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Speaker 3: We're just counting down, folks, just about a minute to
Speaker 3: those Fed minutes. Of course, it was related to the
Speaker 3: first FED meeting of twenty twenty four at the end
Speaker 3: of the month of January. Probably no surprises expected, Jennifer,
Speaker 3: but nonetheless we'll see there's some consensus in terms of
Speaker 3: what the Fed officials need to actually cut rates.
Speaker 4: And then you know, if there's anything that we can
Speaker 4: read amongst the lines about how to read the latest
Speaker 4: CPI figures, which were much higher than anyone had thought.
Speaker 3: All right ahead of that, folks, you've got a ten
Speaker 3: year note at four thirty one, a two year note
Speaker 3: at the shorter end of the you'll curve at four
Speaker 3: sixty five. Taking a look at the equity trade, it's
Speaker 3: been a muted trade down across the board, just down
Speaker 3: about twelve on the S and P five hundred and
Speaker 3: a decline of about one hundred and sixteen points on
Speaker 3: the NAZAQ, so down the most under percentage basis. We
Speaker 3: do want to get to the latest those Fed meeting minutes.
Speaker 3: We want to head to DC. Bloomberg News International Economics
Speaker 3: and Policy correspondent Michael McKee is live at the Federal
Speaker 3: Reserve breaking down them as they crossed the Bloomberg.
Speaker 4: Well.
Speaker 5: As of January thirty, first Fed officials did not see
Speaker 5: any kind of a rate increase in their future, agreeing
Speaker 5: at their meeting the policy rate was likely at its
Speaker 5: peak for this tightening cycle, but there was no consensus
Speaker 5: on when they might start cutting and no real hints
Speaker 5: in the minutes about what they would be looking at
Speaker 5: to decide the future path of the policy rate would
Speaker 5: depend on incoming data, the evolving outlook, and the balance
Speaker 5: of risks. The minutes say cutting too soon was seen
Speaker 5: as a bigger risk than waiting too long. According to
Speaker 5: the minutes quote, most participants noted the risks of moving
Speaker 5: too quickly to ease the stance of policy and emphasize
Speaker 5: the importance of carefully assessing incoming data in judging whether
Speaker 5: inflation's moving down sustainably to two percent, but not all
Speaker 5: felt that way, suggesting at least a small split in
Speaker 5: the committee. A couple of participants pointed to downside risks
Speaker 5: to the economy associated with maintaining an overly restrictive stance
Speaker 5: for too long. Although they did not have January's stronger
Speaker 5: jobs and consumer price inflation data numbers, participants noted momentum
Speaker 5: and aggregate demand might be stronger than currently assessed. Several
Speaker 5: also worried the risk that financial conditions could become less restrictive,
Speaker 5: could add undue momentum to aggregate demand and cause progress
Speaker 5: on inflation to stall. Geopolitical considerations got a small nod,
Speaker 5: as did slower growth in some foreign economies. And then, finally,
Speaker 5: on the balance sheet, members agreed it was important to
Speaker 5: continue balance sheet reduction at its current pay, feeling so
Speaker 5: far it had proceeded smoothly. Many of them said it
Speaker 5: would be appropriate to begin in depth discussions on the
Speaker 5: ballot sheet at the March meeting, something Chairman J. Powell
Speaker 5: had confirmed in his January thirty first news conference.
Speaker 3: All right, Michael McKee, of course, our Bloomberg News International
Speaker 3: Economics and Policy correspondent live there at the Federal Reserve.
Speaker 3: Mike do not go anywhere. Quick check on the markets everyone,
Speaker 3: and a slight uptick, very slight when I look at
Speaker 3: the US Treasury trade that to year note right now
Speaker 3: yielding four to sixty six, which was just pretty much
Speaker 3: where it was right before the minutes release. Ten year
Speaker 3: note going the longer end of the yield curve four
Speaker 3: to thirty two, which is pretty much where we saw
Speaker 3: that prior to the release of the minutes. Quick check
Speaker 3: on the equity side of things, of course, the focus
Speaker 3: very much on Nvidia of reporting after the close, and
Speaker 3: we are seeing equities move a little bit lower here
Speaker 3: on that news, so we'll continue to track that in
Speaker 3: the meantime. I do want to get back to Mike here. Mike,
Speaker 3: it doesn't sound like there were many surprises here of any.
Speaker 5: No, and one of the problems that the minutes have
Speaker 5: now is most of what we have heard in the
Speaker 5: minutes has already been discussed by Fed officials between now
Speaker 5: and their meeting that was three weeks ago, so we
Speaker 5: have a pretty good idea of what they were thinking.
Speaker 5: There isn't much in here except maybe the idea that
Speaker 5: there are more people leaning against the idea of cutting
Speaker 5: too quickly than moving too slowly. That that is the
Speaker 5: one major concern that comes through here. But I know
Speaker 5: a lot of people are looking for guidance on what
Speaker 5: they're going to look at when they decide they're going
Speaker 5: to start cutting rates, and that's not in these minutes.
Speaker 4: And you know, another thing that's not in those minutes
Speaker 4: is that very disappointing CPI number that's really changed the
Speaker 4: way market participants are thinking about the timing of the
Speaker 4: rate cuts. And you know, Mike, I wonder if you
Speaker 4: see anything in the minutes that policymakers, knowing what they
Speaker 4: now do about that latest CPI print, would perhaps go
Speaker 4: back and rethink or reassess.
Speaker 6: Well, there were.
Speaker 5: Hens, especially in that line, that the economy might be
Speaker 5: stronger than anticipated, that they were concerned these sorts of
Speaker 5: things could happen. But of course this meeting was two
Speaker 5: weeks before that CPI report came out, and it was
Speaker 5: three days before the employment numbers came out, so they
Speaker 5: didn't really know what was going to be happening. There
Speaker 5: has been a concern all along among Fed officials that
Speaker 5: the economy was stronger than anticipated and that could be
Speaker 5: an inflation problem down the road, but it's not specifically
Speaker 5: reflected in these minutes.
