WEBVTT - Surveillance: Payrolls with Gapen 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.560 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot 0:00:23.560 --> 0:00:30.280 com and of course on the Bloomberg terminal at the 0:00:30.280 --> 0:00:31.920 FED and working at the FED with the Board of 0:00:31.920 --> 0:00:34.040 Governors for years with Michael gap and he's Bank of 0:00:34.040 --> 0:00:38.480 America Chief US Economy is truly holistic on our monetary 0:00:38.520 --> 0:00:41.479 and fiscal linkol. Just Michael, thank you for briefing us 0:00:41.640 --> 0:00:44.360 UH this morning. I want to go Michael within a 0:00:44.479 --> 0:00:48.080 swirl of the data right now to what matters for you. 0:00:48.200 --> 0:00:50.959 We go to jobs and we go on, we stagger 0:00:51.000 --> 0:00:56.760 into November. What matters from Michael Gabon honestly only one number, 0:00:56.800 --> 0:00:59.360 and that's the payroll number. I think that there's a 0:00:59.400 --> 0:01:01.280 lot of just doortion in the data, as you know, 0:01:01.360 --> 0:01:04.280 and we've talked about it many times and and it's 0:01:04.319 --> 0:01:06.800 really hard to know, you know, which one do we 0:01:06.840 --> 0:01:09.720 take the right signal from? And so what matters to 0:01:09.920 --> 0:01:13.320 me in terms of the underlying momentum in the economy, 0:01:13.360 --> 0:01:15.520 how far the FED may go, and the near term 0:01:15.560 --> 0:01:19.360 course of the economy. It's it's almost exclusively just payrolls. 0:01:19.480 --> 0:01:22.480 Let's droll into that to payrolls versus the two studies 0:01:22.480 --> 0:01:24.880 that will see on Friday. If I take a three 0:01:24.880 --> 0:01:28.320 month moving average of non farm payrolls, the number of 0:01:28.319 --> 0:01:31.520 folks that comes out at a thirty that everybody reads first, 0:01:31.880 --> 0:01:36.200 what is the appropriate three months moving average for the 0:01:36.240 --> 0:01:41.360 Fed to say all clear, let's change and to slow 0:01:41.480 --> 0:01:44.920 to to move to a slower pace of hikes. You 0:01:45.040 --> 0:01:48.720 probably need that number to drop below two hundred thousand 0:01:49.040 --> 0:01:52.560 to get a soft landing. That number probably needs to 0:01:52.560 --> 0:01:56.000 be about fifty two, maybe seventy. So I think that 0:01:56.520 --> 0:01:59.960 it's to two hundred and seventy five thousand a month. 0:02:00.160 --> 0:02:02.680 Those are still robust numbers. That tells the Fed to 0:02:02.760 --> 0:02:06.160 keep going, so pivot to a slower pace, probably below 0:02:06.200 --> 0:02:09.240 two hundred. But to get the unemployment rate to rise 0:02:09.360 --> 0:02:13.040 gently over a two year period like their forecasting, certainly 0:02:13.040 --> 0:02:16.240 someone and that's something that is going to be hard 0:02:16.240 --> 0:02:18.120 to see. What that's at least based on a lot 0:02:18.160 --> 0:02:21.120 of the projections that we've been seeing. Liz Ane Saunders 0:02:21.400 --> 0:02:24.600 actually put out some interesting charts of Charles Schwab talking 0:02:24.639 --> 0:02:28.280 about how the data is showing peripheral weakness. You're seeing 0:02:28.360 --> 0:02:32.519 more part time jobs appear in some of the anecdotal data. 0:02:32.760 --> 0:02:35.840 Is the headline non farm payrolls number really the one 0:02:35.880 --> 0:02:38.920 that we should be watching for real time changes in 0:02:39.240 --> 0:02:43.480 just how quickly this labor market is softening. No, certainly 0:02:43.560 --> 0:02:46.399 there are there are other data points that are complementary 0:02:46.440 --> 0:02:48.200 to the overall picture. And I would never say we 0:02:48.200 --> 0:02:50.520 shouldn't look at those of the jolts data that we 0:02:50.600 --> 0:02:54.760 received with fewer job openings, the quits rate, um, the 0:02:54.919 --> 0:02:57.680 ratio of openings to the unemployed. I think all those 0:02:57.720 --> 0:03:00.680 are important to provide context. And yes, they do show 0:03:00.720 --> 0:03:04.120 that on the margin, labor demand is softening and the 0:03:04.200 --> 0:03:06.440 labor market is cooling, and that's of course where the 0:03:06.440 --> 0:03:08.960 FED wants to to go. But I just think ultimately 0:03:09.600 --> 0:03:12.800 the Fed's not going to conclude that policy the policy 0:03:12.840 --> 0:03:16.880 setting is right, the outlook for inflation is correct if 0:03:16.880 --> 0:03:19.440 we're still adding two to three thousand jobs a month. 