WEBVTT - Bank Earnings, Retail Sales, Dollar Weakness, and Airlines 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.400 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.680 at Bloomberg dot com slash podcast. Shallie Bastick joins in 0:00:21.840 --> 0:00:24.520 your studio, Shanalie. We were just talking about how you 0:00:24.560 --> 0:00:26.920 cook me food sometimes and we use lots of tupperware. 0:00:26.960 --> 0:00:28.720 I have so much of Shanelie's tupperware in my cover 0:00:28.840 --> 0:00:32.199 that I've never returned or like takeout containers, but I 0:00:32.240 --> 0:00:36.720 mean whatever. She doesn't even know the difference. Yeah. Alison 0:00:36.720 --> 0:00:39.480 Williams walking in studio as well of Bloomberg Intelligence also 0:00:39.520 --> 0:00:42.240 at shock at our lack of tupperware use. Anyways, you 0:00:42.280 --> 0:00:43.680 guys don't want to hear about tupper Where you want 0:00:43.680 --> 0:00:45.280 to hear about bankstocks. And that's where I want to 0:00:45.280 --> 0:00:48.400 go next. JP Morgan shares hire by get this six 0:00:48.560 --> 0:00:51.080 point nine percent in the pre markets. Shall Let's start 0:00:51.080 --> 0:00:53.520 off with you here. What's the highlight with JP Morgan? 0:00:53.560 --> 0:00:55.480 They just dumped a lot of information on us. I'm 0:00:55.480 --> 0:00:57.520 writing my newsletter right now, and I'm like the cherry 0:00:57.520 --> 0:00:59.320 on top of the cherry, on top of the cherry, 0:00:59.360 --> 0:01:01.720 on top of the cherry. I mean, JP Morgan with 0:01:01.840 --> 0:01:05.080 twenty three percent returns on tangible common equity, blowing that 0:01:05.120 --> 0:01:08.240 out of the water. Also increasing their expectations from that 0:01:08.400 --> 0:01:11.880 interest income this year. We have not seen that yet 0:01:11.920 --> 0:01:15.280 among the other banks. They're expecting or at least warning 0:01:15.319 --> 0:01:17.959 that rates could be higher for longer. They said, it 0:01:17.959 --> 0:01:20.920 doesn't necessarily need to be the case, but in for 0:01:21.000 --> 0:01:23.520 bank like JP Morgan, they would benefit more from something 0:01:23.560 --> 0:01:25.880 like that. We have seen what higher interest rates have 0:01:26.000 --> 0:01:29.080 meant for the rest of the banking system, So this 0:01:29.120 --> 0:01:33.640 could be a messy year ahead. That's Aliston william Senior 0:01:33.680 --> 0:01:37.560 Global Banks and Asset Manager analyst with Bloomberg Intelligence, And 0:01:37.600 --> 0:01:40.440 I wanted to get your perspective, since you cover this 0:01:40.560 --> 0:01:43.360 so closely more broadly, what's your kind of big takeaway 0:01:43.360 --> 0:01:45.520 now that we've heard from some of these big banks 0:01:45.520 --> 0:01:48.880 this morning. So the net interest income is really the 0:01:48.960 --> 0:01:52.840 positive story and most positive at JP Morgan, as Shinale 0:01:52.880 --> 0:01:57.920 pointed out, I mean, those returns are really impressive and 0:01:58.120 --> 0:02:02.920 you know, the net interest income. We looked like it 0:02:02.960 --> 0:02:04.840 was peaking in the fourth quarter, but it got even 0:02:04.880 --> 0:02:07.200 better this quarter, and that was across the banks. The 0:02:07.320 --> 0:02:09.639 delta at JP Morgan is so much stronger, and really 0:02:09.680 --> 0:02:12.919 what we're seeing is it's the asset yields, so that 0:02:13.040 --> 0:02:16.200 actually the cost of deposits, which is something we've been 0:02:16.200 --> 0:02:19.600 talking about, especially accelerating in the in the you know, 0:02:19.680 --> 0:02:22.840 with the bank turmoil. Those costs actually did come in 0:02:22.919 --> 0:02:26.240 higher than expected, but the yields are even better. I 0:02:26.280 --> 0:02:29.359 think for both JP Morgan and City they're benefiting actually 0:02:29.440 --> 0:02:33.160 from card that's really the area of loan growth, that 0:02:33.360 --> 0:02:37.560 is the class of loans with the highest yield. But 0:02:37.600 --> 0:02:40.839 they're also all of these banks executing on costs as well. 0:02:40.919 --> 0:02:45.000 That was a positive story in the