1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm m keene Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,920 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Let's 5 00:00:27,920 --> 00:00:30,160 Speaker 1: bring Nick Bannenbrook Show. Wes found our Securities head of 6 00:00:30,200 --> 00:00:32,159 Speaker 1: Currency Strategy could montage in the great to have you 7 00:00:32,200 --> 00:00:34,599 Speaker 1: with us the morning the price and sensitive bias. This 8 00:00:34,640 --> 00:00:37,200 Speaker 1: is such a distorted bond market, and if you try 9 00:00:37,200 --> 00:00:39,960 Speaker 1: and rationalize what's happening with buns based on fundamentals alone, 10 00:00:39,960 --> 00:00:41,920 Speaker 1: I just think you're wasting your time. I mean, you 11 00:00:42,000 --> 00:00:43,640 Speaker 1: know what's going to happen in the secondary market. It 12 00:00:43,680 --> 00:00:46,160 Speaker 1: doesn't matter what price these things are at, there's gonna 13 00:00:46,200 --> 00:00:48,600 Speaker 1: be a buyer. Well, I do agree with Lisa. I 14 00:00:48,960 --> 00:00:51,680 Speaker 1: think it was interesting just you know how little demand 15 00:00:51,720 --> 00:00:53,880 Speaker 1: there was in this particular auction. But to your point, 16 00:00:53,920 --> 00:00:55,560 Speaker 1: I think Mario is going to keep on buying both 17 00:00:55,600 --> 00:00:58,720 Speaker 1: Lemonade plus these German bonds as well as some others. 18 00:00:59,040 --> 00:01:01,280 Speaker 1: I think perhaps one of the interesting things, or maybe 19 00:01:01,320 --> 00:01:03,160 Speaker 1: one of the reasons this auction didn't go quite so 20 00:01:03,200 --> 00:01:05,840 Speaker 1: well as there's you know, there's now a lot more 21 00:01:05,840 --> 00:01:09,559 Speaker 1: discussion about German stimulus possibly down coming down the pike, 22 00:01:10,000 --> 00:01:12,720 Speaker 1: and so maybe there's some investors out there thinking they 23 00:01:12,800 --> 00:01:15,240 Speaker 1: might get you know, a little bit cheaper if they 24 00:01:15,360 --> 00:01:17,680 Speaker 1: just hold out for a little bit. So maybe there's 25 00:01:17,840 --> 00:01:19,960 Speaker 1: a bit of buying opportunity just down the line. Well, 26 00:01:20,000 --> 00:01:22,319 Speaker 1: but but this, really, John Ry, is a really good point. 27 00:01:22,520 --> 00:01:24,600 Speaker 1: Is this a tipping point or is this just a 28 00:01:24,680 --> 00:01:28,760 Speaker 1: typical auction where they can't sell everything and there isn't 29 00:01:28,959 --> 00:01:32,000 Speaker 1: huge bit discovery issue I think to be fear and 30 00:01:32,120 --> 00:01:34,080 Speaker 1: I don't follow the sort of the German bond actions 31 00:01:34,120 --> 00:01:36,200 Speaker 1: as closely as as the US bond options. I don't 32 00:01:36,200 --> 00:01:37,840 Speaker 1: think it is a tipping point. I mean, certainly, I 33 00:01:37,840 --> 00:01:40,360 Speaker 1: don't think the ECB is changing their tune rates. Yield 34 00:01:40,360 --> 00:01:42,400 Speaker 1: are going to remain very low, So I think this 35 00:01:42,480 --> 00:01:45,440 Speaker 1: is more likely to be a one off. I suspect 36 00:01:45,440 --> 00:01:46,960 Speaker 1: if they had another auction it we'd go a little 37 00:01:47,000 --> 00:01:49,760 Speaker 1: bit better. But I certainly don't think it's a sea change. 38 00:01:50,000 --> 00:01:53,640 Speaker 1: Do you think that there is an underestimation of inflation 39 00:01:53,680 --> 00:01:57,680 Speaker 1: at this point? Um No, I don't think so. You know, 40 00:01:57,800 --> 00:02:00,000 Speaker 1: getting a little bit of inflation here in the United States. 