TikTok Fallout, BofA's Hartnett Says AI Frenzy Gone Too Far | The Pulse with Francine Lacqua 03/14
Summary
TLDRIn this Bloomberg transcript, Francine Lacqua hosts a discussion on various economic and financial topics, including the stock market's struggle with momentum, potential Federal Reserve and European Central Bank rate cuts, the future of TikTok amidst U.S. Senate scrutiny, and the impact of geopolitical tensions on global markets. Additionally, the program features insights from industry experts on oil market deficits, investment strategies, and the influence of upcoming elections on economic policies and market trends.
Takeaways
- 📉 Stock markets are struggling for momentum amidst investor anticipation for clues on future Federal Reserve interest rate decisions.
- 💡 The European Central Bank (ECB) is under pressure to cut rates twice before the summer break, indicating a less resilient European economy compared to the U.S.
- 🕒 TikTok's fate is being deliberated by the U.S. Senate, who are considering forcing the Chinese owners to sell or face a ban.
- 📊 Investors are keeping an eye on inflation data and the potential impact of the Bank of Greece's recommended rate cuts.
- 🛢️ Oil markets are facing a supply deficit, with OPEC Plus's decision on production cuts being a significant factor influencing market conditions.
- 🌐 The head of the market division at the International Energy Agency (IEA) suggests that oil demand growth has been boosted by the shipping industry's diversion around the Red Sea due to unrest.
- 📈 The Bank of America's chief investment strategist expects a steady deceleration in oil demand growth due to efficiency improvements and the rise of electric vehicles.
- 💼 The U.S. Senate's decision on TikTok could lead to a divestment rather than a complete shutdown, with numerous potential buyers available.
- 🏦 JPMorgan Private Bank is moderately pro-risk on equities, with an upgraded target for the S&P and Japanese equities due to resilient data and positive real wage growth.
- 🌍 There's a focus on global themes such as AI and security, which are seen as key drivers for equity markets, with technology and industrial companies in Europe being particularly attractive.
- 🗳️ The 2025 election year, with 4.5 billion people going to the polls, raises questions about potential policy changes and their impact on inflation.
Q & A
What is the main topic of discussion in the beginning of the transcript?
-The main topic of discussion in the beginning is the current state of the stock market, specifically focusing on the struggle for momentum and the anticipation of Federal Reserve rates cuts.
What does the European Central Bank (ECB) plan to do regarding interest rates before the summer break?
-The ECB plans to cut interest rates twice before the summer break.
What is the current situation with TikTok as discussed in the transcript?
-The fate of TikTok is in the hands of the U.S. Senate, which is trying to force the Chinese owners to sell the app or face a ban.
What is the current stance of OPEC Plus regarding oil production cuts?
-OPEC Plus is set to continue output cuts and will decide on further actions based on market conditions.
What is the 2024 oil demand growth forecast according to the International Energy Agency (IEA)?
-The 2024 oil demand growth forecast is up by at least 1.5 million barrels per day.
What does the discussion with the head of the market division reveal about oil market expectations?
-The discussion reveals that there is a supply deficit in the oil market, and the outcome for the rest of the year depends on OPEC Plus's decisions on production cuts and the growth of oil demand.
What is the current outlook for the U.S. economy according to the transcript?
-The outlook for the U.S. economy is that it is expected to slowdown in the third quarter, with concerns about the labor market and the fiscal situation.
What is the impact of the U.S. fiscal policy on the economy as discussed in the transcript?
-The U.S. fiscal policy, characterized by significant government spending, is contributing to a strong fiscal story, but there are concerns about the sustainability of this spending given the labor market conditions.
What are the implications of the U.S. elections on the economy and markets according to the transcript?
-The U.S. elections could lead to changes in policy frameworks, and the market is not currently pricing in the outcome of the election. The election results could influence monetary and fiscal policies, as well as energy policies.
What is the current sentiment towards gold and Bitcoin as investment hedges according to the transcript?
-Gold and Bitcoin are currently seen as attractive investment hedges against the dollar and further debt problems in the U.S., reflecting a sense of nervousness about the Federal Reserve's credibility.
What is the discussion's perspective on the performance of the Chinese market in a U.S. election year?
-The Chinese market is considered attractive in a U.S. election year, as most of the bad news is already priced into the market. The general euphoria around the elections could lift the market, making China a good candidate for investment.
Outlines
📺 'The Pulse' Show Introduction and Market Updates
Francine Lacqua introduces the 'The Pulse' show, highlighting upcoming topics such as stock market struggles, potential ECB rate cuts, the future of TikTok in the hands of the U.S. Senate, and interviews with key figures from Bank of America. She emphasizes the importance of watching inflation data and the CAC 40 index, as well as the potential impact of ECB rate cuts on the market.
📈 Global Economic Outlook and Oil Market Discussion
The discussion shifts to the global economic outlook, with a focus on oil market dynamics. The head of the market division shares insights on OPEC Plus' decisions, the supply deficit in oil markets, and the potential for increased production later in the year. The conversation also touches on the impact of geopolitical tensions and the importance of the Suez Canal for oil transportation.
💹 Equities, Risk Assessment, and European Market Insights
Grace Peters from JPMorgan Private Bank discusses the pro-risk stance on equities, the upgrade in S&P and Japanese equities targets, and the resilience of data. She highlights the strong corporate balance sheets, the potential for earnings growth, and the interest in European equities due to their alignment with global themes and strong industrial companies.
🌐 Geopolitical Impact on TikTok and Global Tech Landscape
The conversation addresses the geopolitical implications surrounding TikTok, as the U.S. Senate considers legislation that could force the sale or ban of the app. The potential outcomes for TikTok are discussed, including the likelihood of divestment rather than a complete shutdown, given the interest from potential buyers.
📊 Market Analysis and Central Bank Policies
The focus turns to market analysis, with a discussion on the potential for the ECB to cut rates before the Fed, the impact of such a move on markets, and the importance of regional issues for central banks. The conversation also touches on the resilience of the U.S. economy, concerns about consumption strength, and the market's misunderstanding of inflation dynamics.
🏛️ Central Bank Strategies and Economic Forecasts
The discussion continues with insights on central bank strategies, the potential impact of elections on economic policies, and the outlook for inflation. The conversation also explores the possibility of a change in policy frameworks due to elections and the market's current lack of pricing in election outcomes.
📈 Market Mismatch and Investment Strategies
Michael Hartnett, Bank of America's strategist, discusses the biggest mismatch in the market, the potential bubble in AI-related stocks, and the market's reaction to the Fed's rate cut intentions. He also addresses concerns about the labor market, inflation expectations, and the impact of the upcoming U.S. election on market dynamics.
🌐 Global Market Outlook and Election Impact
Michael Hartnett continues the discussion on the global market outlook, the impact of U.S. elections, and the performance of the Chinese market. He shares his views on investment strategies, the attractiveness of China in the context of a U.S. election year, and the potential implications of a Trump or Biden victory on market trends.
