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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,

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Speaker 1: and of course on the Bloomberg terminal. He was so

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Speaker 1: good a number of days ago we hauled Julian Emmanuel

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Speaker 1: back here because we didn't understand the word he said,

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Speaker 1: Equity and Quantitative Strategist ever Core. I s I, I

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Speaker 1: want to go to the fact folks, and we protect

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Speaker 1: the copyright. I'm not gonna send you out earnings Edge.

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Speaker 1: This is what Emmanuel has brought to ever Cores. I

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Speaker 1: s I. Every day, the granular nature of where we are,

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Speaker 1: and I want to know what disinflation is doing to

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Speaker 1: your granular research. Note here early in earning season, Well,

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Speaker 1: it's the revenue line is coming in and that that's

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Speaker 1: really the story. And then the question is who are

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Speaker 1: the companies, where are the pockets within sectors that can

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Speaker 1: actually hold the bottom line given the fact that the

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Speaker 1: top line is decelerating because inflation is coming in zero

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Speaker 1: hig every Afternoon does a brilliant job with Bloomberg charts here,

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Speaker 1: and one of them is a short squeeze chart. The

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Speaker 1: last two days big up equity market. We've had massive

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Speaker 1: short squeeze. Then what how do we get to the

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Speaker 1: Then what after we take out all the negative bets

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Speaker 1: on the market. So if you think about it, the

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Speaker 1: last two months, we are within this range in the

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Speaker 1: SMP thirty eight hundred, the low, forty one, the high.

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Speaker 1: And what it is is this tug of war between

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Speaker 1: the view and rightly so that inflation decelerating more rapidly

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Speaker 1: than people expected. You know, ed him is looking for

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Speaker 1: two and a half percent inflation in three, which is

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Speaker 1: very very bullish on balance, except for the fact that

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Speaker 1: part of the way that you get there is a recession.

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Speaker 1: And when you think about the I, s M S,

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Speaker 1: you think about leading economic indicators, you think about the

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Speaker 1: money supply contracting, they're all telling you that that recession

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Speaker 1: is going to happen, but to the point of possibly

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Speaker 1: seeing lower earnings and yet upgrading the forecast for the

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Speaker 1: earnings target. As Tom was just talking about, how much

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Speaker 1: is that a gloom already priced in a recession, a

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Speaker 1: downturn and earnings, the forecasts that are coming in. So

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Speaker 1: the reason that the market has gotten off to as

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Speaker 1: good a start as it has is you look at

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Speaker 1: bottoms up consensus, and it started the year at two

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Speaker 1: hundred and thirty. Everyone knew that that was a fictitious number.

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Speaker 1: Our number is two oh six. But I would suggest

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Speaker 1: that actually, in talking to our clients, the by side

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Speaker 1: is looking for more like two hundred. Now, part of

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Speaker 1: the narrative around this short covering, among other things, is

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Speaker 1: that that number could creep higher. So we were talking

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Speaker 1: about some of the cuts that we've seen, the announced

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Speaker 1: cuts at technology companies in this morning, as we get

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Speaker 1: the slew of SMP companies reporting earnings, we're seeing a

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Speaker 1: similar tone. Is that going to be the theme? Cutbacks?

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Speaker 1: Is it steep enough to get you excited? So, look,

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Speaker 1: cutbacks have actually rewarded stocks over these last several months.

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Speaker 1: But there's a finite aspect to that, because you know,

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Speaker 1: when you look at the way reports are coming in,

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Speaker 1: there's only so much you can do to massage your

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Speaker 1: bottom line. If your top line is decelerating, I want

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Speaker 1: to talk to you about not so much. It's anathematic

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Speaker 1: Julian Emmanuel but he's a fundamental guy working for ed

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Speaker 1: Hyman and Edeheiman has always believed in mixing in economics

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Speaker 1: with with fundamental analysis and technical analysis. Ralphan Kompora dark

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Speaker 1: in the door yesterday, the technician, the giant of the

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Speaker 1: CMT world, and he was heated. There was a bottom

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Speaker 1: constructed in October? That's a lonely call right now? Was

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Speaker 1: there a bottom constructed in October? So what it really

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Speaker 1: comes down to is if there's going to be a

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Speaker 1: recession in the next twelve months, the answer is no, Okay,

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Speaker 1: if the recession is going to be both postponed because

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Speaker 1: we have such an accumulated level of savings, because China

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Speaker 1: is reopening, because the labor market has confounded everyone with

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Speaker 1: its strength, that could have been a bottom because down

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Speaker 1: twenty seven five at the low in October was the

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Speaker 1: average of a hundred years of non recession full your

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Speaker 1: notorious in lonely six point one China GDP call over

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Speaker 1: to American equity optimism. So and actually the interesting thing

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Speaker 1: is is our China guy took his number down to

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Speaker 1: five nine because the fourth quarter of two is going

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Speaker 1: to be better than expected reported, better than expected um

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Speaker 1: and and what it is. It's less a direct effect

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Speaker 1: on the US economy and more a psychological boost because

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Speaker 1: you look at the greatest names in corporate America, one

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Speaker 1: of which is reporting next week in between the FED

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Speaker 1: and the unemployment report, and if those stocks do well

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Speaker 1: because China is doing better, that's a wealth effect in

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Speaker 1: the US. Just real quick here, because this has been

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Speaker 1: a theme over the past couple of days and weeks,

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Speaker 1: is people are moving toward Europe as the outperformer this year.

