Bracing for a Recession

much have the markets already discounted a potential recession. We'll get into it with a senior markets analyst in London, but first, Viltani, you need to catch me up. I've been off all week until Thursday. What did I miss? As they say, well, all of the new Bloomberg interns started, and uh I added a bunch of them on LinkedIn or they added me and I accepted. You did you disrubbing in there? We already have the interns all in

your professional network. Yeah, they're not even professionals yet, they're just interns and they're and you allow them in your professional network. I did. Yeah, I'm getting along with them really really well. So we're LinkedIn friends. Welcome to all the Bloomberg interns and uh, I'm happy to have you in my network. Wow, that's amazing for listeners who haven't been paying attention to a kind of refuses to allow me into her professional network on LinkedIn. Yet all the

interns are admitted right away. Yeah, they just started I think like three or four days ago. So if I were to go back and restart as an intern, would you would you let me in? I think so? Yeah, it depends. It depends like would we be working together? What kind of work would you be producing? But yeah, I think so. Now it's it's too late for you to that's I'm too old to be an intern. That that's the bottom line. I guess do you know who else is in my on my LinkedIn network? I bet

our this week's guest. Yeah, this week with this week's guest is also part of my LinkedIn network. I want to welcome Fiona Sencoda. She's the senior financial markets analyst at City Index. Welcome Fiona, Hey, how're they going? Welcome to the show, Fyota, and welcome to vil Donna's professional network. It's a very exclusive club, clearly. Uh oh yes, only some people being excluded. But I wanted to start UM by asking you a little bit about Cindy City Index itself.

I mean, we definitely want to get your take on the on the market outlook and everything. But for US listeners who aren't uh familiar with City Index, UM, I'm kind of fascinating because you you offer some types of trading that UM, I think many of our U S listeners are not familiar with, such as spread betting and CFD trading. Could you just explain to people who aren't familiar with that type of trading what it is and how City Index is involved. Yeah, of course, So I

mean DFD trading and spread trading. They are trading derivatives, and the idea is that they're traded on margins. So basically, what that means is that when you're taking out a position, you don't actually own the position. You're actually making or taking an opinion on where you think the price movement is going. So you're not owning it like you would a stopper a share. If you're going to actually buy stocks and shares, you're actually making or losing money on

the price movement. And so what that means is that you can actually short the market just as easily as you can go along the market, which is brilliant in times of high volatility when you need to get some heading strategies going. And also for example, in bear market whatever being an industry can become really I mean, there are a couple of things to watch out for it. I said, it's traded on margins. So what that means

there is you're actually just putting forward a deposit. You don't need to put forward the whole value of the trade that you're taking out. Now, that could be very advantageous in the sense that you only need to put forward like a percentage of the value of your trade, but you make losses or gains as if it was the full position tide. Brilliant when it goes in your favor, not so good when it goes against you. You've got

to be really hot on your risk management. You've got to keep these ideas, you know, stop losses and and and sort of really have a good strategy when you're trading the market. You can't just sort of leave it with the hope that things might turn around, because that could get a little bit hairy, right right. I bet some of our more active US traders are very jealous that that of this type of trading that they can't do in the US, But who knows, maybe someday they'll

all our Um. But are you are the clients a sort of a mix of retail and hedge funds and whatnot or or what who exactly is uh you know the client piece? Yea completely, We have an absolute mix, so you know we can go from We do have newbies, complete newbies who have never traded before and they're just sort of looking to get involved because obviously you can't take very small position sizes as well, which is good if you're just you know, testing it out and wants

to see how it all works. Um. And then we go all the way out. We scouted all the way through, so we've got some big clients in there as well. UM. So I mean, you know, different news is people using for different and different institutions have different uses for what we offer. Um. But yeah, we we we cover the complete range professional clients as well as as we tell it just so our listeners are aware and is aware.

