Transcripts For BLOOMBERG Bloomberg 20240703

This is bloomberg surveillance with Jonathan Ferro Annmarie Hordern and lisa abramowitz. Jonathan this is your equity market at alltime highs coming in on thursday and the nasdaq closing at record highs. Lisa fueled by what . The market could hang in there because rates were rising for the right reason and now rates are going to go lower because were in the goldilocks sweet spot. We are dancing at the head of the pen with the idea of strength versus weakness. Jonathan 8 30 we get job less claims. Right now for walmart. The stock is up 2 premarket. Lisa they gain market share there. The idea that the beat across the board, how much is this about consumers feeling stronger and how much is walmart consolidating market share . Sams club 4. 4 versus 4. 3 . Jonathan if its good for walmart is a good for the economy . This is the commentary from the cfo. We are seeing customers historically thought for file you and now its value, quality and convenience. Lisa they are looking for a better price points. Annmarie they are offering ways to get walmart online or pick it up like you would see it targeted and amazon. They are trimming on the corporate side. Interesting to see what they have to say about internally trimming costs and making it more robust for the future. Jonathan revenues have been adjusted. The outlook for the Second Quarter 62, 65 estimate 64 the high income consumer is flocking to walmart. Walmart slightly positive off the back of these numbers up 1. 6 . We will catch up with mona mahajan from edward dr. Jones and co Libby Cantrill and pimco ny chuck grom from Gordon Haskett Research Advisors llc if we see a goldilocks for the economy, the tail risk is somewhere rapid downturn that leads to rate cuts for the wrong reason. If walmart is doing well what does that say about the broader economy . Mona it feels is consistent with the narrative weve been getting this last several days that inflation is moderating and more customers go to walmart for the discount. The consumer feel stretch but we are watching the low income consumer more so than the broader economy. The labor market and consumer started from a position of strength. It is cooling from a strong base. The scenario we laid out about goldilocks moderation of the economy needs the economy could soften what we are talking about trend levels and that kind of cooling can lead to better inflation trends. If we are at the start of a bumpy road lower that is an environment the market will welcome. They dont want to see a rapid decline. Jonathan what youre going through is something weve discussed the difference between a welcome calling. Mona the labor market is an interesting story. At 3. 9 Unemployment Rate near multidecade of those but what we are seeing is better supply and better demand. More balanced supply demand. On the supply side more workers returning to the market after the pandemic and the immigration story working in our favor. We are seeing job openings go lower. The demand is coming down and labor us moving higher which will lead to a cooling in the wage gains which is what we want to see for services inflation. Some of the leading indicators not only job openings, folks are not quitting their jobs perhaps because theres not as many openings. That tends to be a leading indicator. We could see an Unemployment Rate take higher. Lisa dancing on ahead of a pens it seems to be great for stocks regardless of how far we push. What would trigger an end of this goldilocks that has been a panacea to stocks. Mona thats what were all thinking about. We had our first correction of the year it was only at 5. 5 . What would lead this correction to become more nefarious . When we are in the environment entering into a bear market we see a few factors in place. The economy is sitting a recession. Two, the fed tends to be raising rates aggressively and three, the unknown shock factor which is the hardest a handicap. The fed raising the rates does not seem likely we dont expect that 15. 5 correction to beat it this year. There could be more volatility ahead but as long as we felt comfortable that volatility doesnt turn into something prolonged its an opportunity more than anything. Annmarie people have waited for that pivot point to broaden out. Broadening out to small caps and value names, when we actually see rate cuts. Dont you have to get ahead of it . Mona as we get opportunities, any of that volatility noted is a great opportunity to not only diversify and make sure youre balanced and growth thinking about rebalancing and adding those Quality Investments at better prices. As we get closer to fed rate cuts that will be a catalyst to unlock sustained operation. What we see in Earnings Growth, the Earnings Growth contribution becomes more balanced between technical encyclicals. Q1, q2 was driven by tech and magnificent seven but with balance on earnings and fed rate because in inflation moderates thats a Good Environment for a broadening participation between growth and value in u. S. Equities and international playing catchup and bond portfolios looking more interesting. Annmarie the september rate cut was moved to higher. Mona higher for longer should be the base case whether it is november, december. Its so good 2, 3 year for a tightening cycle and we think they are all not path for a multiyear rate cutting cycle. It will be 2, 3 inflation prints and we get a couple more in the months ahead. I think its interesting the way the narrative is setting up for september, december and then march. It takes the uncertainty out of it and makes it systematic if they can get the data to fall into place. Jonathan i appreciate the reaction from the earnings out walmart. Here is the lineup for fed speak. There are times going into the weekend. Lisa John Williams says things are good as things are. We know it will be hawkish. Will the market really care . Annmarie how much time do they have before the election . How perfect these data points have to be williams saying they dont expect that greater confidence in the very near term. Jonathan nobodys changing their base case. Given how many times we have seen a head fake when it comes to disinflation. A final word on walmart danny is going to go through the numbers. Lets get an update on stories elsewhere with the bloomberg brief. Dani it was 5. 