potentially own a studio if you could just buy a studio, But every one of these companies comes with so many other assets. I mean, they have MLS now on Apple TV Plus. Do you need to buy ESPN and have people subscribers to get I mean, just buy the good stuff, you know, buy the actual content, or invest in it, build it. I don't think you have to go out and buy one of these companies.
And I think your point is well taken tom way Too often in the space it's like, oh, I can't figure out a growth strategy. Maybe we'll just get bought by Apple or Amazon because they have so much capitalism.
Exactly, Rich twenty seconds your single best buy right now at light Shed Partners.
I mean I think, look, it's when you think about recovery stocks right now, the two that stand out that are sort of rebounding off of their lows. I think you would probably put both Spotify and Snapchat right now.
Very good, Rich Greenfield, Thank you so much on entertainment. Just a great snapshot there as well. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern on Bloomberg dot Com, the iHeartRadio app tune in and the Bloomberg Business App. You can watch us live on Bloomberg Television and always on the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and this is Bloomberg