Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg terminal. He was so
Speaker 1: good a number of days ago we hauled Julian Emmanuel
Speaker 1: back here because we didn't understand the word he said,
Speaker 1: Equity and Quantitative Strategist ever Core. I s I, I
Speaker 1: want to go to the fact folks, and we protect
Speaker 1: the copyright. I'm not gonna send you out earnings Edge.
Speaker 1: This is what Emmanuel has brought to ever Cores. I
Speaker 1: s I. Every day, the granular nature of where we are,
Speaker 1: and I want to know what disinflation is doing to
Speaker 1: your granular research. Note here early in earning season, Well,
Speaker 1: it's the revenue line is coming in and that that's
Speaker 1: really the story. And then the question is who are
Speaker 1: the companies, where are the pockets within sectors that can
Speaker 1: actually hold the bottom line given the fact that the
Speaker 1: top line is decelerating because inflation is coming in zero
Speaker 1: hig every Afternoon does a brilliant job with Bloomberg charts here,
Speaker 1: and one of them is a short squeeze chart. The
Speaker 1: last two days big up equity market. We've had massive
Speaker 1: short squeeze. Then what how do we get to the
Speaker 1: Then what after we take out all the negative bets
Speaker 1: on the market. So if you think about it, the
Speaker 1: last two months, we are within this range in the
Speaker 1: SMP thirty eight hundred, the low, forty one, the high.
Speaker 1: And what it is is this tug of war between
Speaker 1: the view and rightly so that inflation decelerating more rapidly
Speaker 1: than people expected. You know, ed him is looking for
Speaker 1: two and a half percent inflation in three, which is
Speaker 1: very very bullish on balance, except for the fact that
Speaker 1: part of the way that you get there is a recession.
Speaker 1: And when you think about the I, s M S,
Speaker 1: you think about leading economic indicators, you think about the
Speaker 1: money supply contracting, they're all telling you that that recession
Speaker 1: is going to happen, but to the point of possibly
Speaker 1: seeing lower earnings and yet upgrading the forecast for the
Speaker 1: earnings target. As Tom was just talking about, how much
Speaker 1: is that a gloom already priced in a recession, a
Speaker 1: downturn and earnings, the forecasts that are coming in. So
Speaker 1: the reason that the market has gotten off to as
Speaker 1: good a start as it has is you look at
Speaker 1: bottoms up consensus, and it started the year at two
Speaker 1: hundred and thirty. Everyone knew that that was a fictitious number.
Speaker 1: Our number is two oh six. But I would suggest
Speaker 1: that actually, in talking to our clients, the by side
Speaker 1: is looking for more like two hundred. Now, part of
Speaker 1: the narrative around this short covering, among other things, is
Speaker 1: that that number could creep higher. So we were talking
Speaker 1: about some of the cuts that we've seen, the announced
Speaker 1: cuts at technology companies in this morning, as we get
Speaker 1: the slew of SMP companies reporting earnings, we're seeing a
Speaker 1: similar tone. Is that going to be the theme? Cutbacks?
Speaker 1: Is it steep enough to get you excited? So, look,
Speaker 1: cutbacks have actually rewarded stocks over these last several months.