0:03:19.480 --> 0:03:21.720 So at the end, yes, it comes down to where 0:03:22.120 --> 0:03:24.880 payroll growth is, where employment growth is over time, But 0:03:24.919 --> 0:03:27.800 there are certainly other data points that we should be 0:03:27.800 --> 0:03:30.119 looking at to see whether or not are they right 0:03:30.240 --> 0:03:34.200 that we can reduce labor demand without pushing the unemployment 0:03:34.280 --> 0:03:37.840 rate up significantly. Those other data points that you mentioned 0:03:37.920 --> 0:03:41.920 and including the jolts, can help give context around that story. Mike. 0:03:41.920 --> 0:03:43.480 There are a lot of people pushing back and saying 0:03:43.480 --> 0:03:46.440 that inflation is actually decelerating pretty dramatically. They point to 0:03:46.440 --> 0:03:48.560 a number of different metrics, and they say that looking 0:03:48.600 --> 0:03:52.320 at the labor market data as it is is not accurate. 0:03:52.480 --> 0:03:56.800 It is a misleading way to create future policy based 0:03:56.880 --> 0:03:59.720 on a lagging indicator. John has talked a lot about this. 0:04:00.240 --> 0:04:04.280 Would you agree in part yes, I think you do 0:04:04.400 --> 0:04:07.480 have to be forward looking in your in your policy settings, 0:04:07.520 --> 0:04:10.680 So only looking at the data under your feet at 0:04:10.720 --> 0:04:14.560 that moment in time may mean that you overcorrect in 0:04:14.600 --> 0:04:17.640 one direction or the other. And there are going to 0:04:17.720 --> 0:04:21.320 be other factors that help bring inflation down, whether it's 0:04:21.320 --> 0:04:24.720 global commodity prices or some reversal and goods prices, So 0:04:25.160 --> 0:04:28.200 wholesale use car prices being down seven of the last 0:04:28.240 --> 0:04:31.320 eight months, according to Mannheim, we should start getting some 0:04:31.480 --> 0:04:35.000 relief from from global supply chains that are going to 0:04:35.040 --> 0:04:38.279 help the FED. So it's not just the labor market, 0:04:38.760 --> 0:04:41.200 uh And, and certainly setting policy on where the labor 0:04:41.240 --> 0:04:44.400 market is today would increase the likelihood that you make 0:04:44.400 --> 0:04:47.200 a mistake. Um. But it's it's you know, it's some 0:04:47.360 --> 0:04:49.960 in some respects. You have what you have, and that's 0:04:50.000 --> 0:04:52.120 the data point that over time is going to tell 0:04:52.200 --> 0:04:56.160 them where is services inflation going to end up? Michael. 0:04:56.240 --> 0:04:59.000 And this is your wheelhouse from from the day's i've 0:04:59.040 --> 0:05:01.680 known you at the FED, and that is the merchandise 0:05:01.800 --> 0:05:05.880 trade statistic of w t O today was absolutely stunning. 0:05:06.320 --> 0:05:09.560 It's a one percent two thousand twenty three growth statistic 0:05:10.040 --> 0:05:13.440 from merchandise trade. Clearly globally, that does not get it done. 0:05:14.000 --> 0:05:20.040 What does that statistic mean for Americans, as you discussed 0:05:20.040 --> 0:05:23.640 in your prior segment, not as much because we're still 0:05:23.800 --> 0:05:28.039 we're a large, relatively closed economy. Strong appreciations in the 0:05:28.120 --> 0:05:31.160 dollar like we have will slow the economy down through 0:05:31.160 --> 0:05:35.200 the trade balance. But that's a relatively narrow channel for us. 0:05:35.240 --> 0:05:37.400 It's certainly not as large as it is for other 0:05:37.480 --> 0:05:41.920 developed economies like Europe, the UK, Australia, uh and and 0:05:41.960 --> 0:05:44.880 so forth. And what I would say is what it 0:05:44.920 --> 0:05:47.919 what it implies is a very weak global growth backdrop, 0:05:48.400 --> 0:05:51.520 including outside the U S, which we all know, and 0:05:51.760 --> 0:05:54.560 that actually tends to help the US because it brings 0:05:54.600 --> 0:05:57.920 lower energy prices on on net and gasoline prices fall, 0:05:58.000 --> 0:06:00.720 so the U S gets a windfall on the con sumerside, 0:06:01.200 --> 0:06:03.640 even though a strong dollar and weak global growth is 0:06:03.680 --> 0:06:06.279 a drag through trade. So it's a more complicated picture 0:06:06.360 --> 0:06:08.320 when it comes to the US. So I might let's 0:06:08.360 --> 0:06:11.080 net this out. You've got a recession call on America, 0:06:11.240 --> 0:06:13.800 on the American economy, can you just tell me on balance? 0:06:14.000 --> 0:06:16.560 Are you moving that forward? You're pushing that out our 0:06:16.680 --> 0:06:21.320 things develop in we uh. We pushed it out to 0:06:21.400 --> 0:06:24.040 begin in Q one. We I originally had things slowing 0:06:24.080 --> 0:06:26.240 down in the fourth quarter of the year as data 0:06:26.440 --> 0:06:28.800 earlier this year we're kind of pointing to that, but 0:06:28.880 --> 0:06:30.880 then things picked up here in the summer in the fall, 0:06:30.920 --> 0:06:33.120 I moved it out to begin in the first half 0:06:33.200 --> 0:06:36.599 of of next year. At the moment, I haven't changed that. 0:06:36.640 --> 0:06:39.840 I think trends in recent weeks the FED shifted being 0:06:39.960 --> 0:06:43.040 serious and lifting its policy rate, and the tightening and 0:06:43.080 --> 0:06:46.560 financial conditions that that's developed. That's that's left me comfortable 0:06:47.000 --> 0:06:49.280 with something around Q one or in the first half 0:06:49.279 --> 0:06:51.200 of next year. But that's when we have it starting 0:06:51.360 --> 0:06:53.520 just around it out. What about duration and depth Mike, 0:06:53.880 --> 0:06:58.159 beyond the start point. I you know, we I spread 0:06:58.200 --> 0:07:00.919 it out over three quarters in part to signal a 0:07:00.960 --> 0:07:05.400 little uncertainty about start depth and in duration. And we 0:07:05.440 --> 0:07:07.880 have the unemployment rate rising, you know, a little above 0:07:07.920 --> 0:07:09.760 five per cent, so a little more than than the 0:07:09.760 --> 0:07:12.640 FED would have it um But I think kind of 0:07:12.680 --> 0:07:14.720 in the first three quarters of next year as when 0:07:14.720 --> 0:07:16.920 we're likely to see our peaks softness and the cut 0:07:16.960 --> 0:07:22.320 stot when Mike, December of This is what's interesting about 0:07:22.400 --> 0:07:24.840 the The reason I'm not I'm not sitting sitting here 0:07:24.880 --> 0:07:26.320 saying you've got a crystal ball. That's not why I've 0:07:26.320 --> 0:07:28.720 asked you those questions. It's interesting to me that you've 0:07:28.760 --> 0:07:31.560 got three quarters of recession and the cuts don't start 0:07:31.640 --> 0:07:35.520 until the very end of the year. Mike, Is that original? 0:07:35.600 --> 0:07:41.960 Because uh so, the the idea behind that is the 0:07:42.080 --> 0:07:45.360 terminal rates about the labor market. But cuts are about inflation, 0:07:46.120 --> 0:07:48.040 and so when do they shift to a more balanced 0:07:48.040 --> 0:07:51.600 reaction function they I think, you know, every time inflation 0:07:51.640 --> 0:07:53.680 comes in higher, it gives them a worse starting point. 0:07:53.760 --> 0:07:56.200 So it just takes a while for for that to 0:07:56.240 --> 0:07:59.760 show through. But yes, but it's consistent with the idea 0:07:59.840 --> 0:08:01.960 that we're going to have to accept some pain in 0:08:02.000 --> 0:08:06.680 the domestic economy to bring inflation down. Um so yeah, 0:08:06.840 --> 0:08:09.480 it's it's an odd situation, but it's a FED right 0:08:09.520 --> 0:08:12.280 now that's saying we need the economy to slow to 0:08:12.400 --> 0:08:14.640 help us on the inflation side. So it's a different 0:08:14.640 --> 0:08:18.000 setting for them. Fascinating, Mike, just wonderful. It's been brilliant 0:08:18.040 --> 0:08:19.400 reading your stuff since you've got to be of a 0:08:19.600 --> 0:08:21.160 it's going to have you with us. Sis Mornic, thank you, 0:08:21.200 --> 0:08:28.160 mikeeping their Bank America right now we do better. I 0:08:28.200 --> 0:08:30.800 have no idea why he's not in the OPEC plus meeting. 