41 00:02:00,800 --> 00:02:03,160 Speaker 1: The surprising thing when we had sort of just the 42 00:02:03,240 --> 00:02:05,560 Speaker 1: mess of expansion of balance sheets and the printing of 43 00:02:05,600 --> 00:02:07,640 Speaker 1: money from all of the central banks was that you 44 00:02:07,640 --> 00:02:10,120 Speaker 1: didn't get any inflation at all, And that I think 45 00:02:10,160 --> 00:02:13,600 Speaker 1: reflected just the sort of the massive sort of balance 46 00:02:13,639 --> 00:02:16,200 Speaker 1: sheet recession that we had. And I think, you know, 47 00:02:16,240 --> 00:02:18,880 Speaker 1: having now gone a whole decade and that inflation hasn't 48 00:02:18,880 --> 00:02:21,600 Speaker 1: showed up. I don't think there is an underestimate exture 49 00:02:21,800 --> 00:02:23,440 Speaker 1: of inflation at this point, wouldn't it just to build 50 00:02:23,440 --> 00:02:24,960 Speaker 1: on the question of least So I just wonder whether 51 00:02:24,960 --> 00:02:28,000 Speaker 1: the boat has loaded too much to the one side, 52 00:02:28,360 --> 00:02:31,960 Speaker 1: just in terms of pessimism around growth, of pessimism around inflation. 53 00:02:32,280 --> 00:02:36,640 Speaker 1: Have we gone too far too quickly to the one side? Um, 54 00:02:36,680 --> 00:02:39,560 Speaker 1: that's a reasonable point. I think if I was going 55 00:02:39,600 --> 00:02:41,840 Speaker 1: to say, you know, is there too much pisima pissimism 56 00:02:41,880 --> 00:02:44,840 Speaker 1: on inflation, I'd be more balanced on that. But I 57 00:02:44,880 --> 00:02:48,600 Speaker 1: certainly would argue that on the growth side, arguably, I 58 00:02:48,639 --> 00:02:51,840 Speaker 1: think people are a little pessimistic. Sure, a lot of 59 00:02:51,880 --> 00:02:54,359 Speaker 1: the central banks are largely out of room, but there 60 00:02:54,440 --> 00:02:56,639 Speaker 1: is still a few, you know, governments out there with 61 00:02:56,680 --> 00:02:58,760 Speaker 1: a little bit of fiscal space. I mean, I think 62 00:02:58,760 --> 00:03:01,239 Speaker 1: if the monetary authority on the fiscal authorities were to 63 00:03:01,280 --> 00:03:04,160 Speaker 1: work together a little bit more cooperatively, that we could, 64 00:03:04,200 --> 00:03:05,400 Speaker 1: you know, see a bit of a bounce back and 65 00:03:05,400 --> 00:03:07,119 Speaker 1: growth at a time. John, I love that you picked 66 00:03:07,200 --> 00:03:09,640 Speaker 1: up exactly where I was going. My concern as I 67 00:03:09,639 --> 00:03:12,600 Speaker 1: look at the markets is, especially given Norways throwing in 68 00:03:12,639 --> 00:03:15,200 Speaker 1: the towel on beds on the higher rates, that there 69 00:03:15,200 --> 00:03:18,960 Speaker 1: seems to be capitulation and a strong consensus building. And 70 00:03:18,960 --> 00:03:21,800 Speaker 1: whenever there's a strong consensus building, there can be a 71 00:03:21,840 --> 00:03:26,040 Speaker 1: widowmaker trade just sitting there waiting to happen. And I 72 00:03:26,080 --> 00:03:28,880 Speaker 1: just have to wonder, you know, the strong consensus right now, 73 00:03:28,960 --> 00:03:33,959 Speaker 1: rates lower, inflation, more abound, the ECB, Morrow draggy continuing 74 00:03:34,000 --> 00:03:36,760 Speaker 1: to buy that lemonade untill he you know, turns blue. 75 00:03:36,960 --> 00:03:40,800 Speaker 1: I'm just wondering, you know, is there any argument against that? 76 00:03:40,880 --> 00:03:42,840 Speaker 1: And are we getting to the point where we could 77 00:03:42,840 --> 00:03:46,040 Speaker 1: see a pretty violent reversal on very small news simply 78 00:03:46,080 --> 00:03:50,160 Speaker 1: because there is the strong consensus. I think that there 79 00:03:50,280 --> 00:03:52,400 Speaker 1: is a chance that you see, you know, a reaction 80 00:03:52,480 --> 00:03:55,400 Speaker 1: to small news. The problem or the issue, I think 81 00:03:55,400 --> 00:03:57,600 Speaker 1: is that that the chance of that sort of news 82 00:03:57,600 --> 00:04:00,760 Speaker 1: occurring is quite low and sort of going back into 83 00:04:00,760 --> 00:04:03,000 Speaker 1: the past, I can think of the Taper tantrum back 84 00:04:03,000 --> 00:04:05,480 Speaker 1: in two thousand and thirteen. I think it was when 85 00:04:05,520 --> 00:04:07,400 Speaker 1: Banankee started to prepare the markets for the end of 86 00:04:07,440 --> 00:04:09,840 Speaker 1: the uh FEDS bombuying, and you can go all the 87 00:04:09,880 --> 00:04:13,400 Speaker 1: way back to where there was that like massive, you know, 88 00:04:13,520 --> 00:04:15,840 Speaker 1: very sharp tightening cycle. But I think if you look 89 00:04:15,840 --> 00:04:18,720 Speaker 1: around all the central bankers, if anything, they're more likely 90 00:04:18,800 --> 00:04:22,039 Speaker 1: to surprise us on the downside as they're not. No 91 00:04:22,080 --> 00:04:24,360 Speaker 1: one seems to be turning around and talking about tightening, 92 00:04:24,400 --> 00:04:27,080 Speaker 1: so that that that surprise that you're talking about, I 93 00:04:27,120 --> 00:04:29,120 Speaker 1: think it's a very low probability. So without in mind, 94 00:04:29,160 --> 00:04:31,240 Speaker 1: neck got to get your currency kill in G ten 95 00:04:31,440 --> 00:04:34,120 Speaker 1: Right now, the dollar, a lot of people were looking 96 00:04:34,120 --> 00:04:36,240 Speaker 1: for a week of dollar. It hasn't materialized in the 97 00:04:36,279 --> 00:04:39,039 Speaker 1: way that people thought it would. What's your base case 98 00:04:39,080 --> 00:04:41,600 Speaker 1: at the moment, we were looking for a week of 99 00:04:41,640 --> 00:04:43,520 Speaker 1: dollar and as you say, it hasn't materialized, so a 100 00:04:43,560 --> 00:04:46,839 Speaker 1: little disappointing for us. But for right now we're looking 101 00:04:46,920 --> 00:04:49,640 Speaker 1: for more range trading. So for the euro, you know 102 00:04:49,720 --> 00:04:51,600 Speaker 1: one ten to one twelve through most of the year, 103 00:04:51,839 --> 00:04:53,960 Speaker 1: Here's here's the thing. If you look at all of 104 00:04:53,960 --> 00:04:56,280 Speaker 1: the central banks, they're all they're all using the all 105 00:04:56,279 --> 00:05:00,240 Speaker 1: cutting rates in New Zealand, Australia Fiddle Reserve ECB. They're 106 00:05:00,240 --> 00:05:02,839 Speaker 1: also not cutting rates as much as everybody wants to. 107 00:05:02,880 --> 00:05:04,560 Speaker 1: If you look at the market pricing, everybody's out of 108 00:05:04,560 --> 00:05:07,719 Speaker 1: head of these central banks. So we'd sort of go 109 00:05:07,800 --> 00:05:09,919 Speaker 1: back a good decade or so and think about the 110 00:05:09,920 --> 00:05:11,960 Speaker 1: carry trade. You know, everyone's going down. I don't think 111 00:05:11,960 --> 00:05:13,960 Speaker 1: the currencies are going to move that fast, So be 112 00:05:14,040 --> 00:05:16,720 Speaker 1: short the low yielding currencies and and be long that 113 00:05:16,760 --> 00:05:19,240 Speaker 1: the high yorlding currencies. That suggests selling the Euro, the 114 00:05:19,279 --> 00:05:22,800 Speaker 1: Aussy and the Qui all against the US dollar stronger 115 00:05:22,920 --> 00:05:25,920 Speaker 1: US dollarvan Yeah, I think I think in the near 116 00:05:25,960 --> 00:05:29,000 Speaker 1: to him rangey. But yes, if you're going to see 117 00:05:29,000 --> 00:05:31,480 Speaker 1: any move, it's going to be dollar stronger and particularly 118 00:05:31,520 --> 00:05:34,760 Speaker 1: against you know, the growth inside of currencies, so Ozzy 119 00:05:34,880 --> 00:05:37,400 Speaker 1: Kiwi and and a lot of the emerging markets. What 120 00:05:37,400 --> 00:05:40,240 