Speaker 1: This is Bloomberg Daybreak Asia for this Thursday, February two
Speaker 1: in Hong Kong, Wednesday February one in New York and
Speaker 1: coming up this hour, Chair J. Powell says the Fed
Speaker 1: has made progress in fighting inflation, but he is warning
Speaker 1: more rate hikes are still needed. Meta reports better than
Speaker 1: expected sales as Facebook gains more users and Donnie Enterprises
Speaker 1: will not go ahead with its record two point four
Speaker 1: billion dollar share sale. McCarthy says he feels he and
Speaker 1: the President can find common ground on the dead ceiling.
Speaker 1: Former US Defense secretary says plan for a real possibility
Speaker 1: of conflict with China. I'm at Baxter with Global News
Speaker 1: Manchester United moves one step closer to its first trophies
Speaker 1: since two thousand seventeen on Dan Schwartzman. I'll have that story.
Speaker 1: More coming up in Bloomberg Sports. That's all straight ahead
Speaker 1: on Bloomberg Daybreak Asia on Bloomberg eleven and three on
Speaker 1: New York, Bloomberg, Washington, d C, bloom one six one, Boston,
Speaker 1: Bloomberg nine six, San Francisco, Sirius x M one nineteen
Speaker 1: and around the world on Bloomberg Radio dot Com and
Speaker 1: via the Bloomberg Business app. Good morning, I'm dead prisoner
Speaker 1: and I'm Brian Curtis. Here are the stories we're following today.
Speaker 1: The FED slowed its drive to rein in inflation policymakers,
Speaker 1: lifting the Fed's target for the benchmark rate but twenty
Speaker 1: five basis points to a range of four and a
Speaker 1: half to four and three quarters per cent. The smaller
Speaker 1: move followed a half point increase back in December and
Speaker 1: four jumbo sized bases point hikes prior to that. The
Speaker 1: Fed noted that inflation has eased somewhat but remains elevated.
Speaker 1: After the decision, chere J. Powell was asked whether he
Speaker 1: was worried about the recent market rally creating easier financial
Speaker 1: conditions that could hamper his fight against inflation. He chose
Speaker 1: not to push back hard. It is important that overall
Speaker 1: financial conditions continue to reflect the policier strength that we're
Speaker 1: putting in place in order to bring inflation at two percent,
Speaker 1: and of course financial conditions have it tightened very significantly
Speaker 1: over the past year. I would say that our focus
Speaker 1: is not on short term moves, but on sustained changes
Speaker 1: the broader financial conditions, and it is our judgment that
Speaker 1: we're not yet in a sufficiently restrictive policy stance, which
Speaker 1: is why we say that we expect ongoing hikes will
Speaker 1: be appropriate. Peal added that it's gratifying to see the
Speaker 1: disinflationary process now getting underway, but he said that officials
Speaker 1: would need substantially more evidence that inflation was on a
Speaker 1: sustained downward path before they could declare victory. Very interesting
Speaker 1: that he chose to use the word disinflation a number
Speaker 1: of times today, and I think Brian to be fair,
Speaker 1: if you take a broader view, you'll see that financial
Speaker 1: conditions are notably tighter than they were about a year ago. Now.
Speaker 1: The Chairman may have intended to emphasize the need to
Speaker 1: do a lot more when it comes to taming inflation,
Speaker 1: but as we indicated earlier, markets today simply weren't buying it. Here,
Speaker 1: as black rocks Jeff Rosenberg, there's a real disconnect between
Speaker 1: you know, what he said, what the statement said, maybe
Speaker 1: what he wanted to say, and what the markets heard.
Speaker 1: But what the markets heard was this issue of the
Speaker 1: conflict between financial conditions easing and whether or not that
Speaker 1: would impact the FEDS policymaking. He dismissed it, so let's
Speaker 1: be polite. Then, I think it's fair to say that
Speaker 1: markets are doubting the FEDS projections. FED funds. Now see
Speaker 1: the FED only getting to five percent in so far
Speaker 1: as a terminal rate. And then and then here's the
Speaker 1: interesting thing, cutting by fifty basis points between now and
Speaker 1: the end of the year. On the other hand, the
Speaker 1: FED things that can get to a rate of around
Speaker 1: five and a quarter percent and then hold it there
Speaker 1: through the remainder. Does some corporate news meta platforms reporting
Speaker 1: better than expected sales during the holiday quarter. We get
Speaker 1: that story from Bloombridge Charlie Pillett. Met Us saw strong
Speaker 1: demand for advertising. Has it attracted more users to its
Speaker 1: Facebook social network, it said. Revel You for the fourth
Speaker 1: quarter was thirty two point two billion dollars. That compared
Speaker 1: with Wall Street estimates of thirty one point six billion.