0:08:30.840 --> 0:08:33.920 At the table. Christian Maylock joins us now from JP Morgan, 0:08:34.200 --> 0:08:38.559 who's really been definitive on the how we get to 0:08:38.720 --> 0:08:42.080 a permanent hundred dollars of barrel plus. We've seen the 0:08:42.160 --> 0:08:46.920 demand questions Ed Morrison's City group gaming out nicely. Christian, 0:08:47.040 --> 0:08:50.560 seventy eight dollars a barrel and suddenly we are higher. 0:08:50.720 --> 0:08:53.560 What is a single distinction that drives us to a 0:08:53.640 --> 0:08:58.520 hundred and twenty dollars a barrel nice vacapacity in short 0:08:58.679 --> 0:09:01.120 turns on. I mean we were seeing being repricing of 0:09:01.200 --> 0:09:04.760 oil to the marginal barrel, and it's away from opec um. 0:09:04.760 --> 0:09:06.240 I know it sounds controversial to say that on a 0:09:06.320 --> 0:09:08.839 day like OPEC meeting, it's away from OPEC and is 0:09:08.840 --> 0:09:11.920 getting back into control of the majors who represent somewhere 0:09:11.920 --> 0:09:15.840 between the world's oil and they're not spending. They're not 0:09:15.920 --> 0:09:19.200 investing at these levels, which then begs the question what 0:09:19.320 --> 0:09:22.560 price will they spend? Will they grow their production um 0:09:22.600 --> 0:09:25.040 and reinvest into those long term projects. And I think 0:09:25.040 --> 0:09:28.080 we're going to move a significantly higher price, which in 0:09:28.160 --> 0:09:30.920 some ways is potentially what is trying to do today. 0:09:30.960 --> 0:09:34.000 They're trying to defend the front end, but the backing, 0:09:34.280 --> 0:09:38.040 the trying of OPEC. I have the memory of six 0:09:38.120 --> 0:09:43.480 oil plunging. Here's my quick mathematics. How close is the 0:09:43.559 --> 0:09:48.600 cartel to a night six? I think in terms of 0:09:48.640 --> 0:09:50.600 how close they are that will all depend on how 0:09:50.679 --> 0:09:55.360 demand responds to the current price. And we know that 0:09:55.360 --> 0:09:58.120 they're arguably looking for a higher price, potentially closer to 0:09:58.160 --> 0:10:01.080 where their fiscal break evens are. Ultimately, it's not just 0:10:01.200 --> 0:10:03.240 the break even of the countries. It's also what they 0:10:03.280 --> 0:10:06.320 want in terms of defending social reform, and we know 0:10:06.320 --> 0:10:07.520 there's a lot of issues at the moment with the 0:10:07.559 --> 0:10:11.400 high energy prices, So that price level versus what the 0:10:11.480 --> 0:10:15.720 US wants suggests there's arguably a price war that's emerging 0:10:15.840 --> 0:10:19.280 between these two continents. But in the end, if demand 0:10:19.280 --> 0:10:23.720 can respond at which is our house view, then I 0:10:23.760 --> 0:10:28.120 don't necessarily see um demand collapsing, and then it's all 0:10:28.160 --> 0:10:31.360 about supply. It's a supply driven crisis, which is ultimately 0:10:31.720 --> 0:10:34.199 where our super cycle thesis projects for the next five 0:10:34.280 --> 0:10:35.920 or seven years. Where are we in terms of the 0:10:36.000 --> 0:10:38.319 US as a swing producer at this point, given the 0:10:38.440 --> 0:10:41.440 lack of investment in the shale patch and just generally 0:10:41.440 --> 0:10:45.360 throughout the energy sector. Shale, it's it's interesting. It's like 0:10:45.400 --> 0:10:48.480 you've sort it's been dismantled, parts of rusted, you put 0:10:48.480 --> 0:10:50.400 it back together again. It's just not as effective in 0:10:50.480 --> 0:10:55.040 terms of productivity, in terms of production volumes. And ultimately 0:10:56.080 --> 0:10:58.600 they've got used to return in cash and getting more 0:10:58.640 --> 0:11:01.000 popular with wall streets, so have to sort of think 0:11:01.080 --> 0:11:03.560 about what price do they need to cover their all 0:11:03.600 --> 0:11:06.640 their capex, all their cash return as well as a 0:11:06.679 --> 0:11:10.000 price they can necessarily see much bigger volumes of