Speaker 1: Thanks so much for joining us for the special holiday
Speaker 1: edition of Bloomberg Daybreak. US markets are closed.
Speaker 2: From Martin Luther.
Speaker 1: King Day, I'm Nathan Hager, and coming up this hour,
Speaker 1: we continue bank earnings with a preview of tomorrow's results
Speaker 1: from Goldman Sachs and Morgan Stanley. We'll check back in
Speaker 1: with Bloomberg Intelligence senior Global Banks analyst Alison Williams. Plus
Speaker 1: we'll discuss the future of interest rates and the economy
Speaker 1: in twenty twenty four. We've got a special conversation lined
Speaker 1: up for you with the President of the Cleveland Fed,
Speaker 1: Loretta Mester. First, though, we want to focus on oil
Speaker 1: because that market got quite the jolt at the end
Speaker 1: of last week. Crude jumped following escalating tensions in the
Speaker 1: Red Sea. For more on the overall outlook for crude,
Speaker 1: we are pleased to welcome Stephen Shork, the president of
Speaker 1: the Short Group. Steven, I wonder how surprised you were
Speaker 1: by those strikes on hoothy targets in Yemen and whether
Speaker 1: it shakes your fundamental case for oil heading into the
Speaker 1: balance of twenty twenty four.
Speaker 3: Well, certainly if we look at recent in history, Nathan,
Speaker 3: We've just been seeing escalation of tensions there in the
Speaker 3: Middle East ever since it all started back on October seventh.
Speaker 3: With regard to oil in prices, I've been falling client
Speaker 3: since October that I've been flabbergasted by the lack of
Speaker 3: our risk bringing in priced into this market. To quote Churchill,
Speaker 3: I've said oil prices are riddle wrapped in a mystery
Speaker 3: inside of enigma. So it's been nothing astonishing to me
Speaker 3: that there really hasn't been the reaction I was expecting.
Speaker 3: So back in October, this is what I wrote the
Speaker 3: clients that you know, let's be clear that the war
Speaker 3: between Hamas, or that Hamas declared on Israel, will not
Speaker 3: be limited to a small strip of land between Egypt
Speaker 3: and is Isel. Considering that Israel's finding the terrorist hydra
Speaker 3: of Hamas has blot in Uchis, all of which are
Speaker 3: backed by Iran, Duran dropped it certainly disguised war against
Speaker 3: Israel and choose all out conflict and all bets are off.
Speaker 3: The chance for disruption to tanker traffic through the moves,
Speaker 3: which is the greatest choke point to the flow of
Speaker 3: waterborne crudial in the world, is almost a given. So
Speaker 3: we are looking at this threat, and of course we
Speaker 3: know what's been happening in the Red City that tankers
Speaker 3: are not and traders are not going to the Zuez.
Speaker 3: They're going around the Horn of Africa to get to
Speaker 3: markets in the West. Now, that is a long trip
Speaker 3: that adds a lot of expense to the commodity, and
Speaker 3: therefore we should be seeing higher oil price. But that
Speaker 3: certainly hasn't been the case. So oil traders have in
Speaker 3: my view, I've been whistling past the graveyard. They are
Speaker 3: the go back to Mad magazine, the alfred E movemans
Speaker 3: of the commodity in the world. Hey, what me worried?
Speaker 3: With all of this potential risk to supply out there,
Speaker 3: they have not reacted to this market now. So yes,
Speaker 3: at the end of last week oil prices surged, but
Speaker 3: I'm taking a wait and see attitude. Every provocation up
Speaker 3: to this point had not led to sustained rally, so
Speaker 3: I will believe this rally is sustainable when I see it.
Speaker 3: So it's been a conundrum, and very interesting one at.
Speaker 1: That, while we wait and see. Of course, the big
Speaker 1: story for the oil market up to now has been
Speaker 1: that we've had this imbalance of supply compared to demand.
Speaker 1: Where do you see that shaking out? This idea that
Speaker 1: we've got a glut of oil in the market, and
Speaker 1: Saudi Arabia and Russia have been leading this push to
Speaker 1: try to lower production targets via OLPEK plus.
Speaker 3: Yeah. Absolutely. Now OPEK and OPECH plus inclusive of Russia
Speaker 3: have had the wings cleft over the past fifteen years
Speaker 3: because they've never had the competition that they're facing now
Speaker 3: from non OPEC producers. So last year we had the
Speaker 3: United States, led by the United States, Brazil in Guyana
Speaker 3: leaving the world in production growth. So every barrel that
Speaker 3: Saudi Arabia or Russia or any member of OPEC attempt
Speaker 3: to take off the market has been replaced by non
Speaker 3: OPEC production. So yes, last year twenty twenty three, we
Speaker 3: had record non OPEQ production of one hundred and one
Speaker 3: million barrels a day. The IEA, the International Energy Agency,
Speaker 3: expects that to jump to one hundred and three million
Speaker 3: barrels this year. So Saudi Arabia and Russia and price
Speaker 3: hawks really have their work cut out for them because
Speaker 3: they don't have the power in this market that they
Speaker 3: had prior to the US shale gale, which began in
Speaker 3: earnest about ten to twelve years ago.
