WEBVTT - Sinche: countries eyeing competitive devaluation

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<v Speaker 1>day on Bloomberg SNP EVENI futures up nineteen points, Dow

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<v Speaker 1>E Mini futures of a hundred sixty five, naz Documuni

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<v Speaker 1>point seven percent tenure Treasury down six thirty seconds, the

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<v Speaker 1>yield one point seven six percent, Nimex screw oil at

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<v Speaker 1>three point six percent, or a dollar seven to thirty

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<v Speaker 1>dollars seventy one cents a barrel, Comex goal down one

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<v Speaker 1>point nine percent or twenty three dollars to twelve oh

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<v Speaker 1>seven eighty announced, the Euro a dollar ten thirty, the

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<v Speaker 1>En one thirteen point one seven, the British pound a

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<v Speaker 1>dollar forty seventy seven, and all again reporting fourth quarter

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<v Speaker 1>profit that beat analysts estimates. That's a Bloomberg business flash.

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<v Speaker 1>Tom and Mike Karen, thank you very much. We're talking

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<v Speaker 1>with Bob since you've Amherst Pierpont. Before the break, Bob,

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<v Speaker 1>you mentioned negative interest rates. We got five countries in

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<v Speaker 1>Europe right now with negative interest rates, and I read

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<v Speaker 1>this morning the checks are thinking of going there next

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<v Speaker 1>basically because they want a weaker karuna. Are we now,

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<v Speaker 1>after after many years of talking about it, are we

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<v Speaker 1>now getting into currency wars in which, like the nineteen thirties,

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<v Speaker 1>there is no possible way to win if everybody's in

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<v Speaker 1>a well. I think, uh, I don't know if i'd

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<v Speaker 1>call them wars, but certainly some skirmishes going on, and

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<v Speaker 1>I think that that many have have realized, and we've

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<v Speaker 1>talked about this a number of times over the last

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<v Speaker 1>couple of years, that one of the more important transmission

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<v Speaker 1>mechanisms of monetary policy when rates get to very low

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<v Speaker 1>levels is actually through the exchange rate. UM. That was

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<v Speaker 1>certainly the case back in two thousand ten, two thousand

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<v Speaker 1>and eleven when when the Fed initiated its third round

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<v Speaker 1>of quantitative easing. I think we've seen that with the

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<v Speaker 1>weaker euro down under one oh five UM at one

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<v Speaker 1>point last year, with the ECB moving in the negative rate.

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<v Speaker 1>So I think that that um, you know, it's it's um,

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<v Speaker 1>it's a situation where monetary policy, really, I don't think

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<v Speaker 1>negative rates themselves are doing very much and so really

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<v Speaker 1>it's it's way of impacting the economy is through the

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<v Speaker 1>through the exchange rates. So I think we are unfortunately

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<v Speaker 1>inching towards the world where competitive devaluations is something that

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<v Speaker 1>that countries are looking at because monetary policy has become

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<v Speaker 1>ineffective and physical policy is still missing an action. Since

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<v Speaker 1>good morning, tell me about the dollar. I need an

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<v Speaker 1>update here in the Monday morning seven point five d X.

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<v Speaker 1>Why can you go along the dollar here or is

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<v Speaker 1>it just dollar malaise? No, I think we can go

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<v Speaker 1>along the dollar here. There's Uh. Certainly we've seen some

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<v Speaker 1>US interest rate back up here in the last couple

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<v Speaker 1>of days. Uh. Some of the things we look at

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<v Speaker 1>would suggest as the dollar has some upside from here. Um.

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<v Speaker 1>I think if we're going to take long dollar positions,

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<v Speaker 1>I think the euro is the way to go right now.

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<v Speaker 1>Short the euro along the dollar. Because the ECB is

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<v Speaker 1>facing a meeting. Uh. I think coming up March tense

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<v Speaker 1>and give data. We need a message after the beat. Oh,

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<v Speaker 1>there's some technical difficulties. Charlie Pellett joining us down, Michael

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<v Speaker 1>McKee if you always go to yeah, there's let's continue

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<v Speaker 1>on off since he's still there, I'm still here. Okay.