quarter, helping profitability. Lastly, 0:02:45.040 --> 0:02:48.639 I'll just point out reserves. Reserves are coming in higher 0:02:48.680 --> 0:02:52.079 than expected, charge offs still better, so it's still good 0:02:52.080 --> 0:02:54.959 credit quality, but that's the negative in terms of the 0:02:55.000 --> 0:02:57.040 look ahead. Speaking of the look ahead, you know you 0:02:57.120 --> 0:03:00.640 mentioned that credit cards that's where the highest yield for 0:03:00.720 --> 0:03:03.320 the banks. That means for the consumer, it's the highest 0:03:03.360 --> 0:03:06.800 price you're paying for debt. There's a sense that consumers 0:03:06.800 --> 0:03:09.400 are not too stretched right now according to JP Morgan, 0:03:09.440 --> 0:03:11.520 but they've also said the consumers will hit a cliff 0:03:11.720 --> 0:03:15.520 at the end of the year. Realistically, can banks keep 0:03:15.560 --> 0:03:18.640 on making more and more money from credit card loans? 0:03:19.680 --> 0:03:23.160 I think this cycle is so different, right, so we 0:03:23.200 --> 0:03:27.360 know it's so different. It's the pandemic was something unprecedented. 0:03:27.680 --> 0:03:30.040 And keep in mind that what we saw right for 0:03:30.160 --> 0:03:33.200 JP Morgan and City Group, one of the big disappointments 0:03:33.280 --> 0:03:36.000 in twenty twenty and twenty twenty one was that those 0:03:36.040 --> 0:03:39.240 card balances were paying down, the consumer was getting healthy, 0:03:39.360 --> 0:03:44.400 and so the consumer came into this or recession, which 0:03:44.440 --> 0:03:46.640 I get is still coming, but we're already I think 0:03:46.920 --> 0:03:49.200 thinking about it as if it's here, but came in 0:03:49.200 --> 0:03:52.520 in such better shape. So I think at the margin 0:03:52.640 --> 0:03:56.080 that that's a little bit different this time. But to 0:03:56.120 --> 0:03:59.080 your point, it is something to watch in terms of 0:04:00.480 --> 0:04:03.960 the consumer getting some better yield, finally getting more than 0:04:04.080 --> 0:04:06.800 zero on those deposits, but those who are borrowing are 0:04:06.880 --> 0:04:09.000 going to be paying a higher price. Whenever the c 0:04:09.240 --> 0:04:11.840 suite executives, especially for the banks, come out, I always 0:04:11.880 --> 0:04:13.720 think of like last summer, right when we got the 0:04:13.840 --> 0:04:16.719 sort of weather forecasting. Always think of the hurricane comments 0:04:17.320 --> 0:04:21.560 from JP Oregan, but I was curious if what specifically 0:04:21.600 --> 0:04:24.159 stood out on some of these earnings calls to you 0:04:24.240 --> 0:04:26.520 as far as the rhetoric moving forward. When it comes 0:04:26.520 --> 0:04:28.839 to these chief executives and what they're expecting for the 0:04:28.880 --> 0:04:32.680 trajectory of the economy moving forward, they're still talking a 0:04:32.720 --> 0:04:36.080 lot about uncertainty. And that's why, you know, if you 0:04:36.240 --> 0:04:40.320 looked at the numbers, you know, JP Morgan did increase 0:04:40.360 --> 0:04:42.839 their guidance, but it still looks like it could be 0:04:42.920 --> 0:04:46.880 conservative City Group and Whiles far Ago despite better numbers, 0:04:47.080 --> 0:04:49.600 not changing their guidance, and I think because they are 0:04:49.680 --> 0:04:53.280 being conservative because we really don't know. And part of 0:04:53.600 --> 0:04:57.800 the upside this quarter was, you know, rates, the rates 0:04:58.360 --> 0:05:03.320 coming in higher that expected, at least on the short 0:05:03.440 --> 0:05:07.200 end of things. As we know longer term yields are 0:05:07.240 --> 0:05:09.840 coming down, and there still is a lot of uncertainty. 0:05:10.160 --> 0:05:14.840 That brings me to another business, fixed income trading surprising 0:05:14.839 --> 0:05:17.360 in the quarter. We think that people aren't going to 0:05:17.440 --> 0:05:19.599 extrapolate that to the rest of the year, but we 0:05:19.720 --> 0:05:22.200 really think that that can continue to surprise to the 0:05:22.240 --> 0:05:27.240 upside because of the uncertainty, because of this unprecedented environment, 0:05:27.279 --> 0:05:29.800 which brings me to Shanali exactly what you actually point 0:05:29.800 --> 0:05:31.320 out to me this morning, which comes to what Jamie 0:05:31.360 --> 0:05:33.400 Diamond said about rates. It is blowing my mind that 0:05:33.520 --> 0:05:35.840 he can actually say six percent potentially on the front 0:05:35.920 --> 0:05:40.360 end of the curve, when we're barely sustaining above four percent. 