Johnson and alix steel. Guy its day if your long a tough day if you are long. 600 below 440. Where down by 1. 25. It is heavyweight names taking the hits today. Nestle out with disappointing numbers, preparing for an ozempic world with today certainly the pricing story was not there for nestle and the market has reacted. The stock down 3. 42 per yearroche tracking lower. It is coming out of the pandemic boom it saw in key sales. The new drugs not feeling the pipeline in a way you would hope for. It is a revenue line that seems to be we are at session lows. The market is selling in decent volume. It is worth paying attention to. Alix the s p is a bit heavy but we have real outperformers. The best performing sector is communication and that is due to netflix but also at t delivered solid cash flow. The numbers coming in are not terrible for some of the names. Netflix up 15 . The edit subscribers despite raising prices add subscribers despite raising prices. Something we have been talking about for the day is what happens when 10 year hit 5 . With the lower initial jobless claims you thought it is going to happen then, it did not but we are close. The whole curve and if youre in this pancake environment what does it do for the actual economy . How long do we stay like that for rates . Guy i think you really like the whole pancake thing. Alix i love it. Guy i want to talk a bit about where europe is in relation to the rate story. In some ways is going to be interesting if the european economy slows down there we have seen in u. S. , gravitational effect of treasury market exerts force into european bonds, where does it leave europe . U. S. Rates leading the charge. Debit certain period since debit certain periods where the rates were similar. They diverge significantly. Losing acceleration to the upside in u. S. Rates we have seen acceleration to the upside is u. S. Raise. You take a look at the 10 year. Gilts are not far behind. German tenyear going 50 but you think about going to 3 of reading about the economy that is already struggling and he won their whether europe declined the new rate environment tougher you wonder if europe will find the new rate environment tougher. Maybe 5 is the new world. I think it is going to have significant applications. Alix it also depends on how much it is a structural issue. Do you buy bonds at 5 yak out were talking about u. S. But you can make the argument at 3 . Joining us now. Lets start with you christine. Do you by bonds at 5 . Theres a lot of reasons to buy bonds at 5 . Morgan stanley fighting it is a good entry point for investors. One reason to not buy bonds at 5 is if you are expecting profit in a short amount of time because the way u. S. Economy is going, it is difficult to see the case for lower yields anytime soon. The jobless claims really impressing and is surprised we did get to 5 on the 10 year. But the overall state of the consumer and labor market in u. S. Very strong despite we have had these elevated rates for more than one year. There really very little reason to see the u. S. Consumer faltering greatly. Guy simon, where talking about the 10 year. Why would i buy the 10 year and 5 when i can buy the five year or two your at 5 . You want to buy anything, it is the first question. You got lower risk with the 10 year. But i think, im looking at this in different time periods, boss oversold but not super oversold yet so you could see more followthrough. Mediumterm basis, nothing moves in a Straight Line so you could see a bounce at some point but does more of a trade. The investment still on the others a bonds. Want to be on the short side because you got strong signs of cyclical turn so it is more likely than not u. S. Will avoid a recession and that guy this assignment wide to be a positive is simon being positive. Im doing my best. Alix say that is the base case. The cross asset correlations from what you are viewing make sense . Simon between bonds and stocks . Alix whichever. If we see higher for longer yields, two or the 10, shouldnt the dollar be higher . Simon i think the stocks path lease the resistant, we have this cyclical upturn in global and u. S. Growth and thats going to support keep yields going higher for the time being. As long as you do not get any excessive rise in yields, that should feed through into stock prices. Stock prices should keep supported. The path of least resistance is generally to rise. I think the wildcard is the credit markets. Credit spreads i do not think are really reflected of the underlying Credit Conditions in the market. I think at some point they will and probably will happen adorably but for the time being, i think prices discoveries have been is secured by size of the private credit markets. So i think until you get any of these relate negative things happening, you go with the flow and say the path of least resistance for stocks always up. Guy this get back to the bond market. Why is it easier at 5 . Kristine 5 really is not that much of an outlier we look at it on multidecade history. See a lot of ways they are right is getting back to the longerterm mean we have seen in treasury market. Weve been spoiled the last decade by this really prolonged era of superlow rates but that is really an exception. When you look at the treasury markets, longerterm history. Having rates at this particular level for treasury yields, particularly on the want and it makes a lot of sense especially because the yields abnormally shaped. We are starting to get back to the sense of normality. And to make sense that people are talking about 5 at the new normal. Because it was the old normal prior to this past decade of superlow rates. Alix you mentioned earlier, why not come as long as you did not expect yields to go to 7 but i was struck by japan and china not coming into the market. They are selling which leaves households to pick up all the slack, particularly with the fed is not in the market. Kristine the japanese and chinese Investors Trust perhaps they are having the same thought process at the moment. Why buy now when we can wait longer and get that yield for cheaper levels. There is always the kind of side of the market that is perhaps waiting to pass. In terms of