Mindmap
Keywords
💡Stocks
💡Federal Reserve (Fed)
💡European Central Bank (ECB)
💡TikTok
💡Inflation
💡OPEC Plus
💡Market Division
💡Investment Strategy
💡Geopolitics
💡Artificial Intelligence (AI)
💡Balance Sheets
Highlights
Stocks are struggling for momentum as investors await fresh clues on the Federal Reserve's interest rate cuts ahead.
The European Central Bank (ECB) is expected to cut rates twice before the summer break.
TikTok's fate is in the hands of the U.S. Senate, who are trying to force the Chinese owners to sell or face a ban.
The Bank of Greece is recommending two rate cuts before the summer.
Oil markets are facing a supply deficit, with OPEC Plus continuing output cuts.
The International Energy Agency (IEA) reports that oil markets are facing a supply deficit.
The 2024 oil demand growth forecast is up by at least 1.5 million barrels per day.
There is a deficit of 700,000 barrels a day expected in the third quarter.
The recovery from the pandemic is running out of steam, with economic outlook weaker this year than in 2023.
Efficiency improvements and electric vehicles are expected to cause a steady deceleration in growth.
Oil prices have been stuck in 2024, with inventories declining for seven months.
The S&P target has been upgraded for both the U.S. and Japanese equities.
There is potential for European equities as the economy may be starting to bottom out.
Japan's equities are interesting due to the balance sheet argument and cash returning to shareholders.
The U.S. House of Representatives has passed a bill to ban TikTok unless China sells the app.
The iPhone assembler, Hon Hai, reported a second strong quarter of growth, with profit growth up 33% year-on-year.
There is a lot of excitement around AI, with Hon Hai expecting to have some announcements at NVIDIA's conference.
Transcripts
FRANCINE: GOOD MORNING, EVERYONE.
WELCOME TO "THE PULSE." I’M FRANCINE LACQUA.
HERE’S WHAT’S COMING UP ON TODAY’S PROGRAM.
STOCKS STRUGGLE FROM MOMENTUM. FREESH DLEUNS FED RATES AHEAD.
THE ECB MUST CUT RATES TWICE BEFORE THE SUMMER BRAIK BREAK.
THE CLOCK IS TICKING FOR TIKTOK. THE FATE OF THE POPULAR VIDEO
APP IS IN THE HANDS OF THE U.S. SENATE TRYING TO FORCE CHINESE
OWNERS TO SELL UP OR FACE A BAN. PLUS OF COURSE I’VE BEEN
SPEAKING TO A RANGE OF BIG NAMES FROM BANK OF AMERICA.
THERE IS PLENTY MORE TO COME. AT 9:30 U.K.
TIME WE’LL BE JOINED BY THE BANK’S CHIEF INVESTMENT
STRATEGIST. LET’S TAKE A LOOK AT THE.
A LOT OF INVESTORS FOCUSING ON WHAT’S BEEN HAPPENING.
ONE THING WE NEED TO WATCH OUT FOR, SOME OF THE INFLATION
DATA, SOME OF THE THINGS WE NEED TO KEEP AN EYE ON.
THE THING THAT I’M WATCHING IS FOR THE MOMENT IF, YOU LOOK AT
THE CAC 40, WE’RE SEEING LOT OF GREEN.
THE TO US IS IS NOT ON THE DATA OUT OF THE U.S.
BUT IF THE ECB COULD CUT RATES BEFORE ANYONE ELSE.
WHAT DOES THAT MEAN FOR THE FUTURE AND SOME OF THE THINGS
WE NEED TO LOOK OUT FOR? ON THE BANK OF GREECE, IT IS
RECOMMENDED TWO RATE CUTS BEFORE THE SUMMER.
THE FED WILL DEPEND ON WHAT WE SEE FROM OIL.
SPEAKING TO THE I.E.A. THAT JUST CAME OUT WITH THEIR
REPORT, OIL MARKETS FACING A SUPPLY DEFICIT.
LET’S GET MORE FROM THE HEAD OF THE MARKET DIVISION.
THANK YOU SO MUCH FOR JOINING US.
A LOT OF FOCUS OF COURSE IS ON WHAT OPEC PLUS WILL DO.
ARE YOU ASSUMING THE CUT ALSO CUT WELL INTO THE END OF THE
YEAR?
>> GOOD MORNING. THANK YOU. WHAT WE CHANGED IN THIS MONTH’S
REPORT FOLLOWED BY THE DECISION TO EXTEND CUTS THROUGH THE
SECOND QUARTER AND THE ANNOUNCEMENT THEY WOULD ONLY
GRADUALLY UNWIND THEM ONCE THE MARKET CONDITIONS WARRANT, WE
DECIDED TO HOLD THEM IN PLACE UNTIL THE GROUP ANNOUNCES OR
CONFIRMS THEY ARE INDEED GOING TO CUT.
BASED ON THEIR OWN BALANCES WE SHOW SOME ROOM FOR THE GROUP TO
INCREASE PRODUCTION LATER IN THE YEAR. FRANCINE:
DID YOU CONSULT WITH OPEC PLUS? I KNOW IT IS A LITTLE BIT
UNUSUAL. HOW CONFIDENT ARE YOU THAT THIS
IS KIND OF THE RIGHT BASE CASE?
>> WELL, SO WHAT WE DO, UNTIL THE OPEC GROUP ALIGNS, AS THEY
SAY, THEY WILL MEET AGAIN IN JAWND THEY WOULD THEN DECIDE,
LOOK AT THE MARKET CONDITIONS AND SEE WHAT REUM THERE IS TO
INCREASE PRODUCTIONS. WE ARE NOT SAYING WHAT WE THINK
THEY WILL DO. WE DON’T -- WE’RE NOT SAYING
WHAT WE THINK THEY SHOULD DO. UNTIL THE THEY ANNOUNCE THERE
IS CONFIRMATION THEY WILL UNWIND THE CUTS JUST HOLDING
THEM IN PLACE, IN OUR MARKET OR IN THE BASE CASE TO SEE WHAT
THAT LOOKS LIKE FOR THE MARKET. FRANCINE:
IF THEY DON’T EXTEND TO THE SECOND HALF WHAT DOES THE REST
OF THE YEAR LOOK LIKE FOR OIL DEMAND AND CONSUMPTION?
>> IN THE THIRD QUARTER WE HAVE A DEFICIT OF 700,000 BARRELS A
DAY. DEPENDING ON WHEN THE ALLOWANCE
DOES UNWIND THE CUTS, FOR HOW MUCH, AT THE PACE OF IT, OF
COURSE THEN WE WILL SEE, WE COULD HAVE A SURPLUS IN THE
SECOND HALF OF THE YEAR BUT IT DEPENDS REALLY ON THE EXTENT
ALSO ON OIL DEMAND GROWTH AND SUPPLY.
WE WILL WAIT AND SEE ONCE THE MARKET DIRECTION BECOMES
CLEARER, OPEC WILL LOOK AT THE MARKET THEMSELVES AND SET THE
COURSE FOR PRODUCTION POLICY AT THE END OF THE YEAR. FRANCINE:
SO YOUR 2024 OIL DEMAND GROWTH FORECAST IS UP SOME 15% SINCE
YOU ISSUED IT LAST JUNE. THE NUMBER IS GROWING BY AT
LEAST 1.5 MILLION. WHAT DOES THAT MEAN IN TERMS OF
THE FORECAST INTO THE FORESEEABLE FUTURE TWO OR THREE
YEARS DOWN THE LINE. I KNOW IT IS EXTREMELY
DIFFICULT TO FORECAST LU HOW MUCH IS THAT -- OF THAT DEMAND
COMES FROM CHINA?