Speaker 1: about of virgin markets currencies. Um, you know, we've seen 121 00:05:40,320 --> 00:05:43,359 Speaker 1: some excitement there, quite a lot of excitement to the 122 00:05:43,360 --> 00:05:48,640 Speaker 1: downside or the upside. Argentina, Turkey, so excitement to excitement 123 00:05:48,640 --> 00:05:52,159 Speaker 1: to the downside, Brazil hasn't been doing quite so well recently. Um. 124 00:05:52,360 --> 00:05:55,760 Speaker 1: For for for now, I think that probably in the 125 00:05:55,800 --> 00:05:58,640 Speaker 1: next probably the next few months, we'd probably see a 126 00:05:58,680 --> 00:06:01,640 Speaker 1: little more downside for um, you know, for some of 127 00:06:01,640 --> 00:06:03,520 Speaker 1: these emerging currencies. Although you know, if we get to 128 00:06:03,560 --> 00:06:06,440 Speaker 1: a point where where yields which are already incredibly low, 129 00:06:06,640 --> 00:06:09,880 Speaker 1: go even lower, um, maybe some of these emerging currencies 130 00:06:09,920 --> 00:06:12,719 Speaker 1: do bitter later on. It's great to catch up, Nick Bannenbrook. 131 00:06:12,720 --> 00:06:14,560 Speaker 1: They're dropping by the studio here in New York. Last 132 00:06:14,560 --> 00:06:32,840 Speaker 1: FARNGA Securities head of Currency Strategy, join us now, Ralph 133 00:06:32,880 --> 00:06:36,320 Speaker 1: Price A Bank America Merrill Lynch International Global head of 134 00:06:36,440 --> 00:06:39,400 Speaker 1: Rage Strategy. Ralph, walk me through what you're looking for 135 00:06:39,600 --> 00:06:43,000 Speaker 1: over the next couple of days. It's the events that 136 00:06:43,080 --> 00:06:45,480 Speaker 1: you've highlighted, I guess from my perspective sitting in London. 137 00:06:45,560 --> 00:06:47,200 Speaker 1: The one thing I would add that you didn't mention 138 00:06:47,240 --> 00:06:50,159 Speaker 1: as the CB accounts, because we do also have a 139 00:06:50,200 --> 00:06:52,920 Speaker 1: lot of question marks about what the European Central Bank 140 00:06:52,920 --> 00:06:55,320 Speaker 1: will be doing in a light of much more evidence 141 00:06:55,320 --> 00:06:57,200 Speaker 1: of a slowdown in Europe compared to what the setters 142 00:06:57,240 --> 00:06:59,560 Speaker 1: had to deal with so far. But that's exactly it. 143 00:06:59,720 --> 00:07:01,960 Speaker 1: It's a question mark over whether or not the said 144 00:07:02,120 --> 00:07:05,080 Speaker 1: cast to qualify what the market clearly took us a 145 00:07:05,160 --> 00:07:09,400 Speaker 1: very disappointing right cut in July UM and whether UM 146 00:07:09,640 --> 00:07:12,760 Speaker 1: German Power follows that up with any more elucidating comments 147 00:07:12,800 --> 00:07:15,200 Speaker 1: in Jackson Hall itself. Are we asking for too much 148 00:07:15,240 --> 00:07:17,400 Speaker 1: to see that in the minutes later this afternoon, Ralph, 149 00:07:17,440 --> 00:07:19,440 Speaker 1: Because as we know, it looks like a very divided 150 00:07:19,520 --> 00:07:22,480 Speaker 1: f m C, and that division could grow a little 151 00:07:22,480 --> 00:07:24,760 Speaker 1: bit louder when you sift through these minutes a little 152 00:07:24,760 --> 00:07:28,480 Speaker 1: bit later. Yeah, I would be surprised that the minutes 153 00:07:28,520 --> 00:07:31,720 Speaker 1: I used to pre signal anything meaningful, given that the 154 00:07:31,800 --> 00:07:33,800 Speaker 1: chair is going to be speaking later on, and that 155 00:07:33,880 --> 00:07:38,400 Speaker 1: the that Jackson Hall will provide maybe a more nuanced 156 00:07:39,200 --> 00:07:42,239 Speaker 1: explanation of what what the debate is actually well about 157 00:07:42,240 --> 00:07:44,640 Speaker 1: within the firm, c Ralph. Are you worried at all 158 00:07:44,680 --> 