Speaker 3: All right, I do want to bring into our conversation
Speaker 3: Bloomberg Economics chief US economist to Anna Wong. She is
Speaker 3: joining us as well. She's joining us from our DC
Speaker 3: bureau also there at the nation's capital. Anna, what jumped
Speaker 3: out for you in the FOMC minutes? As might kind
Speaker 3: of laid out, It doesn't feel like too many surprises,
Speaker 3: But give us your take on this.
Speaker 7: Yeah, So, you know what has puzzled me over the
Speaker 7: past couple months is why did the Fed feel like
Speaker 7: they need to hold higher for longer? Even though because
Speaker 7: if we looked at the reaction function which we estimated
Speaker 7: and which is that basically they followed the inertial tailor rule.
Speaker 7: This rule has very precisely predicted that what they had
Speaker 7: done in the past two years with monetary policy. So
Speaker 7: why are they choosing this moment to deviate from it?
Speaker 7: And I think these minutes reveal why. I think part
Speaker 7: of it is that they have been surprised by how
Speaker 7: strong the economy is relative to what they expected. And
Speaker 7: recall that a couple of days before the FOMC meeting
Speaker 7: in January, they received the Q four GDP number, which
Speaker 7: really surprised to the upside, and I think based on
Speaker 7: that assessment, they're thinking that maybe the neutral rate is
Speaker 7: in fact higher than what they thought it would be
Speaker 7: before the pandemic. And this is why that the tailor
Speaker 7: rule that they're the reaction function they're following, in fact
Speaker 7: is experiencing a level shift upwards, and that could explain
Speaker 7: the rationale for why they are choosing a hold rates
Speaker 7: higher for longer.
Speaker 3: Mike, come on in on this in terms of you know,
Speaker 3: we've talked a lot about the new tool rate. Your
Speaker 3: take on what Anna is saying, and maybe there is
Speaker 3: a reassessment here.
Speaker 5: Well, there's definitely, if not a reassessment, certainly a focus
Speaker 5: on it. We've heard from several members of the committee
Speaker 5: since the meeting that they are looking at the possibility
Speaker 5: that the neutral rate has gotten higher our star as
Speaker 5: they like to call it, an eco nerd talk, that
Speaker 5: the economy is stronger and they will need to react
Speaker 5: to that. But the minutes make it clear at the
Speaker 5: least as of January thirty first, that they would do
Speaker 5: that by leaning against faster growth at the same policy rate.
Speaker 5: They weren't going to raise rates going forward. They would
Speaker 5: just leave rates where they were for longer, you know.
Speaker 4: I did for both of you. Actually we'll start with
Speaker 4: Anna on this, but one thing that has really struck
Speaker 4: me is that the chat has indeed turned to the
Speaker 4: possibility of interest rate increases, obviously since this FOMC decision,
Speaker 4: since the CPI announcement, since the jobs numbers, And I wondered,
Speaker 4: for both of you, do you see that more as
Speaker 4: a possibility, especially you, and if you wouldn't mind starting
Speaker 4: giving your assessment of where the FED thinks the new
Speaker 4: to rate is.
Speaker 7: Yeah, so I think that the likelihood is still tilted
Speaker 7: toward rate cuts rather than rate hikes. Our nop FED
Speaker 7: speak model does suggest that the probability of a rate
Speaker 7: hike is thirteen point three percent, and that is quite
Speaker 7: similar to the assessment of former Treasury Secretary of Larry Summers.
Speaker 7: But I think that given all the range of policy
Speaker 7: tailor rules that the FED follows, none of them would
Speaker 7: say that the FED should be hiking at this point.
Speaker 4: And then, Mike, what do you think about the possibility
Speaker 4: of a hike at this point?
Speaker 5: I agree with Anna, the rules and also what FED
Speaker 5: officials are saying rule out any kind of rate hike
Speaker 5: at this point, if they felt the economy was accelerating
Speaker 5: too much and an inflation was starting to become more
Speaker 5: of an issue, they would just leave rates higher for
Speaker 5: longer to see what happen. It's not on the table.
Speaker 5: Larry Summers put it there. An interesting discussion point, but
Speaker 5: it's not something that FED officials are considering right now.
Speaker 3: Well, I go back to Mike, some of the conversations
Speaker 3: we've had around this table. That is, the FED gets,
Speaker 3: you know, to the end of its cycle, and we
Speaker 3: think we've picked out here in terms of rate increases
Speaker 3: according to what we got from the FED chare. But
Speaker 3: having said that that it is more difficult towards the end.
Speaker 3: Is there some truth to it? Truth to this as
Speaker 3: we continue to see data points that come in stronger
Speaker 3: that make you think, well, wait a minute, you know,
Speaker 3: is it just a case of staying higher for longer
Speaker 3: or the possibility that we could, considering some of the
Speaker 3: data points we could get down the road, that the
Speaker 3: FED would have to raise rates. I mean, is it
Speaker 3: silly for us to rule it out completely.
Speaker 5: I wouldn't rule anything out completely. We don't know what's
Speaker 5: going to happen down the road, but it's going to
Speaker 5: be some time before that even becomes would even become
Speaker 5: an issue to be considered. The strength of the economy sure,
Speaker 5: and the fact that we haven't had an effort to
Speaker 5: try to get down to a two percent level before.
Speaker 5: It could be very hard to do that, get that
Speaker 5: last mile, that last percentage into out of inflation rather
Speaker 5: down to two percent. So FED officials are going to
Speaker 5: be making a decision on when to start cutting based
Speaker 5: on what progress they see in that regard, but they're
Speaker 5: not at this point looking to raise rates to push
Speaker 5: down inflation any faster.
Speaker 4: Mike, if we could just stick with you for a second,
Speaker 4: because I want to go back to the text of
Speaker 4: the minutes, and I wondered if you could talk a
Speaker 4: little bit more about what officials were thinking about their
Speaker 4: quantitative using slash quantitative tightening program.
