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Speaker 1: This is Bloomberg surveillance. My assessment of appropriate monetary policy

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Speaker 1: is that given the economy and what we're looking at,

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Speaker 1: it would be two rate heights. This year catches a

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Speaker 1: legitimate epic class. It insulates you from the client to

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Speaker 1: the capitol to markets. Both bombs and stock deep values

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Speaker 1: something no one else wants to buy. Value. You can

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Speaker 1: at least explain deep value. There's no sane person that

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Speaker 1: would buy that investment. You're talking about Bloomberg surveillance, your

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Speaker 1: link to the world of economics, finance, and investment on

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Speaker 1: Bloomberg Radio. Good morning, Michael McKee along with Tom Keene.

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Speaker 1: It is seven am on Wall Street and in Pittsburgh,

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Speaker 1: where Alcoa is licking its wounds this morning. The stock

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Speaker 1: down after a revenue shortfall and outlook cut call off

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Speaker 1: four point two percent. Right now, Despite that disappointing start

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Speaker 1: to the SMP five earning season, SMP futures are higher

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Speaker 1: this morning, as our stocks pretty much around the world.

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Speaker 1: US free years right now show s and p up

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Speaker 1: about eight points four tents of eight percent down. Evening

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Speaker 1: features are up three tents forty six points, and as

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Speaker 1: that one mini features are up four tenths right now,

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Speaker 1: eighteen points on the day, bondalorer yields rising, the ten

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Speaker 1: year note yield at one point seven six percent, the

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Speaker 1: five year at one point one nine seventy two basis

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Speaker 1: points for your two year note. The d X Y

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Speaker 1: dollar index breaks through ninety four. It is at ninety

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Speaker 1: three eight ninety six, continues to weaken. Europe started earning

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Speaker 1: season on a down note. LVMH reporting uh, disappointing earnings

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Speaker 1: for the for the first quarter, and uh we are

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Speaker 1: following them as well. Their shares right now are down

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Speaker 1: by two and a half percent. We'll call it. However, Nonetheless,

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Speaker 1: European stocks higher, as the stock six hundred is up

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Speaker 1: by a point three tents of eight percent, the docks

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Speaker 1: up by two points right now. No DAX is up

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Speaker 1: by forty seven I'm sorry, half a percent. It's the

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Speaker 1: Footsie up by two points, and the CAC forty is

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Speaker 1: up by ten points. The euro is trading at one

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Speaker 1: point one four one three, and the end is again

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Speaker 1: the story, this time not because it's weekend strengthening. It

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Speaker 1: is weakening first time in seven days one O eight

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Speaker 1: thirty three, down by four tenths of a percent. As

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Speaker 1: we mentioned the euro at one one four, one three.

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Speaker 1: We're also watching oil prices. That is something that is

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Speaker 1: also affecting equities. West Texas Intermediate sixty four up seven

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Speaker 1: tenths and Brent crude seven up one point oh three.

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Speaker 1: Most commodities hired today, a third day of increases for

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Speaker 1: the Bloomberg Commodity Index. Jeff Curry is head of Commodities

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Speaker 1: research at Goldman sachs Uh. Jeff, we've seen commodities bounced

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Speaker 1: a couple of times in recent months, none sticks, So

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Speaker 1: what's happening now just another short term move or are

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Speaker 1: we finally seeing oil putting at the bottom and maybe

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Speaker 1: that pushing other commodities a little bit higher. Well. Actually,

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Speaker 1: one of the thing I think that's interesting in the

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Speaker 1: commodity space is this return and dispersion across the commodity markets.

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Speaker 1: Copper didn't go with oil this last week, which I

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Speaker 1: think is an important indication that these markets are no

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Speaker 1: longer pricing off of demand fears like they were during

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Speaker 1: the most of the first quarter, and that created that

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Speaker 1: correlation with the broader financial markets. But they're now pricing

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Speaker 1: their idiosyncratic supply stories. And so when we think about

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Speaker 1: what was going on oil. There was a focus on

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Speaker 1: the Doha meeting coming up this weekend, which we don't

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Speaker 1: think it's going to materialize into any significant shift in fundamentals,

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Speaker 1: which is why we think there's downside risk going into

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Speaker 1: this weekend. But we think copper copper is pricing a

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Speaker 1: much weaker longer term supply story, which was why it

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Speaker 1: lagged the rest of the commodity complex. I think the

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Speaker 1: key point here is we're, you know, a reversion to

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Speaker 1: dispersion and the focus is back on the idiosyncratic supply stories.