Speaker 1: But there's a finite aspect to that, because you know,
Speaker 1: when you look at the way reports are coming in,
Speaker 1: there's only so much you can do to massage your
Speaker 1: bottom line. If your top line is decelerating, I want
Speaker 1: to talk to you about not so much. It's anathematic
Speaker 1: Julian Emmanuel but he's a fundamental guy working for ed
Speaker 1: Hyman and Edeheiman has always believed in mixing in economics
Speaker 1: with with fundamental analysis and technical analysis. Ralphan Kompora dark
Speaker 1: in the door yesterday, the technician, the giant of the
Speaker 1: CMT world, and he was heated. There was a bottom
Speaker 1: constructed in October? That's a lonely call right now? Was
Speaker 1: there a bottom constructed in October? So what it really
Speaker 1: comes down to is if there's going to be a
Speaker 1: recession in the next twelve months, the answer is no, Okay,
Speaker 1: if the recession is going to be both postponed because
Speaker 1: we have such an accumulated level of savings, because China
Speaker 1: is reopening, because the labor market has confounded everyone with
Speaker 1: its strength, that could have been a bottom because down
Speaker 1: twenty seven five at the low in October was the
Speaker 1: average of a hundred years of non recession full your
Speaker 1: notorious in lonely six point one China GDP call over
Speaker 1: to American equity optimism. So and actually the interesting thing
Speaker 1: is is our China guy took his number down to
Speaker 1: five nine because the fourth quarter of two is going
Speaker 1: to be better than expected reported, better than expected um
Speaker 1: and and what it is. It's less a direct effect
Speaker 1: on the US economy and more a psychological boost because
Speaker 1: you look at the greatest names in corporate America, one
Speaker 1: of which is reporting next week in between the FED
Speaker 1: and the unemployment report, and if those stocks do well
Speaker 1: because China is doing better, that's a wealth effect in
Speaker 1: the US. Just real quick here, because this has been
Speaker 1: a theme over the past couple of days and weeks,
Speaker 1: is people are moving toward Europe as the outperformer this year.
Speaker 1: Do you buy that with the China reopening disproportionately affecting
Speaker 1: that region. We buy that. We buy that. And and
Speaker 1: the interesting thing is some people might say, well, the
Speaker 1: e c B is now the most hawkish central bank
Speaker 1: in the world, and and that is probably true looking
Speaker 1: at the next six months. But the fact is that
Speaker 1: you are absolutely ridding Europe once and for all of
Speaker 1: the psychology of negative interest rates, and that is a
Speaker 1: massive positive for equities long term. We have a big
Speaker 1: take story out to this morning, folks. This is from
Speaker 1: our crack Feder Reserve team in bontem Liz Capel McCormick
Speaker 1: writing with Junal Marty as well. And this is outside
Speaker 1: your pur view, but this is something Mr Hyrman's looking at,
Speaker 1: and he has debt ceiling experience. If we have a
Speaker 1: debt limit fight, is the headline goes, does it mean
Speaker 1: the end of q T doesn't radically adjust the FED
Speaker 1: policy that your shop sees. Well, it's certainly ups the
Speaker 1: stakes with regard to what the chairman is going to
Speaker 1: say on February the one, because there's no question that
Speaker 1: he's going to be asked about that. And and look,
Speaker 1: the part of the bowl case of the last month
Speaker 1: is that there are cuts priced in the back half
Speaker 1: of the year, lots of cuts. Are those only going
Speaker 1: to be in response to a debt ceiling debacle or
Speaker 1: are they a consequence of an economy that would be
Speaker 1: turning down naturally. It's really an open question earning season
Speaker 1: earnings edge as well. What you're earning edge gonna say
Speaker 1: when you're write the last report for Q four it
Speaker 1: was it was a sloppy ce season, much more closer
Speaker 1: to the pre pandemic normal. UM numbers are coming down,
Speaker 1: but again at the index level, not as important. It's
Speaker 1: all about picking stocks in this environment. Juliana Manuel, thank
Speaker 1: you so much, really really appreciate that we pern on bigcoin,
Speaker 1: which means we can go to John Farrell. He is
Speaker 1: in London with the always interesting Carol. I'm pickering, Mr Farrell.