9, now 5 . Firstquarter earnings beat expectations and at the same time and expects the full year results to be slightly better. Ecommerce jumped 22 upper income shoppers are flocking to the retailer. We are seeing customers trade into walmart. We have been thought of for value but now its value, quality and convenience. President xi jinping says relationship with russia remains strong. This trip was his first foreign visit since starting his bed president ial term. Putin describes chinas is one of the most stabling factors in the international arena. There is a short squeeze in new york pushing how max prices above lme prices and copper prices have been rising for months but this search was specific to comess Exchange High demand, low inventory and shipping issues have caused the wild swing. Jonathan danny going over the walmart numbers. That stock is higher by 5. 5 . Chuck grom will break down what he sees in these numbers. If you are in denial you wont solve your problems. Jonathan that conversation right around the corner. Live from new york city this morning, good morning. This is bloomberg. The future is not just going to happen. You have to make it. And if you want a successful business, all it takes is an idea, and now becomes the future where you grew a dream into a reality. The all new godaddy airo. Put your Business Online in minutes with the power of ai. Jonathan equity futures just about positive by zero point 1 . Yields unchanged at three 4380. The president ial race wrapping up. The republics are going to win the senate. The president ial election is up in the year but we look at the polling today, trump is in the lead and biden is doing nothing to change it. My advice if you are in denial. Jonathan im not sure they are looking for advice from the republican speaker. President biden agreed to two debates. The first on june 27. How important is that june date . What we tell clients it is still early in terms of polling. However, the Biden Campaign is looking at those polls and are concerned in terms of what it means for the Democratic Coalition which are hispanics, black folks and young people and there is fragility and those demographics provided so this is opportunity to reach out to those folks and make this less of a referendum and morph a choice between President Biden and President Trump. The june date give some some runway so if it does not work out well it is not essential. Annmarie how ought to have in a day before going to the rnc and dnc. The president ial Commission Sets the rules and suss the dates. This is another erosion of norms in washington. In terms of circumventing that progress process but the Biden Campaign is trying to lick the script and change the narrative and get out to voters. Lisa how cant they change the narrative when the individual there talking about is sitting in court . Libby this idea of gas and grocery. The price of a gallon of milk and a gallon of gas. These things really matter to voters. This is one of the reasons why President Biden is polling so poorly on the economy. For the average voter it does not. Yes President Trump is sitting in that courtroom but it is a swing public opinion. Short of a conviction it doesnt seem like anything moment folks. Annmarie there seem to be a reluctance to coalesce around donald trump and that seems to be shifting. Libby like the broader voters, folks want change. It is interesting as an example of this, the reaction to President Bidens announcement he will continue the 301 tariffs , that under President Trump received a lot of pushback. The announcement made earlier this week did not move folks. It shows you in many ways, people are embracing trump era policies and they believe something he was on to something and you see what was happening in terms of these two wars folks were fighting overseas and inflation. People want change and that includes wall street. Lisa analyst reports, it used to be the administrations were polar opposites but now is if you look under the surface there identical. Libby there are differences but there are important similarities between these two gentlemen. They are not that different in age. They grew up in the same generation. I think they are more protectionist at heart. Weve seen that from President Trump and President Biden he is known as union joe. The other similarity is their approach on deficits. All of our clients will say they are bad at deficits. I actually think structural deficits are high because neither gentleman wants to do anything in terms of Social Security and medicare. Thats the elephant in the room so unless washington tackles that. These are important programs. Its not just say they should dismantle those but those programs will continue to be a huge drag in terms of fiscal deficits. Jonathan you said around the fixed income team. Do they think they will get pushback . Libby we did talk a lot about this idea of higher deficits for longer and cbo estimating 6. 