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Speaker 1: I like the oderation there in the rhyme. Uh, you

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Speaker 1: don't think we're going to get anything out of the

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Speaker 1: Doha meeting on the seventeenth, But we really didn't get

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Speaker 1: anything out of the initial agreement to have a production

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Speaker 1: freeze as they called it, and that put a floor

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Speaker 1: under oil prices. So will that at least hold even

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Speaker 1: if we don't get significant gains. Well, when we think

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Speaker 1: about the the impact that the market is likely to

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Speaker 1: um have relative to the any type of what's called

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Speaker 1: a soft agreement that comes out of there, that's not

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Speaker 1: as important as when we look at the current supply

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Speaker 1: disruptions in oil they're supporting the market. You have a

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Speaker 1: disruption in Nigeria, one in um Kurdistan, another one in Venezuela,

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Speaker 1: on top of maintenance in the North Sea as well

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Speaker 1: as the Arab Gulf. You put it all together, there's

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Speaker 1: real reasons why this market is tighter right now, which

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Speaker 1: is reflected in the term structure of Brent. However, when

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Speaker 1: we look further out, we think once these transient factors

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Speaker 1: are resolved, production comes up. In Opec alone, we think

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Speaker 1: it's five hundred thousand barrels a day. You've pushed the

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Speaker 1: market back into a surplus until we begin to see

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Speaker 1: what I think is the real balancing factor, US supply

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Speaker 1: coming up to balance the market and third quarter and

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Speaker 1: Jeff Curry with this with Golden Sex throw to have

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Speaker 1: him in Bloomberg savannahs. This warning brought you by Investco

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Speaker 1: explore what high conviction investing means to investcos value equity managers.

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Speaker 1: Watch the conversation at investco dot com slash interactive. Jeff,

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Speaker 1: I haven't looked at copper in a while, and I

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Speaker 1: just looked at inflation adjusted copper and basically it's back there.

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Speaker 1: I'm gonna be polite and it maybe eight valuations. How

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Speaker 1: to copper minds work, I mean we meant Mike mentioned alcola.

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Speaker 1: My my experiences, copper doesn't move very quickly. When you

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Speaker 1: build a mind, you keep the mind going. Are they

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Speaker 1: shutting down? No, it's supply shifts in copper are very

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Speaker 1: structural as referred to doing to the shutdown costs. In fact,

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Speaker 1: we have a million metric tons of Peruvian supply that's

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Speaker 1: likely to come online over the next several years. That's

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Speaker 1: going to continue to pressure this market lower. But I

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Speaker 1: think going to your point about where we are in

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Speaker 1: terms of the prices relative to the nineteen nineties, the

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Speaker 1: key is the eighties and nineties are what we call

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Speaker 1: an exploitation phase off the back of the seventies, which

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Speaker 1: were in investment phase. The two thousands, we invested a

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Speaker 1: lot in mind capacity. Now we're going to reap the

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Speaker 1: benefits of it through lower prices. So the money question

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Speaker 1: is does oil rather you know, as a generalization, does

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Speaker 1: oil catch up with copper? And the answer is your

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Speaker 1: terminal value is fifty five dollars, but you've got to

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Speaker 1: wait to that. Well, I think the answer your question

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Speaker 1: does oil catch up with copper? Does copper catch up

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Speaker 1: with oil. We would say that copper is going to

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Speaker 1: catch up with oil to the downside, and that's why

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Speaker 1: we have a target of four thousand dollars a ton

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Speaker 1: twelve to eighteen months out. But I think the key

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Speaker 1: there is it's it's a a stronger dollar. Lower oil

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Speaker 1: prices reduced the cost of producing base metals, particularly copper.

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Speaker 1: What's the demand for base medals going forward? That's obviously

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Speaker 1: gonna be a key part of this. China is a

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Speaker 1: real focus right now. To two numbers that came out

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Speaker 1: that created a positive sentiment. One was the credit number

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Speaker 1: that came out in January. Was massive, but we think

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Speaker 1: that's going to be targeted at reducing the inventory of

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Speaker 1: homes to push up home prices, not leading to new starts,

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Speaker 1: which would ultimately boost metal demand going forward. The second

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Speaker 1: data point that came out was the very strong p

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Speaker 1: m I that was fifty point two, that showed an

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Speaker 1: expansion of the manufact factoring, or what we'd like to

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Speaker 1: call the old economy of China. Now that that did

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Speaker 1: help boost steel prices and iron ore prices, but I

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Speaker 1: think the key point there is copper actually really looked

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Speaker 1: through it this time over the course of the last

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Speaker 1: several weeks. When I look at all this and I

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Speaker 1: look at something esoteric, can you do other things besides oil? Oil, oil,

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Speaker 1: ten or or you know things? I can't even think