0:05:40.400 --> 0:05:43.960 I mean, except for the earnings from today, we weren't 0:05:44.000 --> 0:05:45.960 even crossing four percent for I want to say at 0:05:46.040 --> 0:05:48.520 least a couple weeks time, and really since the banking crisis. 0:05:48.640 --> 0:05:50.040 Now we're looking at four a weight on the two 0:05:50.080 --> 0:05:52.800 year yield. To me, also, then you have to kind 0:05:52.839 --> 0:05:55.440 of square that with the deposit flows, because even though 0:05:55.440 --> 0:05:57.720 you saw that major intake, I think you pointed out 0:05:57.760 --> 0:05:59.720 that he's still saying that by the end of the 0:05:59.760 --> 0:06:02.359 year this is all going to reverse. He's even saying 0:06:02.400 --> 0:06:04.360 that the deposits that they took in in the wake 0:06:04.400 --> 0:06:07.560 of kind of this quote unquote banking crisis. Now everyone 0:06:07.640 --> 0:06:09.760 is disputing the term again. Right three weeks ago, it 0:06:09.760 --> 0:06:14.960 was a full blown crisis. Now I'm over yeah, whatever, 0:06:15.040 --> 0:06:17.840 But anyways, what he is saying is even those deposits 0:06:17.839 --> 0:06:21.080 for JP Morgan are flighty and so yeah, I mean 0:06:21.240 --> 0:06:22.960 but that's just on the deposit story. I think on 0:06:23.080 --> 0:06:25.320 the loans story, it's very important also because he's saying, 0:06:25.320 --> 0:06:28.360 don't call this a credit crunch, and they're not aggressively 0:06:28.400 --> 0:06:31.360 tightening standards. You know, I look at that super closely. 0:06:31.680 --> 0:06:34.400 I want to say, their loans or total loans are 0:06:34.440 --> 0:06:37.520 slightly down, But on the other hand, I look at 0:06:37.520 --> 0:06:39.479 their institutional checking book and how much risk they're taking 0:06:39.480 --> 0:06:42.080 on their value at risk is also down, and so 0:06:42.560 --> 0:06:45.719 I you know, again, these are not huge things, but 0:06:45.800 --> 0:06:49.479 they are the biggest ship at sea here, and so 0:06:49.680 --> 0:06:53.520 if there's any signs of contraction here from JP Morgan, 0:06:53.839 --> 0:06:56.520 you have to expect that to be multiplied by many 0:06:56.560 --> 0:07:00.600 margins at all the other firms. And also we're specifically 0:07:00.680 --> 0:07:03.120 are you watching because William about a minute left, but 0:07:03.440 --> 0:07:07.200 we're potentially other cracks could begin to emerge as far 0:07:07.200 --> 0:07:09.920 as particular indicators you're watching when it comes to these banks. 0:07:10.640 --> 0:07:13.600 So I think that, you know, commercial real estate, I 0:07:13.640 --> 0:07:16.520 think is the longer thing that we're watching, and it 0:07:16.640 --> 0:07:19.080 is good. We're getting some added disclosures today, but we're 0:07:19.200 --> 0:07:21.360 very very early in that cycle. But I think that's 0:07:21.360 --> 0:07:24.440 what we're gonna continue to be watching for the year. 0:07:24.840 --> 0:07:27.120 I do think, you know, after you know, we're gonna 0:07:27.160 --> 0:07:28.880 want to hear from the banks next week, But we're 0:07:28.920 --> 0:07:31.400 hearing from the big banks, right so I want to 0:07:31.440 --> 0:07:34.440 hear next week what's happening at these smaller banks. JP 0:07:34.560 --> 0:07:38.480 Morgan did gain in deposits? Is how much of that 0:07:38.560 --> 0:07:41.120 was at the expense of smaller institutions? And will those 0:07:41.160 --> 0:07:44.680 smaller institutions be pulling back? Yeah, and that's the of course, 0:07:44.760 --> 0:07:47.080 going to factor into what we hear. I believe able 0:07:47.120 --> 0:07:49.560 twentieth is the day that you see a lot of 0:07:49.560 --> 0:07:53.240 the smaller banks report, key Corps, etc. A lot to 0:07:53.240 --> 0:07:56.040 watch right there. JP Morgan shares still climbing. Folks higher 0:07:56.080 --> 0:07:58.840 by seven and a half percent right now in about 0:07:58.880 --> 0:08:01.280 less than an hour of regular trading. Alson Williams of 0:08:01.320 --> 0:08:04.920 Bloomberg's chief equity strategist covering all those banks. We thank 0:08:04.960 --> 0:08:08.120 you as always, along Susion Alibastic, our chief Wall Street correspondent. 