Speaker 1: So where does the power lie in the oil market
Speaker 1: right now? Is it in the producers groups like opech
Speaker 1: Plus or even the US now or is it more
Speaker 1: on the demand side what we're seeing, particularly in demand
Speaker 1: from developed markets and developing markets like China.
Speaker 3: Yeah, absolutely, I do believe it's on the demand side.
Speaker 3: Making where the oil bowl got it wrong at the
Speaker 3: start of last year was this assumption that China, which
Speaker 3: has been dormant really since the outbreak of COVID, that
Speaker 3: economy has sputtered it ever since. And the thinking was
Speaker 3: that in the first half of last year that all
Speaker 3: of the demand from China was going to come back
Speaker 3: and hit the market and really drive prices higher. Now
Speaker 3: that never happened because the China economy is still sputtering now. Personally, Nathan, Professionally, Nathan,
Speaker 3: I've been I've never been on the China bandwagon. And
Speaker 3: my view was they're going to go the way, They're
Speaker 3: going to grow older before they become an economic superpower
Speaker 3: that will overtake the United States. So to me, China
Speaker 3: today is looking more like Japan circa nineteen ninety two.
Speaker 3: That's a wait and see. But the point now is
Speaker 3: to answer your question. It's a demand driven market right now,
Speaker 3: so the supply can react to that demand. And what
Speaker 3: has happened is supply was held back and then we
Speaker 3: came I'm coming right after COVID. Supply production came roaring
Speaker 3: back over especially the past six months of last year,
Speaker 3: and now we do have a market that's oversupplied. Demand
Speaker 3: is not there and we know that, Nathan, because prices
Speaker 3: today on the futures curve are incontangedom. That means that
Speaker 3: prices are cheaper than they are three, six, nine months
Speaker 3: from now. So if you are an oil trader, it
Speaker 3: does not make sense to pull your oil out of
Speaker 3: storage and sell it into a discounted market. Now. That
Speaker 3: can only happen when demand is well below a supply,
Speaker 3: and that's where we're at right now. And all of
Speaker 3: my concerns about geopolitical risk with what's going on in
Speaker 3: the Middle East, but look, this is the commodity markets.
Speaker 3: All it takes is one big headline to change that narrative.
Speaker 3: With last week's headline the one that changes the narrative,
Speaker 3: We'll have to wait and see.
Speaker 1: So Stephen, why do you think demand is as suppressed
Speaker 1: oil as it is right now. Does it have to
Speaker 1: do with macroeconomic headwinds, the transition to electrics, milder climate,
Speaker 1: what do you see behind it?
Speaker 3: Well, certainly is a part of it is, of course macroeconomic.
Speaker 3: I'm concerned, have been concerned for well over a year
Speaker 3: now about how squeezed the West consumer is. We're looking
Speaker 3: at inflation, as we saw with the numbers last week
Speaker 3: that are still out of control, especially for food costs,
Speaker 3: So our earnings are being squeezed because of inflation. Credit
Speaker 3: Card debt is well over one trillion dollars, an unimaginable number.
Speaker 3: Interest if you carry debt on your credit card is
Speaker 3: over twenty percent. So to me, my logic here is
Speaker 3: that the consumer has to be squeezed. Yet we looked
Speaker 3: at last Thanksgiving, we had near record demands for drivers,
Speaker 3: for jet fuel, for travelers, So people are still spending money.
Speaker 3: They're accumulating debt, but they're still spending money, and that
Speaker 3: is helping to increase demand that this point. But the
Speaker 3: other side of that coin here is with elasticities of
Speaker 3: demand for any commodity. Now, with oil, you always had
Speaker 3: strong demand regardless of price, regardless of price shock. That's
Speaker 3: because we were always missing the other variable that impacts price,
Speaker 3: and that is a substitute. And today we do have substitutes.
Speaker 3: We have full electric, we have plugging electric hybrids, and
Speaker 3: so each year those markets begin to gain on the
Speaker 3: hydrocarbon markets and they start to erode demand. So yes,
Speaker 3: part of it, I do think is demand from the consumer,
Speaker 3: from the consumer side, but we haven't seen it yet.