>> THE FORECAST IS 1.3 MILLION BARRELS A DAY, DOWN FROM 2.3
LAST YEAR. IT IS TRUE, WE HAVE INCREASED
OUR FORECAST FOR THIS YEAR OVER THE LAST FEW MONTHS AS THE
OUTLOOK FOR THE GLOBAL ECONOMY HAS IMPROVED, ESPECIALLY FOR
THE UNITED STATES. THE ECONOMIC GROWTH THAT FEEDES
INTO THE FORECAST HAS IMPROVED AND THE HARD LANDING SEEMS TO
BE AVOIDED. GROWTH DEMAND DUE TO INCREASED
DEMAND FROM SHIPPING INDUSTRY, THE DIVERSION OF SHIPS AROUND
THE RED SEA DUE TO THE UNREST THERE AND CONTINUED TANKSER
ATTACKS AROUND THE CAPE OF GOOD HOPE AROUND THE TANKERS, THE
TANKERS ARE INCREASING THE SPEED TO MAKE UP FOR THE LOST
TIME. THIS IS ONE OF THE REASONS WE
HAVE BOOSTED OIL DEMAND GROWTH.
WE ARE SEEING A SLOWDOWN IN THE DATA IN MID 2023, WE HAD OIL
DEMAND GROWTH THAT SLOWED TOLESS THAN 2 IN THE FOURTH
QUARTER AND 1.7 IN THE FIRST QUARTER THIS YEAR.
WE’RE SEEING THE RECOVERY FROM THE PANDEMIC IS RUNNING OUT OF
STEAM, THE ECONOMIC OUTLOOK IS WEAKER THIS YEAR THAN INFORMS
2023. EFFICIANCY IMPROVEMENTS,
ELECTRIC VEHICLES, WE EXPECT A STEADY
STEADY DEACCELERATION IN GROWTH. IT IS DIFFICULT TO SEE JUST TO
SAY WE’RE SEEING A CONTINUED ATTACKS, EVEN LAST WEEK, WE’RE
SEEING TANKERS BEING HIT BY MISSILES.
TANKERS ARE DIVERT THE SHIPS AROUND AFRICA FOR INSURANCE
REASONS, FOR SAFETY REASONS. SO IT REALLY DEPENDS ON
STABILITY IN THE REGION. WE DO NOT SEE A BIG SHIFT BACK
TO THE SUEZ CANAL IN THE RED SEA UNTIL THE SECURITY
SITUATION IMPROVES. FRANCINE: SO GIVEN YOUR FORECAST FOR
DEFICITS, ACTUALLY THIS YEAR, WHY DO YOU THINK OIL PRICES
HAVE BEEN STUCK SO FAR IN 2024 AND ARE WE GOING TO SEE
MODERATE PRICES FROM NOW UNTIL THE END OF THE YEAR?
>> THAT IS A VERY GOOD QUESTION. WHAT WE HAVE SEEN -- WE’RE
SEEING PRICES TREKKED GRADUALLY UPWARDS, INVENTORIES ON LAND,
FOR SEVEN MONTHS THEY HAVE BEEN DECLINING LARGELY IN PART TO
THE OIL PILING UP ON WATER DUE TO DIVERSION AROUND THE RED SEA.
SO WE ARE SEEING OIL PRICES TICKING UPWARDS.
IF WE ARE INDEED SEEING OIL INVENTORIES CONTINUING TO
DECLINE AND IF SUPPLY IS NOT SUFFICIENT TO MEET DEMAND, WE
DO EXPECT SOME INCREASED PRESSURE ON PRICE, BUT IT
DEPENDS -- THERE IS MANY FACTORS IN PLACE.
AT THE HEECT OF THE COVID PANDEMIC -- ONCE THAT COMES
ONSHORE, WE COULD SEE A LITTLE EASING, BUT IT DEPENDS ON THE
EXTENT OF THE DEFICITS WE SEE MOVE FORWARD. FRANCINE:
THANK YOU SO MUCH FOR JOINING US. THE HEAD OF THE OIL MARKET
DIVISION. BLOOMBERG HAS LEARNED TALKING
ABOUT OIL, THERE ARE TALKS WITH TOP WALL STREET BANKS.
THEY PLAN TO HIRE JPMORGAN AS ONE OF THE UNDERWRITERS.
BANK OF AMERICA AND MORGAN STANLEY ARE LOOKING FOR ROLES
ON THE DEAL. COMING UP, STOCKS MUTED.
INFLATION DATA DUE TODAY FOR FRESH CLUES ON THE FED’S RATE
PATH AHEAD. THIS IS BLOOMBERG.
♪
FRANCINE: NOW TRADERS LOOKING AHEAD TO
FACTORY INFLATION DATA FROM THE U.S. LATER TODAY.
WE’RE JOINED BY GRACE PETERS FROM JPMORGAN PRIVATE BANK.
AS ALWAYS, THANK YOU SO MUCH FOR JOINING US.
WE HAVE HAD MULTIPLE HIGHS ON VARIOUS INDICES.
ARE YOU STILL MODERATELY PRO RISK OR IS IT THE TIME TO TAKE
STOCK AND GOOD MORNING.
>> GOOD MORNING TO YOU. WE CAME INTO THIS YEAR PRO RISK
ON EQUITIES. WE HAVE UPGRADE OUR TARGET FOR
THE S&P, AS WELL AS JAPANESE EQUITIES.
THE DATA CONTINUES TO BE PUSHING RESILIENT.
NET HOUSEHOLD WEALTH IN THE U.S. IS MEETING NEW ALL-TIME HIGHS
ITSELF. OBVIOUSLY YOU HAVE POSITIVE
REAL WAGE GROWTH HELPING THE CONSUMER.
WE THINK THE COMBINATION OF THAT WITH THE CORPORATE STORY
BEING SO STRONG ABOUT BALANCE SHEETS, THE ABILITY TO INVEST,
TO SPEND CAPEX AND KEY THEMES LIKE ARTIFICIAL INTELLIGENCE
AND SECURITY MEANS THERE IS STILL A GOOD STORY TO BE HAD IN
EQUITY MARKETS. FRANCINE: WHAT IS THE CASE THAT YOU KIND
OF LAID OUT, IF THE S&P GOES HIGHER FROM HERE, WHAT SUPPORTS
IT FUNDAMENTALLY AND BY HOW MUCH CAN IT STILL RISE?
>> THE REALISTIC CASE FOR ME IS CORPORATE PROFITS ARE STRONGER.
TO GET US TO 5300 ON THE S&P, WE’RE LOOKING TO 8% TO 9%
EARNINGS GROWTH IN 2024 AND 2025. A LARGE PART OF THAT IS
TECHNOLOGY, ARTIFICIAL INTELLIGENCE.