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Speaker 1: Do you buy that with the China reopening disproportionately affecting

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Speaker 1: that region. We buy that. We buy that. And and

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Speaker 1: the interesting thing is some people might say, well, the

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Speaker 1: e c B is now the most hawkish central bank

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Speaker 1: in the world, and and that is probably true looking

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Speaker 1: at the next six months. But the fact is that

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Speaker 1: you are absolutely ridding Europe once and for all of

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Speaker 1: the psychology of negative interest rates, and that is a

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Speaker 1: massive positive for equities long term. We have a big

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Speaker 1: take story out to this morning, folks. This is from

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Speaker 1: our crack Feder Reserve team in bontem Liz Capel McCormick

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Speaker 1: writing with Junal Marty as well. And this is outside

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Speaker 1: your pur view, but this is something Mr Hyrman's looking at,

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Speaker 1: and he has debt ceiling experience. If we have a

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Speaker 1: debt limit fight, is the headline goes, does it mean

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Speaker 1: the end of q T doesn't radically adjust the FED

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Speaker 1: policy that your shop sees. Well, it's certainly ups the

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Speaker 1: stakes with regard to what the chairman is going to

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Speaker 1: say on February the one, because there's no question that

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Speaker 1: he's going to be asked about that. And and look,

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Speaker 1: the part of the bowl case of the last month

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Speaker 1: is that there are cuts priced in the back half

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Speaker 1: of the year, lots of cuts. Are those only going

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Speaker 1: to be in response to a debt ceiling debacle or

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Speaker 1: are they a consequence of an economy that would be

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Speaker 1: turning down naturally. It's really an open question earning season

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Speaker 1: earnings edge as well. What you're earning edge gonna say

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Speaker 1: when you're write the last report for Q four it

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Speaker 1: was it was a sloppy ce season, much more closer

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Speaker 1: to the pre pandemic normal. UM numbers are coming down,

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Speaker 1: but again at the index level, not as important. It's

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Speaker 1: all about picking stocks in this environment. Juliana Manuel, thank

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Speaker 1: you so much, really really appreciate that we pern on bigcoin,

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Speaker 1: which means we can go to John Farrell. He is

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Speaker 1: in London with the always interesting Carol. I'm pickering, Mr Farrell.

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Speaker 1: I actually have to start with an apology. Tom just

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Speaker 1: quickly taking a lot of heat for this from the

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Speaker 1: last segment. Aluminium, okay, just aluminium, You're not aluminum. I

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Speaker 1: think we get it back to front. I think you

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Speaker 1: did the English version. I did the American version. We

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Speaker 1: spent too much time together. T K. Thank you Callum

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Speaker 1: pickering with me now, senior economists at Barrenburg. Calum, I

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Speaker 1: don't want to start with that. I want to start

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Speaker 1: with this. This from BNP Paribah in the last twenty

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Speaker 1: four hours. I'll read the quiet out for you when

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Speaker 1: I'll get your view on it. Soft landing has been

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Speaker 1: the catch phrase for still young twenty three, but we

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Speaker 1: think it will go out of the window and the

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Speaker 1: same fashion as transitory inflation did in two. That line

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Speaker 1: right there, you are great well. I think there are

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Speaker 1: risks to this scenario. I think the dangerous in markets

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Speaker 1: we start pricing in I would call it law law Land,

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Speaker 1: which is we have two risks to worry about. There's

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Speaker 1: the huge global energy price shock, which so far. Actually,

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Speaker 1: at least in Europe and the US doesn't seem to

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Speaker 1: be playing out quite as aggressively as markets amount of thought,

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Speaker 1: say six months ago. But then there's the reaction to that,

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Speaker 1: which is type financial conditions from central banks. Remember this

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Speaker 1: energy shock hit tight labor markets and type product markets

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Speaker 1: coming out of COVID and triggered these second round effects.

