WEBVTT - Surveillance: Credit Opportunities With Watson 0:00:05.120 --> 0:00:09.320 Welcome to the Bloomberg Surveillance Podcast Hometown Keene. Along with 0:00:09.440 --> 0:00:13.200 Jonathan Ferrell and Lisa are Brownwitz Jayleie, we bring you 0:00:13.320 --> 0:00:18.640 insight from the best an economics, finance, investment and international relations. 0:00:18.960 --> 0:00:23.840 Fine Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.920 and of course on the Bloomberg termament. Let's talk about 0:00:29.920 --> 0:00:31.560 this bond market as well. If you're just tuning in, 0:00:31.720 --> 0:00:33.320 you have got a bond market with your tire on 0:00:33.400 --> 0:00:36.199 tens by four basis points to about one forty eight, 0:00:36.240 --> 0:00:38.159 just short of one fifty. Joining us now to discuss this, 0:00:38.240 --> 0:00:41.400 Marilyn Watson had a global fundamental fixed income strategy at 0:00:41.400 --> 0:00:43.839 black Rock. Marilyn, let's start with Chairman Pale and work 0:00:43.840 --> 0:00:46.440 our way toward into this bond market, treasuries into credit. 0:00:47.000 --> 0:00:49.640 Did you sense a big shift yesterday from the chairman? 0:00:51.200 --> 0:00:54.040 We did censor shift, so I think sickly obviously the 0:00:54.080 --> 0:00:56.440 end of the last week. Um, you know, we saw 0:00:56.480 --> 0:00:58.920 this very much sure, a risk of tone with the 0:00:59.000 --> 0:01:01.400 new variant coming to We're leading to you know, a 0:01:01.440 --> 0:01:04.200 huge amount of uncertainty back in the markets. Um. And 0:01:04.240 --> 0:01:06.640 I think that led to you know, investors being obviously 0:01:06.640 --> 0:01:09.080 a little bit more cautious going into chair Powell and 0:01:09.120 --> 0:01:11.280 his testimony. And I do think it did surprise the 0:01:11.319 --> 0:01:13.840 markets a little bit. And we have been saying for 0:01:13.880 --> 0:01:15.880 some time that we think, you know, the Fed really 0:01:16.280 --> 0:01:19.520 isn't a position now where they can accelerate the taper 0:01:19.880 --> 0:01:22.400 where next year they can start to even um, you know, 0:01:22.560 --> 0:01:25.959 maybe raise rates maybe two or even three times, depending 0:01:26.000 --> 0:01:29.560 on how this new variant shapes out. But I think 0:01:29.600 --> 0:01:31.520 the market was caught a little bit off guard, just 0:01:31.600 --> 0:01:33.720 given the volatility that we've seen over the past few 0:01:33.800 --> 0:01:37.360 days with the negative news you know, around COVID. But 0:01:37.800 --> 0:01:40.199 I think in terms of the overall trajecture of the market, 0:01:40.680 --> 0:01:42.320 that's where it had been heading. I think it was 0:01:42.360 --> 0:01:45.440 just surprising given the context of the past few days. 0:01:45.520 --> 0:01:47.960 The q has been very important for signaling, signaling to 0:01:48.480 --> 0:01:51.200 the broader economy and to financial markets. Were Mary and 0:01:51.200 --> 0:01:53.800 I just wonder what an accelerated QUI taper would actually 0:01:53.840 --> 0:01:56.280 mean for this market. You Rick read above, Miller have 0:01:56.320 --> 0:01:58.640 made the point repeatedly over the last several months that 0:01:58.720 --> 0:02:00.200 a lot of this would be canceled out at the 0:02:00.200 --> 0:02:02.960 taper at the Treasury. But if we accelerate things. Does 0:02:03.000 --> 0:02:06.440 it have a bigger impact, Well, I think on the 0:02:06.480 --> 0:02:08.519 margin it has a small impact. But the fact is 0:02:08.560 --> 0:02:12.240 that when they are still continuing to purchase assets, even 0:02:12.280 --> 0:02:14.959 as they wind down the amount that they hold, then 0:02:15.040 --> 0:02:18.640 you know, they're still actually supporting and they're still providing 0:02:18.639 --> 0:02:21.800 a very very loose accommodative montry policy. They're still continuing 0:02:21.840 --> 0:02:25.160 to buy assets. So even if they sort of accelerate 0:02:25.200 --> 0:02:27.280 this a little bit, we think that the level of 0:02:27.280 --> 0:02:29.640 accommodation at the moment is so high, and particularly I 0:02:29.680 --> 0:02:32.280 think yesterday we did start to hear a lot more 0:02:32.320 --> 0:02:36.400 caution from Chair Powell around just the very high levels 0:02:36.440 --> 0:02:39.760 of inflation that you know, are potentially becoming more persistent. 