Speaker 1: I actually have to start with an apology. Tom just
Speaker 1: quickly taking a lot of heat for this from the
Speaker 1: last segment. Aluminium, okay, just aluminium, You're not aluminum. I
Speaker 1: think we get it back to front. I think you
Speaker 1: did the English version. I did the American version. We
Speaker 1: spent too much time together. T K. Thank you Callum
Speaker 1: pickering with me now, senior economists at Barrenburg. Calum, I
Speaker 1: don't want to start with that. I want to start
Speaker 1: with this. This from BNP Paribah in the last twenty
Speaker 1: four hours. I'll read the quiet out for you when
Speaker 1: I'll get your view on it. Soft landing has been
Speaker 1: the catch phrase for still young twenty three, but we
Speaker 1: think it will go out of the window and the
Speaker 1: same fashion as transitory inflation did in two. That line
Speaker 1: right there, you are great well. I think there are
Speaker 1: risks to this scenario. I think the dangerous in markets
Speaker 1: we start pricing in I would call it law law Land,
Speaker 1: which is we have two risks to worry about. There's
Speaker 1: the huge global energy price shock, which so far. Actually,
Speaker 1: at least in Europe and the US doesn't seem to
Speaker 1: be playing out quite as aggressively as markets amount of thought,
Speaker 1: say six months ago. But then there's the reaction to that,
Speaker 1: which is type financial conditions from central banks. Remember this
Speaker 1: energy shock hit tight labor markets and type product markets
Speaker 1: coming out of COVID and triggered these second round effects.
Speaker 1: And so the danger here is that we think, well,
Speaker 1: if the first risk is not so bad, central banks
Speaker 1: just cruise inflation to two percent. We don't really get
Speaker 1: anything severe when it comes to the recession, and everything
Speaker 1: is going to be fine. History suggests central banks rarely
Speaker 1: get these kind of calls. Right, we already made a
Speaker 1: central bank mistake in one. The danger here is that
Speaker 1: we forget that central banks occasionally make these kind of mistakes,
Speaker 1: and then landing a bit of a mess in the
Speaker 1: second half of the year. What's the mistake potentially this
Speaker 1: year doing too little or doing too much? I think
Speaker 1: probably doing too much is the bigger mistake. Monetary policy
Speaker 1: works with the like, but the problem is, once you've
Speaker 1: reacted late to inflation repressure, it's very difficult as a
Speaker 1: central bank to justify pausing while you still have signs
Speaker 1: of inflation. And so a good example take the latest
Speaker 1: mix of UK data. Clear measures of economic activity week
Speaker 1: through December and January, no question. But then you look
Speaker 1: at the November data for services inflation and December services inflation,
Speaker 1: you look at the wage data and it's still edging up. Now,
Speaker 1: the economist in me says, these price data reflect things
Speaker 1: that were happening in the economy three to six months ago,
Speaker 1: and so the prices three or six months from now
Speaker 1: will reflect these weak measures of activity. So central banks
Speaker 1: should indeed pause. Whether or not you can do that
Speaker 1: with inflation with a nine handle or an eight handling.
Speaker 1: The US is let's talk about the situation. Tom mentioned
Speaker 1: it earlier this morning, when hundred nanos on the jobless climbs.
Speaker 1: What does that day to tell you? Well, again, labor
Speaker 1: market UM data react with like underlying fundamentals. UM. The
Speaker 1: reason why the Phillips curve was so appealing for good
Speaker 1: thirty years as an economic policy model is because government's
Speaker 1: in central banks thought if we create some inflation, we
Speaker 1: will have strong employment data. UM that still holds. We
Speaker 1: have a high inflation re environment. In nominal terms, economies
Speaker 1: are raising ahead. This gives us an illusion of strength,
Speaker 1: which encourages strong labor demand. I don't think we're heading
Speaker 1: here into a severe recession. I think, you know, the
Speaker 1: business cycle dynamics are not late cycle. This is an
Speaker 1: early cycle economy the Western world and early cycle economy
Speaker 1: that's been intercepted by this big Exhulgan shock, and in
Speaker 1: central banks have reacted. But it's far too early to
Speaker 1: say that recessions won't happen as a general rule. Um,
Speaker 1: I think actually all the pain is probably still to come.
Speaker 1: What can you learn from corporate guidance? So we've got
Speaker 1: a couple of earnings reports this morning. Our cherry pick
Speaker 1: to the R Horton as a home builder in the
Speaker 1: United States, purchase contracts the three months through December down
Speaker 1: thirty eight percent from a year ago. I'll pick another one.
Speaker 1: Three M job cuts. I'm told there's a big chin
Speaker 1: to reopening. It's going to have manufacturing industrials. There's one
Speaker 1: kind of jobs. What do you read into these right now?