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Speaker 1: And so the danger here is that we think, well,

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Speaker 1: if the first risk is not so bad, central banks

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Speaker 1: just cruise inflation to two percent. We don't really get

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Speaker 1: anything severe when it comes to the recession, and everything

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Speaker 1: is going to be fine. History suggests central banks rarely

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Speaker 1: get these kind of calls. Right, we already made a

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Speaker 1: central bank mistake in one. The danger here is that

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Speaker 1: we forget that central banks occasionally make these kind of mistakes,

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Speaker 1: and then landing a bit of a mess in the

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Speaker 1: second half of the year. What's the mistake potentially this

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Speaker 1: year doing too little or doing too much? I think

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Speaker 1: probably doing too much is the bigger mistake. Monetary policy

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Speaker 1: works with the like, but the problem is, once you've

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Speaker 1: reacted late to inflation repressure, it's very difficult as a

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Speaker 1: central bank to justify pausing while you still have signs

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Speaker 1: of inflation. And so a good example take the latest

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Speaker 1: mix of UK data. Clear measures of economic activity week

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Speaker 1: through December and January, no question. But then you look

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Speaker 1: at the November data for services inflation and December services inflation,

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Speaker 1: you look at the wage data and it's still edging up. Now,

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Speaker 1: the economist in me says, these price data reflect things

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Speaker 1: that were happening in the economy three to six months ago,

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Speaker 1: and so the prices three or six months from now

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Speaker 1: will reflect these weak measures of activity. So central banks

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Speaker 1: should indeed pause. Whether or not you can do that

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Speaker 1: with inflation with a nine handle or an eight handling.

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Speaker 1: The US is let's talk about the situation. Tom mentioned

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Speaker 1: it earlier this morning, when hundred nanos on the jobless climbs.

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Speaker 1: What does that day to tell you? Well, again, labor

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Speaker 1: market UM data react with like underlying fundamentals. UM. The

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Speaker 1: reason why the Phillips curve was so appealing for good

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Speaker 1: thirty years as an economic policy model is because government's

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Speaker 1: in central banks thought if we create some inflation, we

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Speaker 1: will have strong employment data. UM that still holds. We

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Speaker 1: have a high inflation re environment. In nominal terms, economies

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Speaker 1: are raising ahead. This gives us an illusion of strength,

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Speaker 1: which encourages strong labor demand. I don't think we're heading

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Speaker 1: here into a severe recession. I think, you know, the

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Speaker 1: business cycle dynamics are not late cycle. This is an

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Speaker 1: early cycle economy the Western world and early cycle economy

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Speaker 1: that's been intercepted by this big Exhulgan shock, and in

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Speaker 1: central banks have reacted. But it's far too early to

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Speaker 1: say that recessions won't happen as a general rule. Um,

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Speaker 1: I think actually all the pain is probably still to come.

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Speaker 1: What can you learn from corporate guidance? So we've got

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Speaker 1: a couple of earnings reports this morning. Our cherry pick

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Speaker 1: to the R Horton as a home builder in the

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Speaker 1: United States, purchase contracts the three months through December down

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Speaker 1: thirty eight percent from a year ago. I'll pick another one.

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Speaker 1: Three M job cuts. I'm told there's a big chin

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Speaker 1: to reopening. It's going to have manufacturing industrials. There's one

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Speaker 1: kind of jobs. What do you read into these right now?

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Speaker 1: But that seems to be the effect of the tight

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Speaker 1: financial conditions on economies rather than the initial energy shock.

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Speaker 1: And this is again where we just have to consider

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Speaker 1: the lags that we're dealing with the energy price shock,

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Speaker 1: which actually for the US, the UK, and even in

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Speaker 1: Europe where we've managed to get enough supply now it's

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Speaker 1: really a terms of trade shock rather than a supply shock.

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Speaker 1: We get the energy we need, we just pay more

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Speaker 1: for it. We see that immediately. There's not much of

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Speaker 1: a lag between the high price and the impact and

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Speaker 1: economic activity. But there is a lag between what central

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Speaker 1: banks do and economic activity, and so it's not inconceivable

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Speaker 1: that there's very unusual window where the first shock isn't

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Speaker 1: as bad as expected. Things look fine, but then we're

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Speaker 1: just waiting for the monetary shock to come through. That's

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Speaker 1: why the housing market data and the labor market data

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Speaker 1: are in Houghton, because those are major transmission mechanisms for

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Speaker 1: for monetary policy. And that's where I think we we

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Speaker 1: fall into this trap of thinking economies are fine, central

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Speaker 1: banks need to go a little bit further to cool inflation.

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Speaker 1: But in fact, actually we've just made the opposite mistake

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Speaker 1: to what we made in twenty one, which was then

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Speaker 1: to ease too much. Now the risk is we tighten

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Speaker 1: too so we're price to get what Ko Lana land

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Speaker 1: relative to what you expect later This year. I think

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Speaker 1: the risk is that we start to price in this

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Speaker 1: law law Land situation. I don't think it's inconceivable, but

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Speaker 1: it's conditional upon certain things happening. And the main thing

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Speaker 1: is that central banks don't make a mistake. And the

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Speaker 1: other thing that we just need to keep in mind

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Speaker 1: is we are out of the great moderation world where

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Speaker 1: inflation was trending to the downside and central banks could

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Speaker 1: make a one sided bet that you just stabilize growth

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Speaker 1: and trust the inflation will remain low. When now in

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Speaker 1: an inflation environment, aging populations, the globalization activism, which means

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Speaker 1: monetary policy is asymmetric in the opposite direction, we worry

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Speaker 1: more about inflation risks then we worry about deflation risks.

