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Speaker 1: Good morning. I'm Doug Krisner. Here are the stories we're

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Speaker 1: following today. Talk of some progress on finding an agreement

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Speaker 1: of sorts on border security here in the US. At

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Speaker 1: Baxter has more from the Bloomberg newsroom.

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Speaker 2: Ready, Yeah, that's right, Doug, that is what the talk

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Speaker 2: is today. It would facilitate getting aid to Ukraine and Israel.

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Speaker 2: Senator John Cornyan on Fox has heard on Bloomberg, says

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Speaker 2: very difficult though, and delicate.

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Speaker 3: Still well, I talked to a couple of hey negotiators

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Speaker 3: yesterday and they feel like they're making some progress. But

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Speaker 3: I know Senator Schumer thinks there's going to be some

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Speaker 3: deal cut behind closed doors and then jam it through

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Speaker 3: the Senate and then jam the House. That's not going

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Speaker 3: to happen now.

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Speaker 2: Cornin says it's about long term border policy. Senator Joe

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Speaker 2: Manchin though also saying he's very encouraged on CNN, though

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Speaker 2: he says the goal is just getting the border shut down.

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Speaker 4: At this point, the whole world is in the flux

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Speaker 4: and are taking advantage of a system that truly is broken.

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Speaker 4: And this is not immigration reform. They're basically working diligently

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Speaker 4: on just securing the border. It must be done, it

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Speaker 4: must be shut down.

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Speaker 2: So this is all tied of course to aid for

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Speaker 2: Ukraine and Israel, and the Ukraine waits to see if

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Speaker 2: more aid is coming. Ukrainian Ambassador to the US Oksana

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Speaker 2: Markarova on CBS has heard on Bloomberg, says, it's getting

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Speaker 2: to be a critical point.

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Speaker 5: All the eyes are on Congress now and we really

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Speaker 5: hope that the progress that we hear about, and you know,

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Speaker 5: they will be able to find a solution. And look,

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Speaker 5: as the former Minister of Finance, I negotiated many budgets

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Speaker 5: with my parliament. I understand the importance of the local priorities.

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Speaker 2: And she says she just prays for a resolution soon.

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Speaker 2: Israel waits as well, and today it's pushing back on

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Speaker 2: the increasing US and European calls for a cease fire.

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Speaker 2: It's Foreign minister calling it at a prize for terrorism

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Speaker 2: if that happens. And Senator Chris van Holland on ABC

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Speaker 2: has heard here on Bloomberg says Israel is a difficult

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Speaker 2: partner for the Biden administration at this way.

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Speaker 6: Are with them entirely in the objective of ending the

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Speaker 6: military threat. But again we need to make sure that

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Speaker 6: our values are reflected in this so long as we

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Speaker 6: are providing all of this equipment.

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Speaker 2: Yeah, the Buiding administration is called for a two state

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Speaker 2: solution after the war, which Israel says will not happen.

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Speaker 2: Israeli media along with CNNA reporting, by the way, that

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Speaker 2: there have been progress and weekend talks between Masad and

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Speaker 2: Cutter's Prime Minister for our prisoner exchanges. Chileans have rejected

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Speaker 2: a second proposed new constitution and a referendum. Bloomberg's Carolina

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Speaker 2: Gonzalez says most likely will not end the discontent.

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Speaker 7: Well, Birge's administration says there won't be a third attempt. However,

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Speaker 7: a lot of analysts has said that this won't really

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Speaker 7: bring a closer to this process because these situations, this

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Speaker 7: issues within the people are still going to be present.

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Speaker 7: There's not going to be a change that will address

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Speaker 7: whatever took these people to the streets back in twenty nineteen.

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Speaker 2: Yeah, these attempts to change the constitution began in twenty nineteen.

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Speaker 2: Now this second referendum has failed. The White House has

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Speaker 2: taken I aim a Donald Trump saying immigrants are poisoning

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Speaker 2: the blood of our country. The statement says, quote, echoing

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Speaker 2: the grotesque rhetoric of fascist and violent white supremacist and

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Speaker 2: threatening to oppress those who disagree with the government are

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Speaker 2: dangerous attacks. So what did Trump say? This is Trump.

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Speaker 8: They're poisoning the blood of our country. That's what they've done.

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Speaker 8: They poison mental institutions and prisons all over the world,

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Speaker 8: not just in South America, not just the three or

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Speaker 8: four countries that we think about, but all over the world.