And I actually hung out in London when when I was there a couple of weeks ago, and we arranged the podcast appearance, but I wanted to ask you to gauge the mood over there and what it's what it's actually like. We have the war in Ukraine, we have high inflation in the UK and across the Eurozone. Plus we had Germany this week warning of this contagion from Russian gas cuts. So I wanted to ask you to sort of tell us what it's like, what the mood has been like. Yes, I mean it was great catching

up with you. That was so lovely and putting a pace through a name and a chap so that was really good fun. But yeah, you know, we're really noticing these price rises and I'm sure this is something that that's really being noticed across the across the social social sectors in the UK at the moment. Are those price rises that we've been coming through. Um, you know, inflation is really quite high here. It's coming at nine percent, it's expected to spring to double digits, were expecting eleven

in the coming months. Um, And so it's really being felt because it's broad based as well food. We have a lot of important energies that energy bills are just going through the real um that's really proving to be quite a struggle, um for a lot of people, and it's putting in this we've got this cost of living crisis, UM and we're seeing that there's a lot of strikes now where where we've got unions wanting their payers to

have more money. We're just in the middle of this huge train strike in in the UK at the moment, and so yeah, you know, most of us are working from home this week just because it's gonna be impossible to get into the office. But this is just one union. You know, We've got other unions and workers that are planning on more strikes because they want higher wages to be able to afford and to be able to copen this cost of living crisis. But obviously that's just spiraling

into this this inflation spiral and helping everything go up more. So, you know, it's a very very difficult place we are at the moment. We're expecting it a really tough summer as far as walkouts, the concerned, as far as rising prices they concerned, and for inflation just keep on going home. You know, fid I wanted to ask you about that because you know, obviously in the US, um UH President Biden has gotten a lot of political heat over the inflation issue in the US. It doesn't seem correct me

if I'm wrong. It doesn't seem that maybe Boris john Johnson is getting as much criticism and blame for inflation. Maybe I'm wrong about that. I feel like people are still fixated on the parties he had during COVID. I was gonna say, but they're not done with that scandal yet. They'll maybe they'll get get to inflation, but it's is inflation sort of you know, a political risk across the spectrum.

Do you think in Europe to to the leaders and the leadership parties um because of you know, people expecting the government to be able to do something about it. How are politics sort of factoring into your your thoughts on the markets and what inflation is doing to uh things like the labor issue you've discussed. You know that there isn't as much yet, I say, of a blame game going on as part as Boris Johnson's concerned. As he said, you know, we're just all getting over the

fact that he was over the partying during lockdown. So we're just just trying to get a head around that. We've had the Queen's do believe there's been quite a lot of other things to folks do, but I think that's starting to change. We've had some by elections where he has not been doing so well. We've seen in France as well, Macron's having problems getting a majority in parliament. So you know, I think there is this sort of it's deeping in there, that there is this sort of

blame towards the politicians coming in. We just seem at the moment, I feel there have been a lot more blame thrown towards Andrew Bailey, who has been sort of out defending himself quite vigorously recently, you know, over inflation and why it suddenly got so out of control and

why the Bank of England hadn't done anything before. And then we've also got Richie snack O Finance, uh, Chance of the Exchequer, who has also been sort of drawn into this as to what what he's doing where, how they're going to help out, how they're going to help this for a family, um, so that there is sort

of a bit of a blame game going on. It's not really I think heated up properly yet, but I think it will over the summer, as we have more strikes and more people struggle to get to work because more people can't afford what they want to be able to board. That's when we're really going to start to see sort of the politicians come under a lot of heat. And I know, Fiona, you also focus on the U

S economy and US markets. We heard from Powell this week where he sort of came really close to admitting that the FED might not be able to engineer the soft dish lenning that everybody's been hoping for it, and wanted to ask you what you make of that and what you're outlook is in in terms of a recession

in the US. Yes, so, I mean it was almost the first sort of like official acknowledgement that there could be a recession in the U earth bright and I think that was also the market actually behaved quite interestingly in response to that, because we saw the equities actually pick up off the session lowse They didn't close higher, but they did try to. But we've seen them pushed higher today. But this question on is there going to be a recession in the US is one that sort

of really dominating the market this week. When you knows as investors to sort of tussle with that idea of more huge great heights from the Fed basis points potentially in July and another fifty basis points in September. So yeah, that that focus of is there going to be a recession in the US, and I think the answer is still unclear. I think the chances of a recession happening in the US are much more likely now than they have been for for a very long time. It's not