0:08:09.400 --> 0:08:13.280 You're listening to the team ken'shur Live program Bloomberg Markets 0:08:13.320 --> 0:08:16.400 weekdays at ten, Amy's Daring on Bloomberg dot Com, the 0:08:16.480 --> 0:08:19.200 I Heard Radio app, and the Bloomberg Business app. We're 0:08:19.240 --> 0:08:24.760 listening on demand wherever you get your podcast. Marie Sure, 0:08:25.360 --> 0:08:27.800 she joins us talk about the retail story. Senior equity 0:08:27.800 --> 0:08:31.520 analysts over at Columbia thread Needle Investments. Marie, do you 0:08:31.600 --> 0:08:34.120 share the same view as Justice sources this is something 0:08:34.120 --> 0:08:36.439 to kind of rush off. I think it is something 0:08:36.480 --> 0:08:40.120 to brush off. The results today from March retail sales. 0:08:40.200 --> 0:08:44.480 We're really not surprising. We know that the March period 0:08:44.640 --> 0:08:49.360 was impacted by lower tax refunds, lower snap benefits, and 0:08:49.480 --> 0:08:54.120 also unfavorable weather. But as we look forward and we 0:08:54.280 --> 0:08:59.160 see the weather turn and fewer headwinds from some of 0:08:59.160 --> 0:09:02.720 those trims a factors that I just cited, I think 0:09:02.720 --> 0:09:05.559 that there is reason to believe retail sales get a 0:09:05.600 --> 0:09:08.080 little bit better. On the other hand, I would say 0:09:08.160 --> 0:09:12.800 we continue to see the mix shift towards services away 0:09:12.840 --> 0:09:18.000 from goods, and within goods towards needs over wants, and 0:09:18.080 --> 0:09:22.120 I think that that trend will continue breakdown. More specifically, 0:09:22.200 --> 0:09:24.440 where we began to see a bit more of the 0:09:24.480 --> 0:09:28.440 weakness within retail sales, whereas we still continued to see 0:09:28.480 --> 0:09:31.000 strength there. Because obviously, like you were just mentioning the 0:09:31.040 --> 0:09:34.760 whole when we're debating about goods versus services, still clearly 0:09:34.800 --> 0:09:37.800 we're seeing that theme among whether it's these retail sales 0:09:37.800 --> 0:09:42.560 reports and also these inflation reports too. Yes, absolutely, and 0:09:42.720 --> 0:09:45.360 you're absolutely right. We saw it in the CPI data 0:09:45.400 --> 0:09:48.120 earlier this week, sawed in the retail sales print today. 0:09:48.800 --> 0:09:52.360 The greatest weakness that we're seeing is in the bigger 0:09:52.440 --> 0:09:57.840 ticket durable goods categories like consumer electronics and appliances, and 0:09:57.960 --> 0:10:00.440 of course those were some of the categories that we're 0:10:00.520 --> 0:10:05.520 strongest during the pandemic. We're also seeing a slowdown in 0:10:05.600 --> 0:10:09.800 categories like apparel in home, although not as weak as 0:10:09.800 --> 0:10:12.439 what we're seeing in some of those bigger ticket durable 0:10:12.480 --> 0:10:16.720 goods categories, and still seeing relative strength in food and 0:10:16.800 --> 0:10:22.520 the consumer continues to absorb the inflation that the companies 0:10:22.559 --> 0:10:26.520 continue to pass through in the food category. Marie, how 0:10:26.559 --> 0:10:29.840 do you then square that with margins? Because we had 0:10:29.880 --> 0:10:33.199 a Steeplesberry Banister, the chief equity strategist there joined Bloomberg 0:10:33.200 --> 0:10:35.280 Television last week and he said, look, profit margins have 0:10:35.520 --> 0:10:38.560 peaked for the entire decade, and yet this is a 0:10:38.600 --> 0:10:42.000 stock market that is trading on those margins. What happens 0:10:42.040 --> 0:10:45.840 then if you do continue to see this deceleration in 0:10:45.840 --> 0:10:49.920 the retail consumer. How