Speaker 3: But I just hasn't shown up in the numbers yet.
Speaker 3: But clearly what we're looking at here is a combination
Speaker 3: of demand and yes, the introduction of substitutes into this market.
Speaker 1: I wonder where you see the transition to renewables standing
Speaker 1: right now. We did get that news last week that
Speaker 1: it Hurts is selling off a lot of its fleet
Speaker 1: of electric vehicles. It's raised some doubts about the sustainability
Speaker 1: of the EV market. Does that affect how things look
Speaker 1: for you in the oil space?
Speaker 3: Yeah? Absolutely. Now you know mea Koppley here, I do
Speaker 3: drive an electric hybred and I love the darns thing.
Speaker 3: It's a plug in so I can get between my
Speaker 3: seventeen gallon tank in my electricity. And I'm a homebody
Speaker 3: now because I'm an emptinester I can get, you know,
Speaker 3: fifteen to sixteen hundred miles on that one tank of gas.
Speaker 3: But here's the thing, Nathan, is I'm leasing that because
Speaker 3: I'm waiting for the technology to continue to improve. So
Speaker 3: this is the second electric hybrid I've leased over the
Speaker 3: past six years. I have no interest in buying one,
Speaker 3: and I would venture no one has an interest in
Speaker 3: buying a used one because the technology will continue to improve.
Speaker 3: So yes, the market, I do believe is hitting that
Speaker 3: roadblock because there is an excess inventory of older technology
Speaker 3: evs on the market. That rightfully, so no one really wants.
Speaker 3: So clearly that is going to slow the transition to evs.
Speaker 3: And let us keep in mind that'll evs with their
Speaker 3: battery concerns with their security, which leads to the heavy metals.
Speaker 3: So they are not in the greatest thing for the environment.
Speaker 3: They're certainly not the greatest thing for security when you
Speaker 3: consider that, where do we get all the medals that
Speaker 3: go into those batteries. China and Russia, okay, two countries
Speaker 3: they don't necessarily have the United States best interest at heart.
Speaker 1: Thank you for this, Stephen, great having you with us
Speaker 1: on this program. That's Stephen Short, the president of the
Speaker 1: Short Group, and still to com on this holiday edition
Speaker 1: of Bloomberg Daybreak, you might want to put thoughts of
Speaker 1: a March rate cut on hold.
Speaker 4: We speak with the.
Speaker 1: President of the Federal Reserve Bank of Cleveland, lo Reda Master.
Speaker 2: Next.
Speaker 1: It's eighteen minutes past the hour. I'm Nathan Hager, and
Speaker 1: this is BLAE. Welcome back to this special edition of
Speaker 1: Bloomberg Daybreak. The US market is close for the Martin
Speaker 1: Luther King holiday. I'm Nathan Hager. Turning it focus now
Speaker 1: to the economy. Cleveland Fed President Loretta Mester says it
Speaker 1: is premature to consider cutting interest rates as soon as
Speaker 1: the central banks meeting in March. Mester spoke with Bloomberg
Speaker 1: International Economics and Policy correspondent Michael McKee late last week.
Speaker 1: Here's that conversation.
Speaker 5: Now, one of the chances that wages are going to
Speaker 5: push inflation back.
Speaker 4: Up again, well, you know, you talk to district contacts
Speaker 4: and wage setters, and what they do say is there's
Speaker 4: been discernible the malavor market they would characterize, is still tight,
Speaker 4: but it's not nearly as tight as it was before.
Speaker 4: There's still you know, jobs at demand higher wages, but
Speaker 4: the rate of increase of way pages has come down,
Speaker 4: so again we see the adjustment coming. You know, if
Speaker 4: you look at a lot of different indicators in the
Speaker 4: labor market, what you see is that supply and a
Speaker 4: manner coming into better balance. Part of that supply, the
Speaker 4: labor force participation rate has gone up. People are coming
Speaker 4: back into the labor market.
Speaker 6: Which is great. I think that's a really.
Speaker 4: Good development and that's helped us in a number of
Speaker 4: ways because it basically we've been able to do the
Speaker 4: disinflation at the same time labor market conditions remain healthy.
Speaker 4: And that's me us not have to face a hard
Speaker 4: trade off there.
Speaker 6: We knew what the job was. The job one was.
Speaker 4: To get that inflation that was exorbitant under control. We
Speaker 4: have had good progress there, but we just have more
Speaker 4: work to do there.
Speaker 6: But this year is going to be one about really looking.
Speaker 4: At the balance now between both parts of our mandate,
Speaker 4: and so we're going to be focused on and I
Speaker 4: certainly we focused on making sure that we continue to
Speaker 4: get inflation on a sustainable and time we've had back
Speaker 4: to two percent while we can maintain healthy labor market conditions.