TO GET TO A BULL CASE, I THINK TWO WAYS TO DO THAT ARE
CORPORATE PROFITS COME IN STRONGER.
THERE IS MORE OPERATING LEVERAGE IN THE SYSTEM AND YOU
COULD GET EARNINGS GROWTH THAT EXCEEDS EXPECTATIONS AND GETS
YOU TO AROUND 500,000, 600,000 ON THE S&P.
AND THE OTHER WOULD MEAN MORE RATE CUTS THAT WOULD SUPPORT A
HIGHER MULTIPLE ON EQUITY INDICES.
I THINK THE STRONGER PROFIT SCENARIO IS MORE CREDIBLE.
5600, WHAT WE’RE IN FOR IF YOU
WANT TO PUSH FOR A MORE BLUE SKY SCENARIO. FRANCINE:
THERE ARE MANY QUESTIONS ABOUT EUROPE AND WHETHER NOW IS THE
TIME TO GO LONGER ON SOME OF THE EUROPEAN EQUITIES BECAUSE
WE’RE SEEING A REBOUND AND THINGS SEEM TO BE LOOKING UP.
SOME SAY THIS IS GOING TO BE A DIFFICULT PERIOD FOR EUROPE,
BECAUSE OVER THE PRICE OF OIL AND WHAT’S HAPPENING IN UKRAINE.
ARE YOU MORE INVESTED IN EUROPE THAN YOU WERE TWO MONTHS AGO?
>> EUROPE I THINK IS A VERY INTERESTING MARKET.
I THINK YOU HAVE TO BE MORE SPECIFIC AND SAY WHAT ARE WE
LOOKING FOR IN COMPANIES FROM EUROPE THAT WE INVEST IN.
THEY ARE VERY MUCH ALIGNED TO THESE GLOBAL THEMES.
THEY HAVE STRONG EXPOSURE IN LUXURY GOODS.
THE GLOBAL HOUSEHOLD WEALTH PICTURE CAN FEED DIRECTLY INTO
THE EUROPEAN CORPORATE. THAT IS ONE THAT IS FOREVER
GREEN IN EUROPE. WHEN WE’RE THINKING ABOUT
TECHNOLOGICAL DRIVEN AND INDUSTRIALS, SOME REALLY STRONG
INDUSTRIAL COMPANIES IN EUROPE THAT VERY MUCH FEED INTO DATA
CENTER GROWTH AND SUPPLY CHAIN REORIENTATION AND REAUTOMATION
AT LARGE, THERE IS A LOT TO LIKE IN EUROPE.
WE TEND TO STICK WITH THE LARGER COMPANIES.
IF YOU’RE THINKING ABOUT THE LEVEL, IT WILL BE THE EURO
STOXX 50 RATHER THAN STOXX 600. THERE IS MUCH TO LIKE IN
EUROPEAN STOCKS AND THERE IS THE POSSIBILITY AS WELL THAT
THE EUROPEAN ECONOMY IS STARTING TO BOTTOM OUT.
THE P.M.I. HAS AFFECTED GDP AND THE BANKS
ARE IN A MUCH STRONGER POSITION THAN THEY WERE IF WE GO BACK TO
THE DECADE POST THE GREAT FINANCIAL CRISIS.
THERE IS LOTS TO GO FOR IN EUROPEAN COMPANIES AS WELL.
FRANCINE: IS THIS AGAIN BECAUSE THEY HAVE
BEEN UNDERVALUED FOR SUCH A LONG TIME OR BECAUSE THERE IS
CAPITAL MARKETS UNION AND DIRECTIVES PUT IN PLACE THAT
COULD MAKE M&A MORE ATTRACTIVE AND THEREFORE BRING PRICES UP?
>> I DEFINITELY THINK THE STRENGTH OF THE BALANCE SHEET
THAT FEEDES INTO THE M&A AND THE SHAREHOLDER RETURN STORY IS
KEY. WHEN YOU LOOK AT THE SHARE
BUYBACK DEAL ON EUROPEAN EQUITIES, EUROPE IS VERY MUCH A
NECESSARY ISSUER OF EQUITIES. I THINK THERE HAS BEEN A
FUNDAMENTAL -- IN THE LANDSCAPE FOR EUROPEAN BALANCE SHEETS
WHICH MAKES FOR AN ATTRACTIVE INVESTMENT OPPORTUNITY.
EVALUATION AS WELL, WHEN YOU’RE LOOKING AT EUROPE, AROUND 13
1/2 TIMES FORWARD EARNINGS COMPARED TO THE U.S., CLOSER TO
19%. IF YOU HAVE BUSINESSES THAT CAN
GENERATE GROWTH AND TRADE AT A DISCOUNT, THAT IS SOMETHING
THAT IS INCREASINGLY ATTRACTIVE WHERE YOU NEED TO BE ABLE TO
OUTEARN THAT COST OF CAPITAL. FRANCINE:
JAPAN IS AN OBSESSION WITH EVERYTHING ELSE GOING ON.
THE GREAT EXPERIMENT OVER THE LAST 15 YEARS.
DO YOU SEE VALUES IN JAPAN EQUITIES?
>> I THINK THE THEME THAT UNITES JAPAN WITH EUROPE AND
VIEWS THAT WE HAVE ON THE U.S. MARKET IS BACK TO THAT BALANCE
SHEET ARGUMENT. WHAT WE HAVE SEEN IN JAPAN IS
CASH HAS BEEN TRAPPED ON BALANCE SHEETS FOR A NUMBER OF
YEARS BUT BECAUSE OF VARIOUS EFFICIENTIVES THE CASH HAS
STARTED TO COME BACK TO SHAREHOLDERS.
THE COMBINATION OF REFLATION, CORPORATE ACTIVITY, RETURNING
MONEY TO SHAREHOLDERS AND A MARKET THAT IS NOT QUITE AS
CHEAP AS EUROPE ON FACE VALUE IF WE’RE USING A PRICE EARNINGS
BASIS, I THINK JAPAN IS ALSO AN INTERESTING MARKET.
WHEN WE TALK ABOUT EQUITIES MAKING NEW HIGHS THAT WAS PART
OF OUR DECEMBER OUTLOOK, THAT IS BEYOND JUST THE S&P.
WE HAVE HAD 16 ALL-TIME HIGHS IN THE S&P SO FAR THIS YEAR.
THAT DOESN’T MEAN INVESTORS SHOULDN’T LOOK BEYOND THE U.S.,
PARTICULARLY THINKING GLOBALLY ABOUT THEMES LIKE BALANCE
SHEETS AND BUYBACKS. THE SUPPLY THAT IS STRUCTURALLY
CHANGED POST THE PANDEMIC LEADS TO LOTS OF FRUITFUL IDEA.
FRANCINE: VERY QUICKLY, JUST TO ROUND US
OFF, THERE IS MEXICOED SIGNALS IN GOLD AND FOR EXAMPLE, WHAT
BITCOIN HAS BEEN DOING THIS WEEK.
HOW DO YOU LOOK AT THE MARKET MOOD AND THE KIND OF APPETITE
THAT IS OUT THERE? DOES IT BRING OPPORTUNITIES FOR
INVESTORS TO BE COUNTERCYCLICAL AND CHANGE WHERE THE MONEY IS
GOING? WHERE DOES THE SMART MONEY GO?