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Speaker 8: They're coming into our country from Africa, from Asia, all

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Speaker 8: over the world. They're pouring into our country.

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Speaker 2: Meanwhile, Trump continues to have a commanding lead in all

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Speaker 2: of the polling, Global news twenty four hours a day

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Speaker 2: and whenever you wanted, with Bloomberg News. Now in San Francisco,

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Speaker 2: I'm at Baxter. This he is Bloomberg, right, Doug.

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Speaker 1: Let's begin now with the pushback against those aggressive rate

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Speaker 1: cuts that the market is expecting. Today, Chicago Fed President

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Speaker 1: Austin Goulsby was saying it's simply too early to declare

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Speaker 1: victory on the FEDS fight against inflation, and he says

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Speaker 1: decisions on rate cuts will be based on incoming economic data.

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Speaker 1: Not really a surprise on that front. Goolesby has been

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Speaker 1: one of the more optimistic voices when it comes to

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Speaker 1: the idea of a soft landing on the American economy.

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Speaker 1: But he said, despite progress, the FED is still far

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Speaker 1: from that two percent inflation goal. Here's Goulesby speaking to

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Speaker 1: CBS face the nation.

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Speaker 9: We're still above the target. We got to get inflation

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Speaker 9: down to target. Tell we're convinced that we're on path

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Speaker 9: to that. It's an overstatement to be counting the chickens.

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Speaker 1: That is a Chicago Fedbank President Austin Goolsby has heard

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Speaker 1: earlier here on Bloomberg. Now on Friday, we're going to

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Speaker 1: get data on the Fed's preferred measure of inflation, that

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Speaker 1: is the Personal Consumption Expenditures price Index. You know, US

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Speaker 1: equity indexes are at or near all time highs. However,

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Speaker 1: Wall Street's expectations for corporate profits seem to be lagging.

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Speaker 1: We have more from Bloomberg's than these.

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Speaker 10: P analysts project companies in the S and P five

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Speaker 10: hundred indext we'll earn around two hundred and forty seven

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Speaker 10: bucks a share next year, according to data compiled by

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Speaker 10: Bloomberg Intelligence. That's basically where the projections were May fifth,

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Speaker 10: before the S and PS surged fourteen percent, meaning as

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Speaker 10: shares rallied while earnings estimates remain steady, valuations went from

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Speaker 10: reasonable to somewhat rich, and the index is now trading

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Speaker 10: almost twenty times projected earnings, way above its average reading

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Speaker 10: over the past decade. So is the optimism over stocks

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Speaker 10: too high or are the earnings estimates too low? Data

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Speaker 10: compiled by Morgan Stanley indicates cell side analysts are making

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Speaker 10: more downward revisions and profit outlooks for next year than upgrades.

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Speaker 10: But the Fed's potential pivot could be about to change

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Speaker 10: all that. Denise Pellegrini Bloomberg Radio.

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Speaker 1: On Tuesday, markets will be focused on the Bank of

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Speaker 1: Japan Governor Kazuo Uweida is inching toward an end of

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Speaker 1: the world's last negative interest rate regime. However, chances are

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Speaker 1: it's not going to happen this time. We hear authorities

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Speaker 1: aren't in a hurry to move. Here's Bloomberg's Paul Jackson.

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Speaker 11: When is it going to move? The logic suggests April.

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Speaker 11: They're looking for more evidence that we've got wages feeding

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Speaker 11: into inflation, because remember the Bank of Japan says, yeah,

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Speaker 11: we've got inflation, but it's bad inflation we've got. We

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Speaker 11: want good inflation that's supported by wages. So in March

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Speaker 11: mid March we get figures from union management negotiations for

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Speaker 11: a wide swathe of companies. Those figures are going to

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Speaker 11: be fairly key.

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Speaker 1: That is Bloomberg's Paul Jackson in Tokyo. Recently, some BOJ

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Speaker 1: officials have commented on exit scenarios, and that has led

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Speaker 1: some of the market to view perhaps the BOJ is

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Speaker 1: near an imminet change. However, Bloomberg economists see the messaging

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Speaker 1: as part of a long process laying the groundwork for

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Speaker 1: a smooth transition next year. We got to Hong Kong next,

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Speaker 1: where the government is pudding its number one national security

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Speaker 1: target on trial today Bloomberg's where Shad Salama has more

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Speaker 1: on the prosecution of Jimmy Lai.