00:07:47,480 Speaker 1: about positioning right now in rates? The fact that there 159 00:07:47,480 --> 00:07:50,120 Speaker 1: seems to be capitulation that rates are going to stay 160 00:07:50,120 --> 00:07:55,120 Speaker 1: where they are or go lower. I'm always worried about positioning. UM. 161 00:07:55,280 --> 00:07:57,440 Speaker 1: It's one of the things we do is status, but 162 00:07:57,440 --> 00:08:00,440 Speaker 1: the absolutely right positioning on our So this has been 163 00:08:00,440 --> 00:08:02,720 Speaker 1: flagging as being near extremes in particularly for the US 164 00:08:02,800 --> 00:08:06,080 Speaker 1: for some time. UM. But the when you when you 165 00:08:06,080 --> 00:08:07,840 Speaker 1: sift through the numbers in a bit more detail, the 166 00:08:07,880 --> 00:08:11,760 Speaker 1: reason why people are long is because they're looking for hedges. Um. 167 00:08:11,800 --> 00:08:16,240 Speaker 1: You know, the equity market remains near their highs. Tenure 168 00:08:16,280 --> 00:08:18,960 Speaker 1: Treasury notes are regularly flagged as being the most efficient 169 00:08:19,040 --> 00:08:21,880 Speaker 1: risk of hedge and in our surveys, So that is 170 00:08:21,920 --> 00:08:23,840 Speaker 1: one big reason why people are long. It's not that 171 00:08:23,880 --> 00:08:27,400 Speaker 1: they necessarily actually expect the FED to follow through and 172 00:08:27,480 --> 00:08:29,760 Speaker 1: all the weight cuts that are currently priced, but they 173 00:08:29,760 --> 00:08:33,240 Speaker 1: need an instrument to protect them against something going horribly 174 00:08:33,240 --> 00:08:35,520 Speaker 1: wrong further down the line and ten your notes are 175 00:08:35,600 --> 00:08:39,360 Speaker 1: providing that hedge at least for now that perspective, sorry, 176 00:08:39,720 --> 00:08:41,240 Speaker 1: but you said at least for now. And that's actually 177 00:08:41,280 --> 00:08:43,360 Speaker 1: what I wanted to pick up on, which is, at 178 00:08:43,400 --> 00:08:46,680 Speaker 1: what point are yield so low and it's positioning so 179 00:08:46,800 --> 00:08:53,040 Speaker 1: extreme the treasuries don't provide that hedge. I think we're 180 00:08:53,120 --> 00:08:55,800 Speaker 1: quite a bit away from that, um in the sense 181 00:08:55,840 --> 00:08:59,120 Speaker 1: that if you look at what the market pricing for 182 00:08:59,160 --> 00:09:01,600 Speaker 1: the said Actually it's so if you ask in detail, 183 00:09:02,120 --> 00:09:03,839 Speaker 1: you know, what is it you actually expect the FED 184 00:09:03,920 --> 00:09:06,520 Speaker 1: to do what you see is a fairly bimodal distribution. 185 00:09:06,600 --> 00:09:10,480 Speaker 1: So there's a few, well, the majority of arrestors around 186 00:09:10,840 --> 00:09:13,280 Speaker 1: actually expect the FED to do what they said that 187 00:09:13,320 --> 00:09:15,360 Speaker 1: it would do, which is that mid cycle adjustment. But 188 00:09:15,400 --> 00:09:18,920 Speaker 1: then there's a very significant minority of investors who fear 189 00:09:19,000 --> 00:09:20,880 Speaker 1: that the said may have to revisit the zero lower 190 00:09:20,880 --> 00:09:23,040 Speaker 1: bound than expect great cuts of a Hunland fifty based 191 00:09:23,040 --> 00:09:25,440 Speaker 1: points or more. When you're face to that kind of 192 00:09:25,440 --> 00:09:28,400 Speaker 1: bimodal distribution, interpreting what the market is pricing is actually 193 00:09:28,480 --> 00:09:31,120 Speaker 1: quite difficult because it is essentially just putting a line 194 00:09:31,160 --> 00:09:33,800 Speaker 1: through those way two extremes. You know, the world might 195 00:09:33,800 --> 00:09:36,480 Speaker 1: be okay, it might not um but the fact of 196 00:09:36,520 --> 00:09:38,760 Speaker 1: the