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Speaker 1: about it? And oil? Is it a normal? Mark it

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Speaker 1: right now? If you were to go to a conference

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Speaker 1: in London of miners, what's the level of panic. It's

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Speaker 1: not as high as it was let's say a year

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Speaker 1: and a half ago. And I think about the medals

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Speaker 1: and miners. They're much further in this process than the

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Speaker 1: energy companies. They've taken significant rite downs, capital restruct sharing,

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Speaker 1: management restructuring, and they're already the goog assets. When does

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Speaker 1: oil clearly market because we're you know, a year ago,

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Speaker 1: it was like spring of two thousand sixteen. We're here

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Speaker 1: and they're not right right. And I think the ability

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Speaker 1: for the energy producers to hang on longer is a

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Speaker 1: function of what the financial markets are providing them with

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Speaker 1: the ability to issue equity, restructure their debt. Is buying

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Speaker 1: them a lifeline to extend this process. I in fact,

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Speaker 1: historically we have never seen oil prices come off this far,

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Speaker 1: this sharply without seeing a production response of a significant magnitude,

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Speaker 1: and I think one of the key reasons for that

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Speaker 1: there's more risk sharing arrangements available to these producers and ever,

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Speaker 1: but also money's cheer. I mean that's got a huge difference,

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Speaker 1: without question on a real rate basis. Is this uh

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Speaker 1: keep the e U S production in the game, as

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Speaker 1: it were, um and enable make it more difficult to

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Speaker 1: find a balanced price. I think it absolutely hasn't. I

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Speaker 1: like to say, not only was the shale revolution and

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Speaker 1: technological revolution, but was also a financial revolution. We had

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Speaker 1: the development of energy high yield markets, the ability to

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Speaker 1: access these equity markets, development of deep in liquid commodity markets.

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Speaker 1: Always to lay off risk to be able to continue

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Speaker 1: to maintain production in relatively adverse conditions, and I think

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Speaker 1: that's one of the key reasons when you look at

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Speaker 1: US production it's still hanging in there. I'm close to

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Speaker 1: nine point one million barrels a day. Let's come back,

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Speaker 1: Jeffrey Curry where this is we look at commodities dynamics.

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Speaker 1: We'll take a bigger view here, maybe talk about Brazil

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Speaker 1: as well, and of course the I AM of meetings

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Speaker 1: UM I started doing Mike Maurice sobs felt, we'll speak

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Speaker 1: the morning, this morning? Is it this morning or tomorrow today?

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Speaker 1: The World Economic Outlook the Blue Book, They're likely reduce

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Speaker 1: their forecast for global growth. I'm not sure that will

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Speaker 1: surprise anybody, given how much Madame Lagarde has been talking

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Speaker 1: in reason. Does anybody read the Outlook? I love the Appendaees,

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Speaker 1: they don't read the Outlook, but they're they're in the

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Speaker 1: UH in the essays that are written than accompany it

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Speaker 1: in the other book. UH. They make some interesting points,

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Speaker 1: usually so that people do read. I agree the essays

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Speaker 1: are are really really valuable across the Blue Book, the

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Speaker 1: Green Book. I call it the marooner brown Book. And

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Speaker 1: I don't know, maybe it's a right vote. Imagine that

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Speaker 1: if you're waiting for the I m F to tell

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Speaker 1: you what growth is going to be, you're too late

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Speaker 1: to trade on it. That may be true. Futures up,

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Speaker 1: Hey down, Futures up. Our siance is brought to you

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Speaker 1: by Westchester Suparrouve. Is it Westchester Subaru dot com. Here's

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Speaker 1: Michael bar with the latest news headlines. Mike Tom, thank

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Speaker 1: you very much of these. Secretary Ray Mabez says squared

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Speaker 1: off against Marine Corps leaders who resisted recruiting women for

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Speaker 1: all combat jobs. Today, Mabez takes his case to have

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Speaker 1: broader audience at the Camp Pendleton, California. Marine Corps leaders

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Speaker 1: had sought to keep certain infantry and combat jobs closed

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Speaker 1: to women. Belgian authorities say two more suspects have been

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Speaker 1: charged in the March twenty second terrorist bombings and brussels

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Speaker 1: that killed thirty two people. The Afghan Taliban says they've

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Speaker 1: begun their Spring Offensive, the annual launch of the Taliban's

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Speaker 1: violent summer. The Taliban are calling an Operation Omari, in

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Speaker 1: honor of Taliban founder Mala Mohammed Omar, who died three

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Speaker 1: years ago. Global News twenty four hours a day, powered

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Speaker 1: by our twenty four hundred journalists more than a hundred