Speaker 1: But that seems to be the effect of the tight
Speaker 1: financial conditions on economies rather than the initial energy shock.
Speaker 1: And this is again where we just have to consider
Speaker 1: the lags that we're dealing with the energy price shock,
Speaker 1: which actually for the US, the UK, and even in
Speaker 1: Europe where we've managed to get enough supply now it's
Speaker 1: really a terms of trade shock rather than a supply shock.
Speaker 1: We get the energy we need, we just pay more
Speaker 1: for it. We see that immediately. There's not much of
Speaker 1: a lag between the high price and the impact and
Speaker 1: economic activity. But there is a lag between what central
Speaker 1: banks do and economic activity, and so it's not inconceivable
Speaker 1: that there's very unusual window where the first shock isn't
Speaker 1: as bad as expected. Things look fine, but then we're
Speaker 1: just waiting for the monetary shock to come through. That's
Speaker 1: why the housing market data and the labor market data
Speaker 1: are in Houghton, because those are major transmission mechanisms for
Speaker 1: for monetary policy. And that's where I think we we
Speaker 1: fall into this trap of thinking economies are fine, central
Speaker 1: banks need to go a little bit further to cool inflation.
Speaker 1: But in fact, actually we've just made the opposite mistake
Speaker 1: to what we made in twenty one, which was then
Speaker 1: to ease too much. Now the risk is we tighten
Speaker 1: too so we're price to get what Ko Lana land
Speaker 1: relative to what you expect later This year. I think
Speaker 1: the risk is that we start to price in this
Speaker 1: law law Land situation. I don't think it's inconceivable, but
Speaker 1: it's conditional upon certain things happening. And the main thing
Speaker 1: is that central banks don't make a mistake. And the
Speaker 1: other thing that we just need to keep in mind
Speaker 1: is we are out of the great moderation world where
Speaker 1: inflation was trending to the downside and central banks could
Speaker 1: make a one sided bet that you just stabilize growth
Speaker 1: and trust the inflation will remain low. When now in
Speaker 1: an inflation environment, aging populations, the globalization activism, which means
Speaker 1: monetary policy is asymmetric in the opposite direction, we worry
Speaker 1: more about inflation risks then we worry about deflation risks.
Speaker 1: Or to put in another way, central banks now face
Speaker 1: a trade off between growth and inflation. And remember, we
Speaker 1: wouldn't be worried about a recession now if central banks
Speaker 1: hadn't reacted, If we were happy to just accept the
Speaker 1: inflation risk from this oil and gas shock, then we
Speaker 1: would avoid a recession. But central banks actually, no, we're
Speaker 1: going to accept the growth risk. We'll put economies into
Speaker 1: recession to control inflation and therefore to the extent that
Speaker 1: this oil excuse me, this gas shock is not hitting
Speaker 1: as hard as we thought because demand is stronger. That
Speaker 1: may mean that central banks say, will if demand is stronger,
Speaker 1: we need to go further. That's what we're hearing complicated
Speaker 1: right now. Can I'm pickering of Bamberg Cannam. It's more
Speaker 1: complicated than I think these markets let on in the
Speaker 1: early weeks three right now. And while you can pick
Speaker 1: this economist to that economist, this strategist to that strategist,
Speaker 1: but it helps to have a chief investment strategists in
Speaker 1: chief economists. This is City Global Wealth, who is truly
Speaker 1: expert it linking the earnings and profitability dynamics of American
Speaker 1: corporations into our greater American economy. Owning the high ground
Speaker 1: on that is Stephen Whiting, and he joins us right now. Stephen,
Speaker 1: I loving your research. Note how you say there are
Speaker 1: beats out there and there's a bang up fourth quarter,
Speaker 1: but you're just not all on board the American recovery.