Speaker 5: Well, they don't go into a lot of detail about it,
Speaker 5: but they do say that it's been proceeding smoothly at
Speaker 5: the pace they've been going at and that at some
Speaker 5: point they would make a decision, but they don't put
Speaker 5: any timing on that. They will have an in depth
Speaker 5: discussion in March towards end eventual decision is the way
Speaker 5: they said it, but it has been working all right,
Speaker 5: and they have been seeing the reverse repo funds decline
Speaker 5: as that's become less important. And so it's all pointing
Speaker 5: towards the fact that sometime in the future, maybe not
Speaker 5: too long from now, they will start a taper. They
Speaker 5: did suggest that a gradual reduction in the balance sheet.
Speaker 2: Sell off is.
Speaker 5: Appropriate and that they would make that decision down the road.
Speaker 3: All right, So not a ton of market reaction as
Speaker 3: we've gone over Having said that, and I want to
Speaker 3: go over to you in terms of what's your next
Speaker 3: focal point when it comes to thinking about FED policy
Speaker 3: moving forward and really the health of the overall US economy.
Speaker 7: Yeah, I think that a next focal point would be
Speaker 7: the core PCE. We got CPI and PPI data last week,
Speaker 7: and that seems to imply that the January's core PCE
Speaker 7: and Powell's preferred supercore would be running pretty hot. And
Speaker 7: if it's true that the January readings is just noiselecting
Speaker 7: seasonality factors, then it could be possible that the February
Speaker 7: inflation reading would be ugly as well, because typically these
Speaker 7: seasonal factors also repeat itself as January in February. So
Speaker 7: it is really only in after the February inflation data
Speaker 7: that do you really get good signal of what really
Speaker 7: is happening to inflation. So I would say markets should
Speaker 7: be ready for a wild ride even for February's CPI.
Speaker 3: Data shocking as we've often talked about the volatility that
Speaker 3: we've seen, certainly in the rates market and the treasury trade. Hey, Mike,
Speaker 3: also to you last question, I got to cheat a
Speaker 3: little bit. Heard earlier on television. You are looking ahead
Speaker 3: to when fetch your J. Powell is up on Capitol Hill.
Speaker 3: That's important, That's.
Speaker 5: Going to be important. We have a lot of Feds
Speaker 5: speak between now and the end of the month, but
Speaker 5: a lot of it will just kind of go away
Speaker 5: in the sense that J. Powell rules all and March
Speaker 5: sixth is the first day of his said by annual
Speaker 5: testimony to Capital Hill. He'll be talking to the House
Speaker 5: Financial Services Committee, and that's the one that the markets
Speaker 5: are going to focus on. That's where they're going to
Speaker 5: expect to get some guidance. Don't know what he'll give them,
Speaker 5: but that is going to be a day where we
Speaker 5: will probably see markets move in terms of the FED
Speaker 5: and not in videos.
Speaker 3: All right, net net it's stated point to data point,
Speaker 3: fed speak to FED speak and anything that Jay Powell does.
Speaker 3: All right, guys, thank you so much, so appreciated, of course.
Speaker 3: Are Michael McKee at the Federal Reserve in Washington, DC,
Speaker 3: is international Economics and Policy correspondent here at Bloomberg News
Speaker 3: and our thanks also to anawong chief US economist at
Speaker 3: Bloomberg Economics. She is there in our DC bureau.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 3: Intel back to sterrophiles for an initial public offering today
Speaker 3: on the NASDAC Wall Street Journal, noting that Reddit expected
Speaker 3: to make its IPO filing public this month, then reserve
Speaker 3: shares for seventy five thousand of its users and meantime
Speaker 3: earlier this year are Bailey Lipshealtz noting jump in biotech
Speaker 3: IPO listings. I do feel like Jennifer, that IPO obviously important.
Speaker 3: It's a great indicator of kind of health in the marketer.
Speaker 3: The willingness right to bring new issues, But my attention
Speaker 3: has been a lot more on like M and A.
Speaker 3: We've seen a lot of M and A deals this
Speaker 3: year exactly other good indicator.
Speaker 4: It is a very good indicator, and it's it makes
Speaker 4: a very nice change from last year when that was
Speaker 4: really in the doldrums, and that has ripple effects across
Speaker 4: the whole economy and all the markets.
Speaker 3: All right, So watching M and A. But we did
Speaker 3: also though, want to dig a little bit more into
Speaker 3: what's going on with those new issues. So we've got
Speaker 3: a great voice on that. And back with us is
Speaker 3: Rachel gering Ey, America's IPO leader. She joins us from Nashville, Tennessee. Rachel,
Speaker 3: great to have you here with Jennifer and myself. So
Speaker 3: how would you describe the IPO market today? What are
Speaker 3: you hearing maybe from some of your clients.
Speaker 6: Sure, thank you for having me, you know, sitting here today.
Speaker 6: I look at the ip market in definitely feeling and
Speaker 6: sensing positive signs of a continued, steady recovery in the
Speaker 6: IPO market similar to coming out of twenty twenty three.
Speaker 6: So not a spike in a resurgence by any means,
Speaker 6: but positive signs, steady recovery. Twenty four IPOs so far
Speaker 6: in twenty twenty four. Five of those raising you know,
Speaker 6: well over you know, half over five hundred million in
Speaker 6: proceeds to over a billion, so strong results, cross sector representation,
Speaker 6: larger deals eleven of those twenty four all raising over
Speaker 6: one hundred million in proceeds. So positive to see some
Speaker 6: stronger deals, larger deals coming to market. Those are positive
Speaker 6: signs for twenty twenty four so far.