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Speaker 1: fifty news bureaus from around the world at Michael Bar

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Speaker 1: Like Tom and Michael, thanks so much again. Futures up

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Speaker 1: seven the yield higher heeld over the last two days

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Speaker 1: one point seven six percent of the tenure yield West

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Speaker 1: Texas Intermediate forty sixty two cents. Jeff Curry of COLBN

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Speaker 1: Sachs Bloomberg Surveillance. Bloomberg Surveillance is brought to you by

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Speaker 1: and on your radio. This is a Bloomberg Business Flash

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Speaker 1: and I'm Karen Moscow. This updates brought to you by Osner, Emperor,

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Speaker 1: songs are rising with commodities while the end slips and

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Speaker 1: government bonds fall as crude oils advanced about forty dollars

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Speaker 1: a barrel boost economic optimism. We checked the markets every

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Speaker 1: fifteen minutes throughout the trading day. On Bloomberg sn P

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Speaker 1: eveny futures have five and a half points, and now

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Speaker 1: eveny futures of thirty and NASDAC eveny futures up twelve.

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Speaker 1: The decks in Germany's up three tenths per set ten,

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Speaker 1: Your treasury down nine thirties seconds, the yield one point

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Speaker 1: seven five percent yield on the two year points seven

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Speaker 1: two percent. Non x screwed oil up six tenths per cent,

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Speaker 1: or twenty two cents to forty dollars fifty eight cents

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Speaker 1: of barrel, and Comex's gold is up about a tenth

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Speaker 1: of upper center one dollar to twelve fifty nine and

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Speaker 1: ounce the euro and dollar fourteen oh three the end

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Speaker 1: one oh eight point three zero. That's a bloomberg business flash,

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Speaker 1: Tom and Mike Karen I think so much. Jeffrey Curry

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Speaker 1: with us. We've had a wide ranging discussion again to

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Speaker 1: review volatility around the lower for longer attitude fifty five

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Speaker 1: dollar terminal value on Brent and the idea that maybe

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Speaker 1: the tendency there is lower. I want to rip up

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Speaker 1: the script right now. We need a clinic away from

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Speaker 1: the politics of Brazil. On the commodities of Brazil. I

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Speaker 1: think it's ugly. How ugly is it? Well, they've got

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Speaker 1: two problems. Um, some of the production is still relatively

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Speaker 1: high cost on the energy side because it is altered

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Speaker 1: deep water iron ore. They're safe. They got relatively low

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Speaker 1: costs there um. And then they also have a capital

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Speaker 1: structure problem, particularly in the form of what's going on

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Speaker 1: with petrobrass I like to point out it is the

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Speaker 1: largest non financial corporate debt issuer in the world, hundred

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Speaker 1: seven billion dollars, a debt that's gonna have to be resolved.

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Speaker 1: How do they clear that? That was my next question.

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Speaker 1: I mean, I mean it's a big number. You know

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Speaker 1: what better than me the world. The basis, what are

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Speaker 1: they're waiting for to begin the process of clearing. I think, well,

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Speaker 1: one trade that the macro community has on right now

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Speaker 1: is essentially UM long petrol braw short the sovereign, thinking

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Speaker 1: that the sovereign's gonna end up absorbing this and resolving

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Speaker 1: the problem that way. But I think the key is

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Speaker 1: to think about it in the context of the broader

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Speaker 1: corporate community. UM we have yet to see a substantial

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Speaker 1: restructure and why is that. It's because the financial markets

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Speaker 1: are allowing them to continue on in the current environment.

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Speaker 1: They're now getting more stricter. But I think the key there,

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Speaker 1: whether it's petro brass or or corporate energy companies, even

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Speaker 1: in the United States, the ability for the financial markets

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Speaker 1: to continue this process into this price decline is far

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Speaker 1: greater than we've ever seen before. Interestingly, it doesn't matter

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Speaker 1: whose president of Brazil, they can't do a thing about

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Speaker 1: the weather, and much of their commodity production depends on

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Speaker 1: the weather and it's been influenced by El Nino, as

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Speaker 1: have UH soft commodities around the world. Where are we

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Speaker 1: with that and the impact on those commodities as I

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Speaker 1: understand it, even though the El Nino is fading, the

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Speaker 1: impact maybe still rising. Actually, I think the bigger story

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Speaker 1: in the soft commodities is what's happening to the cost

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Speaker 1: bases UM. A combination of lower energy prices and stronger

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Speaker 1: dollar is leading to significant increases in planning of high

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Speaker 1: energy intensive crops such as corn. We saw that UM

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Speaker 1: in the US with the planning report that just came out. UM.