as clear cut in the US. That is in Europe. I think in Europe it's almost going to be impossible for US to have your recession over this side. Um, But I think in the US there is still I think, and a soft landing is optimistic, we'll put it that way. So that puts my expectations of a recession probably morving moving over sort of over fifty chance at the moment. But there are a couple of things that the US economy really does have in its favor, and I think

that's the leeway in the jobs market. You know, you've got such a strong jobs market right now, which is obviously does have its down for and the sense that it's sort of keeping wages elevated but that does mean that there's a lot of leeway, um, you know, gives the FED real wiggle room to be able to get those big hypes in early and I think that's what

they're going to be looking at doing. So, you know, it could be that the jobs market is actually the saving grace for the US economy, even though right now that might not necessarily see the point seemed to be the case, given that it's keeping wages so high. Well, how much do you think has already priced into the market. I mean, we're looking at a US stock market that's down more on the year. Is the worst already priced in?

Do you think? Or is there a lot more room to fall should the outlook deteriorate and we actually get a contraction in growth. You know, I think the focus, as I said, was going to be on on the

job side of things. I think for now. We had that big sell off last week when there was that sort of realization that the FED is going to raise raise height rates like them to buy basic point and they did, um and that sort of you know, when we saw some some some big sort of moves down and we saw the F ANDP bear market move into that bear market I do think there is more downside to come, and I think that will be coming when we start to see the cooling off in the jobs market.

That's going to start to get people nervous, that's going to get invested a little bit more nervous. Um For now, we've seen that inflation is high. We know that, we know that we've seen that one point five contraction already. So I think as far as those maccorrect mimic figures are concerned, it's priced in where we are. It's when we start to see that that easing in the jobs market. And today I mean jobless claims, they hag that they've just initial claims of just they're still creeping up for

that five month high. We're not seeing big moves there, but there might just be some sense that there could be a little bit of sort of easing coming in. So I think that for me is going to be like one of the key data points to be really watching closely. Are you watching any other indicators besides that?

I know I talked to a lot of people who are looking at technical indicators and so on, and I also wanted to ask you to look ahead considering that we're talking about you know how much further we could go. But what does the second half of the year look like now that we now the tune is almost over, okay, so you know, as far as the chance they can stand, I think the one place that we tend to be

looking for is movement on the vict right. I think historically the Victor has seen a little bit more movement when we're sort of getting towards that last part of of the bear market and sort of concerns of processions. So we haven't really seen that in the Victor yet. It's elevated, but it's not up at those levels at forty five level, which I think is pretty key to be watching out for. And as far as looking out towards the second half of the year, I mean, I

think we will start to see inflation cooling. I mean if we look ahead and even just next week, not as far as we're going, I want to look ahead, well said further, We'll start with next week. You know, you've got the PC inflation gage and that's fallen now. So it was up at six point six and then and then came down to three. If that falls again, I think that we could start to say that is

looking like a friend. And if that's the case, then that could potentially continue and that is going to be a really good place for the market to be watching, Bob. So as far as as what to sort of watch out in the second half of the year, I think falling inflation is something that we could potentially be seeing. Also, though, I think we're also going to be seeing sort of a calling as I said in the in the jobs market. I think we could expect to see sort of you know,

those non farm payrolls come right down. We could see sort of jobless claims start to inch. Hire um. As far as that's been said, they're going to be sort of the two key areas that I'm going to be watching would be inflation and job for the second half of the year. But I think until we've got that sense of peeking for ation, which has been you know this this real sort of bugged for the market. Have we passed it? When's it going to come? Until we get to there, and I think the markets are going

to struggle for me higher, you know, Funeral. I think one of the most difficult things for sort of your conservative buy and hold investor this year was the the correlation between stocks and bonds being so close, you know, both falling in tandem. Um. You know, now as we're you know, people crossing their fingers and hoping possibly there might be a bottom in for for both and and they'll both for them up a little bit, you know, yields will come down and treasury prices will rise and

stocks rise. I'm curious how you're thinking about that. How long can we uh sort of expect the two to be correlated? Uh, you know positively we're you know, what would it take do you think to sort of get them the dcouple again and sort of start moving in uppposite directions again. Yeah. I mean it's been a challenge, hasn't it. This year has been like really tough. Cash

is king, That's what it's been. You know. It's been that idea of where are you going to look for in order to to to be able to to make something something from your investment. I think the idea that there has or there is now so much in cash is something that would be favorable for the markets and seeing that point of change around UM. And I also think I generally would expect to see I think a movement in bonds before we see the movement in stock.