Speaker 4: You know, Can you talk a little bit more about
Speaker 4: how the FED is affecting the environment, because we've been
Speaker 4: talking an awful lot today about the Fed minutes, and
Speaker 4: you know, we all remember how traders have really been
Speaker 4: wrong footed with the FED with their expectations on how
Speaker 4: quickly the Fed's going to cut rate. So how is
Speaker 4: this recovery of the IPO market sort of interacting with
Speaker 4: that dynamic.
Speaker 6: It's certainly impacting and back to kind of just a
Speaker 6: steady recovery because we are still in that high interest
Speaker 6: rate environment. What's helpful is we're not anticipating or expect
Speaker 6: any rate increases. Rates are going to hold steady, hopefully
Speaker 6: start to come down, whether it's you know, late spring,
Speaker 6: early summer is still the question of when we would
Speaker 6: start to see those rates come down for twenty twenty
Speaker 6: four and into twenty twenty five. But the economic you
Speaker 6: know backdrop is showing signs of improvement, not only with
Speaker 6: interest rates, but with you know, labor markets, supply chain,
Speaker 6: you know, tensions are easing and inflation is easing. So
Speaker 6: those are positive signs that will help fuel the IPO market,
Speaker 6: but we need to see those signals continue in a
Speaker 6: steady state.
Speaker 3: You sound like a FED member, Rachel, to be honest
Speaker 3: with you, because it does feel like you are. Still
Speaker 3: there are a few different scenarios that could certainly play
Speaker 3: out here in twenty twenty four. Are you more cautious
Speaker 3: than not cautious? Maybe compared with the last I don't
Speaker 3: know six months or so.
Speaker 6: I'm optimistic, quite honestly, not to say that there's not challenges.
Speaker 6: Companies are continuing to navigate. You know, cost is one,
Speaker 6: whether it's consumers, the price of goods, price of services,
Speaker 6: costs of capital continue to be high compared to your
Speaker 6: pre pandemic levels. So it's a challenging environment to navigate,
Speaker 6: no doubt, but starting to ease and improve. I'm optimistic
Speaker 6: when it comes to IPOs, that the key is not
Speaker 6: only the economic backdrop and how that will sustain to
Speaker 6: bring companies to market, but the post IPO performance of
Speaker 6: those companies right needs to hit to maintain the momentum.
Speaker 6: That's absolutely critical. So how companies prepare in advance of
Speaker 6: the IPO that that time of preparation is really critical
Speaker 6: because we need them to perform well in strong post IPO.
Speaker 3: You mentioned at the start of it the conversation twenty
Speaker 3: four IPO so far in twenty twenty four cross cross
Speaker 3: section across a much of different sectors. Is that true
Speaker 3: to like talk to us, Like, you know, we talk
Speaker 3: a lot about AI. I'm curious if you're seeing a
Speaker 3: lot of IPO activity with that. The Intel back to
Speaker 3: Stera has an IPO certainly component to it, and they
Speaker 3: talked about an IPO on the Nasdaq that came across
Speaker 3: the Bloomberg today Biotech, Like where are you seeing them
Speaker 3: more momentum than maybe the rest?
Speaker 6: Sure? Yeah, So biotech certainly a sector that's coming out
Speaker 6: strong so far in twenty twenty four ten IPOs two
Speaker 6: billion in proceeds raised, so really strong results, particularly in biotech.
Speaker 6: Then we're seeing kind of onesie twosies across all other sectors,
Speaker 6: you know, consumer, one, tech, IPO. So far that the
Speaker 6: biotech really is being fueled by interest in big pharma
Speaker 6: and the M and A activity that we're starting to
Speaker 6: see that's improving valuations. So that's driving some momentum around
Speaker 6: IPOs and also follow on activity in the biotech sector.
Speaker 6: So that's really encouraging to see anticipate that to continue.
Speaker 6: When I think about AI, huge topic, everyone is talking
Speaker 6: about it, I think about it in two buckets. One
Speaker 6: the peer play AI companies. We're going to see those
Speaker 6: come to market kind of onesie twosies in my opinion,
Speaker 6: over the coming months and so forth, but probably not
Speaker 6: in droves, largely because one the technology is still emerging
Speaker 6: and evolving, and two, in the private sector, there's still
Speaker 6: a lot of interest in investing in that direction, particularly
Speaker 6: from venture capital. So these companies are getting funded to
Speaker 6: continue working through the technology and so forth and remaining private.
Speaker 6: But then alternately, there's alternatively there's all everyone else, our
Speaker 6: companies leveraging AI in their existing business, whether it's you know,
Speaker 6: product services, driving customer satisfaction, driving efficiency and reducing costs.
Speaker 6: Companies are still really looking to how they're going to
Speaker 6: employ AI within their business model. We're seeing that play
Speaker 6: out and equity stories. The tension that's going to be
Speaker 6: there is investors and stakeholders saying, show me proof, right,
Speaker 6: not just talk about it, but show me the results
Speaker 6: of AI and how that's really impacting the business overall.
Speaker 6: So that'll be something companies really have to pay close
Speaker 6: attention to as they come to market with an AI story.
Speaker 4: You know, if you could elaborate a little bit on that,
Speaker 4: I mean, how happy our investors do you think at
Speaker 4: this point with the real cash value of AI for companies?
Speaker 4: You know, are there is there patients about to get
Speaker 4: tested a little bit? And do they have a lot
Speaker 4: of patients right?
Speaker 6: I think I think there's I think we're going to
Speaker 6: start seeing, you know, continued pressure testing around that and
Speaker 6: in healthy skepticism coming from investors and broader stakeholders. It's
Speaker 6: not just about talking about how how companies are leveraging AI,
Speaker 6: but showing me the results of that use and also
Speaker 6: demonstrating a responsible use around AI as well.
Speaker 3: Is there a private equity component to this too? I mean,
Speaker 3: we've we've got a couple of stories about you know,
Speaker 3: private equity funds that maybe have been waiting for a
Speaker 3: much more friendly market to maybe either sell or spin
Speaker 3: out some of their investments. I'm just curious if you
Speaker 3: have a perspective on that as well.