0:02:40.120 --> 0:02:41.680 And I think that's a factor that the Fed are 0:02:41.720 --> 0:02:45.200 now starting to really include in the forward guidance, and 0:02:45.240 --> 0:02:47.239 I think maybe they just starting to shift the tone 0:02:47.240 --> 0:02:49.560 a little bit as we do go into you know, 0:02:49.639 --> 0:02:51.760 the the FOMC meeting in a couple of weeks time, 0:02:51.840 --> 0:02:54.359 I think it will be key for market participants to 0:02:54.400 --> 0:02:59.160 really see you know, the timing around the que tapering, 0:02:59.200 --> 0:03:01.680 but also the time being around any potential rating increase 0:03:01.720 --> 0:03:03.959 as well. So I think given the high levels of 0:03:03.960 --> 0:03:06.640 inflation that we've talked about a lot. Given the fact 0:03:06.639 --> 0:03:08.760 that the tone has shifted around that it could be 0:03:08.800 --> 0:03:11.520 a bit more persistent than so far we've been hearing 0:03:11.520 --> 0:03:13.799 from the Fed. Um. I do think it's important. One 0:03:13.840 --> 0:03:17.000 reason why perhaps Fredshire Powell feels important is because markets 0:03:17.040 --> 0:03:20.040 are letting him make these moves, to make these signals 0:03:20.040 --> 0:03:22.480 without getting disrupted too much. And I take a look 0:03:22.520 --> 0:03:25.040 at credit nothing like the tape re tantrum going to 0:03:25.080 --> 0:03:29.079 back to but still nonetheless you are seeing money getting 0:03:29.200 --> 0:03:32.120 withdrawn from the high yeald debt market and slowly see 0:03:32.200 --> 0:03:35.320 yield creep higher the worst performance for that debt going 0:03:35.360 --> 0:03:38.600 back to September. Is this a buying opportunity or a 0:03:38.640 --> 0:03:42.800 warning sign for what's to come? Um? I mean I 0:03:42.840 --> 0:03:47.400 think potentially, if you exclude the current uncertainty around the 0:03:47.400 --> 0:03:51.280 new COVID variant, it could be a buying opportunity. When 0:03:51.320 --> 0:03:53.560 you think that, of course, as you expect to see 0:03:53.680 --> 0:03:56.320 you know, Muntro policy normalize a little bit. Um And 0:03:56.440 --> 0:03:59.400 we have seen obviously, um, you know, the yield and 0:03:59.440 --> 0:04:02.840 treasuries and Greece, we've started to see spreads widen. We 0:04:02.960 --> 0:04:06.360 are seeing now better opportunities and better evaluations in higher 0:04:06.400 --> 0:04:09.320 quality credit, so we have seen some investors sort of 0:04:09.360 --> 0:04:12.760 go up the credit quality spectrum. We have also when 0:04:12.800 --> 0:04:15.200 you're talking about how yield, we're continuing to see investors 0:04:15.240 --> 0:04:18.119 as well um still continuing to prefer the loan market 0:04:18.160 --> 0:04:21.280 in many cases given the floating right structure. So I 0:04:21.320 --> 0:04:23.440 think again, as the market is put you know, really 0:04:23.440 --> 0:04:26.680 starting to position itself for a little bit more normalization, 0:04:26.720 --> 0:04:30.000 although we're far from normal um in this environment, and 0:04:30.040 --> 0:04:32.200 as we do see these you know, ongoing levels of 0:04:32.320 --> 0:04:35.880 inflation that are persisting through until next year, then I 0:04:35.920 --> 0:04:38.440 do think we do we are seeing more dispersion also 0:04:38.480 --> 0:04:41.839 in the sectors that are seeing you know, better prices 0:04:41.839 --> 0:04:44.440 but evaluations. So I think it's a buying opportunity, but 0:04:44.480 --> 0:04:47.240 I think also investors are being you know, particularly cautious 0:04:47.640 --> 0:04:50.599 as we're going to year end. Liquidity isn't particularly great 0:04:50.600 --> 0:04:52.720 at the moment, and as we do have this you know, 0:04:52.880 --> 0:04:56.200 higher uncertainty as we're discussing around the new COVID variant, 0:04:56.240 --> 0:05:01.520 around petition, potentially measures to you know, limit restriction on movement, etcetera. 