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Speaker 1: Or to put in another way, central banks now face

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Speaker 1: a trade off between growth and inflation. And remember, we

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Speaker 1: wouldn't be worried about a recession now if central banks

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Speaker 1: hadn't reacted, If we were happy to just accept the

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Speaker 1: inflation risk from this oil and gas shock, then we

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Speaker 1: would avoid a recession. But central banks actually, no, we're

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Speaker 1: going to accept the growth risk. We'll put economies into

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Speaker 1: recession to control inflation and therefore to the extent that

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Speaker 1: this oil excuse me, this gas shock is not hitting

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Speaker 1: as hard as we thought because demand is stronger. That

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Speaker 1: may mean that central banks say, will if demand is stronger,

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Speaker 1: we need to go further. That's what we're hearing complicated

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Speaker 1: right now. Can I'm pickering of Bamberg Cannam. It's more

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Speaker 1: complicated than I think these markets let on in the

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Speaker 1: early weeks three right now. And while you can pick

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Speaker 1: this economist to that economist, this strategist to that strategist,

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Speaker 1: but it helps to have a chief investment strategists in

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Speaker 1: chief economists. This is City Global Wealth, who is truly

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Speaker 1: expert it linking the earnings and profitability dynamics of American

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Speaker 1: corporations into our greater American economy. Owning the high ground

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Speaker 1: on that is Stephen Whiting, and he joins us right now. Stephen,

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Speaker 1: I loving your research. Note how you say there are

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Speaker 1: beats out there and there's a bang up fourth quarter,

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Speaker 1: but you're just not all on board the American recovery.

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Speaker 1: How out of how how painful will those corporate earnings

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Speaker 1: announcements be throughout the year. Well there's something to adjust

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Speaker 1: too later. It's it looks so much in the analysts

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Speaker 1: earnings estimates, like the fourth quarter was the recession, and

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Speaker 1: here we are sitting in the recovery. And it actually

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Speaker 1: looks a little bit like that in financial markets. And

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Speaker 1: it would be wonderful if that were really the truth,

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Speaker 1: if we weren't just on the leading edge of the

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Speaker 1: hit that we're going to have profits um And of

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Speaker 1: course how markets traded last year are not anticipating this

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Speaker 1: to be, you know, some kind of profit Nravana. We

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Speaker 1: don't have declines, uh, you know about something. But if

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Speaker 1: you really take a look at the estimates, they fall

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Speaker 1: at a annualized rate in the quarter past. This is

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Speaker 1: like a setting a hurdle that a toddler could leap over.

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Speaker 1: Most companies, by far are going to beat those estimates.

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Speaker 1: But then they're putting all that promise of the future

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Speaker 1: that the year will be a growth here for EPs

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Speaker 1: and the out quarders, but as soon as the second

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Speaker 1: calendar quarter, the April through June quarter, there's a substantial gain. Now,

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Speaker 1: there's some complexities when you beat your earnings estimates, it's

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Speaker 1: easier to hit those later numbers because of the level

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Speaker 1: they come in. And but the idea that this is

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Speaker 1: all behind us in the economy. I don't think that's

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Speaker 1: true at all. Then how do you participate? I'm going

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Speaker 1: to assume that City Global Wealth Management is not enjoying

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Speaker 1: being a hundred and in cash like the triple leveraged

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Speaker 1: on cash fun How do you participate? I know, how

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Speaker 1: do you participate if you're not all in cash? We look,

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Speaker 1: we've got to live with the ups and downs of

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Speaker 1: equities markets, and we've had three rallies and excess of

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Speaker 1: ten percent since the Fed started tightening the real rally

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Speaker 1: the turning point for the economy, the beginning of a

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Speaker 1: new recovery is likely to begin. This year could be

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Speaker 1: a stronger year for the economy. Do we think that

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Speaker 1: we should already be discounting this recovery. No, so we

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Speaker 1: are playing it safer. Again, our largest overweights are in

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Speaker 1: firms that are the most consistent dividend growers, in pharmaceutical

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Speaker 1: shares that have low cicklutality. I think this very near

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Speaker 1: term period, especially before we see the January employment report

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Speaker 1: and we probably see the Fed deliver hawk is UH

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Speaker 1: is probably going to be a period where we're gonna

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Speaker 1: have to settle back a bit. UH. And again that

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Speaker 1: does not tell us to time the market and be

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Speaker 1: all out of equities. But we're okay with a short

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Speaker 1: covering rally and low quality shares and just missing that

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Speaker 1: for the mere terms. Even how much it would you