Speaker 6: We definitely know there's there's pent up demand, particularly from
Speaker 6: a PE perspective. The deal volumes have been low, both
Speaker 6: an M and A front and an IPO front, So
Speaker 6: starting to see that on you know, kind of unlock,
Speaker 6: you know, through both M and A activity and anticipated
Speaker 6: you know, i PO activity throughout twenty twenty four is
Speaker 6: what's fueling, you know, some of my optimism of what
Speaker 6: we can we may expect to see throughout the rest
Speaker 6: of this year and also beyond twenty twenty four into
Speaker 6: twenty twenty five.
Speaker 3: Is there one big deal you're kind of waiting? I
Speaker 3: feel like whenever we talk about the IPO market, Jennifer right,
Speaker 3: there's always something a name or two in the newsroom
Speaker 3: that we were like hyped about, And I'm just wondering,
Speaker 3: is there anything Rachel on your radar that is that name?
Speaker 3: Like I talked about Reddit journal has some stuff on
Speaker 3: that today, but I don't know if that's it or
Speaker 3: is it something else?
Speaker 6: Yeah, there's I can't comment to any particular company. What
Speaker 6: I am excited about, though, is when I look at
Speaker 6: the pipeline shadow pipeline, and then anecdotally just the companies
Speaker 6: that we're working with, we're speaking with a lot of
Speaker 6: interest around going public. So the interest, the desire is
Speaker 6: still there. What companies are doing today to prepare for
Speaker 6: future public listing is very encouraging, and we're seeing this
Speaker 6: cross multiple sectors, not dominated only by one. Certainly, you know,
Speaker 6: hopefully the tech sector will will start to kind of
Speaker 6: come back to its historical norms, but it's going to
Speaker 6: take some time to get there through just navigating kind
Speaker 6: of the economic and geopolitical conditions that all companies are
Speaker 6: experiencing right now.
Speaker 3: All right, we're going to leave it on that note, Rachel,
Speaker 3: thank you so much, really appreciate it. Rachel Gering, IPO
Speaker 3: leader EYA America is joining us out there in Nashville, Tennessee.
Speaker 3: It has been kind of a quiet market right for
Speaker 3: a while.
Speaker 4: It's been quiet, but then we get some very interesting
Speaker 4: deals pop up. Capital one comes to mind.
Speaker 3: The M and A activity has been pretty astonishing, especially
Speaker 3: if you think about the energy space and some other
Speaker 3: places right exactly.
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Speaker 3: Jen Vidia shares. They are down about three percent in
Speaker 3: the aftermarket. Let's break it down, try to make some
Speaker 3: sense of as this stock bounces around, initially slightly higher,
Speaker 3: now slightly lower. Let's get to it with Lucas k
Speaker 3: Semiconductor analyst at Third Bridge, joining us here in New
Speaker 3: York City. Lucas, the outlook for first quarter revenue looks upbeat.
Speaker 3: What is your initial thoughts on the release?
Speaker 8: Thanks for having me Just at a glance here. We
Speaker 8: saw that the beaten revenue expectations, as expected, came from
Speaker 8: the data center segment. And we're seeing a common trend
Speaker 8: over the past couple quarters where the data center revenue
Speaker 8: that follows the quarter before seems to eclipse the entirety
Speaker 8: of Video's quarter today revenue. So it kind of shows
Speaker 8: this strong growth trend continuing within the AI chip consumption
Speaker 8: across its customers. Now you mentioned the guidance, it's also
Speaker 8: a strong signal that, you know, despite what many think
Speaker 8: in the market regarding competition and some customers looking to,
Speaker 8: let's say, reduce dependency on some Nvidia chips, we're seeing
Speaker 8: this timeline maybe not as quickly up to par as expected,
Speaker 8: and that in the meantime consumers will continue to purchase
Speaker 8: these GPUs. You know, this is evident. We saw just
Speaker 8: a couple of weeks ago, Mark Zuckerberg and Meta kind
Speaker 8: of making this commitment for three hundred and fifty GPUs,
Speaker 8: which you know, on the low end of revenue for video,
Speaker 8: which would be about seven eight billion dollars just from
Speaker 8: one company.
Speaker 3: Hey, I do want to mention a few more headlines
Speaker 3: crossing first of all, and Video saying data center sales
Speaker 3: to China declining significantly, and also talking about Generative AI
Speaker 3: has hit a tipping point. I'm actually looking at the
Speaker 3: press release where they are talking specifically about that. There
Speaker 3: was a quote here and I'm just looking for it.
Speaker 3: I'll continue to look for it, but anyway, saying that
Speaker 3: Generative AI has hit the tipping point. I'm trying to
Speaker 3: make sense though of how the stock is trading here
Speaker 3: in the aftermarket. So help me out here to understand
Speaker 3: that we were okay, now we're up about one percent here,
Speaker 3: we've been down, lucas, How do you I don't know.
Speaker 3: Are you making sense of it as we bounce around?
Speaker 3: Where are some of the concerns because it feels like
Speaker 3: a hesitant trade.
Speaker 8: Here, lots of volatility, as you mentioned. Regarding some of
Speaker 8: the concerns, I'll speak to China first here quickly. This
Speaker 8: has been an area of discussion for long term growth
Speaker 8: concerns from video for a couple quarters now. They mentioned
Speaker 8: that ongoing restrictions and technology more or less sanctions that
Speaker 8: are being placed on markets like China are going to
Speaker 8: limit their long term growth potentials here. And although the
Speaker 8: company said that in the short term this was a
Speaker 8: couple quarters ago that they wouldn't see some material impact,
Speaker 8: twenty twenty four into twenty twenty five is when they
Speaker 8: would start to see some pains coming from this China market.
Speaker 8: As it stands today, China is anywhere from twenty five
Speaker 8: to thirty percent of idiot right, certainly a significant aspect
Speaker 8: of this.
Speaker 2: Now.