Speaker 5: You mentioned district contacts. I'm wondering what they're telling you
Speaker 5: about their pricing power.
Speaker 4: So we hear mix as you would expect, right, So
Speaker 4: we definitely have had our contexts tell us that pricing
Speaker 4: pressures have eased, and from their side in terms of
Speaker 4: their input prices that come down, but also their ability
Speaker 4: to pass on past increases has been It's harder now, right,
Speaker 4: customers are pushing back, not uniformly, so some firms have
Speaker 4: been able to maintain pricing power, but there's fewer firms
Speaker 4: that say, you know, we're not going to push back.
Speaker 4: They have to sort of work to get those price
Speaker 4: increases in. But at the same time, they've been able
Speaker 4: to maintain their margins because you've seen goods prices and
Speaker 4: input prices come down, and so you know, wages haven't
Speaker 4: come down that much, but in terms of other input
Speaker 4: costs they have come down.
Speaker 6: Firms have been able to maintain their margins.
Speaker 5: We're going to mix pictures as well from indicators like
Speaker 5: initial job as claims, which have been flat on a
Speaker 5: seasonally adjusted basis, but on a non seasonally adjusted basis
Speaker 5: have spiked in the last few weeks. I'm wondering what
Speaker 5: your business contacts in the district are telling you about
Speaker 5: their plans for their labor force. Are they hiring, are
Speaker 5: they status quo, or are they beginning to think they
Speaker 5: might have to let some people go.
Speaker 4: So we're not hearing much at all about letting people go.
Speaker 4: I mean, you do hear from bankers that, you know,
Speaker 4: in the areas where they're not making a lot of loans,
Speaker 4: like mortgages, they've already reduced staff there, but there isn't
Speaker 4: the kind of staff reductions that one would expect to
Speaker 4: see if the economy was slowing materially.
Speaker 6: A lot of our firms are.
Speaker 4: Still looking for workers. They're still looking for workers, especially
Speaker 4: with hard to find skills. But they do say there's
Speaker 4: more applications and that fewer of their staff were quitting
Speaker 4: to go look for another job, so the conditions are
Speaker 4: still healthy. They still have plans to hire in areas
Speaker 4: where they need workers, and they don't really have plans
Speaker 4: to lay lay off any workers at this point there.
Speaker 4: You know, their order books still look pretty decent. You know,
Speaker 4: one thing that did happen is because it was so
Speaker 4: hard to find workers and all the effort that went
Speaker 4: into We do still continue to hear from firms that
Speaker 4: say we're going to do what we have to do
Speaker 4: to keep keep our workers on staff because it's just
Speaker 4: so costly to the firm if we lose workers and
Speaker 4: then we need to go back into the market told back.
Speaker 4: So that's a good thing in the labor market in
Speaker 4: terms of keeping.
Speaker 6: People attached to the labor market.
Speaker 4: And that's why I have, you know, I in my
Speaker 4: own you know, baseline forecast. I have the unemployment rate
Speaker 4: which is extremely low right now, ticking off a little bit,
Speaker 4: but not really moving up that appreciably. And that's what
Speaker 4: I mean by we can get inflation down by continuing
Speaker 4: to keep some restricted in our monetary policy, but we
Speaker 4: can also have the labor market remain healthy as.
Speaker 6: We do that.
Speaker 5: Janet Yellen, you know her, and she knows a little
Speaker 5: something about monetary policy. I said last week that the
Speaker 5: economy has achieved essentially a soft landing. Would you agree
Speaker 5: or would you push back.
Speaker 4: I think we're aiming to achieve a soft landing, and
Speaker 4: I think the incoming information that we've seen and how
Speaker 4: the economy has evolved has been consistent with that. But
Speaker 4: you know, when you look out there are some risks
Speaker 4: around the forecast, and of course my forecast is basically
Speaker 4: a soft landing, and so you wouldn't want to say, Okay,
Speaker 4: job done, We're on a good path to a soft landing.
Speaker 4: It's it's basically you know made it. We just have
Speaker 4: to keep attuned to the fact that, you know, we
Speaker 4: need to calibrate our monetary policy so that we are
Speaker 4: achieving the soft landing, and we have to be attuned
Speaker 4: to risks around that and risk to both sides and remanding.
Speaker 4: I mean, it's sense. Last year it was the inflation
Speaker 4: part of the mandate.
Speaker 6: Had to have our focus.
Speaker 4: Now as the economy has come into better balance, right,
Speaker 4: the risks have become more in balance as well, in
Speaker 4: terms of.
Speaker 6: Both sides of our mandate.