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Speaker 1: lean into oil majors in particular because of that dividend story,

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Speaker 1: that share buyback story, and not necessarily a call on

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Speaker 1: commodity prices. It's a full waiting despite a poor ciplical backdrop,

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Speaker 1: and we think that a lot of industrial and materials

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Speaker 1: companies are going to see earnings down visions are going

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Speaker 1: to see weaker activity this year. I would say though

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Speaker 1: that petroleum generally um is pretty well positioned for for

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Speaker 1: a week period for the world economy. The downside maybe

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Speaker 1: seventy dollars in the Brent price in what will be

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Speaker 1: a probably a mild global recession or something that we

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Speaker 1: might call that. Uh literally, the US economy is going

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Speaker 1: to have some significant job losses. We don't believe that

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Speaker 1: you have sales declines without real job declines. We're not

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Speaker 1: just talking about job openings. But even with that said,

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Speaker 1: OPEC has cut production early supply sources around the world

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Speaker 1: are recovering slowly, so I think this is not going

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Speaker 1: to be a particularly bad cycle for energy. Meanwhile, you

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Speaker 1: mentioned the FED, and we have been steering clear of

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Speaker 1: the FED because they are in the quiet period ahead

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Speaker 1: of next week. But there is this question inherent in

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Speaker 1: a strengthening financial conditions index, a lesser negative actually a

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Speaker 1: positive that Tom has been sighting. As you see the

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Speaker 1: stocks rally and as you see ponds rally, at what

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Speaker 1: point does this bush the FED to go further, to

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Speaker 1: do more than people currently expect, simply because this really

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Speaker 1: does kind of make it more difficult for them. Well, look,

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Speaker 1: I think the FED can't entirely ignore the fact that

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Speaker 1: real data two months of decline and industrial production, two

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Speaker 1: months of decline and retail sales uh, you know too much,

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Speaker 1: two months of a decline in total hours worked, and

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Speaker 1: all of that survey data that you mentioned or softening.

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Speaker 1: Plus we are seeing a deceleration and and inflation. That's

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Speaker 1: for real. Here we have a decline in money supply.

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Speaker 1: Yet the FED is not going to be satisfied, And unfortunately,

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Speaker 1: I think that that is their mistake because you've heard

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Speaker 1: from an earlier guest that the reality is that there's

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Speaker 1: still pipeline effects on the economy that are coming The

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Speaker 1: problem for markets is that they can't ignore the slowdown

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Speaker 1: in the economy that will change the Fed's view. And

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Speaker 1: the FED isn't all likelihood going to try to weigh

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Speaker 1: against these easing the easing and financial conditions. You know,

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Speaker 1: will they do that by tightening more and harming the

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Speaker 1: labor market even more? They probably won't, But they're gonna

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Speaker 1: leave it to markets to sort this out, and there

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Speaker 1: can be certainly more corrections ahead simply because of that mispantter.

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Speaker 1: That's a critical distinction, Steve Whiting. If they're going to

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Speaker 1: quote unquote leave markets to sort it out at the

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Speaker 1: end of the day, do markets tell the Fed what

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Speaker 1: to do with its understood asymmetries whate I think about

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Speaker 1: the message at the long end of the bond market,

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Speaker 1: the treasury market is saying that the FED has already

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Speaker 1: at an unsustainable funds rate, particularly now that they shrink

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Speaker 1: their balance sheet four or fifty billion dollars, and they'll

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Speaker 1: continue to lend less to the bond market. You know,

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Speaker 1: that yield curve steepening that they predicted on q T

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Speaker 1: didn't happen again. So I think that ultimately the FED

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Speaker 1: is going to get this forecast. But again it is

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Speaker 1: predicated on the notion that are labor markets, that demand

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Speaker 1: for labor is going to fall now that we have

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Speaker 1: sky high inventories and massive declines and home sales to

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Speaker 1: reckon with in terms of labor markets. So the Fed

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Speaker 1: will get the message of markets. I believe the longer

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Speaker 1: term bond market is telling the FED the right the

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Speaker 1: right message. I just do think that they're going to say,

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Speaker 1: like they said in the minutes, uh that if they

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Speaker 1: markets have misjudged their reaction function and they're going to

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Speaker 1: ease here quickly. Um, that's not what they're going to do.

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Speaker 1: I wish they would pause if they're not going at

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Speaker 1: least you dove tell that with what Andrew holland Horst

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Speaker 1: said the other day. Yeah, we go up call from fifty, etcetera.

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Speaker 1: But then you get to a level into Mr Whiting's comments,

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Speaker 1: they stay there, Which is the reason why some people

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Speaker 1: are leaning into the long end, because they do believe

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Speaker 1: that or restrict growth. They do believe that the Fed

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Speaker 1: will induce something that's more significance. Even how much are

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Speaker 1: you using longer term treasuries longer term sovereign debt as

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Speaker 1: a ballast in a really uncertain time. Well, we are.