So that again is something that I've been looking out for. But I don't think with the Yeah, I don't know what that event is going to be. Sometimes you see that capitulation only where everyone just throws in the towel. Then enough enough, you know, take me out before you see that botty something out. Whether we'll see that this time now, I don't know that's historically the case, um, and so but I do think that there is going

to be a rough ride still to come. I don't think it's, as I said, being completely priced and yet so I do think volatility is going to remain. And also that sort of does mean that having that sort of that hedging strategy UM could be really useful for these challenging days in the markets, because if you think, well, you know, we do a comparison to two years ago, by anything, and you're going to make money the market just went up, you know, we're in that sort of position,

whereas it's a much more challenging environment at the moment. Yeah, that that whole notion of capitulation is kind of fascinating. I mean, we've seen we've had these you know, down to three plus percent days and no one is convinced we've seen capitulation. And I guess when you see so many, so much vilatility, you really need to see something that's even above and beyond what we've seen to really feel like capitulation is in. Is that is that kind of

what everyone's waiting for anything? I think so, I think that I think that's why. But as you said, you know, we have seen the sort of these big swings, and to a degree, we've always got a little bit used to it, haven't we. So its yeah, so it's something even bigger needs to be happening. And is that going to be the moment? I mean, and as we know, what historically happens doesn't necessarily mean that it's going to

happen this time. But you know, if we're trying to draw comparisons, and that is what would be expecting, but it expects to see that rise in the vix, the drop off and then a floor in place. Um when that will happen at the moment is quite a difficult question to answer. But I think we're getting closer, definitely, and I think by the by the time that we're moving, you know, well into the second quarter of the year,

then we should have been past that. Does that also mean it's too early to say that we've seen a pea cans? Yeah, I think it's difficult. That's a really good question because I think bonds do me before stock, so in the sense that we will see that first, and we have seen that, You'll have come off in the last couple of days pretty in a pretty impressive manner um. But yeah, I just for me, there's still

there's still more to come out. And I think the other thing that we need to be aware of it is the situation in Russia and Ukraine is I know you are in the US are not as closely tired as we are in written by any sense of the picture. But I think that that is a big anomaly. And also the COVID cases in in China. Again, you know, we feel that we might have passed that, but we just don't know when these sort of anonymally are going to pop up. So I think that's something that is

worth just being aware of as well. But yeah, I just my feeling is there's a little bit longer to go. So we've seen this, but yes, that's what we're watching out for, is that that that falling in the yield and the peak path thing. Yeah, so so how would you sort of position in the stock market these days? You know that everyone's wondering if this value our performance will last or if you know, tech is sort of inevitable that will get a big bounce back in tech.

How are you thinking about sort of you know, to play play the internals of the market. Yeah, you know, it's not easy right now. It's definitely not easy, and you do have to be much more careful on where you're picking, on where you're sticking your money than you have had to be for a very long time. And I do think that there are some areas of tech which really do still stand to outperform as we progress

through the year. I think sort of cloud areas of tech, AI processing, those areas of tech are going to be the ones that will be ready to pick up when we come the other side. I think it's going to be also about sort of positioning yourself to be ready for that turnaround. We know that like trying to catch it is it is pretty impossible, really, but joy to

position yourself so that you're ready for when it does come. Um, So that would be the particular is And also I think other other stocks are going to be consumer staples, UM, you know that sort of fairly typical stocks that that are sort of you know, what would consider UM where

consumers still have to go regardless of what's going on. UM. That would be sort of the two areas that I would be looking And I think when we get to the other side of it, that's when you need to be in the financials ready to rise those those higher rates UM and sort of really benefit from that. But just that that threat of recession is just going to