Speaker 4: And I think that's the job this year, is to
Speaker 4: make sure that we're calibrating our policy to maintain healthy
Speaker 4: labor markets even as we continue the process to get
Speaker 4: inflation back to two percent.
Speaker 5: Okay, if you're calibrating your policy, how do you calibrate it?
Speaker 5: Market thinks that May is the most likely month, but
Speaker 5: there's still a very good chance that you might cut
Speaker 5: rates in March.
Speaker 3: Where are you.
Speaker 4: Well, I mean, it's hard to predict the future, as
Speaker 4: you know, and it's really going to be.
Speaker 6: Dependent on how the economy evolves.
Speaker 4: I think March is probably too early in my estimation
Speaker 4: for a rate decline because I think we need to
Speaker 4: see some more evidence. I think the December I report
Speaker 4: just shows there's more work to do, and that work
Speaker 4: is going to take restrictive monetary policy. But I do
Speaker 4: think that as we see continuing disinflation and we could
Speaker 4: get more evidence that is convincing that inflation is on
Speaker 4: a sustainable, dour path to two percent, then I think,
Speaker 4: you know, we'll have that conversation about, Okay, is it
Speaker 4: time now when we look at inflation but also importantly
Speaker 4: inflation expectations, right, is it time now to move the
Speaker 4: inflation move our FED funds rate when monetary policies start
Speaker 4: that process.
Speaker 6: Of moving it back to a neutral rate.
Speaker 4: And what I would say is I do sort of
Speaker 4: the soft landing scenario right as being the most likely,
Speaker 4: but I do think there's risks around it, and we
Speaker 4: have to be attuned to both sides of the mandate.
Speaker 4: So a reduction in the fund rate that is because
Speaker 4: we try to keep monetary policy well calibrated to what's
Speaker 4: happening on the inflation side of the mandate and epployment side.
Speaker 6: That's different than.
Speaker 4: Having to cut the rate because we're heading into a recession,
Speaker 4: so you know, rate it decreases that heap the real rate,
Speaker 4: you know, not from rising. So when inflation and inflation
Speaker 4: expectations begin to come down, right, if you didn't do
Speaker 4: anything to your funds rate, you'd actually be sort of,
Speaker 4: you know, passively saying a tighter policy. That's the part
Speaker 4: of the evaluation that we're going to have coming up.
Speaker 4: But right now, the evaluation I think is and the
Speaker 4: policy evaluation is how long are we needing to keep
Speaker 4: industrates and ontarry policy the restrictive stance. The next phase
Speaker 4: will be about, you know, okay, is it now we've
Speaker 4: seen the conditions we need to start reducing the funds
Speaker 4: rate and reducing our funds rate back to more neutral stance.
Speaker 6: I don't think we're there yet. I would like to see.
Speaker 4: More evidence that the economy is progressing as we expect
Speaker 4: it to, as I expected too, before we can do that.
Speaker 1: And that was Cleveland FED President Lorettamester speaking with Bloomberg's
Speaker 1: Michael McKee. Still ahead on this holiday edition, of Bloomberg Daybreak.
Speaker 1: We're watching for bank earnings tomorrow, will preview results from
Speaker 1: Goldman Sachs and Morgan Stanley just ahead. It's thirty five
Speaker 1: minutes past the hour. I'm Nathan Hager, and this is Bloomberg.
Speaker 1: Bloomberg Radio is where.
Speaker 2: You are get live business news and market headlines from anywhere,
Speaker 2: twenty four hours a day via your mobile device. Listen
Speaker 2: to the iHeartRadio ad tune in the Bloomberg Business app
Speaker 2: and Bloomberg dot Com.
Speaker 1: Welcome back to this special edition of Bloomberg Daybreak. Markets
Speaker 1: in the US are closed for the Martin Luther King Holiday.
Speaker 1: I'm Nathan Hager, and we're getting set for bank earnings
Speaker 1: to resume this week. Goldman Sachs and Morgan Stanley report
Speaker 1: fourth quarter results before the opening bell tomorrow. Of course,
Speaker 1: this follows the slew of reports that we got from
Speaker 1: the others of the Big six Wall Street banks last Friday.
Speaker 1: So here to get a set for the wrap up
Speaker 1: of bank earning season is Alison Williams, Senior analysts for
Speaker 1: Global banks and asset Managers at Bloomberg Intelligence. Good to
Speaker 1: speak with you again, Alison. First off, let's get your
Speaker 1: read on the results that we saw last Friday, it
Speaker 1: was kind of a mixed bag, wasn't it.