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<v Speaker 1>We're putting some data that we get out of the

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<v Speaker 1>the the your the EU this morning, your zone this morning,

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<v Speaker 1>which is gest that both the manufacturing and service sectors

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<v Speaker 1>weakening up a little bit. So the pressure is certainly

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<v Speaker 1>on the ECB to do something in March. Um, it's

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<v Speaker 1>not clear what they're going to do, but I think

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<v Speaker 1>a week er euro as part of the max. I

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<v Speaker 1>usually don't like to look back but I'm going to

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<v Speaker 1>break a rule and do that here. Bob sinch to

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<v Speaker 1>me last week, and the word I use mathematically was indeterminate.

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<v Speaker 1>We were just sort of all over the place last week.

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<v Speaker 1>What did you glean from last week? It frames strategy

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<v Speaker 1>or more importantly, trade placement in the march, you know,

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<v Speaker 1>I think some of them. So much of it still

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<v Speaker 1>revolves around the oil market. And what we've seen is

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<v Speaker 1>is oil um holding the lows around twenty six, but

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<v Speaker 1>not really being able to break to the top side.

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<v Speaker 1>So we've had um a lot of volatility in a

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<v Speaker 1>very narrow range in the markets I think are overreacting

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<v Speaker 1>to that UM. But I do think we're getting this

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<v Speaker 1>sense that that the global economy is slowing further. UM.

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<v Speaker 1>The risk is that oil prices are going to break

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<v Speaker 1>to the downside. I think a lot of that has

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<v Speaker 1>been discounted, and so when you don't get a break

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<v Speaker 1>to the downside, you get these relief rallies. But I

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<v Speaker 1>think the early data we're getting out for the month

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<v Speaker 1>of February from some of these p m I indusseries

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<v Speaker 1>around the world suggest that there is no bounce going

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<v Speaker 1>on in the first quarter. After some relatively weak fourth

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<v Speaker 1>quarter growth numbers around the world, and I think the

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<v Speaker 1>growth environment is going to continue to be a heavy

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<v Speaker 1>weight of uncertainty on markets as we go forward. It

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<v Speaker 1>does seem though that the numbers are telling us things

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<v Speaker 1>aren't getting significantly worse, that we're just sort of muddling along.

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<v Speaker 1>And I'm wondering, given the money that has poured into

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<v Speaker 1>negative yielding bonds, even into the United States, if we

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<v Speaker 1>do see a floor put in under oil prices that

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<v Speaker 1>people believe in there are a lot of people who

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<v Speaker 1>I mean, we at risk of a huge blood bath

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<v Speaker 1>from people who have gone the wrong way. Yeah. I

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<v Speaker 1>think we've seen a little bit of that in the

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<v Speaker 1>last couple of weeks with this enormous volatility in the

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<v Speaker 1>oil markets and uh and so I think we are

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<v Speaker 1>shaking out some of the some of the spectative positions. Um.

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<v Speaker 1>But but the concern has to be inventories. I mean,

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<v Speaker 1>we candicate large inventories. Um. The agreement last week was

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<v Speaker 1>the cap production at already high levels. That's not going

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<v Speaker 1>to do much to bring inventories down. So I think

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<v Speaker 1>I think the markets continue to struggle with you know,

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<v Speaker 1>have we found a durable bottom and oil prices, because

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<v Speaker 1>if it goes down and breaks through that twenty six

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<v Speaker 1>dollar level, I think we set off all sorts of

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<v Speaker 1>concerns in the high yield bond markets, in the bank

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<v Speaker 1>lending markets, et cetera. Let's rip up the script on

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<v Speaker 1>a Monday morning. Mike, you bring up an incredibly important point,

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<v Speaker 1>and Bob says answered by going to oil. Bob your

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<v Speaker 1>magic because even though you do foreign exchange, you wonderfully

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<v Speaker 1>go cross asset. I would suggest we have rationalized commodities

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<v Speaker 1>using Brent as a proxy from a hundred, actually one,

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<v Speaker 1>but from a hundred we rationalized at eight, we rationalized

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<v Speaker 1>at sixty my memory, as we moved quickly from there,

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<v Speaker 1>we rationalized at forty, and now we're doing the same

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<v Speaker 1>thing at thirty. Why isn't this just one grand rationalization

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<v Speaker 1>like the previous I see no indication of any catharsis

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<v Speaker 1>in oil. I would agree, and I think that that

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<v Speaker 1>the oil market is one that we have to be

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<v Speaker 1>concerned about because so many of the players are not

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<v Speaker 1>just motivated by the profit by profit margins. You know,

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<v Speaker 1>you have a number of governments who are heavily involved

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<v Speaker 1>in the market, who just need revenue and they'll they'll

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<v Speaker 1>continue to pump oil just to generate revenue, whether it's

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<v Speaker 1>at a profit or at a loss. And I think

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<v Speaker 1>that makes for a market that doesn't really clear. You

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<v Speaker 1>don't you don't find equilibrium as quickly as we should.