much real upside is there if 0:10:49.920 --> 0:10:53.240 you follow that train of thought, I think you will 0:10:53.280 --> 0:10:57.360 continue to see pressure in margin. As I look across 0:10:57.559 --> 0:11:01.720 my coverage group, a lot of companies have comparisons relative 0:11:01.760 --> 0:11:05.760 to twenty twenty two, but over a three year period 0:11:05.840 --> 0:11:08.440 when you think, when you think about the strength that 0:11:08.520 --> 0:11:14.280 they saw margins during the pandemic when demand far exceeded supply, 0:11:14.880 --> 0:11:18.520 the multi year comparisons remain very difficult. And we know 0:11:18.600 --> 0:11:22.280 that they will recapture some of the benefits from freight, 0:11:22.640 --> 0:11:26.000 but I think they will continue to face pressure from 0:11:26.160 --> 0:11:31.520 higher promotions, higher markdowns, especially if demand continues to weaken. 0:11:31.920 --> 0:11:35.280 And for these companies, it's really all about the supply 0:11:35.559 --> 0:11:40.800 demand balance of inventory. And again during the pandemic, they 0:11:40.840 --> 0:11:44.360 were in a very good place where demand far exceeded supply. 0:11:45.120 --> 0:11:49.199 But stepping back looking at these companies historically, they've always 0:11:49.240 --> 0:11:53.360 struggled to find the right balance between demand and supply, 0:11:53.920 --> 0:11:57.760 and so that should result in I believe, continued margin 0:11:57.840 --> 0:12:00.960 pressure for years to come. And we have a little 0:12:01.040 --> 0:12:03.600 less in a minute left. But was there anything surprising 0:12:03.679 --> 0:12:06.520 to you into this report that a trend you haven't 0:12:06.520 --> 0:12:09.000 seen emerged, that it was a little bit different than 0:12:09.040 --> 0:12:11.920 maybe what we would have seen the past couple of months. No, 0:12:12.240 --> 0:12:16.000 I think everything was relatively in line with expectations. I 0:12:16.000 --> 0:12:19.000 would say the noticeable strength that we saw was in 0:12:19.040 --> 0:12:22.800 the non store retail category, and of course that was 0:12:23.520 --> 0:12:26.319 a category that suffered last We are just from very 0:12:26.360 --> 0:12:30.720 difficult comparisons, but it seems like for most companies, and 0:12:30.760 --> 0:12:34.120 of course Amazon in particular, they've really started to see 0:12:34.160 --> 0:12:37.480 the e commerce part of their business stabilize, and I 0:12:37.480 --> 0:12:41.400 think from here it's poised to grow at a more 0:12:41.559 --> 0:12:45.400 normal rate in the high single digit to low double 0:12:45.440 --> 0:12:48.120 digit range. Yeah, certainly something we're going to be keeping 0:12:48.120 --> 0:12:50.440 an eye on. Murray Shore, Senior equity analyst over at 0:12:50.440 --> 0:12:53.000 Columbia Threadneedle Investments, we thank you as always for the 0:12:53.040 --> 0:12:56.720 insight on it decelerating retail sales report. You're listening to 0:12:56.800 --> 0:13:00.400 the Take Cans Are Live program Bloomberg Markets is at 0:13:00.400 --> 0:13:03.960 ten am Eastern on Bloomberg Radio, the tuning app, Bloomberg 0:13:04.080 --> 0:13:06.640 dot Com, and the Bloomberg Business App. You can also 0:13:06.720 --> 0:13:10.280 listen live on Amazon Alexa from our flagship New York station, 0:13:10.440 --> 0:13:15.560 Jose Say Alexa play Bloomberg eleven thirty. I just find 0:13:15.600 --> 0:13:17.720 it crazy that we're talking about of a vix at 0:13:17.720 --> 0:13:22.600 seventeen as a low volatility gauge, which is weird because 0:13:23.240 --> 0:13:25.240 a vix at seventeen is not supposed to be low volatility. 0:13:25.240 --> 0:13:28.520 It's actually still very high volatility relative to historic norms. 0:13:28.520 --> 0:13:30.520 And then you have to factor in the bond volatility 0:13:30.640 --> 0:13:33.199 with factors into the currency volatility. And it's the dollar 0:13:33.360 --> 0:13:35.880 here that I think you pointed out to me. Yes, 0:13:36.040 --> 0:13:39.320 I was looking at the d x Y in the terminals, 0:13:39.320 --> 0:13:42.360 So the Dollar Spot index, when you're looking at that 0:13:42.600 --> 0:13:46.120 hovering around a one year low, CREATY a one year low, 0:13:46.280 --> 0:13:47.839 it's wild. I've actually been looking at the dollar the 0:13:47.920 --> 0:13:50.520 last few days and the biggest contributors outside of the 0:13:50.559 --> 0:13:53.280 Easter holiday with which the biggest contributor to that drop 0:13:53.320 --> 0:13:55.680 was the Mexican PACEA, which told you was very low volume. 