Speaker 7: I think that the core results across the banks in
Speaker 7: terms of net interest income and operating expenses generally looked
Speaker 7: pretty good. The difference there was a big difference in
Speaker 7: terms of the guidance. So JP Morgan, whose net interest
Speaker 7: income has proven the most resilient, and we did get
Speaker 7: an upside surprise in the fourth quarter, they did guide
Speaker 7: higher for that revenue for this year, and yes, they
Speaker 7: also guided for higher costs butt net. We think Earning's
Speaker 7: estimates are going up for JP Morgan. On the credit
Speaker 7: card front, we know that credit card is driving a
Speaker 7: majority of charge offs and provisions across the banks. But
Speaker 7: JP Morgan's guidance came in about in line, I think
Speaker 7: with expectations. And this is in contrast to some trends
Speaker 7: at Wells Fargo, where we saw the expectations are that
Speaker 7: that interest income is going to be lower this year
Speaker 7: and in fact worse than the street had expected, even
Speaker 7: though their fourth Quarternmber came in about in line with expectations.
Speaker 7: And then expense is going to be higher than expected.
Speaker 7: So estimates for JP Morgan going higher for Wells Fargo
Speaker 7: going a bit lower.
Speaker 1: So in terms of that balance between net interest income
Speaker 1: and costs, how can we see that play out for
Speaker 1: Morgan and Goldman when they report tomorrow.
Speaker 7: So for Goldman and Morgan Stanley, really what we learned
Speaker 7: from the bank, I think center is more on the
Speaker 7: trading and investment banking fee side. Keep in mind that
Speaker 7: these two banks are much more focused on the capital
Speaker 7: market side of things. For Morgan Stanley, it's really the
Speaker 7: wealth inflows that we're going to be watching. We had
Speaker 7: very strong numbers from Morgan Stanley in the first half,
Speaker 7: slow down more than expected in the third quarter, and
Speaker 7: so what happens in the fourth quarter I think is
Speaker 7: going to be key in terms of what the momentum
Speaker 7: is there in that unit. James Gorman did set some
Speaker 7: pretty aggressive goals for that business before handing off his
Speaker 7: position to Ted Pick, who takes the reins this year
Speaker 7: of the bank. And so the wealth business is really
Speaker 7: what we're watching for at Morgan Stanley. Trading and investment
Speaker 7: banking fees, which is another business that's important for Morgan
Speaker 7: Stanley but more important for Goldman Sachs. We saw across
Speaker 7: the banks that report on Friday generally a little bit
Speaker 7: softer numbers unexpected across the board. Really where we saw
Speaker 7: the weakness was at City Group and their fixed income
Speaker 7: trading line. They talked about weaker commodities, weaker currencies, So
Speaker 7: that is a little bit of a negative more towards
Speaker 7: Goldman Sachs than Morgan Stanley. Morgan Stanley's trading business is
Speaker 7: a little bit more focused on the equity trading side
Speaker 7: of things, and so we're going to be watching results there.
Speaker 7: What's interesting is Morgan Stanley and Goldman Sachs are the
Speaker 7: two top players in that business. Goldman was the leader,
Speaker 7: Morgan Stanley sort of took that position for several years,
Speaker 7: but now Goldman Sachs is sort of back in the lead,
Speaker 7: and so I think that's that's something that investors are
Speaker 7: watching for, you know, more of the interest of bragging
Speaker 7: rights because as the top two players, they are profitable
Speaker 7: in those businesses.
Speaker 1: And I guess leadership is probably going to be a
Speaker 1: big focus for investors for both these banks. Right as
Speaker 1: you mentioned, Ted Pick is coming in as the new
Speaker 1: CEO of Morgan Stanley, and David Solomon has been facing
Speaker 1: a lot of pressure from investors over the performance over
Speaker 1: several quarters over at Goldman's Sex, how could leadership be
Speaker 1: a focus for investors looking at these results.
Speaker 7: So the big change, as you pointed out, is at
Speaker 7: Morgan Stanley, and I think investors will be watching to
Speaker 7: see what, if any changes Ted Pick will make to
Speaker 7: the strategy. Keep in mind that Ted Pick really had
Speaker 7: a lot of success in building the trading operations of
Speaker 7: Morgan Stanley for the many for the many years that
Speaker 7: he ran those businesses, the business has shifted more towards
Speaker 7: wealth and asset management under Gorman. We don't expect that
Speaker 7: shift will change, but we do wonder what kind of
Speaker 7: investments and what kind of changes Pick may make to
Speaker 7: the institutional size of the business since, as I said,
Speaker 7: you know, some of their leadership has sort of gone
Speaker 7: to Goldman Sachs. In the most recent couple of years,
Speaker 7: Golden Sacks as of third quarter, has shown the strongest
Speaker 7: gains in both FICK and equities trading over the long term.