0:05:01.640 --> 0:05:03.960 So there's a lot of unknowns, but there could be 0:05:04.000 --> 0:05:06.359 potentially buying opportunities. What an end of the year, Mounting, 0:05:06.440 --> 0:05:08.280 fantastic to catch up with you send out best to 0:05:08.320 --> 0:05:10.720 the team as always Mountain, what's in there? Black Rock? 0:05:16.640 --> 0:05:19.440 Right now? On fixed income, Bob Michael joins us here 0:05:19.520 --> 0:05:22.240 for a good conversation to says how to global fixed 0:05:22.240 --> 0:05:26.360 income currency commodities of JP. JP Morgan Asset Management barely 0:05:26.400 --> 0:05:30.839 describes the ability here do you buy the dip in bonds? 0:05:30.960 --> 0:05:34.679 I'm totally confused about what to do with full faith 0:05:34.680 --> 0:05:38.080 and credit or just credit right now? Do you clip 0:05:38.120 --> 0:05:40.080 the coupon? Do you buy it? Or do you just 0:05:40.279 --> 0:05:43.760 go to cash? Which is it? You sell government bonds 0:05:44.040 --> 0:05:48.479 and you buy credit. There's been a tremendous repricing, You've 0:05:48.480 --> 0:05:51.200 had a flattening of the Yelk curve. There's a lot 0:05:51.240 --> 0:05:54.479 of concern that the Fed is going to move too 0:05:54.560 --> 0:05:58.400 quickly for the market and will lead to recession. And 0:05:58.480 --> 0:06:03.920 that's ultimately why thev has inverted. That's nonsense. They're miles 0:06:03.960 --> 0:06:07.440 away from anything that looks normal, and I think this 0:06:07.520 --> 0:06:10.960 is an opportunity to get rid of any remaining government 0:06:11.000 --> 0:06:14.200 bonds you have and then go back into the credit markets, 0:06:14.240 --> 0:06:17.000 go back into investment grade and high yield. You can 0:06:17.000 --> 0:06:19.400 do it in US and you can do it in Europe, 0:06:19.600 --> 0:06:21.680 and those are the things that you're buying on sale. 0:06:21.760 --> 0:06:25.440 Well that word normal, What does that word mean anymore? Well, 0:06:25.720 --> 0:06:28.520 for me who's been around for four decades, it means 0:06:28.600 --> 0:06:31.920 getting the central banks out of the market and leaving 0:06:31.960 --> 0:06:35.359 it to people like me to price. And there's a 0:06:35.560 --> 0:06:39.000 very different operating model than what we're used to from 0:06:39.160 --> 0:06:42.440 the central banks. Um, when I started the business, the 0:06:42.480 --> 0:06:46.440 central banks extended credit to the banking system and they 0:06:46.440 --> 0:06:49.039 controlled the cost of funding, and then they relied on 0:06:49.120 --> 0:06:53.080 the banks to extend credit into the economy. Now they're 0:06:53.080 --> 0:06:56.240 controlling the cost of funding across the entire economy. It's 0:06:56.279 --> 0:06:59.359 gone too far. It's got to stop, and participants in 0:06:59.400 --> 0:07:02.160 the market like myself have to get involved again. Well 0:07:02.240 --> 0:07:04.240 that's a design, Is it a full cost? What makes 0:07:04.240 --> 0:07:07.640 it a fuecast? What makes it a forecast is j 0:07:07.839 --> 0:07:11.320 PAL yesterday and j PAL saying it's time for them 0:07:11.360 --> 0:07:15.200 to exit the market, which I think they're going to do. 0:07:15.320 --> 0:07:18.720 They should announce uh that they're going to double the 0:07:18.760 --> 0:07:21.840 pace of of tape ring, so they should be out 0:07:21.880 --> 0:07:25.160 of the market by March, and then we should see 0:07:25.360 --> 0:07:28.280 rate hikes pretty soon after that, So they're going to 0:07:28.360 --> 0:07:31.240 start that journey to normal, and we're going to help 0:07:31.240 --> 0:07:33.120 them on that path. All right, You're gonna help them 0:07:33.160 --> 0:07:37.080 on that path. So so completely egourgeous of you. I 0:07:37.120 --> 0:07:39.240 do wonder that when you say it's a buying opportunity 0:07:39.480 --> 0:07:43.400 for credit, particularly riskier credit, why this is a good 0:07:43.560 --> 0:07:45.920 entry point given the fact that we are still so 0:07:46.040 --> 0:07:49.760 vastly below where we were before the pandemic when it 0:07:49.800 --> 0:07:52.600 comes to yields, why is