5 Things You Need to Know to Start Your Day: Americas

Good morning. Powell trips up global bond markets, the OECD says the inflation fight isn’t over and Chinese investors are worried about Trum [View in browser]( [Bloomberg]( Good morning. Powell trips up global bond markets, the OECD says the inflation fight isn’t over and Chinese investors are worried about Trump. Here’s what people are talking about. — [Sofia Horta e Costa]( Powell shockwave The selloff in US Treasuries is extending after Federal Reserve Chair Jerome Powell said the central bank is [wary of cutting rates too soon](. In an interview with CBS’s 60 Minutes that aired Sunday evening, Powell said voting members are unlikely to reach the required “level of confidence” about inflation’s path by their March meeting. While those comments echoed [the message he delivered]( at a press conference Wednesday, investors are reading it as an[intensifying push back](against expectations for interest rates to fall early in 2024. The Treasury declines sent waves through bond markets, pushing down government debt from Australia to Germany and the UK — where traders [are giving up on bets]( the Bank of England will deliver four rate cuts this year. Too soon Speaking of cutting rates too soon — the team at the OECD is going along with a similar narrative. Alongside today’s publication of its interim economic forecasts, the Paris-based organization said “it is too soon to be sure that the inflationary episode that began in 2021 will end in 2025,’’ warning that central banks [mustn’t drop their guard](. Still, the OECD brought forward its expectations for the first US interest rate cut to the second quarter of this year — earlier than [its November forecast]( for a move in the second half. The group was slightly more optimistic about the global economy than previously and revised its forecast for 2024 growth in the US to 2.1% from 1.5%. Trump worries in China On top of [tumbling stocks](, an embattled property market and a struggling economy, there’s at least one more thing keeping domestic Chinese investors up at night: [a potential win by former US president Donald Trump]( in the November general election. That’s one of the findings by Goldman Sachs after talking with its onshore clients. In an interview on Fox News’ Sunday Morning Futures, Trump said he might impose a tariff on Chinese goods [of more than 60% if elected](, signaling an increasingly hawkish tone against the top supplier of goods to the US. Meanwhile an economic official in Beijing said China will come up with an action plan to attract foreign investment [but offered no details]( about when it would be released or what it would contain. Chinese investors are selling their stocks rapidly, [unwinding margin debt]( in a potential sign of forced liquidation. Big oil’s high bar It’s tough being Big Oil in a stock market obsessed with tech. This earnings season, [strong operational updates]( by Chevron, Exxon Mobil and Shell weren’t enough to prevent the sector from falling further behind the increasingly [colossal US tech giants]( in terms of valuations and market value. As my colleague Kevin Crowley writes, “equity investors appear to be sending a clear message that Big Tech is the future, and Big Oil is the past.’’ More immediately — Brent crude is [slipping today]( for a fourth day, its longest losing streak since the start of the year. But some money managers are ramping up their bullish bets, recently increasing their Brent long positions by the most in more than five years. Coming up… The ISM services gauge for January is due at 10 a.m., with economists predicting an uptick from December’s report. S&P Global will release its final reading for last month’s services PMI, while the Fed will issue its latest [quarterly senior loan survey]( gathering opinions from the industry on bank lending practices. Chicago Fed President Austan Goolsbee will join Bloomberg TV later today, while Atlanta Fed President Raphael Bostic is due to make pre-recorded remarks for an educational event (with no Q&A). Earnings include Caterpillar, Tyson Foods, McDonald’s and Estee Lauder. What we’ve been reading This is what’s caught our eye over the past 24 hours. - Nayib Bukele is on track for a [massive re-election win]( in El Salvador. - New York City apartment buildings are[ on sale for 50% off.]( - Boeing finds [more mistakes]( with holes drilled into its 737 Max jet. - Iran used Santander UK and Lloyds to [evade sanctions](, the FT says. - New Jersey’s MetLife Stadium will host the [2026 FIFA World Cup final](. - [Odd Lots]( looks at how businesses decide where to set up shop. - SUV drivers will pay [more than $100](to park a few hours in Paris. And finally, here's what Joe’s interested in this morning There have been a lot of concerns about the inflationary, or more broader economic, effect of shipping disruptions in the Red Sea. So far we haven't really seen much. Yes, we've all seen the charts of freight rates going up, or the maps of ships taking the long route around Africa. But for the most part, not much else seems to be showing up in the data or in everyday life. But that may start to change soon. Last week, Tracy Alloway and I [interviewed maritime historian Sal Mercogliano]( about the crisis. Here's what he said on the disruptions [from the transcript](: Tracy: (37:33) How long until the slowdown, and I guess the additional complexity that you've been talking about, how long until that makes its way to US supply chains? Because so far, you know, most people are talking about this as a Europe or Asia specific problem, but as you point out, it just takes some time to reverberate. Sal: (37:53) Well, I mean, you're seeing that right now in Europe. You’ve had a very kind of high visibility [companies], some manufacturers, Tesla and a few others, had to shut down production because they're waiting to get parts to them. And you're seeing the impact of that also in the fact that ‘Well, we’ll just throw them on airplanes and send them over.’ Well, 30%-33% of the world's aviation fuel goes through the Suez Canal and now it's being diverted. And so now even aviation has issues associated with it. It tends to be weeks. And we're going to see it as right after the beginning of February, because what has happened here is a lot of empty containers -- which is the most unsexy topic you can talk about is empty containers -- empty containers have not been re-positioned back to Asia in time to be reloaded and put on ships to leave Asia before the Chinese New Year, before the second week in February. Which means that goods that should have been sailing across this week and next week aren't going to be there. Which means now you're going to see them about a month later. So we're going to see some delays. And again, we're not going to see shortages, we're not going to have the great toilet paper run that we had during 2020. But what you will see is a little bit of a spike in inflation in terms of transportation costs. A lot of disruptions. One of the things that we did learn from 2020 and a lot of freight forwarders and smart people who went with companies that do this professionally did, was diversify how their goods come in. So there was a lot of companies who saw what was happening with the Houthis and sat there and said ‘Hang on, let me get my goods on a container ship and I'll go into LA and Long Beach right now, because even though I hate it, I'll go in there because I know they're going to arrive. And I can get them in there and I'll pay that rail because rail is looking for cargo right now.’ So a lot of people began to make movements, but some didn't. And the ones who didn't see this coming ahead of time, they're the ones who are going to see it. We're already seeing backlogs of ships, for example, start to pile up off of Savannah and some of the East Coast ports. Interestingly, the first time Tracy and I did an Odd Lots episode back on supply chain disruptions back in late 2020, it was on the subject of empty containers. Because there was so much important demand from China to the US, and so little export activity happening, the ships would return to China with very few containers, causing the empty containers to end up not in the right place for the needs of good exporters. And then we spent the next 2-3 years dealing with various ripple effects from changing trade patterns and booming goods demand. This isn't that kind of situation. But if empty containers aren't in the right place, then effects can spread everywhere, even if Red Sea trade is primarily conducted between Europe and Asia. Joe Weisenthal is the co-host of Bloomberg’s Odd Lots podcast. 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