Speaker 1: CEO Mark Zuckerberg said Matta is making progress with its
Speaker 1: investments in artificial intelligence, particularly for improving the videos that
Speaker 1: shows users on Facebook and Instagram. The company is recovering
Speaker 1: from the worst year for its stock in history. In
Speaker 1: New York. Charlie Pellett Bloomberg Daybreak, Asian all right, Charlie.
Speaker 1: So it's all about earnings. We get that. Today Morgan
Speaker 1: Stanley chief US equity strategist Mike Wilson was saying investors
Speaker 1: could see several more quarters of disappointing results, and he
Speaker 1: told us the first quarter is where we could see
Speaker 1: an acceleration. Earnings are disappointing everywhere. Okay, this is one
Speaker 1: of the worst streets and earnings we've seen in quite
Speaker 1: a while. And people are now saying, oh, it's better
Speaker 1: than feared in this end the other that's like saying
Speaker 1: a tornado ripped through your house and saying, oh, we
Speaker 1: only knocked out the bedroom. I mean you earns are
Speaker 1: bad and you need to be honest about at and
Speaker 1: you need to say, do I really want to own
Speaker 1: a company where the margins are degrading like this and
Speaker 1: I don't really know where the bottom is yet. I'm
Speaker 1: just gonna trust it's going to get better. That's a
Speaker 1: that's not a great investment philosophy in our but you
Speaker 1: particularly give where evaluations are now. Alright, so what do
Speaker 1: earnings mean for the overall market? Well, think back s
Speaker 1: and P five hundred was up more than six percent
Speaker 1: of the month of January and Wilson is essentially saying
Speaker 1: that people were lured into believing reality is different than
Speaker 1: what it is. He also compared last month's move to
Speaker 1: the beginning of two thousand one, when the market also
Speaker 1: saw a rerating of tech stocks. You know, Doug, I
Speaker 1: think that the FED chief was not really devish today,
Speaker 1: insomuch as I think he was less hawkish than what
Speaker 1: people had feared, and he did actually talk about a
Speaker 1: soft landing. He hasn't really talked that much about it.
Speaker 1: He's only talked about conquering inflation. And yes, he did
Speaker 1: not scold markets because financial conditions have eased a little bit.
Speaker 1: And actually what you said is two. He did say
Speaker 1: that that financial conditions were tougher now than they were
Speaker 1: a year ago. He even said they're not much easier
Speaker 1: than at the time of the last FED meeting. Now
Speaker 1: the consensus as will stocks have been running higher, but
Speaker 1: the SMP five D right now is almost where it
Speaker 1: was two months ago in December around So yes, we
Speaker 1: had a big fall in December and then we had
Speaker 1: a big rise in January, but net net were almost
Speaker 1: at the same level. And I think the other point
Speaker 1: of contention between what the FED is saying, and what
Speaker 1: the market is indicating is that rate cuts are on
Speaker 1: the table between let's say, before the end of the year.
Speaker 1: Powell seemed to push back against that notion pretty aggressively today,
Speaker 1: Although if the economy were to somehow collapse or kind
Speaker 1: of move into a recession that was so deep, maybe
Speaker 1: the FED wouldn't have a choice but to do that. Yeah,
Speaker 1: he said, their data dependent, and I think everybody believes it.
Speaker 1: Now we've got a lot more ahead. We'll be talking
Speaker 1: about this with Chris Konstantino's coming up from Riverfront Investment
Speaker 1: and a little bit more time to flesh out exactly
Speaker 1: where the Fed's head is at the moment. Time for
Speaker 1: Global News US House speaking, Kevin McCarthy says he feels
Speaker 1: his first budget meeting with President Joe Biden was very
Speaker 1: positive and Baxter has Global News in the nine News
Speaker 1: at San Francisco, ed. Yeah, exactly right. Brian McCarthy says
Speaker 1: he and the President found areas of agreement as well
Speaker 1: as disagreement, and their first meeting today regarding the dead
Speaker 1: ceiling and the budget, I can see where we can
Speaker 1: find common ground. I think the American public would appreciate that,
Speaker 1: and we look. I've been very I've been very clear
Speaker 1: the current path way on we cannot sustain. We got
Speaker 1: to change the directory to put ourselves on a path
Speaker 1: to balance how we get there will be our discussions now.
Speaker 1: White House spokes and when Karine Jean Pierre says a
Speaker 1: position on raising the dead ceiling is very clear. We
Speaker 1: see this as a constitutional obligation that they that they
Speaker 1: have the Congress has to act. Yeah, so at least
Speaker 1: they've had their first discussion. US Ambassador of the United
Speaker 1: Nations Linda Thomas Greenfield, is calling for an overhaul of
Speaker 1: the Security Council in the U n to blunt Moscow's impact.
