TikTok Fallout, BofA's Hartnett Says AI Frenzy Gone Too Far | The Pulse with Francine Lacqua 03/14

Summary

In 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

00:00

📺 '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.

05:02

📈 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.

12:06

💹 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.

17:08

🌐 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.

24:08

📊 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.

29:17

🏛️ 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.

34:21

📈 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.

39:23

🌐 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.

Keywords

💡Stocks

In the context of the video, 'stocks' refers to shares in companies that are publicly traded on stock exchanges. The performance of stocks is a key indicator of the health of the financial markets and the economy. The video discusses the struggle of stocks for momentum, indicating a period of uncertainty or lack of significant upward movement in stock prices.

💡Federal Reserve (Fed)

The Federal Reserve, often referred to as the 'Fed,' is the central banking system of the United States, responsible for implementing monetary policy. The Fed's decisions on interest rates and other financial tools can significantly impact financial markets, economic growth, and inflation. In the video, the Fed's potential rate cuts are discussed as a key factor affecting the markets.

💡European Central Bank (ECB)

The European Central Bank (ECB) is the central bank for the eurozone, and it manages the monetary policy for the countries that have adopted the euro as their currency. The ECB's decisions on interest rates and monetary policy can influence the economic conditions within the eurozone. The video highlights the ECB's consideration of rate cuts, which would have implications for European financial markets.

💡TikTok

TikTok is a popular video-sharing social networking service owned by the Chinese company ByteDance. The app has faced scrutiny and regulatory challenges in various countries, including the United States, over national security concerns due to its Chinese ownership. The video discusses the potential sale or ban of TikTok in the U.S., which would have significant implications for the company and the tech industry.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to manage inflation to maintain economic stability. In the video, inflation data is highlighted as an important factor to watch, as it influences central bank policies and affects investor decisions.

💡OPEC Plus

OPEC Plus is an alliance of the Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing countries, such as Russia, that coordinate on oil production policies. Their decisions on production levels can significantly influence global oil prices and supply. The video discusses the potential actions of OPEC Plus in relation to oil market conditions.

💡Market Division

The term 'Market Division' typically refers to a segment or unit within a financial organization that focuses on specific areas of the market, such as equities, fixed income, or commodities. These divisions analyze market trends, provide investment advice, and manage assets. In the video, the head of the Market Division is interviewed, providing insights into the oil market and its future prospects.

💡Investment Strategy

Investment strategy refers to a plan or approach that an investor or financial institution uses to achieve specific financial goals. This includes decisions on which assets to buy or sell, when to make trades, and how to manage risk. The video features discussions on investment strategies in the context of market conditions and central bank policies.

💡Geopolitics

Geopolitics is the study of the effects on international relations of such factors as national borders, territory, sovereignty, and the balance of power. In the context of the video, geopolitics is relevant to the discussion of TikTok, as the app's Chinese ownership becomes a point of contention in U.S.-China relations.

💡Artificial Intelligence (AI)

Artificial Intelligence refers to the development of computer systems that can perform tasks that would typically require human intelligence, such as visual perception, speech recognition, decision-making, and language translation. AI is a key driver of innovation and growth in various industries, and its impact on the economy and job markets is a significant topic of discussion in the video.

💡Balance Sheets

A balance sheet is a financial statement that provides an overview of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and shareholders' equity, reflecting the company's financial health and its ability to meet obligations. In the video, balance sheets are discussed in the context of corporate financial health and investment opportunities.

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. ♪