matter remains that if you worry about the FAT 197 00:09:38,800 --> 00:09:41,199 Speaker 1: having to revisit the zero lower bound, then then you 198 00:09:41,280 --> 00:09:44,160 Speaker 1: knowes do provide a lot of upside. Europe, I think 199 00:09:44,240 --> 00:09:46,520 Speaker 1: is a very different matter. And and to your question 200 00:09:46,520 --> 00:09:48,800 Speaker 1: about at what point do we run out of out 201 00:09:48,800 --> 00:09:52,200 Speaker 1: of hedges, well, the thirty auction this morning in Germany 202 00:09:52,679 --> 00:09:56,320 Speaker 1: clearly was a signal that there isn't actually that much 203 00:09:56,520 --> 00:09:59,920 Speaker 1: end demand from investors when you're asking them to pay 204 00:10:00,120 --> 00:10:02,040 Speaker 1: up for someone else to look after their money for 205 00:10:02,080 --> 00:10:04,320 Speaker 1: them for the next thirty years. Rough you thought on 206 00:10:04,360 --> 00:10:07,600 Speaker 1: how the yield curve is responding to the easing that 207 00:10:07,760 --> 00:10:09,360 Speaker 1: is set to come from the e c B and 208 00:10:09,480 --> 00:10:12,200 Speaker 1: is coming from the Federal Reserve. Typically, what we'd expect 209 00:10:12,280 --> 00:10:14,280 Speaker 1: to happen is a ball statement to start to come 210 00:10:14,280 --> 00:10:16,959 Speaker 1: through the curve in treasuries as the Fed starts to 211 00:10:16,960 --> 00:10:19,840 Speaker 1: cut interest rates. It's not happening, Ralph. Why is it 212 00:10:19,880 --> 00:10:23,959 Speaker 1: not happening? Um, It's not happening for a variety of reasons. 213 00:10:23,960 --> 00:10:26,200 Speaker 1: So UM in the U S. I think what what 214 00:10:26,400 --> 00:10:28,440 Speaker 1: is interesting about the inversion is not the fact that 215 00:10:28,480 --> 00:10:30,320 Speaker 1: has happened, but the fact that it took so long. 216 00:10:30,920 --> 00:10:33,240 Speaker 1: It is very, very unusual for the yield curve to 217 00:10:33,320 --> 00:10:36,520 Speaker 1: start inverting after the beginning of the easing cycle, which 218 00:10:36,559 --> 00:10:39,120 Speaker 1: is what we faced last week. What that is is 219 00:10:39,160 --> 00:10:41,360 Speaker 1: a very clear signal that the market leaves that the 220 00:10:41,360 --> 00:10:46,240 Speaker 1: Fed is somewhat behind the curve. UM. So, the the 221 00:10:46,320 --> 00:10:48,600 Speaker 1: issue we have is that this is not a normal 222 00:10:48,720 --> 00:10:53,600 Speaker 1: rate cut cycle where the Fed actually deliberately raised rates 223 00:10:53,600 --> 00:10:57,080 Speaker 1: to meaningfully above neutral, thereby slowing down an economy that 224 00:10:57,120 --> 00:11:00,280 Speaker 1: would otherwise have been overheating. No, this is any nomy 225 00:11:00,400 --> 00:11:04,920 Speaker 1: that was basically recovering, you know, somewhat above trend. Who 226 00:11:05,640 --> 00:11:10,320 Speaker 1: Um is being tripped up by a global manufacturing cycle 227 00:11:10,360 --> 00:11:14,840 Speaker 1: that has slowed very materially and therefore is facing meaningful 228 00:11:14,880 --> 00:11:17,240 Speaker 1: storm clouds on the horizon without actually an awful lot 229 00:11:17,280 --> 00:11:20,199 Speaker 1: of evidence of weakness in the domestic economy so far, 230 00:11:20,240 --> 00:11:23,160 Speaker 1: and that results in this you know, very wide distribution 231 00:11:23,200 --> 00:11:26,160 Speaker 1: of possible outcomes that is being priced in. But the 232 00:11:26,200 --> 00:11:29,400 Speaker 1: clearest reflection of that and that hedge demand is basically 233 00:11:29,559 --> 00:11:32,960 Speaker 1: a yield curve that inverts after the beginning of the 234 00:11:32,960 --> 00:11:37,400 Speaker 1: easing cycle. Europe is a very different cattle of fish 235 00:11:37,480 --> 00:11:41,240 Speaker 1: because they'll be dealing with a policy talk kit that 236 00:11:41,400 --> 00:11:44,480 Speaker 1: is considerably more constrained than the central bank that has 237 00:11:44,679 --> 00:11:47,719 Speaker 1: buying large run out of ammunition. If we're honest of 238 00:11:47,760 --> 00:11:51,080 Speaker 1: a perspective, the path of these diosistance is lower and flatter. 