Speaker 1: Exclusively here on Bloomberg. Greenfield said the body has been
Speaker 1: able to move power outside the Council to accomplish a
Speaker 1: number of things. One an overwhelming vote condemning their annexations
Speaker 1: are attempted annexations. UH In Ukraine, we kicked them off
Speaker 1: of the You and Human Rights Commission, and we're continuing
Speaker 1: to put pressure on them and isolate them in New York. Meanwhile,
Speaker 1: the US as it will supply Ukraine with long Arrange
Speaker 1: artillery ammunition as part of a new two billion dollar
Speaker 1: package of military assistance, and Greenfield also commented briefly on
Speaker 1: China and human rights, saying that it is exerting inordinate
Speaker 1: pressure on human rights discussions among nations. Former US Defense
Speaker 1: Secretary Mark Esper says the US, along with Taiwan, need
Speaker 1: to prepare for the real possibility of war with China.
Speaker 1: Asper on Bloomberg's balance of powers, as Taiwan has already
Speaker 1: started working on ground defenses. We want to avoid a
Speaker 1: fight with China for all kinds of reasons military, economic, political,
Speaker 1: and so on. But if it comes to that, then
Speaker 1: we we need to have folks on the ground. The
Speaker 1: Taiwan's need to stock powder goods because the West will
Speaker 1: not be able to resupply them like we we like
Speaker 1: we've been able to with with Ukraine. Asper says, China
Speaker 1: has been watching what is going on in Ukraine very carefully,
Speaker 1: and the football goat the greatest of all time. Tom
Speaker 1: Brady has retired again, he says, for now for good,
Speaker 1: so monetarily, he doesn't need any pity parties if you're
Speaker 1: thinking about planning when Bloomberg. Scarlet Food says three hundred
Speaker 1: seventy five million dollars with Fox over ten years and
Speaker 1: even waiting for him because it was signed after his
Speaker 1: first retirement, and you know it's for whenever he decides
Speaker 1: to stop playing. But what's interesting about that deal is
Speaker 1: it's more money than he's made playing football. So he's
Speaker 1: going to be the highest paid sports broadcaster, maybe the
Speaker 1: highest pain caster period. Scarlett says. Uh. Scarlett says that
Speaker 1: they have been constant focus on Fox all the way
Speaker 1: through the season, so next year, so we won't get
Speaker 1: tired of him. Right in San Francisco, I'm met by
Speaker 1: Extra Global newspower by more than twenty journalists and analysts
Speaker 1: and over one hundred twenty countries. This is Bloomberg. This
Speaker 1: is Bloomberg Debra Kaja and Brian Curtis along with Rashad
Speaker 1: Salamat and our guest is Chris Constantino's chief investment strategist
Speaker 1: at Riverfront Investment Group. So Chris the FED chief talked
Speaker 1: about disinflation in goods, that it's it's real. He talked
Speaker 1: about seeing disinflation likely to be coming in housing services
Speaker 1: but none yet in core services ex housing, and what
Speaker 1: he's talking about there is basically wages. But it was
Speaker 1: good because he's talking about a soft landing your general
Speaker 1: impression from what you got today from the Fed in
Speaker 1: the chief. Yeah. Sure, and by the way, thanks guys
Speaker 1: for having me today. Um yeah, I think my take
Speaker 1: on the FED today, the general read was a little
Speaker 1: bit of a dubbish surprise maybe. UM. I think for
Speaker 1: two reasons, and you mentioned earlier on the program quite rightfully.
Speaker 1: The first one is, you know his quote around our
Speaker 1: focus is not on short term moves, but on sustained
Speaker 1: changes to financial conditions. You know, the markets ripped started
Speaker 1: to RiPP not long after that, because it sounded to
Speaker 1: listeners like Powell was kind of shrugging off the risks
Speaker 1: of of that financial conditions tightening we've talked about. The
Speaker 1: second thing, maybe more important, was you know, you're you're
Speaker 1: exactly uh your reference to his use the word disinflationary,
Speaker 1: this disinflationary process. So you know, you could view that
Speaker 1: as debbish. But I think there's also potentially a third
Speaker 1: read here, which is that you know, the markets may
Speaker 1: have misunderstood him a little bit because we've seen this
Speaker 1: happen uh to uh FED chairman's before, We've seen it
Speaker 1: happen to power before, where you know, he's tried to
Speaker 1: communicate a message and and and markets heard what they
Speaker 1: wanted to hear, and then usually over the next forty
Speaker 1: eight hours, markets kind of sort back through um the statements,
Speaker 1: and then of course a bunch of other FED governors
Speaker 1: come out and kind of get trotted out to help
Speaker 1: massage the message of the markets get their head around it. Um.