Speaker 8: Another concern that comes to my mind is the issue
Speaker 8: of supply given that and Video relies so heavily on
Speaker 8: TSMC for their most advanced chips, we're seeing sort of
Speaker 8: a build up a shortage and GPU availability given some
Speaker 8: of the advanced packaging constraints. Now, I'm not sure if
Speaker 8: this has been something that has been mentioned already by
Speaker 8: the company and the recent release, but you know this
Speaker 8: is something that investors are going to be keen to
Speaker 8: keep an eye.
Speaker 4: On, all right.
Speaker 3: Just want to mention that we've got in Video shares
Speaker 3: now up about one percent. Nasdaq e minis in the
Speaker 3: aftermarket down about four tens of a percent. That quote
Speaker 3: I was looking for in the press release, Thank you
Speaker 3: team for finding it for me. Accelerated computing and generative
Speaker 3: AI have hit the tipping point. Demand is surging worldwide
Speaker 3: across companies, industries and nations. That is from Jensen Wong,
Speaker 3: the founder and CEO of n Video. I do also
Speaker 3: want to point at our Ian King weighing in and
Speaker 3: said that maybe some of the disappointment has to do
Speaker 3: that the sales forecast fell short of the most bullish estimates,
Speaker 3: so the revenue in the current period will be about
Speaker 3: twenty four billion, the company said in that statement, though
Speaker 3: that beat the average Anly's projection of twenty one point
Speaker 3: nine billion estimates Jennifer had range as high as twenty
Speaker 3: six point one billion. There's always a range. There's a
Speaker 3: high and a low, and so you know, we used
Speaker 3: to talk a lot more about whisper numbers. We don't
Speaker 3: as much anymore. But obviously there was some higher expectations
Speaker 3: and maybe that's what some of the disappointment is and
Speaker 3: that's why you've seen the stock bounce around, still up
Speaker 3: about two percent after market.
Speaker 4: Yeah, it's interesting that there's the focus on the high there.
Speaker 4: I mean, it just shows you that, like the market
Speaker 4: was looking for somebody to hang on to. How can
Speaker 4: I be disappointed by us?
Speaker 3: Did really well? We just wanted better, all right. So, Lucas,
Speaker 3: as we continue to go through this this report, what's
Speaker 3: top of mind if you're sitting down with the C
Speaker 3: suite at Nvidia, if you're sitting down with the CEO,
Speaker 3: what is it that you want to know? What do
Speaker 3: you ask?
Speaker 8: Sure? Great question, and it kind of goes back to
Speaker 8: maybe some points you were saying about expectations not being
Speaker 8: as lofty as maybe expected, or also on the other
Speaker 8: end of this generative AI reaching its tipping point. You know,
Speaker 8: our experts are saying that as it stands today, the
Speaker 8: footprint of AI servers across these public cloud hyperscalers are
Speaker 8: only about thirty to thirty five percent, which you know
Speaker 8: clearly shows that despite the investments that have already gone
Speaker 8: into the space, we're still in the earlier legs of
Speaker 8: this AI race. And on to the other point that
Speaker 8: you've mentioned, if I was sitting down with the c suite,
Speaker 8: I'd really ask what's the outlook on this capacity? I
Speaker 8: can really point to the reason for maybe these expectations
Speaker 8: for next quarter or not being as high as many
Speaker 8: people have wanted. Is the issue of supply, as I said,
Speaker 8: not really the demand and the customers. And you know
Speaker 8: whether or not they are willing to consume, but you
Speaker 8: know what pace that they are going to essentially be
Speaker 8: allowed to do.
Speaker 4: So, you know, and one thing I'm wondering though, is
Speaker 4: you can elaborate a little bit more on that, because
Speaker 4: one hundred and twenty six percent gain in full year revenue,
Speaker 4: I mean, where does the company go from here? You've
Speaker 4: got also a changing interest rate environment, You've got the
Speaker 4: potential for potential a slowdown in the world's biggest economy
Speaker 4: and other economies not doing as fantastically as the United States,
Speaker 4: as we were talking about earlier on this program. So
Speaker 4: what's the outlook for in Vidia to maintain this blistering
Speaker 4: pace even if it does continue to expand Nevertheless.
Speaker 8: I think it's really sort of a generalized recognition of
Speaker 8: how centralized in video is to this whole AI picture.
Speaker 8: You know, not only are they responsible for more than
Speaker 8: seventy percent plus of this GPU market, they're also making
Speaker 8: investments into their own AIA ecosystem to really bolster the
Speaker 8: whole industry. You know, just last year we saw over
Speaker 8: thirty investments into private company private companies that in Vidia
Speaker 8: has done. You know, we're hearing that they could easily
Speaker 8: surpass this. This year. We're already seeing some investments pour
Speaker 8: into AI companies. They're going to further strengthen their position,
Speaker 8: whether it's in technology or IP to as I said previously,
Speaker 8: kind of build this ecosystem that you know, not only
Speaker 8: their customers, but eventually their competitors will have to be
Speaker 8: depended on as well.
Speaker 3: Interesting watching the trade here in the aftermarket and VideA
Speaker 3: shares up now about six and a half percent. Another
Speaker 3: headline that crossed and Vidia saying China sales decline caused
Speaker 3: by the US rules. We know the tensions between the
Speaker 3: United States and China and certainly the pushback when it
Speaker 3: comes to high tech that has certainly impacted various companies,
Speaker 3: US companies, Chinese companies as well. So interesting though, but
Speaker 3: we're seeing the momentum build up about seven percent here
Speaker 3: in the aftermarket. Just to rehash, the company sees first
Speaker 3: quarter revenue of twenty four billion plus or minus two percent.