239 00:11:51,400 --> 00:11:53,440 Speaker 1: So Ralph John has been trying to put me on 240 00:11:53,440 --> 00:11:56,600 Speaker 1: this spot all morning with respect to that German thirty 241 00:11:56,679 --> 00:11:59,800 Speaker 1: year auction, and I've been dodging it, I think pretty effectively. 242 00:12:00,000 --> 00:12:02,160 Speaker 1: But I want to put you on the spot instead. Uh, 243 00:12:02,360 --> 00:12:04,680 Speaker 1: And you know, basically is it an inflection point. You 244 00:12:04,720 --> 00:12:06,880 Speaker 1: were saying that the pushback, the lack of demand that 245 00:12:06,920 --> 00:12:11,360 Speaker 1: we saw seems to be some resistance to accepting losses, 246 00:12:11,440 --> 00:12:14,200 Speaker 1: essentially to lend money. Um do you think that we 247 00:12:14,280 --> 00:12:19,079 Speaker 1: have reached an inflection point in German burns now? I don't, 248 00:12:19,320 --> 00:12:23,199 Speaker 1: um So. We actually see bundeals lower into your end 249 00:12:23,520 --> 00:12:27,360 Speaker 1: um and there's a few key UM differences that would 250 00:12:27,360 --> 00:12:29,800 Speaker 1: tease out relative to where we were in twenty fifteen, 251 00:12:29,920 --> 00:12:32,880 Speaker 1: where a porten You auction kind of marked the beginning 252 00:12:32,880 --> 00:12:34,800 Speaker 1: of the end of the bund valley before the bund 253 00:12:34,840 --> 00:12:38,120 Speaker 1: Tantrum kicked off in Earnest. In April um number one 254 00:12:38,240 --> 00:12:42,640 Speaker 1: economic surprises actually continued to be very negative, whereas in 255 00:12:43,080 --> 00:12:46,080 Speaker 1: fifteen we were looking back at at a fairly meaningful 256 00:12:46,600 --> 00:12:50,920 Speaker 1: turnaround in UM. In the data flow equally, pms remain 257 00:12:51,000 --> 00:12:54,920 Speaker 1: at much weaker levels. The economic risks also much more 258 00:12:54,920 --> 00:12:58,680 Speaker 1: clear and present in the sense of Brexit, in the 259 00:12:58,679 --> 00:13:01,960 Speaker 1: sense of the threat of water town US, the weakness 260 00:13:01,960 --> 00:13:04,000 Speaker 1: in Chinese data that has yet to be reflected in 261 00:13:04,280 --> 00:13:08,160 Speaker 1: European data, and so on and so forth. Relative value 262 00:13:08,200 --> 00:13:11,920 Speaker 1: is also another key issue, um SO. From the perspective 263 00:13:12,000 --> 00:13:14,720 Speaker 1: of an f X hedge investor UM. So if I 264 00:13:14,720 --> 00:13:16,480 Speaker 1: put myself in the shoes as someone sitting in the 265 00:13:16,559 --> 00:13:19,240 Speaker 1: US running an f X hedge benchmark, they're looking at 266 00:13:19,280 --> 00:13:21,959 Speaker 1: ten y yields in in buns, not as minus you know, 267 00:13:22,080 --> 00:13:25,439 Speaker 1: sixty seventy basis points, but actually as you know, plus 268 00:13:25,480 --> 00:13:28,360 Speaker 1: one point nine percent plus one point eight percent, providing 269 00:13:28,400 --> 00:13:31,719 Speaker 1: meaningful pickup relative to tenure notes because of the the 270 00:13:32,559 --> 00:13:35,240 Speaker 1: pickup that is implicit in the in the FX hedge, 271 00:13:35,240 --> 00:13:38,199 Speaker 1: whereas back in on that metric, bonds are actually a 272 00:13:38,240 --> 00:13:41,199 Speaker 1: hundred basis points of rich relative to treasuries. So from 273 00:13:41,200 --> 00:13:43,960 