5. This is the big question for investors . Is the u. S. So exceptional that it can continue to spend and deficit spend . We are worried about the longerterm fiscal picture at the same time the dollar continues to be the reserve currency in the Treasury Bonds continue to be the reserve asset and is on the set continues the music will go on for longer. Jonathan this is the focus for you going into november . Lisa people shrug off the liz trust moment some policy that will push off bigger deficits. Structurally this market has not changed with primary dealers so it is getting bigger and bigger. Do you see that is a possibility . A trussmoment. Libby we dont want to be sanguine about this because we are concerned about this fiscal picture over the longterm. I do think there are important differences between the u. K. And the u. S. In terms of the way their politics works in importantly, we will have a split congress over whomever is the next president and even if there is unified control of trumppence and republicans win both chambers is by a small majority which will hamstring congress in terms of how much they can do. When liz truss had a cooperative government so when trump talks about it he will not. It reassures the market because it can break down the speculation. Annmarie what about senator mccarthy saying the senate will go gop. Libby democrats have horrible math. Eight or nine are vulnerable for governments in West Virginia and ohio it seems that the senate could flip but there is nuance here that it could flip by one, to see it so if it flips itll be a small majority control. We will not have the 60 filibuster rush holt and Neither Party will have thought. Jonathan how interested are they libby that and the fed and what Jerome Powell will do. President trump is running by his own admission of strategic, professional campaign where they were surprised by their victory. This is much more strategic and as a result, you will see that in the Vice President choice it will either be offensive trying to shore up opportunities among black men and latino men. President trump one of the reasons he was selected because of this demographic and then 2020 biden was help. Its either off offensive or defense of selection or j. D. Vance. Jonathan for nikki haley. Libby i think thats unlikely. Jonathan it is good to see you. Coming up shares of walmart rising as the Company Reported searching sales. Michael collins joins us next. This is bloomberg. I dont want you to move. Im gonna miss you so much. You realize well have internet waiting for us at the new place, right . Oh, we know. We just like making a scene. Transferring your services has never been easier. Get connected on the day of your move with the xfinity app. Can i sleep over at your new place . Can katie sleep over tonight . Sure, honey this generation is so dramatic move with xfinity. Jonathan live from new york welcome to the program jobless claims 60 minutes away. Futures just about positive by. 1 the gnostic 500 on a five day winning streak. Unchanged this morning. Turn to the bond market we were looking at 5 coming into may and down to 4. 75 on the twoyear. 10 year at 4. 34. Lisa Libby Cantrill was talking about how we have to care about the deficit but this is a residing cry. The sins were not going to have 5 inflation rate and they wont be lowering rates. Jonathan looking at rates yesterday yields lower the dollar this morning, stronger. Under surveillance the u. S. Warning israel it is creating a power vacuum across gossip. Secretary of state Antony Blinken saying we cannot have anarchy in a vacuum that is likely to be filled by chaos. Lisa the defense minister has said there is a problem with the lack of a plan. We talk about red lines, day of ben cross. What levers does this administration has to pull when he is pulling poorly. Annmarie jake shall be is going to israel and saudi arabia there will be more pressure to israel. The problem the saudis have there will not be any normalization if action continues in gaza. The saudis want this u. S. Saudi Defense pack. Will they take that without normalization with israel. Jonathan can we set on rafah what does the state of play . Annmarie they are trying to move out the more than one million palestinians a lot of them had come from the north went to rafah because they knew israel was coming in from the north. To this is concerning for egypt and this will go against the Peace Agreement they have with israel. And israel is going and slowly to take out leaders of hamas but we will see a massive ground invasion. Jonathan heres the latest on microsoft its asking 800 employee in his chinese Cloud Organization to transfer outside of the country. It employs 7000 engineers in the region with the based out of china and the pressure on immigration lawyers to sort this out. Annmarie how Many Companies must be doing this how do you have Cloud Computing specialist in china working on technology the u. S. Government has National Security issues. This is a question of what are companies doing behind the scenes . Annmarie my question for microsoft is are you decoupling or diversifying . Im taking a crack on the diversified, and decouple. Companies can sit on the sidelines and wait. Jonathan diversified not decouple because thats politically except to say. Walmart is up premarket. They have Beat Estimates of forecasted betterthanexpected did your results. He, shall are driver jumping 20 . Ecommerce jumping 20 . High quality, better sales, better membership. Inventory is in great shape. I think the real story here is full of the top line we started for the first time strong dollar growth. A really impressive print and