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Speaker 12: As an outspoken journalist and entrepreneur, Jimmy Lai founded the

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Speaker 12: popular and controversial tabloid Apple Daily. The former medium ogul

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Speaker 12: is accused of endangering national security, and if convicted, faces

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Speaker 12: the rest of his life behind bars. Live has already

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Speaker 12: spent more than a thousand days in prison for a

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Speaker 12: range of lesser offenses. In many ways, he is standing

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Speaker 12: for acts of self expression which were once openly permitted

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Speaker 12: in the former British colony. US UK and Canadian politician

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Speaker 12: have raised concerns over Lie's case, with many defending him vigorously.

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Speaker 12: The trial risks further inflaming tensions between China and the West.

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Speaker 12: Lie's son Sebastian believes Hong Kong is essentially putting its

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Speaker 12: freedoms on trial in Hong Kong. I'm Richard salamat Bloombergradia.

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Speaker 1: Those crippling tariffs imposed by Beijing on Australian wine exports

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Speaker 1: could be lifted shortly, the story from Bloomberg's Paul Allen.

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Speaker 13: Australia's Trade Minister Don Farrell said China started reviewing the

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Speaker 13: sanctions in late November and that the process was quote

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Speaker 13: well and truly underway, and he's confident the wine tariffs

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Speaker 13: could end early next year. This was in an interview

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Speaker 13: with Sky News. China imposed anti dumping tariffs of up

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Speaker 13: to two hundred and eighteen percent on wine in March

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Speaker 13: of twenty twenty one, decimating what had been one of

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Speaker 13: Australia's major overseas markets. Separately, Don Farrell told Sky News

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Speaker 13: he also expects taxes on lobster to be removed in

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Speaker 13: the near future, after raising that issue with his Chinese

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Speaker 13: counterpart five times. I'm Paul Allen Bloomberg Radio.

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Speaker 1: Daybreakashia, and our guest is James Abarte. He is managing

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Speaker 1: director also the chief investment officer at Center Asset Management.

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Speaker 1: He joins us from here in New York City. James,

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Speaker 1: always a pleasure. I think we can agree that there

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Speaker 1: has been simply an enormous amount of easing and financial

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Speaker 1: condition since the FED meeting last week. So it's not

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Speaker 1: not really surprising to see a number of FED officials

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Speaker 1: pushing back on aggressive rates. Where are you right now

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Speaker 1: in viewing where the Fed is visa v inflation and

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Speaker 1: the amount of easing we're going to get in the

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Speaker 1: new year.

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Speaker 14: Yeah, it has been head spinning, right, you know. In

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Speaker 14: early December, the Fed's talking about rate cuts being premature,

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Speaker 14: and then at the announcement of the meeting they said

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Speaker 14: rates have peaked and expect three cuts in twenty twenty four.

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Speaker 14: And then the next day they trot out three FED

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Speaker 14: governors to kind of walk that back and continue that

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Speaker 14: over the weakening over the weekend, excuse me. So, you know,

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Speaker 14: we go from having a bare steepening of the curve

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Speaker 14: right where long term rates were rising in the fall

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Speaker 14: period now to long term rates are actually dropping. And

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Speaker 14: you know, it's it's ironic because the FED has been

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Speaker 14: talking about it for the longest period of time that

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Speaker 14: they finally get real interest rates to the two percent

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Speaker 14: level after rates being negative essentially since two thousand and

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Speaker 14: eight and the global financial crisis. So the concept of

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Speaker 14: two percent real rate, two percent inflation has been the

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Speaker 14: backbone of you know, a good stable currency, the lack

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Speaker 14: of capital and discipline, you know, all the things that

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Speaker 14: essentially the FED would would seem to want to have.

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Speaker 14: So to the extent that the FED now is pivoting,

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Speaker 14: I think one needs to just think about from a

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Speaker 14: historical perspective. You know, remember the FED began easing in

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Speaker 14: the first quarter of two thousand and one, but the

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Speaker 14: SMP didn't bottom until the fourth quarter of two thousand

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Speaker 14: and two. And you know, while the stock index in

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Speaker 14: the dear didn't happen, you know, till the first quarter

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Speaker 14: of two thousand and nine. That came eighteen months after

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Speaker 14: the first rate cut in the third quarter of two

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Speaker 14: thousand and seven. So FED pivots usually occur during negative

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Speaker 14: events market or credit stress, you know, maybe even the

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Speaker 14: soft landing of ninety five ninety six, where people are

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Speaker 14: kind of hanging their hat on right now. You know,

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Speaker 14: the FED was very gradual in terms of three rate

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Speaker 14: cuts and then even started to raise rates in ninety seven,

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Speaker 14: But the evaluation perspective right now is very different than

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Speaker 14: it was back then, and credit spreads are ridiculously tight

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Speaker 14: at this point in time. So I think we're priced

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Speaker 14: for perfection with the potential that the FED may be

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Speaker 14: doing you know, quite a bit of you know damage

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Speaker 14: in terms of its own credibility with the statements that

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Speaker 14: it's made this past week in terms of three cuts

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Speaker 14: next year.