growth 0:11:10.200 --> 0:11:12.160 with all the money in the world, and that's much 0:11:12.240 --> 0:11:15.719 higher as closer to So we're not seeing as much 0:11:15.800 --> 0:11:19.880 volume growth this year, close to seven nfousand barrels similar 0:11:19.920 --> 0:11:21.920 to next year, and I think that's the key. So 0:11:22.040 --> 0:11:24.280 right now, if you're not seeing production increase and you're 0:11:24.280 --> 0:11:28.040 actually seeing production cuts at OPEC plus, where does the 0:11:28.160 --> 0:11:30.559 marginal stop gap come in? Right We talked about the 0:11:30.600 --> 0:11:33.200 Strategic Petroleum Reserve and how much the US has already 0:11:33.240 --> 0:11:36.600 drawn down on some of those reserves, the speculation that 0:11:36.640 --> 0:11:39.800 they could tap them yet again during them further in 0:11:39.920 --> 0:11:43.560 response to some sort of two million barrel production cut today, 0:11:44.679 --> 0:11:48.480 is that bullet gone? Is it used? Absolutely? I think 0:11:48.480 --> 0:11:50.640 it's used. And you know, I love to web jewels 0:11:50.640 --> 0:11:53.320 and we all the world is short energy right across 0:11:53.400 --> 0:11:56.440 all fuels. And that's what we've been talking through this 0:11:56.520 --> 0:11:59.320 year and with you, and I think the key here 0:11:59.360 --> 0:12:02.200 is if the marge, your jewel, if you like, is 0:12:02.200 --> 0:12:04.520 is oil. Then so they're like saying to your customers 0:12:04.520 --> 0:12:05.920 a couple of good news and bad news. The good 0:12:05.960 --> 0:12:08.199 news is of good oil, you know, still got some energy, 0:12:08.240 --> 0:12:09.280 and the bad news, you can have to pay a 0:12:09.320 --> 0:12:11.280 lot more for it as a ventured to come down, 0:12:11.280 --> 0:12:14.840 and that silver bullet from the US is done. It 0:12:14.960 --> 0:12:17.400 ultimately becomes who's up for taking those barrels at the 0:12:17.440 --> 0:12:20.640 high price? Christian and your definitive report of I'm gonna 0:12:20.640 --> 0:12:23.720 say seven eight months ago, you give a fair share 0:12:23.920 --> 0:12:27.120 to E s G two synthetics, to the other things 0:12:27.120 --> 0:12:31.079 we're gonna do for energy besides oil. Give us your 0:12:31.120 --> 0:12:35.560 sense of the E s G event given a war 0:12:35.640 --> 0:12:40.640 in Ukraine. Is it forever altered? Is it shifted? I 0:12:40.679 --> 0:12:42.760 think what we're going to see is ultimately an upgrade 0:12:42.760 --> 0:12:45.720 of bad code to good code in this sector and alter. 0:12:45.840 --> 0:12:48.280 What I mean by that is the sector. We did 0:12:48.280 --> 0:12:50.280 some work last week and doing a bottom up version 0:12:50.280 --> 0:12:53.440 of that Jewels report for companies and the industry. The 0:12:53.520 --> 0:12:57.800 European US majors represent roughly twenty percent of the world's 0:12:57.840 --> 0:13:03.880 energy and jewels across all fuels, not just oil, gas, hydrogen, etceteran. 0:13:03.960 --> 0:13:06.079 So the key here is I think what the E 0:13:06.280 --> 0:13:09.000 s G event ultimately will revolve to is more of 0:13:09.040 --> 0:13:12.720 a hybrid of recognized position. Is a function of this 0:13:12.880 --> 0:13:17.079 sector delivering energy on a lower carbon footprint. But ultimately 0:13:17.120 --> 0:13:20.440 delivering energy so that we don't compromise security, and I 0:13:20.440 --> 0:13:24.320 think that will change the optics and redefine the sector's role. 0:13:24.440 --> 0:13:27.440 Energy transition is opposed to being simply you know, in 0:13:27.440 --> 0:13:30.920 the penalty ball. Christian May with truly a definitive report, 0:13:31.000 --> 0:13:34.679 controversial report earlier this year advancing a theme to higher 0:13:34.720 --> 0:13:50.079 oil Pricess Nagozia kanjo Iwala is Director General of the 0:13:50.120 --> 0:13:54.560 World Trade Organization. She brings absolutely bulletproof Harvard and m 0:13:54.600 --> 0:13:57.800 I T economics to the massive task of a w 0:13:58.000 --> 0:14:03.199 t O finding a place within international institutions. They founded 0:14:03.240 --> 0:14:06.680 