0:13:55.920 --> 0:13:58.160 But since then it's really just been the euro strength 0:13:58.160 --> 0:13:59.920 in the euro, which I think is interesting. We're looking 0:13:59.920 --> 0:14:01.920 a one ten handle and I want to say, like 0:14:01.960 --> 0:14:04.000 two or three months ago we time about parently on 0:14:04.040 --> 0:14:06.520 your own dollars. So that's kind of a wild story. 0:14:06.720 --> 0:14:09.400 Who better to talk about the fax space than Jane Folly, 0:14:09.440 --> 0:14:12.559 A true expert at All Thinks Facts. She's managing director 0:14:12.559 --> 0:14:15.960 and head f FX strategy over at Rabobank. Jane, A 0:14:15.960 --> 0:14:17.480 pleasure to have you on the show. Thank you for 0:14:17.559 --> 0:14:21.040 joining our All Gals cast. We appreciate that as always 0:14:21.200 --> 0:14:24.560 your take on the bearcase for the dollar, well, thank 0:14:24.600 --> 0:14:26.880 you for having me. And actually, as we've been looking 0:14:26.920 --> 0:14:28.840 at these screens in the last couple of hours, we 0:14:28.920 --> 0:14:31.240 see the pulling back a little bit of ground. So yes, 0:14:31.280 --> 0:14:33.600 it has been on the back foot in the last 0:14:33.640 --> 0:14:36.480 few days and certainly I think it's a market over 0:14:36.480 --> 0:14:39.120 the last couple of weeks has put distance between itself 0:14:39.480 --> 0:14:42.640 and the banking jitters of last month. We saw this 0:14:43.040 --> 0:14:45.800 movement back into the risk appetite. We've seen stocks doing 0:14:45.840 --> 0:14:48.920 well and the dollar performing poorly. But of course this 0:14:49.040 --> 0:14:52.680 afternoon we've had these new questions. It's about, oh, actually 0:14:52.800 --> 0:14:55.520 is going to be touching interest rates before the end 0:14:55.560 --> 0:14:58.200 of the year. The comments coming from Wallace for instance, 0:14:58.240 --> 0:15:01.840 and that something his view is certainly something that rhymes 0:15:01.880 --> 0:15:05.120 with our of you, that sticky inflation is going to 0:15:05.200 --> 0:15:06.880 be persistent due to the end of the year, to 0:15:06.960 --> 0:15:08.920 seg may not be able to cut into foots. And 0:15:08.920 --> 0:15:12.240 if that's the case, and actually the toller may get 0:15:12.320 --> 0:15:14.640 back some ground, and I think we've seen a little 0:15:14.720 --> 0:15:18.120 bit of position adjustment this afternoon as the market feeds 0:15:18.160 --> 0:15:21.360 back into the Oh, actually maybe the FED is going 0:15:21.400 --> 0:15:24.280 to be a little bit more hawkish for longer, and 0:15:24.360 --> 0:15:26.520 that is something which I think the markets reacting to 0:15:26.600 --> 0:15:29.160 this afternoon. What do you think the risks are to 0:15:29.320 --> 0:15:31.440 your call? Is it just the obvious of what you 0:15:31.440 --> 0:15:33.480 were just talking about where it comes to the Fed 0:15:33.520 --> 0:15:35.480 and the big question mark of whether or not that 0:15:35.520 --> 0:15:40.680 pause could potentially be coming in early May. Well, you know, 0:15:40.840 --> 0:15:43.480 I think there are various risks to this view, and 0:15:43.920 --> 0:15:47.800 the biggest one is the one which the IMF alluded 0:15:47.840 --> 0:15:50.760 to early on this week, and actually there is different 0:15:50.760 --> 0:15:55.000 analysts and commentators have alluded to. And this is really 0:15:55.640 --> 0:15:58.600 ever we've scene last month with it with the banking jitters, 0:15:58.640 --> 0:16:01.640 as we perhaps saw in the GILST markets in the 0:16:01.720 --> 0:16:05.280 UK LUB but after the mini budget, the markets having 0:16:05.360 --> 0:16:08.400 cheeping problems. It's getting used to this environment of a 0:16:08.600 --> 0:16:10.960 