Speaker 3: The estimate that the street had was twenty one point
Speaker 3: nine billion. Fourth quarter data center revenue key when we
Speaker 3: talk about AI in this company, eighteen point four billion,
Speaker 3: Jennifer of That is above the estimate that was out
Speaker 3: there of seventeen point twenty one billion. So here's a
Speaker 3: stock that was down four days in a row going
Speaker 3: into earnings. I think as much as about a nine
Speaker 3: percent or so move, if you will, maybe not a
Speaker 3: quite technical correction here, But now we're seeing it move
Speaker 3: up about six and a half percent in the aftermarket.
Speaker 4: Yeah, and so I very much wonder what the read
Speaker 4: is going to be when we come in tomorrow morning,
Speaker 4: if this slipping around is going to continue. But now
Speaker 4: we've just had another headline crossing again is more than
Speaker 4: seven percent after the earnings after having started out down,
Speaker 4: So investors will have more time to digest and we'll
Speaker 4: see if that continues tomorrow.
Speaker 3: Other things on your radar, Lucas, We've just got about
Speaker 3: thirty seconds left here. As you think about this company,
Speaker 3: what you will be watching in the current quarter, that's important,
Speaker 3: you think that our investing audience needs to keep an
Speaker 3: eye and just got about thirty thirty five seconds here.
Speaker 8: Absolutely, and you know, just beyond even the current quarter,
Speaker 8: because one thing to keep in mind is that these
Speaker 8: orders are processed a couple months ahead. It could take
Speaker 8: customers even anywhere from six to eight months to actually
Speaker 8: receive the shipments. I'm looking at more of a long
Speaker 8: term growth outlook here you mentioned China. I think in
Speaker 8: the short term demand from areas like North America and
Speaker 8: the EU, these growing data centers will be enough to
Speaker 8: offset some of the issues that we see. It's more
Speaker 8: of a long term question of how in Nvidio will
Speaker 8: continue to grow that revenue base with maybe a significant
Speaker 8: portion of that missing.
Speaker 3: All right, really appreciate you weighing in on this, Lucas.
Speaker 3: Thank you so much. Lucas K seven Conductors analyst over
Speaker 3: at Third Bridge here in New York City, watching shares
Speaker 3: of Nvidia up now about six and a half percent
Speaker 3: here in the aftermarket, So certainly something we'll watch into
Speaker 3: the Thursday trade.
Speaker 6: Marco a journal No, how about you let me drive?
Speaker 4: Oh no, no, no, no, honey, please, I want to drive.
Speaker 2: It's a good question, good time. This is the Drive
Speaker 2: to the Clothes dot Com thing well by Don on
Speaker 2: Bloomberg Radio.
Speaker 3: All right, everybody, just about seventeen and a half minutes
Speaker 3: left in today's trading session. Carol Master along with Jennifer
Speaker 3: Ryan in for Tim Stenevic on this Wednesday. It's a
Speaker 3: fed Wednesday. We got the FOMC minutes at the top
Speaker 3: of our broadcast at two pm. Uh, and now we're
Speaker 3: waiting for Nvidia earnings, which are going to be out
Speaker 3: in about an hour from now, less than sixty minutes.
Speaker 3: Equity markets, Charlie breaking it down, Jennifer, we're bouncing off
Speaker 3: our loads of this session when it comes to the
Speaker 3: equity trade.
Speaker 4: Yeah, And it's interesting because there's been so much talk
Speaker 4: about the Magnificent seven and how important they are for
Speaker 4: the equity market. And now there's the darling of them all.
Speaker 4: In Vidia is about just side weether.
Speaker 2: Sure.
Speaker 4: Yeah, there's no pressure at all, and just about the
Speaker 4: decide for all of us whether or not we've been
Speaker 4: totally irrational for the past four days thinking about it.
Speaker 3: All Right, Well, let's see what our next guest has
Speaker 3: to do. Our Drive to the Close guest on this Wednesday.
Speaker 3: Lisa Ericson, Senior vice President, head of the Public Mark
Speaker 3: Goods Group over at US Bank Wealth Management, joining us
Speaker 3: from Minneapolis, Minnesota. Lisa, good to have you here with
Speaker 3: Jennifer and myself. First of all, we are a little
Speaker 3: obsessed with Nvidia, but we're kind of at that moment
Speaker 3: in time where we're in between fed beatings and a
Speaker 3: lot of different things at the end of earnings cycle.
Speaker 3: How are you thinking about it with your team, the
Speaker 3: results that we get from Nvidia and how it could
Speaker 3: possibly impact market sentiment.
Speaker 1: Well, certainly, what's going on with technology is a big
Speaker 1: story on a number of different fronts, and it really
Speaker 1: has to do with the fact that, both from a
Speaker 1: performance standpoint as well as a contribution to earning standpoint,
Speaker 1: the tech sector in general really has been a driver,
Speaker 1: not only in twenty twenty three, but obviously year to date,
Speaker 1: and so I think as we look at the remaining
Speaker 1: earnings that we have, including some of these key bell
Speaker 1: weathers in the tech sector, it really does matter what
Speaker 1: they're going to be able to produce, because certainly what
Speaker 1: we've seen in earning season so far is while we've
Speaker 1: had some fairly good numbers from the sector, the reaction
Speaker 1: has not always been even and simply because the margin
Speaker 1: for error is low, given that they have had really
Speaker 1: such great performance.
Speaker 3: I just want to point out I'm looking at charts
Speaker 3: of the S and P the down the NASDAC. I'm
Speaker 3: not quite sure what has happened, but it's a straight
Speaker 3: line up. We're not in the green yet, but we
Speaker 3: and we're not at our best levels of the session,
Speaker 3: although I think we are on the S and P
Speaker 3: five hundred now still down about three points, but remarkably
Speaker 3: different from where we were, certainly at the top of
Speaker 3: our broadcast. So it's interesting to see some buying as
Speaker 3: we are, what sixteen minutes away from the clothes I.
Speaker 4: Mean, maybe there's a sense there's an opportunity, but I mean, Lisa,
Speaker 4: we would love to get your perspective on this. I mean,
Speaker 4: you've got all this focus on what's happening after the bell,
Speaker 4: But what's your recommendation for the taking the step back
Speaker 4: and what's the bigger picture. Have equity markets overall come
Speaker 4: too far too fast or is there room for a
Speaker 4: little bit more sensibility here.