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Speaker 1: We're overweight long term treasuries, underweight other markets like Japan

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Speaker 1: for example. Again, because we believe the correlation between stocks

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Speaker 1: and long term treasures, equities and long term treasuries will

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Speaker 1: break down, it will be negatively correlated. Again, portfolios will

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Speaker 1: work with you know, barbells of high risk and low

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Speaker 1: risk at the same time. Though, it's the front end

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Speaker 1: of the curve and the belly of the curve that's

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Speaker 1: offering real yield, so we have larger overweights there. And

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Speaker 1: again this is not to be negative in the long run.

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Speaker 1: We can't be too cute about when markets can recover,

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Speaker 1: but we're just not going to load up on a

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Speaker 1: lot of cyplical risk. Interest rate risk we think is

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Speaker 1: peaked in market, so we don't have to worry about

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Speaker 1: long bond yields going to six or seven. But we

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Speaker 1: do think that there's a price to pay to keep

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Speaker 1: ten year treasury notes at three and a half. Stephen,

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Speaker 1: before we let you go, do care about the death

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Speaker 1: ceiling debate. I think it's likely to be highly likely

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Speaker 1: to be resolved, and I think that the debate over

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Speaker 1: uh the House speaker role again probably overstates the amount

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Speaker 1: of risk. There are multiple ways to address this. There

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Speaker 1: are again some ways of which we can cause a

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Speaker 1: disruptive period again losing the House speaker role, not preparing

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Speaker 1: an advance sufficiently for this. So it can be a

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Speaker 1: market concern. I doubt that it rises to two thousand

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Speaker 1: eleven levels of worry. Again, Stephen Winning, thank you so

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Speaker 1: much to complete an also staring particularly linking in earnings

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Speaker 1: in corporate America into the greater American economy. He is

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Speaker 1: with the City Group. This is an important conversation this

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Speaker 1: morning in London are John Farrell was conna of D

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Speaker 1: and F ME and John T. K. Thank you buddy.

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Speaker 1: As always, I want to talk about two metals, not

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Speaker 1: just copper, but aluminum as well. Year today, these two

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Speaker 1: offen the race is absolutely flying at the moment. Year today,

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Speaker 1: copper at more than eleven aluminum more than ten percent.

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Speaker 1: We are just three or four weeks into this kind

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Speaker 1: of hack joins us right now. Kinda let's talk about it.

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Speaker 1: I want to start with this. It's a big question,

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Speaker 1: big picture question. It's an important one. How commodity intensive

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Speaker 1: is this reopening going to be in China? That is

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Speaker 1: actually the big question. I sensed that right now it's

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Speaker 1: very sentiment driven. The idea of China reopening. It's definitely

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Speaker 1: gonna lead to a lot of pent up demand, just

431
00:23:57,880 --> 00:23:59,919
Speaker 1: like it did when the US and Europe opened up

432
00:24:00,000 --> 00:24:04,280
Speaker 1: after COVID. But in terms of actual manufacturing intensity, which

433
00:24:04,320 --> 00:24:07,320
Speaker 1: requires the huge amounts of commodity imports, I feel like

434
00:24:07,800 --> 00:24:10,440
Speaker 1: China's commodity imports are still pretty good. I mean, their

435
00:24:10,680 --> 00:24:13,600
Speaker 1: stock levels are really quite high right now. So I

436
00:24:13,680 --> 00:24:17,680
Speaker 1: think right now it's potentially the copper rally is running

437
00:24:17,680 --> 00:24:20,960
Speaker 1: ahead of itself in anticipation of more to come. But

438
00:24:21,040 --> 00:24:22,159
Speaker 1: I think we just have to be a little bit

439
00:24:22,200 --> 00:24:24,080
Speaker 1: patient on that. So when you hear Jeff Carry of

440
00:24:24,160 --> 00:24:27,160
Speaker 1: Government say eleven thousand, five hundred this year, you're pushing back.

441
00:24:27,840 --> 00:24:29,679
Speaker 1: I think short term, I think we might have run

442
00:24:29,720 --> 00:24:33,040
Speaker 1: ahead of ourselves. But I do agree that copper fundamentals

443
00:24:33,080 --> 00:24:36,240
Speaker 1: are tied, inventories are still free slim, the supply side

444
00:24:36,320 --> 00:24:38,400
Speaker 1: still looks like this huge amount of capics and still

445
00:24:38,840 --> 00:24:41,879
Speaker 1: is required. Um, But I don't think we're at crunch

446
00:24:41,960 --> 00:24:43,600
Speaker 1: time right now. But I think right now it's a

447
00:24:43,760 --> 00:24:46,560
Speaker 1: very sentiment driven, and understand it's all things China. When

448
00:24:46,640 --> 00:24:48,720
Speaker 1: you look at the marginal dollar increase of China GDP.