much higher interest rates of environment where you do not 0:16:11.040 --> 0:16:13.680 have quantity vision, where you do not have very very 0:16:13.760 --> 0:16:20.240 cheap money, and the items talked about a plausible alternative 0:16:20.840 --> 0:16:24.440 view and that is one where growthest dragged lower by 0:16:24.640 --> 0:16:29.520 weeks adia economies and one way the markets are looking 0:16:29.560 --> 0:16:32.480 for the next weakest link. Where is that going to be? 0:16:32.560 --> 0:16:34.200 Is it going to be an autoloader, It's going to 0:16:34.240 --> 0:16:37.960 be somewhere else. And if that is based you can 0:16:38.120 --> 0:16:41.480 visit your scenario. Well, yeah, the US, the FED may 0:16:41.480 --> 0:16:45.080 be cutting interest rates, that wouldn't be for very good reasons. 0:16:45.080 --> 0:16:47.240 And if the US off the feed were cut in 0:16:47.320 --> 0:16:50.480 interest rates because there was some sort of stress in 0:16:50.600 --> 0:16:53.800 the market, that is not an environment whereby the dollar 0:16:53.800 --> 0:16:56.480 would necessarily be weakening. That is environment where you can 0:16:56.520 --> 0:16:59.480 see money coming in from whisky assets such as emerging 0:16:59.520 --> 0:17:02.640 markets back into the dollar. And so from that point 0:17:02.640 --> 0:17:04.800 of view, that is a risk to our central view 0:17:05.520 --> 0:17:09.120 certainly with respective said policy, but not necessarily a risk 0:17:09.200 --> 0:17:12.000 to the view that the dollar could pick up further 0:17:12.119 --> 0:17:14.800 ground later on this year. Yeah, when the world's in 0:17:14.880 --> 0:17:18.040 crisis by America and seems to be the mantra that's 0:17:18.040 --> 0:17:21.640 been in play for decades on decades Jane walk us through. 0:17:21.680 --> 0:17:24.280 Then the other side of the equation. I think when 0:17:24.280 --> 0:17:28.439 I look at something like European currencies, for example, the 0:17:28.480 --> 0:17:31.840 euro of the Norwegian crona, the pound. Even it feels 0:17:31.840 --> 0:17:34.760 like we've seen iterations of this recessionary call, where in 0:17:34.920 --> 0:17:39.840 a recessionary downturn it starts off obviously in the United States, 0:17:40.040 --> 0:17:42.919 but kind of lingers in Europe a little bit. This time, 0:17:43.119 --> 0:17:45.720 I want to say, could be different in that the 0:17:45.760 --> 0:17:51.119 recovery in Europe could be a bigger kind of jump 0:17:51.200 --> 0:17:54.160 than we've seen in past post recessionary period simply because 0:17:54.160 --> 0:17:56.280 of the carnage we've seen from the war Ukraine and 0:17:56.320 --> 0:18:00.240 the recovery in commodity prices and arguably the sustainable alady 0:18:00.280 --> 0:18:02.840 of the consumer there. Since, what does that then mean 0:18:03.119 --> 0:18:05.960 for a currency like the euro or like the pound. 0:18:06.160 --> 0:18:09.520 Is one ten a ceiling or a floor for the euro? 0:18:12.440 --> 0:18:15.280 You know, I think the market consensuses you a dollar 0:18:15.359 --> 0:18:18.080 going up maybe twee twelve. I think that could be tough, 0:18:18.160 --> 0:18:23.240 largely because of our dollar story, but also in terms 0:18:23.240 --> 0:18:25.560 of the Euro, you have a little paramount of optimism. 0:18:25.640 --> 0:18:29.160 They're particularly of course, with respective ability of the Central Bank, 0:18:29.200 --> 0:18:31.040 or maybe the necessity of the Center about the U 0:18:31.080 --> 0:18:33.560 to B to hike intrust rates. It has been very hawkish. 0:18:33.600 --> 0:18:36.520 We have seen a lot of those hawkish views been reiterated, 0:18:36.600 --> 0:18:39.080 and certainly the UTB you'd like to be able to 0:18:39.560 --> 0:18:43.199 hike intrust rates further in order to push that inflationary pressure. 