about six months ago with a single best call on 0:14:06.760 --> 0:14:10.120 global slowdown of any of the institutions. All you need 0:14:10.160 --> 0:14:13.679 to know is dr okonjo Iwala and w t O 0:14:14.040 --> 0:14:17.280 was way out front. Director General, thank you for joining 0:14:17.280 --> 0:14:20.960 Bloomberg this morning. I'll get to the headline. You say, 0:14:21.080 --> 0:14:24.800 merchandise trade is going to slow down off the proverbial 0:14:24.880 --> 0:14:29.000 cliff to one percent in two thousand twenty three. What 0:14:29.120 --> 0:14:31.720 does that mean for the developed world? What does it 0:14:31.760 --> 0:14:36.280 mean for your Nigeria and emerging markets? Well, thank you 0:14:36.400 --> 0:14:39.120 very much for having us. Yes, we'll just release that 0:14:39.280 --> 0:14:43.880 podcast and it's looking quite green, a little more green 0:14:43.960 --> 0:14:48.440 than we had thought, a real slowdown. And it's happening 0:14:48.520 --> 0:14:52.520 for several reasons. Of course, the the the higher energy 0:14:52.560 --> 0:14:56.280 prizes in in Europe arising from the war in Ukraine 0:14:56.280 --> 0:14:59.840 a big factor in this, and the squeeze on household spent, 0:15:00.000 --> 0:15:04.440 didn't the monitor policy tightening and various developed countries that 0:15:04.480 --> 0:15:09.320 are happening, and even emergine markets also explaining to this, 0:15:10.000 --> 0:15:14.360 and and so a whole variety of factors. What does 0:15:14.440 --> 0:15:18.560 this mean? It means that we're looking at a situation 0:15:18.640 --> 0:15:22.640 in which global slowdown is going to sweeze ouselves even 0:15:22.680 --> 0:15:27.080 more sweets businesses, and what we may be edging intrough 0:15:27.360 --> 0:15:31.160 a recession, if not globally at the general Because of time, 0:15:31.200 --> 0:15:33.240 I must interrupt and be rude, but I'm going to 0:15:33.320 --> 0:15:36.480 do it because this question is so important. Is J 0:15:36.720 --> 0:15:42.240 Powell is central banker to the world impinging on global slowdown? 0:15:42.600 --> 0:15:45.920 Are the central banks moving in the wrong direction? What's 0:15:45.960 --> 0:15:50.520 your advice? Off the chalkboards at the Massachusetts Institute of Technology. 0:15:52.400 --> 0:15:56.239 It's very difficult. J. Power is in the top position, 0:15:56.680 --> 0:16:00.560 whether to continue tightening, whether you over root if you 0:16:00.640 --> 0:16:04.240 do that because of looking at lagging indicators. Um, it's 0:16:04.360 --> 0:16:08.160 very difficult to give advice to central bankers now, um, 0:16:08.240 --> 0:16:10.880 but there's no doubt that something has to be done 0:16:10.880 --> 0:16:14.440 about inflation. We just have to watch and see. So 0:16:14.560 --> 0:16:18.000 it's not too edging to an overshoot, but probably from 0:16:18.000 --> 0:16:21.800 me to give you all advice on how to run 0:16:21.840 --> 0:16:24.760 monitored policy and go see how much this China factor 0:16:24.800 --> 0:16:28.120 into your outlooks. How much does the potential for them 0:16:28.160 --> 0:16:31.400 to open up from a zero COVID policy or emerge 0:16:31.440 --> 0:16:34.440 from some of the downturn that they've experienced factor in 0:16:34.920 --> 0:16:39.560 or not to this forecast. It factors in considerable Linked 0:16:39.560 --> 0:16:42.600 to the broadcast I've mentioned the one you're doing, had 0:16:42.640 --> 0:16:46.360 mentioned the monetory title about China is another big factor 0:16:46.520 --> 0:16:51.440 of course. Uh, the COVID slowed down and what it means, um, 0:16:51.760 --> 0:16:54.120 whether it's going to continue and we're going to have 0:16:54.160 --> 0:16:58.480 other lockdowns. It's a big factor if China's economy continues 0:16:58.520 --> 0:17:01.120 to slow the way as seeing that will have a 0:17:01.160 --> 0:17:03.680 big impact on what happens to the world economy. As 0:17:03.720 --> 0:17:06.960 you know, and I really here for developing countries and 0:17:07.080 --> 0:17:10.040 imagine Mark go see. Just to sort of broaden out, 0:17:10.080 --> 0:17:12.560 we've been talking about how we're