449
00:24:48,880 --> 00:24:51,240
Speaker 1: Has it become more or less commodity intensive over the

450
00:24:51,320 --> 00:24:54,040
Speaker 1: last decade or so? Is that something that's declined. Yes,

451
00:24:54,520 --> 00:24:59,520
Speaker 1: I think China's reopening. It's significant, but it's going to

452
00:24:59,560 --> 00:25:02,520
Speaker 1: be different China. The structural changes that we're seeing in China.

453
00:25:02,560 --> 00:25:05,040
Speaker 1: I mean, we've been talking a lot about the population decline,

454
00:25:05,320 --> 00:25:07,239
Speaker 1: the fact that the property set is no longer as

455
00:25:07,320 --> 00:25:10,320
Speaker 1: hot as it was before. The manufacturing is slowed down,

456
00:25:10,359 --> 00:25:13,720
Speaker 1: there's no longer that big impulse and push, you know,

457
00:25:13,840 --> 00:25:15,919
Speaker 1: to go back to your point of what intense intensity

458
00:25:15,960 --> 00:25:18,320
Speaker 1: of consumption of copper, I just don't think it's as

459
00:25:18,359 --> 00:25:19,920
Speaker 1: going to be as strong as the two thousand and

460
00:25:19,960 --> 00:25:22,240
Speaker 1: ten reband for example. We'll talk to me about where

461
00:25:22,280 --> 00:25:24,360
Speaker 1: you do want to be? What bucket do I want

462
00:25:24,359 --> 00:25:26,959
Speaker 1: to be in right now preparing for the demand that's

463
00:25:27,000 --> 00:25:28,800
Speaker 1: going to come west, tom On going to show up.

464
00:25:29,760 --> 00:25:32,200
Speaker 1: Oh So I do think commodities are a good place.

465
00:25:32,520 --> 00:25:35,680
Speaker 1: Um and I feel like copper and alley have you know,

466
00:25:35,800 --> 00:25:38,240
Speaker 1: slightly gone ahead of themselves. I think crude all is

467
00:25:38,280 --> 00:25:41,639
Speaker 1: justified because you know, right now, at particularly ahead of

468
00:25:41,680 --> 00:25:46,360
Speaker 1: the February fifth European ban on Russian products. I think

469
00:25:47,080 --> 00:25:49,000
Speaker 1: China has a huge role to play that. So they're

470
00:25:49,000 --> 00:25:50,440
Speaker 1: going to be in putting more crude in order to

471
00:25:51,240 --> 00:25:53,680
Speaker 1: meet that gap in terms of product exports, and they're

472
00:25:53,680 --> 00:25:56,040
Speaker 1: doing that in a big way. I think mobility in

473
00:25:56,160 --> 00:25:58,440
Speaker 1: China it's just starting and that's going to be again,

474
00:25:58,640 --> 00:26:01,760
Speaker 1: very oil intensive. So I like crude oil very much.

475
00:26:02,080 --> 00:26:04,000
Speaker 1: I think to a certain extent acts as well. I

476
00:26:04,080 --> 00:26:06,440
Speaker 1: think is as they start the Chinese go out and looking,

477
00:26:07,200 --> 00:26:09,520
Speaker 1: you know, going back into restaurants and consuming what they

478
00:26:09,520 --> 00:26:12,120
Speaker 1: couldn't behave back in the lockdown. I think that could

479
00:26:12,160 --> 00:26:14,680
Speaker 1: be quite good for the beefs and therefore the feedstocks,

480
00:26:14,720 --> 00:26:16,960
Speaker 1: which is the grains. Triple digit crude back on the

481
00:26:17,040 --> 00:26:20,560
Speaker 1: table just a bad. I think I might touch a hundred,

482
00:26:20,640 --> 00:26:22,160
Speaker 1: but not unless you go high. The reason I asked

483
00:26:22,160 --> 00:26:23,960
Speaker 1: that question is because we're all trying to figure out

484
00:26:24,000 --> 00:26:25,960
Speaker 1: how much of this we import to the United States,

485
00:26:26,240 --> 00:26:28,560
Speaker 1: to Europe. Do we import higher prices from what's happening

486
00:26:28,600 --> 00:26:30,920
Speaker 1: in China right now? And that is the risk. So

487
00:26:31,080 --> 00:26:32,960
Speaker 1: I think, yes, there's a potential that we see a

488
00:26:33,000 --> 00:26:35,639
Speaker 1: little bit of an uptake in commodity prices, but for

489
00:26:35,680 --> 00:26:38,439
Speaker 1: the reasons I mentioned before. I don't think we can

490
00:26:38,560 --> 00:26:41,440
Speaker 1: sustain higher because the rest of the world is moving

491
00:26:41,440 --> 00:26:43,720
Speaker 1: into recessions. So we're just a little bit too China

492
00:26:43,800 --> 00:26:46,240
Speaker 1: centring right now, and I think we need to balance