Speaker 1: We're really fairly balanced on the US equity market right now,
Speaker 1: and there's really a conflict of factors that's leading to
Speaker 1: that more neutral position. And the reason why is because
Speaker 1: we have, on the positive side, really an economy that's
Speaker 1: been very resilient on the back of a strong consumer
Speaker 1: and a good labor market, and then also some hopes
Speaker 1: that again we're going to get some easing in that
Speaker 1: monetary cycle and get some relief in terms of the
Speaker 1: tightening conditions that we've seen from interest rates. However, on
Speaker 1: the other hand, we've had quite a bit of run up,
Speaker 1: and so that does produce some cautiousness. And when you
Speaker 1: actually look at the overall growth levels, what you see
Speaker 1: is that growth certainly has been better than expected, but
Speaker 1: at absolutely low levels. And when you have really tighter
Speaker 1: interest rates as well as the fact that growth has
Speaker 1: been on a lower trajectory that really usually isn't a
Speaker 1: good recipe for stocks, And so overall, we really advise
Speaker 1: our clients right now to be staying at usually where
Speaker 1: their strategic weights would be on US equities, as opposed
Speaker 1: to really trying to be heroic and highly overweting or
Speaker 1: underweighting them.
Speaker 4: So could you build a little bit more on that,
Speaker 4: where are you recommending that they overweight?
Speaker 1: Well, right now, we would say across the major asset classes, equities,
Speaker 1: fixed income, and real assets, we would again stay at
Speaker 1: whatever are your typical long term targets. We do see
Speaker 1: some opportunities, however, within asset classes. So a great example
Speaker 1: is within the fixed income area. For example, there are
Speaker 1: specific sectors such as non agency residential mortgages that have
Speaker 1: some extra carry and that are supported by really nice fundamentals.
Speaker 1: On the housing market, where again credit remains fairly solid
Speaker 1: with those underlying borrowers, and so there are some areas
Speaker 1: to future certain sectors at this time.
Speaker 4: You know, it's interesting that you bring up the real
Speaker 4: estate market because we've spoken an awful lot, not only
Speaker 4: on this program, but on other programs. We've written a
Speaker 4: lot of bloomberg news about the risks in the commercial
Speaker 4: real estate property market. And you know yourself, do you
Speaker 4: feel like it's something that it's difficult to manage at
Speaker 4: this point? Because you know, we have your bank corp.
Speaker 4: Created some problems earlier this year. You know, it's very
Speaker 4: like there's a lot of worry about there about where
Speaker 4: that sector is headed. I mean, what's your advice to
Speaker 4: your clients?
Speaker 1: Commercial real estate certainly is an area that we're keeping
Speaker 1: a very close eye on right now. Our base position
Speaker 1: is that we believe that that market can continue to
Speaker 1: work itself out over time as we've seen happening so far. Again,
Speaker 1: real estate is a very localized market with a number
Speaker 1: of different sectors, and because this has been a problem
Speaker 1: that has been out in the news for some time,
Speaker 1: what we see is individual borrowers and lenders really working
Speaker 1: through that on a case by case basis throughout different
Speaker 1: areas of the nation. However, again, there is a wall
Speaker 1: of maturities coming forward. And so while again it's been
Speaker 1: a fairly orderly process so far, and our expectations as
Speaker 1: a base case is that that can continue, we want
Speaker 1: to continue to look for signs of stress that again
Speaker 1: could spread further.
Speaker 3: All right, So balance view on the equity market, I
Speaker 3: am curious what would make you say, Okay, that's not
Speaker 3: the right strategy. What would happen, whether it be it
Speaker 3: Fed policy or something else that happens that makes you say,
Speaker 3: we're going to have to think about where we really
Speaker 3: want to be exposed and where we don't want to
Speaker 3: be exposed.
Speaker 1: Well, certainly our focus is really on some of that
Speaker 1: underlying support for the now okay fundamentals that we see,
Speaker 1: and the first stop, of course is the consumer. So
Speaker 1: we continue to watch again consumer behavior, their ability to spend,
Speaker 1: and how that strength is continuing to play out as
Speaker 1: really one of our key ongoing barometers. But in addition
Speaker 1: to that, to your point, policy is going to be key.
Speaker 1: And certainly if you look at what's where's been heading
Speaker 1: with the FED, even the FED does not exactly know
Speaker 1: when they're going to be able to move from this
Speaker 1: more pausing phase that they're in right now to more
Speaker 1: of a pivot. And so again to the extent that
Speaker 1: we get some flaruffs and inflation from either consumer or
Speaker 1: corporate behavior or just shock events again, that could delay
Speaker 1: some of the relief that may come on the monetary
Speaker 1: policy front.
Speaker 4: Real quick. We don't have a lot of time left
Speaker 4: just about a minute, can you talk a little bit
Speaker 4: about the very strong dollar, because that's been really, really
Speaker 4: quite intense, and so I wonder, you know, are you
Speaker 4: worried about them having some deleterious effects on investments that
Speaker 4: you're recommending, or are you hoping that you know it
Speaker 4: will continue?
Speaker 3: More like twenty five seconds.
Speaker 1: Certainly the dollar has been a key concern this SUS
Speaker 1: far Again, companies have been very resilient, but again to
Speaker 1: your point, it's something we want to continue to monitor. However,
Speaker 1: with again the Fed hopefully moving to easing, it may
Speaker 1: not be as much of an issue in the future.
Speaker 3: All Right, great stuff covered a lot of ground, Lisa,
Speaker 3: Thank you so much. Lisa Ericson. She's senior vice president
Speaker 3: and head of Public Markets Group over at US Bank
Speaker 3: Wealth Management. Joining us from Minneapolis, Minnesota.
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