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<v Speaker 1>And I think that's what we're seeing in the oil markets.

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<v Speaker 1>And I think some of the uncertainty in the other

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<v Speaker 1>asset markets is have we cleared this market? Are we

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<v Speaker 1>going to clear this market? Or is this uncertainty going

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<v Speaker 1>to stay with us? At the same time, is that

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<v Speaker 1>certainly industrial production around the world. Maybe the services sector

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<v Speaker 1>is doing okay, but industrial production continues to weekend. That

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<v Speaker 1>certainly puts downward pressure on oil demand. And you put

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<v Speaker 1>those two together and you keep grappling for this equilibrium

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<v Speaker 1>price and I just don't think we found it yet

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<v Speaker 1>and may take a while to find it. A while

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<v Speaker 1>is how long in your view for Bob, Since the

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<v Speaker 1>end of the month, I think, And you know, you

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<v Speaker 1>would normally expect these markets to adjust in a matter

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<v Speaker 1>of months. We haven't done that. It could take another

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<v Speaker 1>three to six months before we really sort of sort out. Um,

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<v Speaker 1>you know what rational levels are for oil prices going

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<v Speaker 1>forward on a Monday Morning, Bob Stilter in the good

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<v Speaker 1>work of one S. Stanley. He's been better than good,

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<v Speaker 1>not about gloom but about malaise where it's not mourning

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<v Speaker 1>in America. What does Steven Stanley say that you fold

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<v Speaker 1>into your strategy. Well, I think there's a couple of things. One,

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<v Speaker 1>I think Steve has been very early on the on

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<v Speaker 1>the concerns about UM growth and investment, and he's been

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<v Speaker 1>particularly pessimistic about a rebound and investment activity UM. Part

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<v Speaker 1>of that in the US related to policy issues, but

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<v Speaker 1>I think, you know, investment really is the global issue

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<v Speaker 1>that we're we're facing a shortage of right now, and

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<v Speaker 1>and that's really holding back the global economies Number one.

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<v Speaker 1>Number two. Uh, Steve is also getting a bit more

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<v Speaker 1>concerned about about the inflation outlook and the fact that

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<v Speaker 1>the Fed may have to continue to normalize rates. Certainly,

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<v Speaker 1>the core CPI numbers we saw last week or are

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<v Speaker 1>a concern in that regard, and I think if the

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<v Speaker 1>Fed does continue to normalize rates, then then we think

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<v Speaker 1>we have another leg up in the dollar UM as

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<v Speaker 1>we go through the year, and we've talked about euro

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<v Speaker 1>dollar getting back towards parody by the end of this year,

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<v Speaker 1>and I think that's still in play. Really. Uh, that

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<v Speaker 1>had seemed to go away as an issue for a while.

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<v Speaker 1>I gotta put that on on Twitter, that did you

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<v Speaker 1>just say, Bob sins that the euro takes another dash

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<v Speaker 1>to parody. I think we will test parody by the

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<v Speaker 1>latter part of this year because I think things are

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<v Speaker 1>not moving along very well in Europe. And you know,

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<v Speaker 1>if we do get the FED needing to normalize rates,

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<v Speaker 1>I think I do think parody comes back into view. Um.

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<v Speaker 1>We were a little reluctant to go for the parody

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<v Speaker 1>call a few months ago because it looked like US

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<v Speaker 1>rates were coming off and there were too many people

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<v Speaker 1>in that direction. Um, I think it's no longer the

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<v Speaker 1>big consensus out there, and I do think there's downside

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<v Speaker 1>in the euro from current levels. That's an important quote here.

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<v Speaker 1>As we can futures up nineteen futures up one mind

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<v Speaker 1>yields higher, but the curve flatter. That's an oddity of

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<v Speaker 1>the morning. Here's another oddity Bonus round Bonus Monday, another

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<v Speaker 1>hour of Bloomberg's surveillance stay with us