Speaker 1: How out of how how painful will those corporate earnings
Speaker 1: announcements be throughout the year. Well there's something to adjust
Speaker 1: too later. It's it looks so much in the analysts
Speaker 1: earnings estimates, like the fourth quarter was the recession, and
Speaker 1: here we are sitting in the recovery. And it actually
Speaker 1: looks a little bit like that in financial markets. And
Speaker 1: it would be wonderful if that were really the truth,
Speaker 1: if we weren't just on the leading edge of the
Speaker 1: hit that we're going to have profits um And of
Speaker 1: course how markets traded last year are not anticipating this
Speaker 1: to be, you know, some kind of profit Nravana. We
Speaker 1: don't have declines, uh, you know about something. But if
Speaker 1: you really take a look at the estimates, they fall
Speaker 1: at a annualized rate in the quarter past. This is
Speaker 1: like a setting a hurdle that a toddler could leap over.
Speaker 1: Most companies, by far are going to beat those estimates.
Speaker 1: But then they're putting all that promise of the future
Speaker 1: that the year will be a growth here for EPs
Speaker 1: and the out quarders, but as soon as the second
Speaker 1: calendar quarter, the April through June quarter, there's a substantial gain. Now,
Speaker 1: there's some complexities when you beat your earnings estimates, it's
Speaker 1: easier to hit those later numbers because of the level
Speaker 1: they come in. And but the idea that this is
Speaker 1: all behind us in the economy. I don't think that's
Speaker 1: true at all. Then how do you participate? I'm going
Speaker 1: to assume that City Global Wealth Management is not enjoying
Speaker 1: being a hundred and in cash like the triple leveraged
Speaker 1: on cash fun How do you participate? I know, how
Speaker 1: do you participate if you're not all in cash? We look,
Speaker 1: we've got to live with the ups and downs of
Speaker 1: equities markets, and we've had three rallies and excess of
Speaker 1: ten percent since the Fed started tightening the real rally
Speaker 1: the turning point for the economy, the beginning of a
Speaker 1: new recovery is likely to begin. This year could be
Speaker 1: a stronger year for the economy. Do we think that
Speaker 1: we should already be discounting this recovery. No, so we
Speaker 1: are playing it safer. Again, our largest overweights are in
Speaker 1: firms that are the most consistent dividend growers, in pharmaceutical
Speaker 1: shares that have low cicklutality. I think this very near
Speaker 1: term period, especially before we see the January employment report
Speaker 1: and we probably see the Fed deliver hawk is UH
Speaker 1: is probably going to be a period where we're gonna
Speaker 1: have to settle back a bit. UH. And again that
Speaker 1: does not tell us to time the market and be
Speaker 1: all out of equities. But we're okay with a short
Speaker 1: covering rally and low quality shares and just missing that
Speaker 1: for the mere terms. Even how much it would you
Speaker 1: lean into oil majors in particular because of that dividend story,
Speaker 1: that share buyback story, and not necessarily a call on
Speaker 1: commodity prices. It's a full waiting despite a poor ciplical backdrop,
Speaker 1: and we think that a lot of industrial and materials
Speaker 1: companies are going to see earnings down visions are going
Speaker 1: to see weaker activity this year. I would say though
Speaker 1: that petroleum generally um is pretty well positioned for for
Speaker 1: a week period for the world economy. The downside maybe
Speaker 1: seventy dollars in the Brent price in what will be
Speaker 1: a probably a mild global recession or something that we
Speaker 1: might call that. Uh literally, the US economy is going
Speaker 1: to have some significant job losses. We don't believe that
Speaker 1: you have sales declines without real job declines. We're not
Speaker 1: just talking about job openings. But even with that said,
Speaker 1: OPEC has cut production early supply sources around the world
Speaker 1: are recovering slowly, so I think this is not going
Speaker 1: to be a particularly bad cycle for energy. Meanwhile, you
Speaker 1: mentioned the FED, and we have been steering clear of
Speaker 1: the FED because they are in the quiet period ahead
Speaker 1: of next week. But there is this question inherent in
Speaker 1: a strengthening financial conditions index, a lesser negative actually a
Speaker 1: positive that Tom has been sighting. As you see the
Speaker 1: stocks rally and as you see ponds rally, at what
Speaker 1: point does this bush the FED to go further, to
Speaker 1: do more than people currently expect, simply because this really
Speaker 1: does kind of make it more difficult for them. Well, look,
Speaker 1: I think the FED can't entirely ignore the fact that
Speaker 1: real data two months of decline and industrial production, two
Speaker 1: months of decline and retail sales uh, you know too much,
Speaker 1: two months of a decline in total hours worked, and
Speaker 1: all of that survey data that you mentioned or softening.