0:18:43.240 --> 0:18:45.679 But there is still a number of unknown with respect 0:18:45.760 --> 0:18:49.359 to Europe. Yes, energy prices, wholesale gas prices are much lower, 0:18:49.400 --> 0:18:51.840 thank goodness, than they were at the start of the 0:18:52.280 --> 0:18:55.280 war in Ukraine, but there's still a fair amount of 0:18:55.400 --> 0:18:59.440 uncertainty going through next winter with respect to that, so 0:19:00.000 --> 0:19:03.560 that certainly is not free from uncertainty. You know. With 0:19:03.760 --> 0:19:07.000 respect to Sterling, and it was the best performing Kepen 0:19:07.040 --> 0:19:10.640 currency in March. That however, was a reaction I think 0:19:10.800 --> 0:19:13.480 to a slower better than expect to data, so the 0:19:13.560 --> 0:19:16.680 markets repriced for that. The UK for instance, may be 0:19:16.760 --> 0:19:19.720 able to avoid technical recession this year, but even though 0:19:19.720 --> 0:19:22.560 the markets were priced to a better outlook, the outlook 0:19:22.680 --> 0:19:26.920 is still not good. So it's less bad, but not good. 0:19:27.240 --> 0:19:30.399 And I think Sterling, or that that position adjustment in Sterling, 0:19:30.520 --> 0:19:32.720 it's probably more or less done now. I think Sterling 0:19:33.040 --> 0:19:37.240 could struggle and probably will underperform the Euro we think 0:19:37.480 --> 0:19:41.000 in the coming months. That's interesting, Creety, because with the 0:19:41.080 --> 0:19:44.080 dynamic that could be risks to equities. The two things 0:19:44.119 --> 0:19:46.600 that have come up is different extremes when it comes 0:19:46.720 --> 0:19:49.920 to the dollar or also if there could obviously the 0:19:50.040 --> 0:19:52.439 extremes of oil as well. So those are two key 0:19:52.480 --> 0:19:54.720 factors that could affect up. Yeah, something we're keeping an 0:19:54.760 --> 0:19:56.920 eye on. Jane Foley, Managing director and head of FX 0:19:56.960 --> 0:19:59.119 Strategy at Rabble Bank. We thank you as always, folks, 0:19:59.320 --> 0:20:00.879 keep an eye on the Do all are stronger today? 0:20:01.040 --> 0:20:05.080 Will it stay there? You're listening to the Team Cancer 0:20:05.280 --> 0:20:08.840 Line program, Bloomberg Markets weekdays at ten am, easting on 0:20:08.960 --> 0:20:11.560 Bloomberg dot com, the I Heard radio app and the 0:20:11.640 --> 0:20:14.639 Bloomberg Business app. We're listening on demand wherever you get 0:20:14.720 --> 0:20:19.280 your podcast, folks. We're looking at markets here that are 0:20:19.320 --> 0:20:21.760 a little bit risk off sort of. I mean the 0:20:21.880 --> 0:20:24.040 SMP five hundred is lower by three tenths of one percent. 0:20:24.040 --> 0:20:26.040 I wouldn't call about a major sell off, no, And 0:20:26.200 --> 0:20:28.920 I wanted to point out if we're looking at regional banks, 0:20:28.960 --> 0:20:32.200 so the k r X index for regional banking that's 0:20:32.280 --> 0:20:35.920 down close to two percent, but obviously more regional focus. 0:20:36.000 --> 0:20:38.240 But if you're looking at the KBW Bank Index, which 0:20:38.280 --> 0:20:41.119 includes regionals but as well as these bigger banks like 0:20:41.320 --> 0:20:44.239 GP Morgan that's up more than one percent, so you're 0:20:44.240 --> 0:20:45.960 seeing a little bit of a divergence there on the 0:20:46.040 --> 0:20:48.560 financials creating. Yeah, I love that you brought that up, 0:20:48.600 --> 0:20:50.959 because the only sector that's in the green right now 0:20:51.000 --> 0:20:53.560 on the SMP five hundred is the financial exactly, and 0:20:53.640 --> 0:20:56.000 there's really thanks to just a handful of banks. But 0:20:56.080 --> 0:20:58.080 the question here is what is the ripple effect to 0:20:58.119 --> 0:20:59.760 the regionals, because at the end of the day, I 0:21:00.200 --> 0:21:02.399 first Republic was supposed to be the first bank to 0:21:02.600 --> 0:21:04.600 report it then pushed their earnings back to I want 0:21:04.600 --> 0:21:07.359 to see the twenty fourth if I'm right, and now 0:21:07.440 --> 0:21:09.280 it looks like the big banks are benefiting. The question 0:21:09.400 --> 0:21:11.880 is for how long? Who better to ask than our 0:21:11.960 --> 0:21:15.200 regional banks. Expert Herman Chan, senior analysts for US regional 0:21:15.240 --> 0:21:19.399 banks and fintech over at Bloomberg Intelligence, joins us here. Herman, 0:21:19.760 --> 0:21:21.639 your take on this as one of the kind of 0:21:22.000 --> 0:21:24.800