>> THIS IS INDICATIVE THAT THERE HAS BEEN CASH ON THE
SIDELINE WAITING TO GET INVEST. WE THINK OF SOME OF THE MORE
COMPLEX STOCKS WE WOULD NOT CHASE UNAPPROPRIATABLE
BUSINESSES THAT HAVE GENERALLY LAGGED.
IT IS TEMPTING TO SAY WHAT HASN’T MOVED UP THAT I SHOULD
NOW CHASE GINN THAT MARKETS HAVE PRESSED AHEAD.
WE’RE QUITE INCLINED TO STAY WITH THE WINNER SO FAR.
IF I LOOKED FOR A MARKET THAT LAGGED, IT WOULD BE COMPANIES
PARTICULARLY IN THE U.S. WHERE YOU STILL HAVE A MARKET
THAT HASN’T RETURNED TO PREVIOUS HE’S, PARTICULARLY
EARNINGS GROWTH COMING THROUGH NEXT YEAR. FRANCINE:
GRACE, THANK YOU SO MUCH. GRACE PETERS, MANAGING DIRECTOR
AND GLOBAL HEAD OF INVESTMENT STRATEGY AT JPMORGAN PRIVATE
BANK. COMING UP, THE FATE OF TIKTOK
IS NOW IN THE HANDS OF THE U.S. SENATE.
WE’LL HAVE MORE ON THAT NEXT. THIS IS BLOOMBERG.
FRANCINE: NOW U.S. HOUSE OF REPRESENTATIVES HAS
PASSED A BILL TO BAN TIKTOK UNLESS CHINA SELLS THE APP.
TIKTOK’S C.E.O. CALLED THE DECISION
DISAPPOINTING IN A VIDEO HE POSTED ON THE SITE.
170 MILLION AMERICANS USE TIKTOK.
WHAT DOES THIS MEAN FOR TIKTOK?
>> THEY HAVE TO SOMEHOW GET THROUGH THE SENATE.
THAT LOOKS LIKE A FAR BIGGER CHALLENGE.
IT PASSED THROUGH THE HOUSE WITH A MASSIVE MAJORITY.
THERE ARE STILL CONCERNS ABOUT THIS FROM A NUMBER OF DIFFERENT
GUYS, THERE ARE CONCERNS ABOUT WHETHER IT INFRINGES ON FREE
SPEECH. SOME PEOPLE IN THE DEMOCRATIC
PARTY SUCH AS CORTEZ, THINKS IT IS A WAY FOR
YOUNG PEOPLE TO EXPRESS THEMSELVES.
THERE IS A WAY THEY COMMUNICATE TO YOUNG PEOPLE.
WHAT DOES IT MEAN FOR TIKTOK IF IT GETS THROUGH, IT IS MORE
LIKELY TO BE A DIVESTMENT THAN IT SHUTS DOWN COMPLETELY.
WE KNOW THERE ARE PLENTY OF BUYERS OUT THERE. FRANCINE:
THANK YOU SO MUCH. WE’LL HAVE PLENTY MORE FROM
ALEX THROUGHOUT THE DAY. OF COURSE THIS PLAYS ALSO TO
THE GEO POLITICS TO THE U.S. AND CHINA.
COMING UP, AFTER THE WORLD’S LARGEST ASSEMBLER OF IPHONES
POSTED PROFITS, A MORE ATTRACTIVE BET FOR A.I.
WE’LL HAVE A LOOK AT WHAT WE’RE EXPECTING FROM THE FED.
AND THE CHIEF INVESTMENT OFFICER OF BANK OF AMERICA.
WE’RE HEAR AT THE CAPITAL MARKETS FORUM IN ROME.
THIS IS BLOOMBERG. ♪
FRANCINE: STOCKS STRUGGLE FOR MOMENTUM AS
INVESTORS DUE FOR FRESH CLUES ON THE FED’S CUTS AHEAD.
THE ECB MUST CUT RATES TWICE BEFORE THE SUMMER BRANK A.I.
DEMAND LIFTS SALES. GLOBAL OIL MARKETS FACE A
SUPPLY DEFICIT THROUGHOUT THE YEAR.
OPEC PLUS IS SET TO CONTINUE OUTPUT CUTS.
GOOD MORNING AND WELCOME TO "THE PULSE."
TODAY WE’RE IN ROME UNDER THE BANK OF AMERICA CONFERENCE.
WE HAVE SOME DATA, THE
OBSESSION WITH WHAT THE FED -- DOES WITH INFLATION.
NASDAQ UP .4%. OF COURSE ON TECH, THE BIG
STORY IS 140 MILLION USERS OF TIKTOK.
ITS FATE IS IN THE HANDS OF THE SENATE.
I THINK ABOUT 100 SENATORS WILL DECIDE WHETHER THEY REALLY NEED
TO SELL OR NOT.
THE IMP PHONE MAKER REPORTED A SECOND STRONG QUARTER OF GROWTH.
THE TAIWANESE COMPANY IS THE LARGEST ASSEMBLER OF APPLE’S I
PHONES. HOW DO THESE RESULTS ACTUALLY
SHOW HOW THEY ARE DRIVING THAT GROWTH FOR HON HAI?
>> WELL, THE PROFIT, THE STRONG PROFIT GROWTH WAS UP 33% ON
YEAR FOR THE FOURTH QUARTER. THAT IS A LITTLE BIT -- IT IS
NOT COMPLETELY CLEAR BECAUSE THAT WAS GIANT ONE OFF PROFIT
THERE, BUT ONE OFF PROFIT LINE. BUT WHAT WE DID SEE WAS THE
HUGE EXCITEMENT DURING THE EARNINGS CALL ABOUT A.I.
AND WHERE THIS COMPANY’S A.I. FUTURE IS GOING.
THE STOCK HAS RISEN ABOUT 15% JUST IN THE LAST WEEK AFTER
SOME EXCITEMENT THAT MAYBE YOU KNOW, IT HAS NOT BEEN PUT AT
THE FOREFRONT HAS IT SHOULD BE WITH THE A.I. STORY.
AND THE CHAIRMAN DURING THE CALL SAID THAT ALREADY IN 2023
ABOUT 2030% OF ITS SERVER REVENUE CAME FROM A.I. SERVERS.
IT IS NOT COMPLETELY CLEAR WHAT THAT MEANS.
IT INCLUDES EQUIPMENT THAT GOES ALONG WITH THIS.
THAT COULD BE USED FOR MORE TRADITIONAL SERVERS.
THIS IS EXTRA COOLING EQUIPMENT. THAT IS NOT CERTAIN.
WHAT IS CERTAIN IS THERE IS A LOT OF EXCITEMENT AROUND A.I.
FRANCINE: I GUESS THE OUTLOOK -- I WAS
GOING TO ASK YOU ABOUT THE OUTLOOK FOR THE WIDER MARKET.
DOES IT POINT TO WEAKNESS IN APPLE DEMAND IN CHINA AND HOW
MUCH DOES THAT EXPAND?