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Speaker 1: Also the view is that places like Argentina are going

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Speaker 1: to kick it up. So places where you have a

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Speaker 1: devaluation of the local currency energy intensive crops, those are

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Speaker 1: the ones that you're really seeing the focus on expanding production.

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Speaker 1: And and how long does the impact last? I mean,

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Speaker 1: when can we say NEOs out of the markets or

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Speaker 1: because of the change in in crops, is it gonna

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Speaker 1: be years? Well, I think the way the way you've

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Speaker 1: started is it leads to a high level of volatility.

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Speaker 1: And the one thing we can show is there's a

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Speaker 1: correlation between el ninos and volatility and yields, both to

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Speaker 1: the upside as well as to the downside. And when

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Speaker 1: we think about that ability to have some type of persistence, UM,

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Speaker 1: it's just really not I'm not gonna put this chart out.

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Speaker 1: I got an updated the charts from a million years ago.

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Speaker 1: I just looked at inflation adjusted corn. I mean, that's

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Speaker 1: an ugly picture for American agriculture. Is that lower for longer?

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Speaker 1: When we look at the commodity markets, they're all on

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Speaker 1: the that's called the supercycle, where you have the investment

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Speaker 1: phase followed by the exploitation phase. We think about why

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Speaker 1: our corn prices lower, UM, A lot of it has

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Speaker 1: to do with the lower energy prices. Not only are

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Speaker 1: oil prices low, but think about what's the correlation. What's

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Speaker 1: that sequential correlation? Cheap oil farmers their costs come down.

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Speaker 1: But when we think about agriculture, UM commodities, and if

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Speaker 1: you were to put them all in mm B t

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Speaker 1: u UM. You know historically UM take wheat and corn,

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Speaker 1: they trade somewhere in that twelve or thirteen dollars in

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Speaker 1: m m B t U oil UM somewhere around that

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Speaker 1: you know, four to five dollars in m m T

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Speaker 1: B t U, while you got gas sitting somewhere around

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Speaker 1: two dollars. So the time when you see the high

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Speaker 1: correlation is when those energy prices can push up to

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Speaker 1: that twelve and thirteen dollar mmb t rangel, which is

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Speaker 1: what we saw most of the last decade um. However,

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Speaker 1: in the current environment, those correlations have dropped. Considered one

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Speaker 1: of the great humbling moments for me was the expert

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Speaker 1: at the United Nations in Rome on Rice went completely

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Speaker 1: against the hysteria on commodities, and he was correct six

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Speaker 1: months a year later, Well, let me ask you about

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Speaker 1: hysteria and commodities. We saw today the British report higher

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Speaker 1: than forecast inflation. We've had that in the last couple

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Speaker 1: of months in the US with the CPI and p

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Speaker 1: p I. I just looked for the first time in

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Speaker 1: a while at the Journal of Commerce c c r

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Speaker 1: I Industrial Price Index. These are not commodities that are

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Speaker 1: necessarily traded in the markets or in the futures pits,

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Speaker 1: but it's the stuff that companies have to buy to

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Speaker 1: make the products that they sell to us, and it

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Speaker 1: has grown up significantly over the last six months, it's

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Speaker 1: like at a six month high. Uh. Are we beginning

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Speaker 1: to see some inflation pressures from commodities for all materials? Well,

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Speaker 1: I think there's two dynamics going here, and you can

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Speaker 1: see it in core and headline. The core inflation has

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Speaker 1: been rising recently, which means you do have a feedback

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Speaker 1: into the broader commicy. But thinking about commodity, he's more specific. Specifically,

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Speaker 1: we argue you you are in what we call the

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Speaker 1: inflection phase of this commodity cycle, when we're carving out

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Speaker 1: of bottom across all these different commodities, which means we

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Speaker 1: just think about month over over month or year over

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Speaker 1: year inflationary pressures from commodity prices. The lows are likely

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Speaker 1: behind us, and now they're going to be more inflationary

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Speaker 1: than they are a deflationary. Jeff Curry, thank you so

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Speaker 1: much for bringing up the inflection face. Mike, did you

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Speaker 1: know that the Boston Red Socks are in the inflection phase?

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Speaker 1: We're playing five baseball Big Poppy. The home opener yesterday

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Speaker 1: drew just about every sports or showed up. Did you

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Speaker 1: see this and Bill Russell? Yes, they as they pay

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Speaker 1: tribute to David Ortiz as he begins his last season.

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Speaker 1: The Coolest Ghost Daughter singing the National and he very

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Speaker 1: very moved to tears. He lost it. Jeff Curry, thank

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Speaker 1: you so much. With Goldman Sacks, we will continue Julia's

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