witnessing a sea change 0:17:12.720 --> 0:17:16.280 were suddenly governments cannot finance themselves with deficits the way 0:17:16.280 --> 0:17:20.160 that they have before, particularly developed markets and central bankers 0:17:20.359 --> 0:17:24.199 cannot fuel growth by just lowering rates. How do you 0:17:24.240 --> 0:17:27.560 take that into consideration for not only this year's projection, 0:17:28.000 --> 0:17:33.040 but projection for growth over the next decade. Well, it 0:17:33.200 --> 0:17:35.879 obvious me, it's very very difficult. What we are saying 0:17:35.960 --> 0:17:39.160 we're seeing in our projections is to remend us uncertainty 0:17:39.840 --> 0:17:41.960 that I can I can tell you is what is 0:17:42.440 --> 0:17:45.280 really making it difficult to predict. You've never seen this 0:17:45.359 --> 0:17:49.240 amount of certainty when we do our podcasts before. But 0:17:49.400 --> 0:17:51.800 what we do see is that this so certainty is 0:17:52.080 --> 0:17:55.920 tending to risk on the downside. So that is really 0:17:56.040 --> 0:17:59.920 impacting and we need to look at what what come 0:18:00.080 --> 0:18:03.399 we do to turn things around. How can we slow 0:18:03.880 --> 0:18:08.400 down inflationary prejus whilst looking for truls that can help 0:18:08.480 --> 0:18:12.320 us restore group. So, um, it's very difficult to predict. 0:18:12.440 --> 0:18:16.560 That's too much uncertain in the Director General, thank you 0:18:16.640 --> 0:18:19.439 for being with us today and go see conwell that 0:18:19.560 --> 0:18:26.280 of the WT I have to say that w T 0:18:26.400 --> 0:18:28.200 I came out Yeah, pretty much in front most of 0:18:28.240 --> 0:18:30.720 those organizations. Now there it is, and it's a backdrop 0:18:30.760 --> 0:18:33.119 there one percent again for two thousand twenty three and 0:18:33.160 --> 0:18:36.680 merchandise trade. Toni Caricenzi has these numbers tattooed to his brain. 0:18:36.760 --> 0:18:39.520 He's with PIMCO and his truly expert in the short 0:18:39.600 --> 0:18:43.680 term space in the bond market. What does fixed income due, Tony, 0:18:43.960 --> 0:18:47.560 given a global recession and certainly from w t O 0:18:47.840 --> 0:18:52.960 a trade recession, the BODO market is starting to think 0:18:53.000 --> 0:18:57.000 about that possibility and these yields therefore making a propitious 0:18:57.040 --> 0:19:01.080 time for investors in attractive period bond markets, thinking the 0:19:01.160 --> 0:19:04.800 economies will weaken. They're not sure, so there's some risk premium, 0:19:04.880 --> 0:19:09.919 you could say, in prices of various assets, equities in particular. 0:19:10.320 --> 0:19:13.040 So I think it's just the uncertainty factor that's keeping 0:19:13.680 --> 0:19:18.600 markets on edge, because we're not sure about how inflation 0:19:18.640 --> 0:19:21.680 will evolve in particular. But as long as there's vigilance 0:19:21.720 --> 0:19:25.000 by central banks, and there will be it seems vocal 0:19:25.040 --> 0:19:28.760 arrest style in in the United States, for example, it's 0:19:28.840 --> 0:19:32.120 highly likely that the inflation rate will decline, there will 0:19:32.119 --> 0:19:36.280 be disinflation, the bond market will look increasingly attractive to 0:19:36.400 --> 0:19:40.400 investors especially if the w t O type scenario where 0:19:40.400 --> 0:19:43.320 global trade vines shrink as much as they expect, I 0:19:43.320 --> 0:19:45.760 mean strength relative to well, let's cut to the chase 0:19:45.800 --> 0:19:48.320 as pim Co extending duration or you're loading the boat 0:19:48.359 --> 0:19:52.400 on how yield this morning, Tony, PIMCO has been underweight 0:19:52.440 --> 0:19:56.639 duration for some time. We've been reducing that. We've been 0:19:56.760 --> 0:19:59.399 we'd rather keep it close to neutral. Remember when you're 0:19:59.440 --> 0:20:03.399 thinking about the Asian interest rate sensitivity, you're you're talking 0:20:03.400 --> 0:20:06.600 about a directional strategy. If you open up the Frank 0:20:06.680 --> 0:20:10.840 for Boseige book on bond investing, you see there's a 0:20:10.880 --> 