>> RIGHT. I MEAN, THAT IS THE NEGATIVE
STORY IN THIS WHOLE THING. EARLIER THIS WEEK OR EARLIER
LAST WEEK, COUNTERRER POINT DATA FIRM CAME OUT WITH NUMBERS
SHOWING THAT THE IPHONE SALES IN CHINA IN THE FIRST SIX WEEKS
WERE DOWN NEARLY A QUARTER AND SO THAT’S GOTTEN A LOT OF
PEOPLE WORRIED AND THAT WILL DEFINITELY TAKE SOME EDGE OFF
THE GROWTH GOING FORWARD BECAUSE IT DOES MAKE UP MORE
THAN HALF OF FOX CON OR HON HAI’S BUSINESS.
THE COMPANY IS VERY CLEAR THAT IT WANTS TO GROW THE A.I.
BUSINESS AND IS ARMYING FOR 40% OF THE A.I.
SERVER MARKET GOING FORWARD AND IT EXPECTS TO HAVE V SOME
ANNOUNCEMENTS NEXT WEEK AT NVIDIA’S CONFERENCE, NVIDIA IS
THE CHIP COMPANY AT THE CENTER OF THE A.I.
BUZZ HERE TODAY BECAUSE IT MAKES ALL THE CHIPS THAT TRAIN
ALL OF THE OPEN A.I. MODELS AND OTHER MODELS AS WELL.
INVESTORS WILL PROBABLY BE LOOKING FORWARD TO WHAT THOSE
ANNOUNCEMENTS MIGHT BE. WE’LL HAVE TO WATCH THE STOCK
TO SEE IF IT MOVES ANY FURTHER UP. FRANCINE: WE WILL, JANE.
THANKS SO MUCH. FOR A GOOD CONVERSATION OF
INTEREST RATES ALSO AFTER WE HEARD FROM THE ECB GOVERNOR
SAYING THAT THE BANK MUST REDUCE RATES TWICE BEFORE ITS
AUGUST SUMMER BREAK AND MAKE ANOTHER TWO CUTS BEFORE THE END
OF THE YEAR. THE GREEK CENTRAL BANKER SAID
THE ECB SHOULD NOT BE SWAYED BY THE FED.
THANK YOU FOR JOINING US IN ROME.
IT IS A TOUGH GIG COMING TO ROME AND TALK ABOUT CENTRAL
BANKS. THERE IS SO MUCH CONCERN THAT
THE ECB GOES FIRST. DOES IT MAKE A DIFFERENCE FOR MARKETS
AND TO YOU IF THE ECB CUTS BEFORE THE FED?
>> HONESTLY, IT DOESN’T. AFTER THE PAMED, THE CENTRAL
BANKS HAVE TO FOCUS ON THEIR OWN BUSINESS, ON THEIR OWN
REGION ISSUES. THEREFORE I SUBSCRIBE WHAT HE
SAID CUTTING TWICE BEFORE THE SUMMER.
THIS IS WHAT IS NOW -- AND 125 BASIS POINTS TOWARDS YEAR END.
MEANING THE SITUATION IN EUROPE SEEMS TO BE LESS RESILIENT THAN
THE U.S. AND THE FOCUS HAS TO BE ON
INFLATION ON BOTH SIDE. FRANCINE: THE U.S.
SEEMS MORE THAN RESILIENT. PRODUCTIVITY, EVERYTHING SEEMS
TO BE GOING THE RIGHT WAY. ARE YOU CONCERNED THAT THERE
ARE TROUBLES BREWING? THAT CONSUMPTION IS NOT AS
STRONG AS EXPECTED ESPECIALLY FOR THE LOWER INCOME EARNERS?
>> WE DO EXPECT A SLOWDOWN IN THE U.S.
ECONOMY KICKING IN IN THE THIRD QUARTER.
THERE IS A CHANGE INTO THE NARRATIVE AND PROBABLY THE
BALANCE SHEET. THE BALANCE SHEET ON THE PUBLIC
SECTOR. THIS CAN ALTER A LITTLE BIT THE
DYNAMIC THAT WE HAVE BEEN SEEING SO FAR. FRANCINE:
WHAT IS THE MARKET MISUNDERSTANDING THE MOST?
WE SPENT 18 MONTHS FIRST OF ALL GETTING THE CALL OF THE U.S.
WRONG. THERE HAS BEEN THIS MISMATCH
BETWEEN WHAT CENTRAL BANKERS WERE TELLING US AND INVESTORS
AND WHAT THE MARKETS WERE PRICING IN.
>> ON INFLATION, THERE WAS A MISTAKE OUT OF THE CENTRAL
BANKS AND BROADLY SPEAKING, THERE HAS BEEN A CHANGE IN THE
WAY -- IN THE FRAMEWORK, THE DYNAMICS OF THE ECONOMY ARE
EVOLVING, EXCESS SAVINGS, THEY WERE NOT THERE BEFORE.
THE, IT WAS NOT THERE BEFORE AND AGAIN, THE REAL ESTATE
PLAYED QUITE A ROLE IN THE BALANCE SHEETS OF THE HOUSEHOLD.
INFLATION, I WOULD SAY PROBABLY LOOKING AT IT, IT WAS PROBABLY
EASIER FOR US TO GET THE CHANGE IN THE PATTERN AND IN THE
REGIME INFLATION ON THE WAY UP AND DOWN. FRANCINE:
2025, WE’RE IN A BIG ELECTION YEAR.
4.5 BILLION PEOPLE ARE GOING TO THE POLLS.
ALMOST HALF OF THE WORLD POPULATION. IS THAT GOING TO BE
INFLATIONARY? PEOPLE THAT ARE IN CHARGE DON’T
WANT TO LOSE THE ELECTION AND THEN WE DON’T REALLY KNOW WHAT
WILL HAPPEN IN 2025.
>> OUR STORY IS INFLATION TRACING PROGRESSIVELY LOWER.
WHAT IS AT STAKE WITH ELECTIONS, THERE MIGHT BE A
CHANGE IN THE POLICY FRAMEWORK. WE SEE PROBABLY IT IS TOO LATE
BUT THE MARKET IS NOT REALLY AT THE MOMENT PRICING IN THE
OUTCOME OF AN ELECTION. FRANCINE: WHY?
BECAUSE IT IS IMPOSSIBLE TO PRICE
IDIOSYNCRATIC STORY. IT IS SOMETHING THAT IS AT PLAY.
IT IS AN INTERESTING INFLOWS INTO THE EQUITY MARKET BECAUSE
OF THE CHANGING IN THE INVESTORS’ APPETITE.
THIS IS GOING TO PLAY A ROLE. THE CENTRAL BANK STILL, IT IS
SOMETHING WHERE JAPAN IS OUT OF SAMPLE.
AND IN THE U.K., YES, PROBABLY THIS IS AGAIN WHERE THE BANK OF
ENGLAND MIGHT SURPRISE, ANTICIPATING, DEPENDING ON THE
MIX OF GROWTH AND INFLATION. FRANCINE: THEY HAVE A HARD JOB.
IT IS ALSO AN ELECTION YEAR. IT CAN CHANGE THE DYNAMICS.