493
00:26:46,280 --> 00:26:48,359
Speaker 1: that out by the fact that the USA and Europe

494
00:26:48,400 --> 00:26:50,560
Speaker 1: are slowing. When you say the rest of the world's

495
00:26:50,560 --> 00:26:54,320
Speaker 1: going into recession, who do you mean? Um? Okay, good question,

496
00:26:54,359 --> 00:26:57,000
Speaker 1: because the idea is at least the bondmarkers are telling

497
00:26:57,080 --> 00:26:59,960
Speaker 1: us that the Europe, that Europe and the USA are

498
00:27:00,119 --> 00:27:02,920
Speaker 1: going to intercession, maybe a mild one, but it's still

499
00:27:03,040 --> 00:27:05,560
Speaker 1: heading that way. The tent the yield curves are definitely

500
00:27:05,600 --> 00:27:08,840
Speaker 1: pointing to that. Um. Obviously, don't look at the stock

501
00:27:08,880 --> 00:27:12,480
Speaker 1: markets that nothing. Everything's great and rosy. But I think

502
00:27:12,520 --> 00:27:15,399
Speaker 1: if we are paying attention to perms, and maybe not

503
00:27:15,560 --> 00:27:18,399
Speaker 1: today's European one, but uspre mis are going to come

504
00:27:18,400 --> 00:27:23,480
Speaker 1: out later today, If those start showing continuous contraction, I

505
00:27:23,600 --> 00:27:25,640
Speaker 1: think we are looking at a recession. And I think

506
00:27:26,000 --> 00:27:27,879
Speaker 1: even if it's mild or not, it has to be

507
00:27:27,960 --> 00:27:30,080
Speaker 1: taken into a can and that might have an offsetting

508
00:27:30,119 --> 00:27:32,280
Speaker 1: balance to any China reopening. The markets are playing a

509
00:27:32,320 --> 00:27:34,080
Speaker 1: relative game with things better or worse than they were

510
00:27:34,119 --> 00:27:36,199
Speaker 1: three months ago. Clearly they're better in Europe. One thing

511
00:27:36,240 --> 00:27:37,960
Speaker 1: I don't think we've discussed enough is the fact that

512
00:27:38,000 --> 00:27:40,720
Speaker 1: Europe is still projecting what zero percent zero point five

513
00:27:41,119 --> 00:27:43,960
Speaker 1: GDP growth for the year ahead. Why aren't we talking

514
00:27:44,000 --> 00:27:46,880
Speaker 1: more about stagflation? Why is that word not being used

515
00:27:47,040 --> 00:27:49,840
Speaker 1: a whole lot more? Actually, if you talk to some

516
00:27:50,160 --> 00:27:53,400
Speaker 1: hedge funds, they are talking about stagflation. And it's interesting

517
00:27:53,480 --> 00:27:57,000
Speaker 1: because in a in a stag inflationary environment, you want

518
00:27:57,040 --> 00:28:00,080
Speaker 1: to stay long some commodities, but you also don't the

519
00:28:00,160 --> 00:28:04,040
Speaker 1: state commodities that are economically dependent. In that case, something

520
00:28:04,119 --> 00:28:06,880
Speaker 1: like aggs could do quite well because those are income

521
00:28:07,000 --> 00:28:09,840
Speaker 1: in elastics. So no matter what happens to the economy,

522
00:28:10,160 --> 00:28:14,000
Speaker 1: you need a certain level of agricultural foods. So some

523
00:28:14,119 --> 00:28:17,800
Speaker 1: people like agriculture in their basket as a good hedge

524
00:28:17,800 --> 00:28:21,399
Speaker 1: against stagflation. Um. So you prefer a long and soft

525
00:28:21,480 --> 00:28:26,400
Speaker 1: commodities as opposed to a long in base metals. Um? Oh?

526
00:28:26,520 --> 00:28:31,400
Speaker 1: Good one? Um? Yes, interesting, that's the year ahead conviction

527
00:28:31,440 --> 00:28:34,639
Speaker 1: call for you entertain kinda hack. Thank you of a

528
00:28:34,760 --> 00:28:38,240
Speaker 1: D and F map. This is the Bloomberg Surveillance Podcast.

529
00:28:38,520 --> 00:28:41,840
Speaker 1: Thanks for listening. Join us live weekdays from seven to

530
00:28:41,960 --> 00:28:46,000
Speaker 1: ten AMI Eastern and Bloomberg Radio and on Bloomberg Television

531
00:28:46,400 --> 00:28:50,360
Speaker 1: each day from six to nine am for insight from

532
00:28:50,400 --> 00:28:54,920
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Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

534
00:29:00,280 --> 00:29:03,560
Speaker 1: dot com, and of course, on the terminal. I'm Tom

535
00:29:03,680 --> 00:29:13,560
Speaker 1: keene In. This is Bloomer h