this an opportunity at four 0:07:52.680 --> 0:07:57.600 point eight percent a coupon on a junk pond. For 0:07:57.680 --> 0:08:02.520 a number of things. For one, corporate profitability still remains 0:08:02.800 --> 0:08:06.600 very high. Companies have a lot of financial flexibility, and 0:08:06.640 --> 0:08:10.840 the companies were talking to don't see any significant drop 0:08:10.880 --> 0:08:13.600 off in aggregate final demands, so their top line is 0:08:13.640 --> 0:08:16.880 going to grow. They do see the input cost pressures 0:08:17.160 --> 0:08:19.600 and they're starting to pass some of those along, and 0:08:19.640 --> 0:08:22.720 by the way they've been raising dividends and buying back shares. 0:08:23.000 --> 0:08:25.520 They can dial that down a bit if they need to. 0:08:25.920 --> 0:08:29.080 But right now we're looking at a consumer that's flesh 0:08:29.080 --> 0:08:31.960 with cash, that's out there spending. Yeah, there may be 0:08:32.120 --> 0:08:36.120 some headwinds from the O Macron variant will see over 0:08:36.160 --> 0:08:38.600 the next couple of weeks and couple of months, But 0:08:38.720 --> 0:08:41.400 for now, corporate profitability looks pretty good. I want to 0:08:41.400 --> 0:08:43.040 be a part of that. Well, but do you really 0:08:43.040 --> 0:08:45.680 think central bankers will ever get out of this market 0:08:45.720 --> 0:08:48.040 and let people like you truly price it or is 0:08:48.040 --> 0:08:51.040 there sort of an implicit put that if things get 0:08:51.080 --> 0:08:55.280 volatile enough, they'll step right back in. Well, that's the debate. 0:08:55.520 --> 0:08:58.560 I start off by saying, I'm I'm used to one model, 0:08:58.600 --> 0:09:01.559 but when I look around our trading floor, um a 0:09:01.760 --> 0:09:05.520 very large percentage of the people only know the current model, 0:09:06.080 --> 0:09:08.840 which has existed since two thousand and nine, where central 0:09:08.840 --> 0:09:12.040 banks do intervene in all sectors of the bond market. 0:09:12.160 --> 0:09:14.760 So now I think it's a tool that they've learned 0:09:14.760 --> 0:09:17.920 to deploy. It's not going to go away anytime soon, 0:09:18.240 --> 0:09:21.040 and they're going to have to gauge that with all 0:09:21.080 --> 0:09:25.679 the other tools that they have. And yes, financial conditions 0:09:25.760 --> 0:09:29.360 indicators are one of the reasons that you buy dips 0:09:29.480 --> 0:09:32.520 in risk assets. As long as they look at those things, 0:09:32.840 --> 0:09:36.040 they're back stopping the markets. Michael with his JP Morgan 0:09:36.120 --> 0:09:37.959 here on radio and television, Bob, I'm not going to 0:09:38.040 --> 0:09:40.200 get you in trouble on China. Somebody else at JP 0:09:40.320 --> 0:09:42.880 Morgan is some challenges this week on China, But I 0:09:42.920 --> 0:09:45.240 am gonna ask you about the Pacific rim and about 0:09:45.240 --> 0:09:49.880 the great miss our David Wilson notices inequities internationals failed. 0:09:49.960 --> 0:09:52.280 What do you do with the international paper right now? 0:09:52.440 --> 0:09:54.400 I don't mean Turkey, but what do you do with 0:09:54.440 --> 0:09:59.760 the JP Morgan opportunity in international fixed income? You go 0:10:00.040 --> 0:10:03.400 for it. And we've had a lot of conversations about 0:10:03.760 --> 0:10:08.360 emerging markets, specifically emerging market equities, and how earnings for 0:10:08.480 --> 0:10:12.720 companies across Asia in particular have come in higher than 0:10:12.800 --> 0:10:16.360 anyone anticipated a year ago. The stocks have gone nowhere, 0:10:16.400 --> 0:10:19.680 They've even drifted down compared to the double digit recurrens 0:10:19.960 --> 0:10:23.240 returns in the developed markets. Next year is probably the 0:10:23.360 --> 0:10:27.120 year that stock prices catch up to earnings, but earnings 0:10:27.120 --> 0:10:30.160 are still going to look pretty good. So yes, we're 0:10:30.200 --> 0:10:34.200 also buying credit across a pack in China and across 0:10:34.240 --> 0:10:36.559 the emerging markets. Is Europe a piece of that as well, 0:10:36.640 --> 0:10:41.439 Bob Um, Yes, and and and in fact Um we 0:10:41.440 --> 0:10:44.240 were looking over the last couple of days of going 0:10:44.280 --> 0:10:49.520 back into the European Bank sector. Uh, particularly UH, the 0:10:49.720 --> 0:10:53.920 alternative the additional tier one securities and the lower tier 0:10:53.920 --> 0:10:57.560 two securities, so the bank hybrid securities. Um. So we 0:10:57.640 --> 0:10:59.719 do see some opportunities there as well. You know, I 0:11:00.040 --> 0:11:02.240 have some speculations. So let me finish with this question. 