0:20:12.959 lot more to do than simply bet on the direction 0:20:12.960 --> 0:20:15.119 of interest rates. And that's what PAMCO is trying to 0:20:15.160 --> 0:20:17.960 do right now. Just try to stay up in quality 0:20:18.119 --> 0:20:20.399 and try to not make directional best to look for 0:20:21.400 --> 0:20:23.520 assets that we think would bend but not break in 0:20:23.520 --> 0:20:26.719 a time of procession and with stand lots of different 0:20:26.720 --> 0:20:31.600 types of economic outcomes. But all that said, duration underway 0:20:31.720 --> 0:20:36.000 slight underweight given the recent drop and yield slight underweight 0:20:36.160 --> 0:20:40.640 might make sense. But remember Tom the Bloomberg advocate has 0:20:40.680 --> 0:20:43.480 a duration of six point six years, meaning I yields 0:20:43.520 --> 0:20:47.680 moved a percentage point uh that the investor would lose 0:20:47.760 --> 0:20:50.240 six and a half point so slight underweight would it 0:20:50.320 --> 0:20:52.800 be much? You said something interesting, A slight underweight? Does 0:20:52.840 --> 0:20:55.879 that imply, hi, Tony, does that imply from your perspective 0:20:56.000 --> 0:20:59.960 that we have not yet seen peak yields. It's different 0:21:00.040 --> 0:21:02.719 called to say there's a wide range of scenarios, but 0:21:03.119 --> 0:21:05.720 yields today are closer to their long term averages, and 0:21:05.760 --> 0:21:08.640 that makes it a very attractive time to be investing. 0:21:08.680 --> 0:21:13.119 For one. Secondly, the yields and the Bloomberg aggregate today, 0:21:13.240 --> 0:21:14.959 which is a compilation by the way, for those who 0:21:15.000 --> 0:21:18.560 don't know of treasuries, mortgages, corporates, and a bunch of 0:21:18.560 --> 0:21:23.000 other securities. It yields today the yield is four point six. Now, 0:21:23.040 --> 0:21:25.960 how does that compare historically? Very good? It's closer to 0:21:26.040 --> 0:21:28.480 long term averages. That's one reason why bonds look quite 0:21:28.480 --> 0:21:32.399 attractive today. Secondly, where do you think the inflation rates headed? 0:21:32.480 --> 0:21:35.920 Bond market seems to think into the low twos eventually, 0:21:35.960 --> 0:21:39.680 so that yield high fours looks attractive on that basis. 0:21:39.680 --> 0:21:43.720 And finally, this time alluded if economy is weakend there's 0:21:43.760 --> 0:21:46.919 a chance for capital gains in fixed income now, and 0:21:46.960 --> 0:21:49.119 so one doesn't want to miss out on that, And 0:21:49.160 --> 0:21:52.479 so you have to question, are you really interested in 0:21:52.680 --> 0:21:56.639 timing the diversification benefits of bonds, which, of course this 0:21:56.720 --> 0:21:59.159 year haven't been quite apparent, but we think we'll assert 0:21:59.240 --> 0:22:02.280 themselves over time. How much are you seeing, Tony, a 0:22:02.280 --> 0:22:06.440 lot of just mom and pop investors pile into short 0:22:06.560 --> 0:22:08.640 term treasuries for the first time in a long time. 0:22:08.720 --> 0:22:12.440 How much are you seeing those cash investments really balloon 0:22:12.640 --> 0:22:14.720 in a way that feels sticky to you, that will 0:22:14.760 --> 0:22:17.080 transform the rest of the markets, because that is money 0:22:17.440 --> 0:22:20.159 not going to equities, not going to hire your bonds. 0:22:21.280 --> 0:22:25.800 I recently took a trip to Asia, Korea, Singapore, Thailand. 0:22:26.240 --> 0:22:29.440 Lots of investors there. Today I'll travel to San Francisco 0:22:29.520 --> 0:22:31.879 from New York. Been traveling a lot, seeing lots of 0:22:31.880 --> 0:22:34.919 clients talking to him on zoom, etcetera. Seems like the 0:22:34.960 --> 0:22:36.920 wagons are circling, but of course, as you could see 0:22:36.920 --> 0:22:41.560 by the global fund flows, investors are still leering. All 0:22:41.560 --> 0:22:44.440 that said, investors seem to be willing to move into 0:22:44.440 --> 0:22:47.040 the center of what we would call the concentric circle 0:22:47.520 --> 0:22:51.359 for investing. The concentric circle would be would have the 0:22:51.440 --> 0:22:54.840