probably a tough quarter for retail. Were pretty happy with the numbers. Where is that coming from . Stock Gross Margins were successful in their markdowns were lower yearoveryear. We are starting to see some of their other business mixes start to affect the p l. Lisa there is the shopping part of this in the amazon competition when you ask where are they taking market share from . You mentioned advertising, data, ecommerce are the evening amazons lunch . Chuck there taking share from several parts of retail. Their competitors are all the start, kroger. The consumer is seeking value, they are winning. Annmarie in a time there is disinflation how are they doing this while increasing revenue . Is this just an economy of scale issue . Are they working with producers or getting things from china . Chuck their general business while it still down they call it unit acceleration. We see unit bottoming in discretionary which is something we havent seen in a long time. Inflation and things like home and furniture. Unit bottoming is happening here. Annmarie we see customers trade to walmart who is it are they stealing market share from . Chuck the logical competitor could be kroger, target. You could argue cosco although they have been very strong. It is probably a combination of target and kroger maybe amazon. Annmarie what you make of walmart laying off individuals on the corporate side . Chuck thats them trying to refine the cost basis. They exited close to 50 of their health centers. Looking at their cost base and trying to be prudent. Jonathan the stock is up by 5 . When i by this name and put it on my portfolio this name is somewhat defensive. You talked about the offensive characteristics that come with walmart as well. Chuck for the past 20 years walmart has been a defensive name when times get tough they flock walmart. The model is changing. The business mix with advertising, data, marketplace. They are trying to attract high income customers. Its balancing out. It reminds me of costco. They have both offensive and defensive character mistakes and walmart starting to get there you see that in the multiple now and one thing we havent talked about is traffic. The traffic was up 4 on a twoyear basis. Traffic is the proxy for retailers health and they had a great quarter. Jonathan is this something youre seeing the cross discount dealers are they moving in the same direction . Chuck there are a lot of similarities between costco and walmart on the top line and bottom line. The common denominator is really price and value. They are leading in both and that is paramount right now when consumers are really frustrated with inflation. Their ability to windows 7 and. Jonathan topic of the moment . Chuck we like dollar general. We think they will have a good first quarter. There is a lot of debate in the stock. We still like walmart and costco. Jonathan appreciate the update. Chuck grom from Gordon Haskett Research Advisors llc the speaks of the macro backdrop of the moment. Lisa people are looking for discounts on their finding them. Im curious to dig under the hood to understand how much these efficiencies are driven by machine learning, and what the barrier of entry to companies that are not that big. Do we see acceleration of retailers who dont have access to that advancement . Jonathan lets give you an update on stories elsewhere. Lets get you a bloomberg brief. Dani u. S. Data was accidentally printed five minutes early but the bureau of labor statistics is leading an investigation. A month ago and economists corresponded to a columnist answering numerous questions about jp morgan and blackrock. Two brothers studied at m. I. T. Exposed the weakness in the Ethereum Blockchain they were charged with fraud and Money Laundering they spent months planning the scheme studying training behaviors and setting up shell companies. Scottie scheffler is the favorite at the pga championship. He will face competition from rory mcelroy he was hoping to win his fifth major and that is your brief. Jonathan one just had a baby and the other just got a divorce. Plenty of drama. Lisa this is where Jonathan Ferro talks to the viewer because he knows he cant talk to lisa or myself. Jonathan mr. Sandler is making a sequel. Happy gilmore, very cool. Weve had three low prince you would not want to over interpret any of this. They will need more information because the market will be waiting for the next data point. Jonathan that is the same day as the feds decision. Equity future positive by 0. 5 . Life in new york, this is bloomberg. 1 equity futures positive by 0. 1 bond yields are going nowhere. Walmart is up by five percent the next one is jobless claims 45 minutes away. A rare upside surprise last week. Jumping from data point to data point. The next move the fed will make us a cut not a hike we have had three low prince followed by a. 3 you would not want to over interpret any of this they need more information, the market is waiting for the next data point. Jonathan bond yields following pricing into because this year. Michael collins writing this powell wants to cut and he will try to do to we think this will be a modest reduction. My collins lets start with yesterday and talk about what the data means going forward. Mike thanks for having me again where moving in the direction we expected which is slight moderation and growth towards 2 may be a little below 2 and continued moderation and inflation we are back to stripping out shelter again because i continues to be sticky running closer to 6 . If you strip that out yearoveryear are back in the low to mid the shelter component will be cut in half as the years go on. Its