0:11:02.640 --> 0:11:04.320 What did you think of cham and Pal making that 0:11:04.360 --> 0:11:07.520 move a week after secure and renomination? Bob? Did that 0:11:07.559 --> 0:11:10.160 stand that to you? It's so well, the easiest path 0:11:10.480 --> 0:11:13.320 for him would have been to do nothing and coast 0:11:13.400 --> 0:11:19.079 through the hearings on his reappointment and to suddenly start 0:11:19.120 --> 0:11:24.000 the tapering process disrupt the markets. Um to me is 0:11:24.000 --> 0:11:26.440 is taking some risk. What I want to know is 0:11:26.720 --> 0:11:30.400 what changed from Monday to Tuesday and what's going to 0:11:30.480 --> 0:11:34.600 change today from yesterday? Yeah, I couldn't agree more Tom. 0:11:34.640 --> 0:11:37.760 It's been a month since they announced tape rink and 0:11:37.800 --> 0:11:39.880 now we're having a conversation. What's changed in a month 0:11:40.360 --> 0:11:41.960 for him to say, you know what, maybe we should 0:11:41.960 --> 0:11:44.439 accelerate things. What do you see here is a grizzled 0:11:44.480 --> 0:11:47.360 pro like Bob Michael getting right down to the nitty 0:11:47.360 --> 0:11:50.679 gritty what changed in twenty four hours? And that's the 0:11:50.679 --> 0:11:52.880 whipsofe for people who are not in the game. On 0:11:52.920 --> 0:11:55.679 this John, we're all talking about the market action. We're 0:11:55.720 --> 0:11:59.760 forgetting about the losses earned and made over the last 0:12:00.080 --> 0:12:02.960 forty eight hours. Is I really wonder what the carnage 0:12:03.040 --> 0:12:05.440 is up there? So my final question to Bob Michael 0:12:05.440 --> 0:12:09.240 Thomas usually football related, so we'll keep it consistent in 0:12:09.240 --> 0:12:14.040 remain in Georgia, not Alabama, Georgia this weekend, Bob. Confidence 0:12:14.120 --> 0:12:16.240 level so I want to understand from your perspective tends 0:12:16.240 --> 0:12:21.479 back to two or another championship for Liverpool. Another championship 0:12:21.559 --> 0:12:25.760 for Liverpool to they are a goal scoring machine. Well, 0:12:25.840 --> 0:12:28.680 Michael JP Mark and asset management in the flesh, Bob, 0:12:28.679 --> 0:12:35.000 It's good to see you joining us now, not just 0:12:35.040 --> 0:12:37.880 on the global economy, but on the pandemic. Lauren Spoon, 0:12:37.960 --> 0:12:40.400 the chief economist at the O E C. D AND's 0:12:40.440 --> 0:12:43.000 typically I've come straight to you on a forecast, a 0:12:43.080 --> 0:12:45.400 call for US growth for Europe et center. I want 0:12:45.400 --> 0:12:47.440 to come to you on a number you guys have 0:12:47.480 --> 0:12:50.600 put out this morning. Vaccinations are key for the recovery. 0:12:50.640 --> 0:12:54.280 They would only cost fifty billion dollars. Fifty billion the 0:12:54.280 --> 0:12:56.680 context of how much we've spent over the last eighteen 0:12:56.720 --> 0:12:58.679 months is nothing. How do you get there? How do 0:12:58.720 --> 0:13:04.600 you get to that number? So so the way we've 0:13:05.040 --> 0:13:09.080 getting to that number, sorry about this. Basically, you know, 0:13:09.120 --> 0:13:12.240 the fifty billion is what's been estimating by Covax and 0:13:12.360 --> 0:13:16.679 all the related institution um. The ten trillion is actually 0:13:16.720 --> 0:13:20.880 what the twenty has been providing into fiscal support to 0:13:20.920 --> 0:13:24.320 the economy, two people, to firms, to jobs. So when 0:13:24.480 --> 0:13:29.400 when you balance things out, ten trillion for supporting our 0:13:29.480 --> 0:13:33.160 economy going through the pandemic, you