Speaker 1: Plus we are seeing a deceleration and and inflation. That's
Speaker 1: for real. Here we have a decline in money supply.
Speaker 1: Yet the FED is not going to be satisfied, And unfortunately,
Speaker 1: I think that that is their mistake because you've heard
Speaker 1: from an earlier guest that the reality is that there's
Speaker 1: still pipeline effects on the economy that are coming The
Speaker 1: problem for markets is that they can't ignore the slowdown
Speaker 1: in the economy that will change the Fed's view. And
Speaker 1: the FED isn't all likelihood going to try to weigh
Speaker 1: against these easing the easing and financial conditions. You know,
Speaker 1: will they do that by tightening more and harming the
Speaker 1: labor market even more? They probably won't, But they're gonna
Speaker 1: leave it to markets to sort this out, and there
Speaker 1: can be certainly more corrections ahead simply because of that mispantter.
Speaker 1: That's a critical distinction, Steve Whiting. If they're going to
Speaker 1: quote unquote leave markets to sort it out at the
Speaker 1: end of the day, do markets tell the Fed what
Speaker 1: to do with its understood asymmetries whate I think about
Speaker 1: the message at the long end of the bond market,
Speaker 1: the treasury market is saying that the FED has already
Speaker 1: at an unsustainable funds rate, particularly now that they shrink
Speaker 1: their balance sheet four or fifty billion dollars, and they'll
Speaker 1: continue to lend less to the bond market. You know,
Speaker 1: that yield curve steepening that they predicted on q T
Speaker 1: didn't happen again. So I think that ultimately the FED
Speaker 1: is going to get this forecast. But again it is
Speaker 1: predicated on the notion that are labor markets, that demand
Speaker 1: for labor is going to fall now that we have
Speaker 1: sky high inventories and massive declines and home sales to
Speaker 1: reckon with in terms of labor markets. So the Fed
Speaker 1: will get the message of markets. I believe the longer
Speaker 1: term bond market is telling the FED the right the
Speaker 1: right message. I just do think that they're going to say,
Speaker 1: like they said in the minutes, uh that if they
Speaker 1: markets have misjudged their reaction function and they're going to
Speaker 1: ease here quickly. Um, that's not what they're going to do.
Speaker 1: I wish they would pause if they're not going at
Speaker 1: least you dove tell that with what Andrew holland Horst
Speaker 1: said the other day. Yeah, we go up call from fifty, etcetera.
Speaker 1: But then you get to a level into Mr Whiting's comments,
Speaker 1: they stay there, Which is the reason why some people
Speaker 1: are leaning into the long end, because they do believe
Speaker 1: that or restrict growth. They do believe that the Fed
Speaker 1: will induce something that's more significance. Even how much are
Speaker 1: you using longer term treasuries longer term sovereign debt as
Speaker 1: a ballast in a really uncertain time. Well, we are.
Speaker 1: We're overweight long term treasuries, underweight other markets like Japan
Speaker 1: for example. Again, because we believe the correlation between stocks
Speaker 1: and long term treasures, equities and long term treasuries will
Speaker 1: break down, it will be negatively correlated. Again, portfolios will
Speaker 1: work with you know, barbells of high risk and low
Speaker 1: risk at the same time. Though, it's the front end
Speaker 1: of the curve and the belly of the curve that's
Speaker 1: offering real yield, so we have larger overweights there. And
Speaker 1: again this is not to be negative in the long run.