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Speaker 1: So you believe maybe that they're going out a little

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Speaker 1: ahead of themselves. They need to wait for some more

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Speaker 1: data before they can confidently say we're primed for cuts.

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Speaker 14: Yeah, I think so. You know, I'm trying to understand

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Speaker 14: the motivation as to what they're trying to accomplish in

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Speaker 14: such a rapid change in terms of policy in just

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Speaker 14: a matter of a couple of weeks. Is it something

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Speaker 14: that we should be looking at in terms of them

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Speaker 14: trying to alleviate the significant mark to market losses on

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Speaker 14: the treasury bonds and other bonds that are held by

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Speaker 14: the banking sector which are held in the you know,

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Speaker 14: held to maturity baskets of each of these companies. You know,

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Speaker 14: what are the recession risks that we're looking at in

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Speaker 14: terms of what's going on, and to the extent that

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Speaker 14: basically you look at net interest margins right now, you know,

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Speaker 14: the best proxy for net interest margins at the banking

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Speaker 14: sector is the five year treasure minus the FED funds rate.

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Speaker 14: It's minus one point four percent. That's the same level

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Speaker 14: it was back in early two thousand and eight and

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Speaker 14: late two thousand right before we you know, had very

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Speaker 14: significant difficulties in the banking sector. So you know, even

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Speaker 14: with the soft lending spread back in ninety five ninety six,

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Speaker 14: you know, that spread was about one hundred and fifty

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Speaker 14: basis points positive. So it's very, very difficult to understand

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Speaker 14: why the FED would make such a radical change in

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Speaker 14: policy in a couple of weeks, other than the potential

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Speaker 14: that it sees, you know, some type of pressure, particularly

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Speaker 14: in the regional banking sector, which they largely avoided in

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Speaker 14: the spring time as we know with Signature Bank, Silicon

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Speaker 14: Valley Banking.

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Speaker 1: So in terms of the equity market, the Dow at

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Speaker 1: a record high, same is true for the Nasdaq one hundred,

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Speaker 1: even the Philadelphia Semiconductor Index is at a record And

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Speaker 1: I'm wondering whether or not you see the economy as

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Speaker 1: being strong enough to justify that optimism in the rally

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Speaker 1: that we have seen in stocks.

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Speaker 14: That's why I've been held back in terms of remaining

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Speaker 14: relatively cautious. I mean, again, there's been this split between

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Speaker 14: top down indicators. Right, the Ism index has been in

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Speaker 14: contraction for twelve straight months. We've never not had a

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Speaker 14: recession when that happened. But we've seen market prices, as

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Speaker 14: you point out, not just stocks, but corporate bond, the

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Speaker 14: investment grade of high yield spreads at ridiculously low levels,

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Speaker 14: and big rallies what we're seeing. But even when we're

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Speaker 14: talking about earnings, I know, during the news segment touching

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Speaker 14: upon earnings growth rate, I mean, we're looking at the

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Speaker 14: earnings growth rate for twenty twenty three to be on

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Speaker 14: pace for a zero point four percent decline. What you

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Speaker 14: look at in terms of bottom up pricing as we

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Speaker 14: do the market implied future great growth rate of EPs

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Speaker 14: is about eleven point four percent for next year. Overall

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Speaker 14: EPs estimates for the smp I think eight point two percent,

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Speaker 14: and it's assuming that this very significant operating leverage, meaning

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Speaker 14: top line growth expected around four or five percent, with

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Speaker 14: a doubling of EPs growth through margin expansion. That's while

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Speaker 14: at the same time, the biggest contributing factor to negative

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Speaker 14: earnings this year has been the fact that even though

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Speaker 14: we've had some alleviation on pricing pressure from costs of

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Speaker 14: goods of sold getting better because inflation has ebbed and

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Speaker 14: supply chain pressures have eased SG and a experence is

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Speaker 14: arising as wage growth is caught up with trailing inflation figures.

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