know, compared with the 0:13:33.880 --> 0:13:37.880 fifty tiny fifty billion to bring the vaccine to the 0:13:38.160 --> 0:13:43.800 entire world population, that looks completely disproportionate. Well, right now 0:13:43.800 --> 0:13:47.640 we're dealing with the omicron variant, the idea that Africa 0:13:48.040 --> 0:13:51.719 has an incredibly low vaccination rate. Have you heard from 0:13:51.800 --> 0:13:55.120 member nations that they're accelerating, doubling down some of their 0:13:55.120 --> 0:13:58.520 aid to try to distribute vaccines in Africa and in 0:13:58.559 --> 0:14:04.480 other places that are really underserved. So yeah, with our 0:14:04.559 --> 0:14:06.880 Health Department here A, the O, E, C D, and 0:14:07.000 --> 0:14:09.960 the Trade Department, notice that it's very difficult to bring 0:14:09.960 --> 0:14:12.319 it to Africa, as you say, it's where the rate 0:14:12.360 --> 0:14:15.920 of vaccination is very low. There's a huge logistic questions, 0:14:16.080 --> 0:14:20.120 right bringing not only the vaccine, but being able to 0:14:20.240 --> 0:14:22.600 keep it at the right temperature and then distribute it 0:14:22.680 --> 0:14:25.440 around UM. So that that's where I think a lot 0:14:25.480 --> 0:14:28.320 of the effort now has has to focus on. But 0:14:28.360 --> 0:14:30.400 not only if we go back to the O E 0:14:30.480 --> 0:14:33.600 c D UM and that's what we should this morning. 0:14:33.720 --> 0:14:36.600 Even within O E C D countries and advanced economies, 0:14:36.720 --> 0:14:40.440 some countries have very low vaccination rate and that's an 0:14:40.480 --> 0:14:43.000 issue because as we've seen for example in some of 0:14:43.080 --> 0:14:46.840 the Eastern European countries, UM, they just had led them 0:14:46.880 --> 0:14:50.960 to put in place restrictions to mobility and economic activity. Again, 0:14:51.200 --> 0:14:55.080 so really, you know, expanding vaccination, making sure people get 0:14:55.160 --> 0:14:59.400 double or triple vaxed is key to a sustain recovery. 0:14:59.440 --> 0:15:02.240 In the meant time, Lawrence, there is a problem when 0:15:02.280 --> 0:15:04.960 we talk about the hiking cycle for the Federal Reserve, 0:15:05.000 --> 0:15:07.440 when we talk about the Bank of England going to 0:15:07.600 --> 0:15:10.760 a similar type of mode at the same time that 0:15:10.840 --> 0:15:13.480 you are seeing the potential for additional variants to slow 0:15:13.560 --> 0:15:16.440 the economy. What's the risk that we get a slow 0:15:16.480 --> 0:15:19.440 down in economic growth at the same time as surging 0:15:19.480 --> 0:15:27.120 inflation and central banks being forced to tighten into that UM. So, look, 0:15:27.280 --> 0:15:31.080 there's lots of uncertainty um, and there is no question 0:15:31.160 --> 0:15:35.720 that it's new variant is adding to this uncertainty. Now, 0:15:35.800 --> 0:15:38.800 one of the things we're very clear about is there's 0:15:38.840 --> 0:15:42.360 no one size fit all policy. The inflation in the 0:15:42.480 --> 0:15:45.400 US is very different from the inflation you may see 0:15:45.440 --> 0:15:48.440 in Asia, for example, in China or India. It's again 0:15:48.640 --> 0:15:51.120 very different from the one you see in the continental 0:15:51.160 --> 0:15:55.080 you are or in the UK UM And for that reasons, 0:15:55.160 --> 0:15:59.680 we have a very clear message. If inflation tensions mostly 0:16:00.240 --> 0:16:02.920 from the supply side, then sents for banks who looks 0:16:02.920 --> 0:16:06.520 through when you have a lot of momentum in the recovery, 0:16:06.680 --> 0:16:10.080 excess demand, un employment back where it was, then Yeah, 0:16:10.160 --> 0:16:14.880 normalizing the monitory policy is not something that's extraordinary and 0:16:14.920 --> 0:16:17.440 should be done. Lawrence tim Kin in Good morning to 0:16:17.480 --> 0:16:19.720 you on radio and television, Lawrence Mooonwether. So the O 0:16:19.840 --> 0:16:22.840 E c D as they reassess the global economy will 0:16:22.880 --> 0:16:25.800 do that again with key economic data today, including a 0:16:25.960 --> 0:16:29.240 d P. Lawrence I did