Speaker 1: We can't be too cute about when markets can recover,
Speaker 1: but we're just not going to load up on a
Speaker 1: lot of cyplical risk. Interest rate risk we think is
Speaker 1: peaked in market, so we don't have to worry about
Speaker 1: long bond yields going to six or seven. But we
Speaker 1: do think that there's a price to pay to keep
Speaker 1: ten year treasury notes at three and a half. Stephen,
Speaker 1: before we let you go, do care about the death
Speaker 1: ceiling debate. I think it's likely to be highly likely
Speaker 1: to be resolved, and I think that the debate over
Speaker 1: uh the House speaker role again probably overstates the amount
Speaker 1: of risk. There are multiple ways to address this. There
Speaker 1: are again some ways of which we can cause a
Speaker 1: disruptive period again losing the House speaker role, not preparing
Speaker 1: an advance sufficiently for this. So it can be a
Speaker 1: market concern. I doubt that it rises to two thousand
Speaker 1: eleven levels of worry. Again, Stephen Winning, thank you so
Speaker 1: much to complete an also staring particularly linking in earnings
Speaker 1: in corporate America into the greater American economy. He is
Speaker 1: with the City Group. This is an important conversation this
Speaker 1: morning in London are John Farrell was conna of D
Speaker 1: and F ME and John T. K. Thank you buddy.
Speaker 1: As always, I want to talk about two metals, not
Speaker 1: just copper, but aluminum as well. Year today, these two
Speaker 1: offen the race is absolutely flying at the moment. Year today,
Speaker 1: copper at more than eleven aluminum more than ten percent.
Speaker 1: We are just three or four weeks into this kind
Speaker 1: of hack joins us right now. Kinda let's talk about it.
Speaker 1: I want to start with this. It's a big question,
Speaker 1: big picture question. It's an important one. How commodity intensive
Speaker 1: is this reopening going to be in China? That is
Speaker 1: actually the big question. I sensed that right now it's
Speaker 1: very sentiment driven. The idea of China reopening. It's definitely
Speaker 1: gonna lead to a lot of pent up demand, just
Speaker 1: like it did when the US and Europe opened up
Speaker 1: after COVID. But in terms of actual manufacturing intensity, which
Speaker 1: requires the huge amounts of commodity imports, I feel like
Speaker 1: China's commodity imports are still pretty good. I mean, their
Speaker 1: stock levels are really quite high right now. So I
Speaker 1: think right now it's potentially the copper rally is running
Speaker 1: ahead of itself in anticipation of more to come. But
Speaker 1: I think we just have to be a little bit
Speaker 1: patient on that. So when you hear Jeff Carry of
Speaker 1: Government say eleven thousand, five hundred this year, you're pushing back.
Speaker 1: I think short term, I think we might have run
Speaker 1: ahead of ourselves. But I do agree that copper fundamentals
Speaker 1: are tied, inventories are still free slim, the supply side
Speaker 1: still looks like this huge amount of capics and still
Speaker 1: is required. Um, But I don't think we're at crunch
Speaker 1: time right now. But I think right now it's a
Speaker 1: very sentiment driven, and understand it's all things China. When
Speaker 1: you look at the marginal dollar increase of China GDP.
Speaker 1: Has it become more or less commodity intensive over the
Speaker 1: last decade or so? Is that something that's declined. Yes,
Speaker 1: I think China's reopening. It's significant, but it's going to
Speaker 1: be different China. The structural changes that we're seeing in China.
Speaker 1: I mean, we've been talking a lot about the population decline,
Speaker 1: the fact that the property set is no longer as
Speaker 1: hot as it was before. The manufacturing is slowed down,
Speaker 1: there's no longer that big impulse and push, you know,
Speaker 1: to go back to your point of what intense intensity
Speaker 1: of consumption of copper, I just don't think it's as
Speaker 1: going to be as strong as the two thousand and
Speaker 1: ten reband for example. We'll talk to me about where
Speaker 1: you do want to be? What bucket do I want
Speaker 1: to be in right now preparing for the demand that's
Speaker 1: going to come west, tom On going to show up.
Speaker 1: Oh So I do think commodities are a good place.