>> IT CAN. PROBABLY THEY ARE NOT THE ONLY
GAME IN TOWN ANYMORE. STILL THEY ARE -- THE ROPE.
FRANCINE: THANK YOU SO MUCH FOR JOINING
US. COMING UP, WE TALK MORE CENTRAL
BANKS. WE’LL HAVE AN EXCLUSIVE
CONVERSATION WITH MICHAEL HEARTNET.
THAT INTERVIEW IS UP NEXT LIVE FROM THE INVESTORS SUMMIT IN
ROME. THIS IS BLOOMBERG.
♪
FRANCINE: YOU’RE LOOKING LIVE AT THE
PRINCIPLE ROOM. COMING UP ON BLOOMBERG
"SURVEILLANCE."
AN INTERVIEW WITH
ROLF HABBEN JANSEN. THIS IS BLOOMBERG.
>> I DO TRY TO THINK THROUGH WHAT HAPPENS WHEN JAPAN REALLY
DOES -- THERE WILL BE WINNERS AND LOSERS.
THE CORPORATE BALANCE SHEETS AND THE COST OF THE JAPANESE
TREASURY FUNDING WILL BE A QUESTION.
I THINK IT WILL BE A NEW PARADIGM WHICH WE HAVEN’T SEEN
IN A WHILE. FRANCINE: THAT WAS BANK OF AMERICA’S
INTERNATIONAL PRESIDENT SPEAKING TO ME EARLIER ON
ANTICIPATION AROUND THE JAPANESE ECONOMY. U.S.
EQUITIES SCALED RECORD HIGHS THIS YEAR DRIVEN BY A.I.
AND A PIVOT FROM THE FED. YEAR-END STOCK FORECAST OUT OF
THE PARK LEAVING THEM TO SCRAMBLE TO CATCH UP.
JOINING US IS MICHAEL HARTNETT, BANK OF AMERICA’S STRATEGIST.
THANK YOU FOR JOINING BLOOMBERG. WHERE IS THE BIGGEST MISMATCH?
WHERE DO YOU SEE THE BIGGEST BUCK FOR YOUR MONEY?
>> WELL, IF THERE IS A BUBBLE, THAT FEELS WHERE THE MOMENTUM
IS MOVING TO.
YOU FIND A BARBELL STRATEGY WORKS BEST. YOU WANT TO OWN
WHAT THE BUBBLE IS. THE BUBBLE WILL DRAG SOMETHING
IN ITS WAKE. IF YOU’RE LOOKING AT SOMETHING
IN 19 -9D 9, THE ONLY MARKET THAT -- 1999, THE ONLY MARKET
THAT OUTPERFORMED THE NASDAQ WAS RUSSIA.
WHAT DISTRESSED ASSET IS GOING TO GO UP WITH A.I.?
PROBABLY TECH OR REGIONAL BANKS OR CHINA. FRANCINE:
FIRST OF ALL, THERE IS A BUBBLE. ARE YOU SEEING THE BUBBLE?
>> THERE IS CHARACTERISTICS. IT WOULD MAKE SENSE.
A.I.-RELATED STOCKS. YOU CAN SEE A LITTLE BIT OF IT
IN CRYPTO AS WELL. EUPHORIA IS THERE BECAUSE OF
THE FED. THE FED WANTS TO CUT RATES.
COME WHAT MAY. THE MARKETS ARE RUNNING THAT IN
GOLD AND CRYPTO AND GOVERNMENT BONDS.
THERE IS A LOT OF MONEY CHASING CHIPS.
IT HAS CHARACTERISTICS IN TERMS OF PRICE, THE SPEED OF THE
MOVEMENT, THE EVALUATION, THE BREADTH. MARKETS ARE BROADER.
IT COULD TAKE THREE OR FOUR YEARS THE BURST. >> IT DOESN’T
HAVE TO POP RIGHT NOW. WE’RE GOING TO FIND OUT IN THE
NEXT COUPLE OF MONTH. THERE IS NO DOUBT THAT THE
MACRO DATA IN THE U.S. IS BECOMING A LITTLE BIT
OMINOUS, PARTICULARLY THE LABOR MARKET.
THERE IS NO DOUBT THAT THE LABOR MARKET IS CRACKING IN THE
U.S. AT THE SAME TIME THERE IS NO
HUMAN BEING IN AMERICA THAT THINKS INFLATION IS 2%.
BECAUSE IT IS NOT. IT IS STUCK BETWEEN 3% AND 4%.
THAT BACKDROP OF INFLATION COMING IN HIGHER THAN EXPECTED
AND GROWTH WEAKER THAN EXPECTED, THAT IS NOT GOOD FOR
RISK ASSETS BUT IF RISK ASSETS SAYS WE DON’T CARE. WE HAVE A.I.
THAT IS SYMPTOMATIC OF THE BUBBLE MENTALITY. FRANCINE:
WHEN DO THEY START CARING? THERE IS CONCERNS ABOUT THE
TREASURY GOING WRONG. AT THE MOMENT, EVERYONE IS
IGNORING IT.
>> IT IS THE TRILLION DOLLAR QUESTION.
THE DEBT IS GOING UP A TRILLION DARS EVERY 100 DAYS. AMAZING.
YES, THERE IS ALWAYS THAT RISK. NORMALLY MARKETS CARE BECAUSE
CENTRAL BANKS MADE THEM CARE. THE CENTRAL BANK SAYS WE NEED
TO POP THAT OR IF THE CENTRAL BANK DOESN’T HAVE THE BACKBONE
TO POP IT, REAL INTEREST RATES GO UP.
REAL INTEREST RATES IN THE U.S., 2%, IF YOU GOT TO 2.5, 3,
YOU’RE CHALLENGING, PUTTING MORE PRESSURE ON THE MORE
SPECULATIVE PARTS OF THE MARKET. FRANCINE:
ARE YOU WORRIED ABOUT LIQUIDITY IN THE MARKETS?
>> NO. THE DEBT STORY IS MORE IMPORTANT.
BOND YIELDS CAN GO UP FROM HERE. FRANCINE:
TO WHAT KIND OF -- >> IF YOU DON’T GET A RECESSION AND YOU
HAVE THIS DEBT AND YOU HAVE THIS SPENDING AND YOU HAVE YOU
KNOW, TWO CANDIDATES IN THE ELECTION, NEITHER WHICH IS
PARTICULARLY INTERESTED IN BALANCING THE BUDGET, YOU CAN
CERTAINLY MOVER TOWARDS 5% WITHOUT A QUESTION.
BUT IF, WHAT NO ONE EXPECTS NOW THERE IS A RECESSION, THERE IS
A HARD LANDING, THE LABOR MARKET MAY BE TELLING YOU IT IS
COMING. ACTUALLY IT IS NOT GOING TO
HAPPEN. THAT’S WHAT MAKES BONDS OUTPERFORM.
TBROIP HOW DO YOU SEE THE U.S. ECONOMY PERFORMING?
THERE ARE ALSO QUESTIONS ABOUT THE BOTTOM 25% OF EARNERS AND
THEIR SPENDING POWER. CAN THEY KEEP SUSTAINING THIS
MOMENTUM?
>> PART OF STORY -- IT IS TWO-FOLD, ISN’T IT?