the burden on households, i suppose it is one concern for the longerterm but as we have seen time and time again consumers proven resilient more resilient than any of us expected. A lot of their capacity to take this on i think is underestimated. If we had to a strong finish for 2000 203i think the recession story for u. S. Face away into the distance and perhaps maybe we get to the soft landing scenario. Guy maybe. We will see. It is a long way to go. Soft landing. Europe. United states. I want to talk about what 5 means for europe. There is a transfer effect after u. S. Treasury market and to bonds and gilts. Europe feels like it is slowing down much more dramatically at the moment. Certainly the data coming out of germany. How do you think about domestic bond market here in europe in a world where treasury 10 year is at 5 . It feels like in some ways economically were in different places. Simon i think there is a real key difference between europe and u. S. And the u. S. Has been much more considerably shielded from Interest Rate rises by culmination of factors. A. 5 fiscal deficit and the fed huge amount of Interest Rate risk Something Like 7 trillion on the balance sheet. You did not have that to the same extent in europe. Theyre not running as large deficits yet. They do not have quite the same not reliant on capital markets, much more reliant on Banking Finance in europe so i think they are less protected from the yields. So it would take a lower rise in yields to heavy more impact. To have more of an impact. The u. S. Carries a recession, soft landing scenario, we get these cyclical upturn which you have an effect on economies around the world including china and europe. That will maybe soften the blow. It does come down to if u. S. Avoids a recession. I think is more likely than not it does but it is a possibility. You look at some cyclical assets of the economy like manufacturing, semiconductor sales, all very positive of cyclical upturn which means you have to put off the chance of a recession for now. Guy and the day of reckoning potentially for assets. Simon now be back to crawl the negativity and i will be back to crawl the negativity to the maximum. Guy i read simons piece this morning and concerned about the positivity exuding from it. Thank you very much indeed. Coming up, more insight to our question of the day. Do you buy bonds . The by the 10 year at 5 . Mark haefele joining us next. This is bloomberg. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. when the day that lies ahead of me seems impossible to face a lovely day lovely day lovely day lovely day a bank that knows your business grows your business. Bmo. Powell is the most important invoice listen to. Hopefully, we get more clarity from powell. More information as to the intentions of the fed. We have read too much into recent fed speak. The tenor of the coming from the fed has shifted, has become more hawkish. The long end of the curve has done a lot of work for the fed. The rise in bond yields is doing some of the work for them. The rationale for die linke down a touch is the huge backup in longterm yields dialing it down a touch is a huge backup in longterm yields. I think the fed will try to be patient especially with real yields where they are. If they came into the effect of the tightening they have done already it is the cumlative e fect of what the tightening they have done already. Guy listen to david westin speaking with the fed chair jay powell. You do not want to miss that. Itll be a fantastic conversation. With the countdown to it over the next hour. We are waiting for the 10 year to hit 5 . Much of the rest of the curve has already there. Do you buy bonds add 5 . Lets put the question to ubs global chief Investment Officer mark haefele. What do you think . You have a 5 10 year. The by it do you buy it . Mark the big changes the chance that u. S. Recession has been priced out so you can get 5 in cash, the marginal buyer that was buying the 30 year that was because they thought recession was imminent and they have left the building. Alix where would you buy on the curve . If they yield the same, how do you distinguish . Mark we think you can buy in the 5 to 10 range and cash is also attractive but i think we see the growth slowing in the united states. We see the inflation slowing. The yields can come down over time. Guy what if that scenario does not turn out to be the case . There is evidence this is an economy that is not slowing down. Claim is going lower. The employment number was a stronger number. Cpi was looking for really hot. It is not feel like an economy that is slowing down significantly. Mark it is a great question and something we are looking at every day. I think there is something to be said for putting some kind of steepener trade on. This curse curve could sttepen as an hedge but you also have been saying Mortgage Rates 8 , this kind of costs to consumers is eventually going to weigh on us and it is going to slow the economy. We hope and think the fed can still achieve a soft ish landing but if it continues as it is, the growth will slow. There will be a recession and it tends to bring down rates as well. Alix it feels like a time is what gets confusing because if you bet on that one year ago which many were, shorting small caps made perfect way to outline what youre talking about and youve got them burned gotten burned. So how do you time it right now . Mark i think timing the market is hard. One of the things you can look to his valuations and certainly if you look at value or smallcap value, that is reflected in the price and potentially the dividends you can receive. Of course, if you do buy these bonds and you hold them to maturity, we expect you will earn a positive return. I think there is still some room. The other great question of the day you have been asking is if youre not buying stocks in bonds, where you buying, and i think we have seen clients looking much more seriously at gold and other things as well. Guy are they buying that because i think it is a safe haven . Are they worried about inflation . Are they buying that because there watching what is happening in the middle east with concern . Are you buying gold right now . Mark our preferred hedge and what we have been recommending is looking at Oil Prices Going higher, a directors mission mechanism, and we also like Energy Equities which we think are attractively priced. We are seeing clients turn into gold turning to gold. Go to see some support here because of the geopolitical risk. This is not something you can just trade in and out of based on tragic attacks. Theres a lot of transaction costs. Alix but sitting and holding and having in your portfolio is a different kind of story which begs the question how much more upside on that. How much upside do you think there is the goat . Gold . Mark i did not think it is one of our preferred assets. I think for a variety of reasons a better transmission mechanism and more attractive prices can be found if youre looking to hedge things through oil. For more immediate concerns and people trying to run for a safe haven and think the swiss franc is very attractive they are and as much lower transaction costs. Guy what about swiss equities . Nestle getting dinged up badly. Heading into an exhibit world and possibly top line is struggling. Roche struggling as well. These are areas you would normally associated with safe havens, areas to hide out. The Health Care Stock should in theory be reasonably immune to the kind of cyclicality we are seeing plus also, may be immune to the effects of geopolitics, but they are not working in that way. What do you think this was equities . Mark i think your view rightly pointing to the Health Care Sector where i think we have more of a negative view. That size of the other things you said. Ties to the other things you said. Coming out of the covid world from that pipeline to a new drug pipeline in and the price is attractive. I was thinking to myself when you were saying it are all these assets in some way suffering from lung covid . Long covid . Alix lets circle back to bonds because those are sort of the shorterterm issues were trying to manage. The effects of long covid but then there is the effect of china and japan not buying treasuries and households having to really bear the burden of buying treasury market which says to me where in for structurally higher bond market that the fed cannot fix. What do you think . Mark this is something we have looked at a lot. I think supply and demand has played a role that the treasury issuance has gone up. And that was maybe harder to digest their. When you talk about china and japan, in 2011, 2012 they were 7 , 9 of treasuries and now they are both less than 4 and is not like it happened overnight. I think this something to point to but that did not really have an impact. I think the marginal buyer on the supply picture is the treasury and there in qt. If you saw a dislocation, i think theres something of a commitment by the fed to make qt a process like paint dry so they may pull back to stabilize the market. Guy i suspect the bar is high for that to happen. In that kind of questioning, do you think we are in a different paradigm for Central Banks more broadly . Do you think 5 is the new normal . The period post was an aberration and we have now returned to a world where youre going to get a yield and it will take a while for Financial Assets to adjusted that. Mark the period after the goc i think we all hope and believe was an aberration. Negative Interest Rates. Probably not a role that can function forever although it was nice for a while. Where the rate settles is a difficult question. I do not think rstar has changed that much. If Inflation Expectations are 2 , you start to think about 2. 5 rates as being meaningful. Im not in the camp that why cannot it be 10 at this point. I do not think we are there yet. Guy mark, always a pleasure to catch up. Thank you for your time today. Mark haefele of ubs. European equity markets are about finished for the day. Volume has been significant today. Stoxx 600 trading around 440. Volume is good. The action in the bond market you could argue today but many ways it looks like it is the equities. You see big names rolling over today. Nestle, roche, all of these big names coming under pressure. Alix that is a micro story. We are wondering early in the week will be the micro versus the macro. It feels like were getting more of managing the top and bottom line. Guy these are big names missing on the top line and the market is punishing them. But you are in a world where if that happens, your going to be under significant pressure. You do wonder whether the supporting season is going to be a turning point. The top line will be slowing down and would cost so tough, that will be bad for margins. The close is coming up next. We will deal with the details. This is bloomberg. AvalarAhhh Ahhh Ahhh ahhh its easy to get lost in investment research. Introducing j. P. Morgan personal advisors. Hey david. Connect with an advisor to create your personalized plan. Lets find the right investments for your goals okay, great. J. P. Morgan wealth management. So, youve got the power of xfinity at home. Now take it outside with xfinity mobile. Okay, great. Like speed . Its the Fastest Mobile Service around. With the best price for two lines of unlimited. Only 30 bucks a line per month. Thats hundreds in savings a year when you wave bye to the other guys. All on the most reliable 5g network nationwide. You really shouldnt walk out the front door without it. Switch today at xfinitymobile. Com. Guy we are off the lows but it is not a pretty session in europe. Volume has been strong today. This is the earnings season story beginning to manifest itself. If you outperformance today, you have really outperformed. If youve underperformed, you have really underperformed. Were talking heavyweights. Metsle nestle. Roche. It looks like the ftse is functioning. Down around 1. 1. The dax only down. 4. Switzerland is down hard today. There big names being pushed around today. All across the country, companies struggling. This is the session. Glide toward session lows. We are down 1. 2 on the 600. We are sub for 40. 440. Nestle down 3. 5 . This they topline issue and their they are talking about visiting the company for an ozempic world. Roche down 4. 5 . Postpandemic hangover effect still comin