Speaker 7: And so despite a lot of the noise that we
Speaker 7: hear around Goldman Sachs related to businesses that are not
Speaker 7: the core, we do think that that's important for investors
Speaker 7: to keep in mind. They have talked about building relationships
Speaker 7: with top clients. They've delivered on success in those trading businesses.
Speaker 7: The other area where they've focused on is the asset
Speaker 7: management side of things. They are executing across against their
Speaker 7: plan for the alternatives business. So those are two key
Speaker 7: things to keep in mind. They're the bank has definitely
Speaker 7: shifted over the past year. They narrowing their focus. So
Speaker 7: you know, under prior management they had this expansion, they
Speaker 7: were sort of reaching more towards the consumer, the retail
Speaker 7: side of things. That's not something that Goldman has typically
Speaker 7: been known for, and now we've seen over the past
Speaker 7: year sort of retrenching and kind of going back to
Speaker 7: their core business focus. That has certainly created a lot
Speaker 7: of noise in terms of charges and sales and such
Speaker 7: over the past year. We do think that their compensation costs,
Speaker 7: while we know that they've had several charges related to
Speaker 7: severns in the year, but we think that those costs
Speaker 7: actually do tend to be a little bit more sticky
Speaker 7: for the bank as the bank looks towards twenty twenty four,
Speaker 7: and most of the most of the managements have been
Speaker 7: more optimistic about investment banking fees this year What we're
Speaker 7: going to be looking to hear from Goldman, Sachs and
Speaker 7: Morgan Stanley relates really to what are their clients saying,
Speaker 7: What are CEOs feeling, How confident are they can we
Speaker 7: expect an uplift in deals. M and A is a
Speaker 7: great business for the banks. It's also a good business
Speaker 7: for the several boutiques they met. The companies have been
Speaker 7: optimistic about this business for this year. Will we get
Speaker 7: some reasons to support that optimism with results.
Speaker 1: You raise a really good point when it comes to
Speaker 1: the outlook for deal making into twenty twenty four and
Speaker 1: the challenges that could be ahead in terms of an
Speaker 1: elevated interest rate environment potentially that these banks could be
Speaker 1: facing over the next several quarters. How could that play
Speaker 1: out in what we're expecting from Goldman and Morgan Stanley.
Speaker 7: So for Goldman and Morgan Stanley as it relates to
Speaker 7: interest rates, what could be positive for the banks is
Speaker 7: if the market implied federal reserve pivot does come to
Speaker 7: fruition in twenty twenty four. So if in fact, managements
Speaker 7: of corporations can get confident in the indust rate outlook,
Speaker 7: in the economic policy outlook, perhaps that could feed into
Speaker 7: more deals. If we get a lifting confidence, if we
Speaker 7: get lower borrowing costs, that could be good for M
Speaker 7: and A. We know that there's a fair amount of
Speaker 7: cash sitting around on these companies ready to do deals.
Speaker 7: It's really been a lot of the volatility and uncertainty
Speaker 7: that has kept some of the managements on the sidelines.
Speaker 1: Okay, lots to look forward to as we await those
Speaker 1: results before the opening bell tomorrow from Goldman Sachs and
Speaker 1: Morgan Stanley, thanks to Bloomberg Intelligence Senior banks analyst Alison Williams.
Speaker 1: And still ahead on the special edition of Bloomberg day
Speaker 1: Break for the Martin Luther King Holiday, We're going to
Speaker 1: check in with black voters heading into a pivotal election cycle.
Speaker 1: It's fifty minutes past the hour. I'm Nathan Hager, and
Speaker 1: this is Bloomberg. Welcome back to this special edition of
Speaker 1: Bloomberg Daybreak. The US market is closed for the Martin
Speaker 1: Luther King Day holiday. I'm Nathan Hager, and as we
Speaker 1: reflect on doctor King's legacy, we want to check in
Speaker 1: with black voters as we head into a pivotal election cycle.
Speaker 1: For that, we turned to Bloomberg Black Business Beat host
Speaker 1: justin Milliner.
Speaker 8: It is because of this congregation in the black community
Speaker 8: of South Carolina, and not an exaggeration in Jim Clyburn,
Speaker 8: that I stand here today as your president because of
Speaker 8: all of you. That's a fact.
Speaker 9: That's a fact, as President Joe Biden at a recent
Speaker 9: event speaking to the largely black congregation at Mother Emmanuel
Speaker 9: AMA in Charleston, South Carolina. It's a historic black church
Speaker 9: where a white supremacist gunman killed nine people back in
Speaker 9: twenty fifteen. It's no mistake that President Biden chose that
Speaker 9: location as the site of one of his first appearances
Speaker 9: of twenty twenty four as he ramps up his reelection campaign.