Speaker 1: One thing I'm pretty sure of is that how doesn't
Speaker 1: want to be known as the FED share who allowed
Speaker 1: inflation to become ingrained. And so I still think he's
Speaker 1: he's trying to walk that tight rope, and I think
Speaker 1: he's gonna eventually air on the side of being you know,
Speaker 1: maybe overtightening versus under Chris Chrise. I mean, it's there's
Speaker 1: also a situation where you know, the markets just don't
Speaker 1: want to believe him in some ways, and you know,
Speaker 1: the thing is probably not it's probably better to get
Speaker 1: your desired results by misleading them. I mean, could you
Speaker 1: argue that the FED is perhaps done raising rates and
Speaker 1: it wants to keep it just wants people out there
Speaker 1: to believe otherwise. M that's an interesting theory. UM. It's
Speaker 1: certainly sort of a three dimensional chess match, if you will, UM,
Speaker 1: But I don't know. I mean, I think the modern
Speaker 1: FED has tried to be as transparent as possible. I
Speaker 1: think back in the Greenspan days and earlier, there was
Speaker 1: you know, three and four dimensional chess going on with
Speaker 1: what they said and didn't say. But I think the
Speaker 1: modern FED or this FED is trying to be as
Speaker 1: transparent as they can. Um. But you can only be
Speaker 1: so transparent in a you know, a short presser, right.
Speaker 1: I think I think many of many investors would see
Speaker 1: him is still hawkish because even though we talked about
Speaker 1: the disinflation and goods and that disinflation was coming in
Speaker 1: housing services, he said that's less than fifty percent of
Speaker 1: the total. The other no disinflation, and so that means
Speaker 1: that they will stay vigilant. M I agree. I think
Speaker 1: that the bugaboo here is going to come down to wages.
Speaker 1: Right for most small and medium sized businesses in America,
Speaker 1: that is their number one cost input and um, you know,
Speaker 1: and this is the place where I think businesses have
Speaker 1: struggled because wages, particularly on the lower end, you know,
Speaker 1: demand for workers is so dramatic still in those areas
Speaker 1: that um, you know, it's a big constraint for or businesses,
Speaker 1: so um, you know, the data I like to track.
Speaker 1: You know, the n f I b M has a
Speaker 1: propensity to raise wages survey that they've been putting on
Speaker 1: for decades now, and that's data that here at Riverfront
Speaker 1: we like to track. You know, that has moderated a
Speaker 1: little bit recently, but it's still really really high relative
Speaker 1: to history. And that suggests to me that wage you know,
Speaker 1: wages are going to remain um, you know, pretty pretty
Speaker 1: sticky for the type being. So tells Chris, how you
Speaker 1: the moment trading to the market. Um, I think that
Speaker 1: you have something called patty and it's not a woman. Correct. Yeah,
Speaker 1: that's thanks for bringing that up. That's the acronym that
Speaker 1: I've been using to try to communicate that. I think
Speaker 1: we're in a new era. UM. If the old era
Speaker 1: was of stock investing, was you know, own as much
Speaker 1: as much growth stocks as you can stand and then
Speaker 1: buy more. You know, Tina, there is a non alternative
Speaker 1: to growth stocks in a very very low uh nominal growth,
Speaker 1: low interest rate environment. I think the new era is patty,
Speaker 1: which stands or pay attention to yield. I think for
Speaker 1: the next foreseeable future, and I think this could be
Speaker 1: with us for years to come. Um, a little bit
Speaker 1: like the nineteen seventies. I think that investors are going
Speaker 1: to get a fair amount of their total return in
Speaker 1: stocks and fixed income from the compounding of the yield
Speaker 1: and not so much from betting that. You know that
Speaker 1: valuation multiples are going to go higher, and so I
Speaker 1: think in this era you want to focus on on
Speaker 1: business models that generate cash flow and tend to consistently
Speaker 1: return those two shareholders and Meta jump to almost after hours.
Speaker 1: Part of that was the stronger sales part of it
Speaker 1: to buy back which one is more important? Um? Great question. Um.
Speaker 1: You know, my my compliance department doesn't like me to
Speaker 1: talk about individual stocks, but I will talk about the
Speaker 1: Internet sector of the whole. And I think my personal
Speaker 1: view on this is I think the market is laser
Speaker 1: focused on toplight growth here because you know, financial engineering
Speaker 1: tends to get a lower multiple, but if you can
Speaker 1: generate higher revenue, which has been an issue for any
Speaker 1: of these types of companies. This is Bloomberg Daybreak Asia,
Speaker 1: your morning brief on the stories making news from Hong
Speaker 1: Kong to Singapore and Wall Street. Look for us on
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Speaker 1: I'm Bryan Curtis and I'm Doug Krisner. Join us again
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Speaker 1: day right here on Bloomberg day Break Asia