FISCAL AND THE LABOR MARKET. THE FISCAL STORY CONTINUES TO
BE OFF THE CHARTS, JUST IN THE PAST FIVE MONTHS, YOU KNOW,
WE’RE HERE IN ROME. ROME HAS A GDP OF ABOUT 300
BILLION DOLLARS.
THE AMERICAN GOVERNMENT SPENT $350 BILLION ON MILITARY
EQUIPMENT. THE SPENDING IS VERY, VERY
STRONG. BUT THE LABOR MARKET I THINK IS
CRACKING. I DO WORRY A LITTLE BIT THAT
AGAIN, EVERYONE’S EXPECTATION FOR A WARM, CUDDLY SOFT
LANDING, THE LABOR MARKET IS THE THING THAT CAN TAKE A SOFT
LANDING AND MAKE IT A HARD LANDING VERY, VERY QUICKLY.
TROY: WHAT DOES THAT MEAN FOR THE FED?
>> WELL, THE FED WOULD HAVE TO CUT.
IF UNEMPLOYMENT WAS RISING, THE FED WOULD HAVE TO CUT
AGGRESSIVELY. IF THAT PAUSED THE MARK, MUCH
LESS SO. MARKETS RALLYING AND THE FED IS
GOING TO CUT, THERE WILL BE A SOFT LANDING.
IF THE FED IS CUTTING BECAUSE PAYROLL IS FALLING, THAT IS
MORE NEGATIVE. FRANCINE: WE NEED TO TAKE A BREAK.
MICHAEL HARTNETT STAYING WITH US. THIS IS BLOOMBERG.
♪
FRANCINE: WELCOME BACK, EVERYONE.
STILL WITH US, MICHAEL HARTNETT. BANK OF AMERICA’S CHIEF
INVESTMENT STRATEGIST. THANK YOU FOR STICKING AROUND.
WE WERE HAVING A GOOD CONVERSATION ABOUT SOME OF THE
WEIRDNESS IN THE MARKET. WE WERE TALKING ABOUT GOLD
GOING UP AND BITCOIN AT A RECORD.
WHAT DOES THAT TELL YOU WHERE THE MARKET IS AT?
>> A FEELING THAT THE FED IS LOSING CREDIBILITY.
THAT THE FED SEEMS VERY DETERMINED TO CUT INTEREST
RATES BEFORE IT REACHES ITS 2% INFLATION TARGET.
WE KNOW INFLATION JUST IN THE LAST MONTH OR TWO STARTED
REACCELERATING. DISBRNG THE FED IS GOING TO
CUT, WE HAVE THIS OPPORTUNITY IN THE FIRST HALF OF THE YEAR,
WE HAVE TO TAKE IT JUST IN CASE. I THINK THAT MAKES PEOPLE
NERVOUS ABOUT THE CREDIBILITY AND ABOUT THE DOLLAR.
IF YOU’RE LOOKING FOR HEDGES AGAINST THE DOLLAR AND HEDGES
AGAINST FURTHER DEBT PROBLEMS IN THE U.S., CRYPTO AND GOLD
FIT THAT BILL. I THINK PART OF THEIR
ATTRACTION IS THAT. FRANCINE: HOW DO YOU MOD IT WILL U.S.
ELECTION DEPENDING ON WHO WINS?
>> IT IS GOING TO BE TIGHT. I THINK WE KNOW THAT.
I THINK IN THE FIRST HALF OF THE YEAR, THE MARKETS SORT OF
LOOK AT THE ELECTION IN THE U.S., THERE IS ELECTIONS IN
OTHER IMPORTANT PLACES AS WELL LIKE INDIA AS THE POSITIVE.
I THINK THEY THINK AT THE MARGIN, IT MAKES MONETARY
FISCAL CERTAINLY ENERGY POLICY LIKELY TO BE EASIER THAN IT
WOULD OTHERWISE HAVE BEEN IF IT WASN’T AN ELECTION YEAR.
I THINK PART OF THE ANXIETY GUICE NOW IS THE ELECTIONS ARE
BULLISH. IN THE SECOND HALF, CERTAINLY
THE U.S. ELECTION, I THINK IF IT IS
TRUMP WINNING, ALL OTHER THINGS BEING EQUAL, THE MARKETS THINK
LOWER YIELDS. IF IT IS BIDEN WINNING, IT
MEANS HIGH YIELDS. YOU THINK ABOUT THE CONCLUSION
OF WHO WINS. BIDEN WINS WITH HIGH INFLATION
BUT LOW UNEMPLOYMENT, HE IS GOING TO SAY HIGH INFLATION
DOESN’T MEAT. I HAVE TO KEEP UNEMPLOYMENT LOW
AND SPEND AND SPEND. WHEREAS IF TRUMP WINS, HE IS
GOING TO SAY I WON BECAUSE INFLATION IS TOO HIGH.
I HAVE TO GET IT LOWER. WHO WINS IS GOING TO BE
IMPORTANT OF HOW THE MARKET TRADES AT. FRANCINE:
WILL TRUMP TEAR UP THE INFLATION REDUCTION ACT?
>> I DON’T KNOW THAT IS HIS PLAN.
I THINK HE HAS DIFFERENCES WITH REGARDS TO TAXES AND VARIOUS
OTHER THINGS. THE BOTTOM LINE, IF YOU THINK
ABOUT IT, THEY ARE BOTH, YOU KNOW, NEITHER OF THEM ARE GOING
TO RUN ON I’M GOING TO BALANCE THE BUDGET.
BOTH OF THEM ARE GOING TO RUN IN TERMS OF WE’RE GOING TO BE
TOUGH IN CHINA AND GENERALLY HAVE AN AMERICA FIRST POLICY.
IT ADDS TO THIS STORY THAT 2020’S IS GOING TO BE A DECADE
WHERE THE COST OF INFLATION IS HIGHER THAN IN THE PAST 20
YEARS. FRANCINE: WHAT DO YOU DO WITH CHINA NOW?
>> CHINA LOOKS QUITE ATTRACTIVE IRONICALLY IN A U.S.
ELECTION YEAR. MOST OF THE BAD NEWS IS INTO
THE CHINESE MARKET. I THINK IT IS STARTING TO
PERFORM A LITTLE BETTER. MY FAVORITE WAY OF PLAYING IT
IS LIKE WHERE THE OTHER MARKETS HAVE BEEN PLAYED.
YOU BUY THE BEST COMPANIES. WE HAVE SIENNA IN EUROPE AND
THE U.S. FRANCINE: TIKTOK COULD BE ABOUT TO BE
SOLD OFF.
>> YES. THESE IDIOSYNCRATIC RISKS.
THE CASE AGAINST CHINA. THINGS WILL BE LIFTED UP BY THE
GENERAL EUPHORIA. CHINA IS ONE OF THOSE GOOD
CANDIDATES. FRANCINE: MICHAEL, THANK YOU SO MUCH.
MICHAEL HARTNETT. BANK OF AMERICA’S CHIEF
INVESTMENT STRATEGIST. "SURVEILLANCE" IS UP AHEAD.
THIS IS BLOOMBERG. ♪
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