be weighing on financials for now. Can I also ask you about turnings because I feel like just about everybody, everybody I talked to says that earnings will still have to come down, that analysts estimates are way too high for what people are expecting will come for the economy in the latter half of the year or even into I'm wondering what you think or whether or not maybe we can see companies continuing to pass on costs and and still potentially maybe UM posting solid earnings results. Yeah,

it's a good question. I think we sort of you know, earning well, first of all, how is it almost earning season again? Where did that go? Bro. But but you know, I think we get this quite often heading into learning season, where these questions about is it over are we over expecting from the company, And I think that there is a good chance that we will get in disappointment um

coming into these earning seasons. You know it, it's been a tough environment for them and it will be I think more importantly, the next four thir is going to be extremely tough. That's where I think we're going to see a lot of the guidance perhaps coming in a little bit lower than what we might have been expecting. That's I think going to be UM something to watch

out for. As far as sort of you know, going beyond that, I think there will be some some better news as we head towards the end of the year, but that's a thing quite a long way out. I still think we've got to get through the board guidance from from the ending season coming up, which is going to be I think on the disappointing side. As far as you know, price hikes are concern. We know that there have been price hikes, they have been passed on.

We also know that that they're not always successfully being passed on, So I think that's something. And the other thing to bear in mind is we've had that sort of you know, the cash egg from from from the pandemic which has been helping UM households as they sort of have moved into this entire inflation the environment, and that's going to have been disappearing now, so that's going to be something that's going to becoming, I think more obvious um as we're going too this, Senny Doana, such

a treat to hear all your insights and thoughts. We we really appreciate it, and thanks for meeting with Valdonna in London. That allows that allows her to expense her whole trip from the entire thing to all the princesses and castles. We can't let you go without participating in our tradition on the show. Which is the craziest thing we've seen in markets this week, So hopefully hopefully you've got something for us. Uh, let's start with you though,

what's the craziest thing you saw this week? I actually found a couple of things that I couldn't decide which one I wanted to go with, but I'm going with this headline and I saw on Bloomberg it's South Africa's national airline is being sued by an investment firm and

the investment firm wants the sale to um. South Africa's airline had sold itself or sold more than half of itself, and so this investment firm wants the sale to be rerun because they say the acquisition was unlawful and constitutionally invalid. And I was going to ask you, Mike, to guess how much this airline had gone for. Oh boy, was it in in South African rand or is it in Uh?

Accept Yeah, I'll accept answers in news though. UM, I'm guessing I'm gonna guess on the low end because I don't think they'd be fighting over it otherwise, UM, hundred million, three dollars, three dollars, I thought it was a type of I would have been at least five. I didn't know. I had I known, right, we could have on we could have owned an airline. And is it it's just they're so in debt. I guess that, Uh, it's more

of an enterprise value type of thing. I mean, who wouldn't think that you you can't get more than three dollars for an airline so low? Like any of us could have bought it. I'm gonna get I'm gonna bid on the next one. I'm gonna go. And that's pretty good. Jeez. I thought I was low ball and at a hundred million, Well, I don't know if I'd want to fly Fional on an airline sold for three dollars. So do you know

what I was having a very similar thought. I was trying to have picked her and imagine what the flight you name flight might be. I know you like cast the airlines can be a little bit uncomfortable, but I'm not sure I'm taking that plate. How about you, Fional?

What's the what's the craziest thing you've seen recently? Hey, do you know, I don't know if mind's crazy, but it's something that I really enjoy watching, and it's you know, sometimes there are those those those relationships between markets that are quite interesting. And then just to name me a little bit, and it's the Dr Copper I think you know, just overnight we saw on the charts Dr Copper Bell Copper. Should I say, um? You know, traditionally it just reflects

the health of the global economy. So when you know the economy is in an expansion, we sent the copper rises and and the alternative when it didn't sort of, you know, in a period of contraction or heading talks contracting with Tennessee that copper schools and copper has been fooling. It's fallen. It's fallen to a fifty month low overnight last night. It's down twenty five percent from its recent high. And you know, it's taken out from cute that whole.