Speaker 9: Black voters have long been an important voting block for
Speaker 9: Democrats and for Biden. Bloomberg White House correspondent A. Caleb
Speaker 9: Gardner talked to me about how South Carolina is symbolic
Speaker 9: for Biden and his campaign.
Speaker 10: He became president because he had a big primary win
Speaker 10: in South Carolina after not performing well in the first
Speaker 10: two primaries, and that really turned around his candidacy. And
Speaker 10: that's a huge part because of the significant black population
Speaker 10: in South Carolina. So I think it's an owde and
Speaker 10: acknowledgment of how Black voters have paved this way to
Speaker 10: the White House for him, and also that he's willing
Speaker 10: to invest in them again, and he is acknowledging that
Speaker 10: he needs to court them, he needs to speak directly
Speaker 10: to them if he wants them to turn out for him.
Speaker 10: And I think that also comes at a time where
Speaker 10: we've seen in polling that Black voters are not the
Speaker 10: happiest with Joe Biden. He's not very popular with them
Speaker 10: at this time.
Speaker 2: He is not.
Speaker 9: Recent polling from Bloomberg News and Morning Consulted has support
Speaker 9: for Biden in the black community slipping. Bloomberg White House
Speaker 9: Politics reporter Christian Hall has been on the campaign trail,
Speaker 9: and when he's spoken to black voters, he says he
Speaker 9: hears a lot about the economy, and he's starting to
Speaker 9: hear a lot more about another presidential candidate.
Speaker 11: A lot of the sentiment that you're seeing right now
Speaker 11: of how black voters are feeling, a lot of it
Speaker 11: is rooted in the economy. They're not happy with what
Speaker 11: they're seeing from Joe Biden. A candidate that's kind of
Speaker 11: picking up some traction with black voters, I would say
Speaker 11: is Donald Trump. I know, it sounds really wild, considering
Speaker 11: the rhetoric that Trump has had in the past and
Speaker 11: some of the racially divisive language that he's used, but
Speaker 11: Black voters are really interested in what he's saying, and
Speaker 11: I think that as the election continues, we're going to
Speaker 11: see Donald Trump kind of trying to court black voters
Speaker 11: more and more.
Speaker 9: Bloombers A Kayla Gardner says that if there's a pathway
Speaker 9: for Trump with black voters, it might be less to
Speaker 9: do with what Trump is offering and more to do
Speaker 9: with what Biden isn't.
Speaker 10: I think black voters right now are in a wait
Speaker 10: and see mode. They want to see more from President Biden.
Speaker 10: He really hasn't done that many events before this event
Speaker 10: in South Carolina, specifically talking to it focused on black voters.
Speaker 10: So I think they're really watching to see whether he
Speaker 10: is going to actually get in full campaign mode and
Speaker 10: go across the country and court these voters. He really
Speaker 10: has been focused on sort of these Middle America voters
Speaker 10: for a very long time, which of course tend to
Speaker 10: be wider than the average metropolitan city, and I think
Speaker 10: they've felt a little bit left behind.
Speaker 11: What's really happening is more than ever before in history,
Speaker 11: black voters are open to their two different options, right.
Speaker 11: I think in the past we saw a lot of
Speaker 11: black Democratic voters saying, you know, we have to vote
Speaker 11: for Democrats. This is what you know we were raised
Speaker 11: to do through the civil rights movement movement. We have
Speaker 11: to use our vote and support you know, this party.
Speaker 11: And I think we're seeing more than ever black voters
Speaker 11: saying I am open to someone who's going to represent
Speaker 11: me the best.
Speaker 9: That's Bloomberg Christian Hall and of course Bloomberg'sai Kayla Gardner,
Speaker 9: who are both doing great reporting on this. If we
Speaker 9: do end up with a Biden Trump rematch, a lot
Speaker 9: of pulling now sees that race being pretty close. So Nathan,
Speaker 9: it looks like how all these candidates do with black
Speaker 9: voters could end up making a pretty big difference by
Speaker 9: the time we hit November.
Speaker 1: Our thanks to Bloomberg's Justin Milliner as well as Stephen
Speaker 1: Shark of the Short Group and Bloomberg Intelligence senior banks
Speaker 1: analyst Alison Williams, we'd like to thank you as well
Speaker 1: for joining us on this holiday. We will be back
Speaker 1: tomorrow ahead of the market open on Bloomberg Daybreak, but
Speaker 1: for now, stay with us. Today's top stories and global
Speaker 1: business headlines are coming up right now.