a very careful study of 0:16:29.360 --> 0:16:33.560 John Byrne Murdock's magnificent work at the ft on cases 0:16:33.600 --> 0:16:38.320 and particularly deaths from COVID. The vector, the trend called 0:16:38.360 --> 0:16:43.720 the log vector of Germany, Austria and Switzerland is nothing 0:16:43.880 --> 0:16:48.640 short of grim. Can O E. C D extrampolate out 0:16:49.280 --> 0:16:53.480 the trends that we see in death from COVID or 0:16:53.520 --> 0:16:59.200 do you sit back and wait for more data? Look 0:16:59.240 --> 0:17:01.960 at Good morning to you and thanks for the invitation again, 0:17:02.240 --> 0:17:06.080 um Adeo CD. You know, we're economists. So what we 0:17:06.160 --> 0:17:10.359 do is we take into a the uncertainty that has 0:17:10.560 --> 0:17:15.080 increased with the period with the emergence of the new volant. 0:17:15.480 --> 0:17:19.359 We take into a condy uncertainty that has increased because 0:17:19.440 --> 0:17:23.560 the LATA is developing faster in countries where there's less vaccination, 0:17:23.960 --> 0:17:26.960 and we factored that in. But I think that's that's 0:17:27.000 --> 0:17:29.879 the base we can do again. We've warned about the 0:17:30.000 --> 0:17:33.680 uncertainty that was coming from the lack of vaccination. We've 0:17:33.760 --> 0:17:39.119 warned about the threat that this total imbalance between countries 0:17:39.200 --> 0:17:42.879 very vaccinated and those where they are just might be 0:17:43.400 --> 0:17:46.480 or where the vaccines has not gone yet was creating, 0:17:46.480 --> 0:17:49.359 and the risk that's creating this what's happening now is 0:17:50.040 --> 0:17:52.399 it's just a reminder that we need to find this 0:17:52.560 --> 0:17:56.080 fifty billion you know that that that will help us 0:17:56.200 --> 0:17:59.560 and all these imbalances and and there's stress that the 0:17:59.640 --> 0:18:02.640 various is creating on the global economy. Lawrence, always good 0:18:02.600 --> 0:18:04.200 to hear from you. Thanks for being with this morning, 0:18:04.240 --> 0:18:13.480 Lawrence Burning that of the A c D. We're staggering 0:18:13.560 --> 0:18:17.320 here on Bloomberg surveillance and particularly with our aviation coverage 0:18:17.800 --> 0:18:22.120 from story to story. Guy Johnson has led our coverage 0:18:22.200 --> 0:18:26.480 on airlines, on jets, on the Transatlantic, on the global 0:18:26.760 --> 0:18:29.679 and joins us now and Guy, I do understand that 0:18:29.760 --> 0:18:33.200 with our wonderful guests, the key question is the new 0:18:33.280 --> 0:18:37.080 Manchester United and how they'll do with Arsenal this weekend. 0:18:37.400 --> 0:18:39.840 But other than that, it's getting the planes in the air. 0:18:40.119 --> 0:18:41.960 It's a I think that's gonna be a critical question 0:18:42.040 --> 0:18:44.280 for shy Wi. Yeah, let we can. We can start 0:18:44.280 --> 0:18:49.000 on the football I Alsenal match to unite it. That's 0:18:49.040 --> 0:18:53.000 what Tom wants to know about. Are we live Yeah, 0:18:53.520 --> 0:18:58.720 Arsenal of course, Okay, we have an answer. Yes, Okay, 0:18:58.800 --> 0:19:00.760 let's let's talk about what this is going on now 0:19:00.760 --> 0:19:05.320 that we've we've cleared that one up. Um O Macron 0:19:05.920 --> 0:19:09.360 hard to say what impacts is theyre having on the business. Well, 0:19:09.400 --> 0:19:11.720 I'm just reminded that we met twenty three days ago 0:19:12.040 --> 0:19:15.280 outside of Terminal three at Heathrow for historic day of 0:19:15.359 --> 0:19:19.000 opening up the corridor between the UK and the US 0:19:19.320 --> 0:19:22.520 joint synchronized takeoff. And here we are twenty three days 0:19:22.560 --> 0:19:25.240 later and we have a new variant. UM. I think 0:19:25.240 --> 0:19:28.880 it's early days on this one. My intuition tells me 0:19:29.160 --> 0:19:33.920 that it is probably more transmissible, maybe not as severe, 0:19:34.080 --> 0:19:36.840 just based on the patterns. This just didn't emerge for 0:19:37.080 --> 0:19:39.720 five days ago. It probably emerged a few weeks ago, 0:19:39.920 --> 0:19:43.880 possibly in October. UM. We've changed