So I think again when we talk about about idea a procession and helpable to economic it's a really good one to be watching right now. Dr Copper, think the good doctor. He is not not a good uh prognosis. I guess the economy at the moment. And that's and we are taping on Thursday, so that that price action, uh Joan is talking about, happened Wednesday night in the Thursday, So who knows, by the time this comes out, maybe it'll bounce all the way back. We'll see. With with

with these markets, that's pretty good. You know what, I'm gonna go back and start looking at copper again. It's uh, it is such a closely watched barometer. Um. Everything is so screwy these days, though it's hard to know if if the old indicators are as reliable as the as they want were. But but that is certainly a one to watch. All right, I'm going back to my favorite asset class, the the alternative asset class. Uh do you guys YouTube might not be old enough to remember the

movie Back to the Future. Maybe not. You don't remember this version of it when it came out in five I think the movie came out, but in six it came out on VHS tape. You had a VCR back in the day, in the eighties. Yeah, I didn't have one at this point, but you were a player. You had that technology in your house in the mid eighties. So the guy who's Biff, he's like the bad guy in the movie, you know, the Bully. He's kept a sealed, near mint condition of the original Back to the Future

vh S tape. He's had it in his possession all this time, and I guess ifs I guess he's having some hard time, so he's decided to sell it to an auction house. Um, this is courtesy of CNN dot Com. I'm getting the story. Heritage Auctions in Dallas put this up for sale. Um. It ended up being the highest ever auction price for a VHS tape. Um, so you know what time it is, build Donna, I need you

to guess. Hopefully you do better than my guests on the airline bid you were really bad at that was pretty bad near condition VHS tape Back to the Future was the highest ever selling price for a VHS tape at a collectures action. And what they're saying is that a lot of these old actors have rose and rose on their bookshelves of old VHS tapes that might come to market for some reason. They're a hot, hot thing again in the collector's market. Which, um, I think he

offered to like write a note on it or something. Okay, I'll go. I don't know if the buyer actually took him up on that or not. They want to study that. We don't need that, ye would, but it would be cool. Okay, Well, I'll go with twelve thousand dollars. Twelve thousand dollars, doota. How about you? What's what's your guests for the winning auction price for for this VHS tape. I think I

would go a little bit higher. I think there is some really keen back to the Future that level out there, so I'm going to go stay twenty five thousand, dooda, you win, but you're both stolettle off seventy five VHS. Nobody even has VHS players. Who's going to watch that VHS? Yeah, I'm not sure you ever want to play it, though it's you might. You might drop it down and buy about fifty tho if you if you actually play the thing, I think you want to keep it in that field.

For whatever reason, people like to collect this stuff like this. I'm always fascinated seventy five thousand. And you know, if you god VHS tape second s, what do you have on this shelf? You never know, You never know anymore. But all I know is if you go to this person's house, you know you're gonna hear all about it. You know. I'm sure it's going to be displayed prominently. I have an old Dennis the Menace If anybody wants it? Oh really? Yeah? Bid all right? You you Mike, you

might get a bid for that. We'll see, we'll see if you. I think the only way to bid on that is you have to leave us a review of the podcast on Apple podcast with with your bidding and maybe your routing number. I don't know if you want to Yeah, no, don't do that. We'll accept bids for that. Dennis the Menace tape on on our Apple podcast Reviews, which we need to get the three hundred before we reveal bil Donna's high school nicknames. So we're we still got a few more to go, so get him in there.

This is Mike's stick to get people to review. I I can't resist a good gimmick. It's that's that's my Achilles heel. But I think that is all the time. So great to hear your thoughts. Um. Really appreciate you joining us from London and hopefully we can talk again soon. Thanks brilliant, Thank you so much. Really enjoying myself. Thank you, Fianna. What Goes Up will be back next week and so then you can find us on the Bloomberg Terminal website

and app or wherever you get your podcast. We love it if you took the time to rate and review the show on Apple Podcasts, so more listeners can find us. And you can find us on Twitter, follow me at Rea Anonymous, Bildanna Hirach is at Coldanna Hirach. You can also follow Bloomberg podcasts. At Podcasts, What Goes Up is produced by Stacy Wang. The head of Bloomberg Podcast is francesco Leavie. Thanks for listening, See you next time. Aspect not Wanting