Speaker 1: Um and I feel like copper and alley have you know,
Speaker 1: slightly gone ahead of themselves. I think crude all is
Speaker 1: justified because you know, right now, at particularly ahead of
Speaker 1: the February fifth European ban on Russian products. I think
Speaker 1: China has a huge role to play that. So they're
Speaker 1: going to be in putting more crude in order to
Speaker 1: meet that gap in terms of product exports, and they're
Speaker 1: doing that in a big way. I think mobility in
Speaker 1: China it's just starting and that's going to be again,
Speaker 1: very oil intensive. So I like crude oil very much.
Speaker 1: I think to a certain extent acts as well. I
Speaker 1: think is as they start the Chinese go out and looking,
Speaker 1: you know, going back into restaurants and consuming what they
Speaker 1: couldn't behave back in the lockdown. I think that could
Speaker 1: be quite good for the beefs and therefore the feedstocks,
Speaker 1: which is the grains. Triple digit crude back on the
Speaker 1: table just a bad. I think I might touch a hundred,
Speaker 1: but not unless you go high. The reason I asked
Speaker 1: that question is because we're all trying to figure out
Speaker 1: how much of this we import to the United States,
Speaker 1: to Europe. Do we import higher prices from what's happening
Speaker 1: in China right now? And that is the risk. So
Speaker 1: I think, yes, there's a potential that we see a
Speaker 1: little bit of an uptake in commodity prices, but for
Speaker 1: the reasons I mentioned before. I don't think we can
Speaker 1: sustain higher because the rest of the world is moving
Speaker 1: into recessions. So we're just a little bit too China
Speaker 1: centring right now, and I think we need to balance
Speaker 1: that out by the fact that the USA and Europe
Speaker 1: are slowing. When you say the rest of the world's
Speaker 1: going into recession, who do you mean? Um? Okay, good question,
Speaker 1: because the idea is at least the bondmarkers are telling
Speaker 1: us that the Europe, that Europe and the USA are
Speaker 1: going to intercession, maybe a mild one, but it's still
Speaker 1: heading that way. The tent the yield curves are definitely
Speaker 1: pointing to that. Um. Obviously, don't look at the stock
Speaker 1: markets that nothing. Everything's great and rosy. But I think
Speaker 1: if we are paying attention to perms, and maybe not
Speaker 1: today's European one, but uspre mis are going to come
Speaker 1: out later today, If those start showing continuous contraction, I
Speaker 1: think we are looking at a recession. And I think
Speaker 1: even if it's mild or not, it has to be
Speaker 1: taken into a can and that might have an offsetting
Speaker 1: balance to any China reopening. The markets are playing a
Speaker 1: relative game with things better or worse than they were
Speaker 1: three months ago. Clearly they're better in Europe. One thing
Speaker 1: I don't think we've discussed enough is the fact that
Speaker 1: Europe is still projecting what zero percent zero point five
Speaker 1: GDP growth for the year ahead. Why aren't we talking
Speaker 1: more about stagflation? Why is that word not being used
Speaker 1: a whole lot more? Actually, if you talk to some
Speaker 1: hedge funds, they are talking about stagflation. And it's interesting
Speaker 1: because in a in a stag inflationary environment, you want
Speaker 1: to stay long some commodities, but you also don't the
Speaker 1: state commodities that are economically dependent. In that case, something
Speaker 1: like aggs could do quite well because those are income
Speaker 1: in elastics. So no matter what happens to the economy,
Speaker 1: you need a certain level of agricultural foods. So some
Speaker 1: people like agriculture in their basket as a good hedge
Speaker 1: against stagflation. Um. So you prefer a long and soft
Speaker 1: commodities as opposed to a long in base metals. Um? Oh?
Speaker 1: Good one? Um? Yes, interesting, that's the year ahead conviction
Speaker 1: call for you entertain kinda hack. Thank you of a
Speaker 1: D and F map. This is the Bloomberg Surveillance Podcast.
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Speaker 1: keene In. This is Bloomer h