adapted, of course South 0:19:43.880 --> 0:19:46.240 Africa's shut down, although there was a flight right now 0:19:46.280 --> 0:19:48.880 in the air from South Africa back to the UK 0:19:49.160 --> 0:19:52.239 where people needed to quarantine. So we'll we'll deal with it. 0:19:52.280 --> 0:19:54.640 You know, this industry has shown resiliency and so are we. 0:19:55.560 --> 0:19:57.960 The governments have reacted much more quickly in this time. 0:19:58.160 --> 0:20:00.879 He has that surprised you be? Is that the right 0:20:00.920 --> 0:20:04.520 soil wrong thing to do? It hasn't surprised me, and 0:20:04.560 --> 0:20:06.720 I think it's the wrong thing to do in the 0:20:06.800 --> 0:20:11.959 sense that travel is so omnipresent in our lives and 0:20:12.000 --> 0:20:16.600 if you can, you know, kind of put a combination 0:20:16.680 --> 0:20:22.520 of politics and pandemic, airlines is the easy target for 0:20:22.760 --> 0:20:26.240 changing of signals to the public, so I wasn't surprised. 0:20:26.400 --> 0:20:30.120 I think we should evaluate the situation quickly, and what 0:20:30.160 --> 0:20:32.840 I'm telling my team and telling the government in the 0:20:32.920 --> 0:20:37.280 UK is as quickly as you introduced those measures. If 0:20:37.320 --> 0:20:40.200 things turn out that they are not as significant, take 0:20:40.280 --> 0:20:44.320 them back immediately as well testing opening up orders, removal 0:20:44.359 --> 0:20:47.280 of of red less countries. Do laias told that the 0:20:47.280 --> 0:20:50.840 North Atlantic may be shut down again? I am not 0:20:51.040 --> 0:20:53.520 that concerned about that, based on the comments that President 0:20:53.560 --> 0:20:55.760 Biden made a few days ago, which in my mind 0:20:55.800 --> 0:20:58.960 were the most calm of the political leaders out there. 0:20:59.240 --> 0:21:01.919 Let's look at the formation. This should be data driven 0:21:02.200 --> 0:21:04.840 and then we make the calls. And travel is not 0:21:05.480 --> 0:21:08.880 the way to stop a pandemic. This variant is now 0:21:08.920 --> 0:21:12.040 everywhere in the world. Everybody understands that. So shutting borders 0:21:12.320 --> 0:21:16.520 hurts thousands and millions of people, of course over the 0:21:16.520 --> 0:21:19.040 festive period, but businesses and GDP is reliant on it 0:21:19.240 --> 0:21:22.399 and we need every single piece of help that we 0:21:22.400 --> 0:21:25.479 can get, and travel enables that. What has what does 0:21:25.520 --> 0:21:29.520 the North Atlantic look like since November eight um? What 0:21:29.640 --> 0:21:32.480 kind of load facts is if you've been experiencing what 0:21:32.560 --> 0:21:35.560 does pricing look like. What does pricing look like around 0:21:35.560 --> 0:21:38.560 the holidays? Has Business Travels given me a kind of 0:21:38.720 --> 0:21:40.960 a data dump as to kind of what it does 0:21:41.040 --> 0:21:42.960 look like since then? And I will try and be 0:21:43.080 --> 0:21:45.919 organized in my comments on the data dump. UM. So, 0:21:46.040 --> 0:21:50.720 first post the eight tremendous bookings across the Atlantic UM, 0:21:50.760 --> 0:21:54.200 and we've seen load factors building very nicely close in 0:21:54.200 --> 0:21:58.160 in December, and we will probably be still flying anywhere 0:21:58.200 --> 0:22:01.920 between six load factors. On the week post the eight, 0:22:02.400 --> 0:22:04.880 you couldn't get a seat on a Virgin Atlantic from 0:22:04.920 --> 0:22:10.560 London to the US. The variant has changed this a bit, 0:22:10.600 --> 0:22:13.160 but I think we're neutral in the December period, so 0:22:13.960 --> 0:22:16.959 new bookings are offsetting cancelations, and there have been cancelations, 0:22:17.000 --> 0:22:19.639 of course people want to do that. But for Easter 0:22:20.000 --> 0:22:24.159 and UM and the summer, we're still building momentum and 0:22:24.240 --> 0:22:27.960 still building load factors UM and if you look at 0:22:28.320 --> 0:22:32.280 the expected January load factor is trailing quite nicely anywhere 0:22:32.280 --> 0:22:37.119 in the s some flights up to so overall I 0:22:37.160 --> 0:22:40.920