pretty good news on all fronts the question is as you heard from williams, why does the fed need to do anything . We are in the seroto cut cap now and i think serois the highest probability. The feds mo has been insisted on your hands dont do anything until you are forced to move until the data points hard in one direction one way or the other. Jonathan i have a quote from you at the start of april the economy is stable inflation is stinky the labor market is rocksolid financial conditions are the easiest they have been why which you cut Interest Rates without backdrop . Would you say the exact same thing . Mike powell is the dove a labor market economist trained under yellen he is very sensitive to getting pushed from the left about the job market. If things change and they can change rapidly and if things change in the labor market starts to weaken the insurer, but the way the data is pointing i would stick to that statement there mo is to do nothing until they are forced to. With the election looming they start running out of dates. That is part of the calculus. Lisa many people have conflicting views on how much it matters we see stickiness because of positive economic trends. Does this push you further into risk assets and creditor make you more concerned and pullback . Mike we continue to be defensive and credit and continuing to come back. Our recent trades have been to continue to reduce exposure to Corporate Credit and increased exposure to things like mortgaged backed securities where they have been a big laggard relative to Corporate Credit. They have some technical and valuation dynamics that look appealing. Mortgages would outperform Corporate Credit in my mind in that scenario that is sudden up in quality and liquidity trade. Lisa it raises the point when things slow more materially people are getting bullish on duration. This site your baseline presumption . Mike the upside risk, we are there. We had the overshoot in real growth, overshoot and inflation and Interest Rates. When markets were pricing in a permanent funds rate of 4 as the low terminal rate for the next 10 years i look at that as an overshoot and raise were a hundred 502 hundred basis points to high. So now they are still. 5 higher than what i was say is fair value. We are still advising our clients that you hit a four handle yields across the curve and anything above 4. 5 is the buy zone for adding duration to their portfolios. Lisa how much do these concerned about deficits, tariffs would be problematic for a bonds. I hear things like ray dalio talking about civil war and David Solomon with Jonathan Ferro talking about the deficit. Is this lipservice to cover any risk they have that sees as the continuing story that welcome to the floor . Mike we are a nationalist, centrist view and it is a global bond market and our clients have big of money all over the world. If you look at the School Situations elsewhere, they are at least as bad as ours in the supply is horrible. Europe is a shining star because they have fiscal rules even though they let them slip. Our rates are 200 basis points higher than china and 200 points higher than germany and the european union. These investors control trillion dollar pools of capital and a lot of them, pensions and sovereign wealth funds in central banks, they buy fixed income and we are the worlds bond market. We forget that in the dollar is one of the strongest currencies and when push comes to shove, Global Investors will look to the u. S. Bond market for safety and that will continue. Jonathan lets get into it. Have you noticed any change . Is becoming more domestic . Mike a little bit on the margin but were also seeing more and more interest just recently from nonus investors into the u. S. Bond market. Its not just our treasury yields and treasury auctions a lot of these folks are not just buying treasuries in the auctions are a big deal. We have the worlds biggest most diversified regulated credit markets which out a lot of yield and spread on top of that where you see the demand. That is why credit spreads continue to be pretty tight you have a lot of supply and treasuries not a lot of supply of private sector debt. That could keep those spreads relatively tight. On the action side, they have gigantic auctions and at some point theres going to be a failed auction we always worry about that but we havent seen it yet and there is no evidence that the supply of treasury drives the level of Interest Rates. That is driven by growth. Jonathan if it changes your on the list of names we will call first. Michael collins from pgim. Lisa he was bearish on credit and lower risk credit but pointed out that fundamentals are good and technicals fantastic. We are not seeing the rising defaults, we are not seeing wholesale International Buyers on the treasury market which is why these concerns are on the margins. Jonathan seroto for rate because this year with him leaning to zero. Lisa has every asset class reset to the idea and understood the idea of 5 being just fine. Jonathan and embracing the old normal again. Third hour of server violence coming up next. Matthew d miskin , jamie dimon sitting down with francine lacqua. Live, from new york city. This is bloomberg. what took you so long . Im sorry, there was a long line at the thai place. You get the sauce i like . Of course youre the man i wish. The future isnt scary. Not investing in it is. Nasdaq100 innovators. One etf. Before investing, carefully read and consider Fund Investment objectives, risks, charges, expenses and more in prospectus at invesco. Com i dont think we are heading into a higher for longer environment but i think we are