Speaker 1: that perspective, I think it's very very difficult to um 274 00:13:44,080 --> 00:13:46,480 Speaker 1: make the case for a tantrum. I think what would 275 00:13:46,559 --> 00:13:49,600 Speaker 1: cause a tantrum in buns and and create that big 276 00:13:49,640 --> 00:13:53,360 Speaker 1: turning point for bund yields is a change in the 277 00:13:53,440 --> 00:13:56,560 Speaker 1: native So if the trade will ends tomorrow, then yeah, 278 00:13:56,720 --> 00:13:59,640 Speaker 1: we can sell off obviously, but it has to end 279 00:13:59,679 --> 00:14:02,920 Speaker 1: credit the um. If you get a fiscal policy impulse 280 00:14:03,040 --> 00:14:05,280 Speaker 1: out of Germany, and but that I don't mean what 281 00:14:05,400 --> 00:14:08,959 Speaker 1: the current constitutional rules allow for, but actually something that 282 00:14:09,080 --> 00:14:11,920 Speaker 1: most people would understand a fiscal impulse and is something 283 00:14:11,960 --> 00:14:14,800 Speaker 1: that is big and meaningful, then that obviously could provide 284 00:14:14,800 --> 00:14:18,440 Speaker 1: a very different backdrop. If the Chinese were to start 285 00:14:18,440 --> 00:14:20,840 Speaker 1: stimulating in a way that actually creates positives below the 286 00:14:20,880 --> 00:14:24,280 Speaker 1: effects for the rest of the world, so infrastructure investment 287 00:14:24,320 --> 00:14:28,000 Speaker 1: as opposed to monetary policy using and currency deppreciation, then 288 00:14:28,000 --> 00:14:30,560 Speaker 1: that could potentially also change the narrative. But I think 289 00:14:30,560 --> 00:14:32,320 Speaker 1: we're a long way away from seeing any of those 290 00:14:32,360 --> 00:14:36,360 Speaker 1: things material is anytime soon. So from that perspective, um, 291 00:14:36,400 --> 00:14:40,640 Speaker 1: you know, you are faced with the risk of unanchored 292 00:14:40,640 --> 00:14:44,080 Speaker 1: inflation expectations becoming ever more intentioned in Europe, and that's 293 00:14:44,120 --> 00:14:46,680 Speaker 1: not going to provide a big upsite for for the 294 00:14:46,720 --> 00:14:49,840 Speaker 1: long end of the curve. Really smart final thoughts there, 295 00:14:49,920 --> 00:14:52,560 Speaker 1: Ralph Price of their Banks of American mardal Inch, International 296 00:14:52,560 --> 00:15:08,560 Speaker 1: Global head of Race Strategy. The narrative just running away 297 00:15:08,560 --> 00:15:10,960 Speaker 1: with it south that Germany is somehow putting together a 298 00:15:11,000 --> 00:15:13,760 Speaker 1: package and will preemptively tackle some of the problems in 299 00:15:13,760 --> 00:15:15,880 Speaker 1: Germany and Europe. At the moment, I don't see it's 300 00:15:15,880 --> 00:15:18,840 Speaker 1: not happening. I hope it does. The optics are certainly encouraging. 301 00:15:19,080 --> 00:15:21,080 Speaker 1: It's positive that this is part of the discussion. I 302 00:15:21,080 --> 00:15:24,080 Speaker 1: hope it happens, But just realistically speaking, I don't see 303 00:15:24,120 --> 00:15:26,440 Speaker 1: it happening right now. Let's find out what Jane fully 304 00:15:26,480 --> 00:15:28,840 Speaker 1: thinks that Jane Folly Rubber, big head of Effect Strategy, 305 00:15:28,920 --> 00:15:31,400 Speaker 1: joining us now from London. Jane, Let's get started with 306 00:15:31,440 --> 00:15:37,200 Speaker 1: the German fiscal stimulus. This idea that potentially, maybe perhaps 307 00:15:37,520 --> 00:15:41,840 Speaker 1: in a downturn, they could abandon their balanced budget policies. 308 00:15:42,040 --> 00:15:44,400 Speaker 1: How realistic is it that Germany would actually engage in 309 00:15:44,400 --> 00:15:47,320 Speaker 1: a meaningful fiscal stimulus early enough to stave off a 310 00:15:47,360 --> 00:15:51,480 Speaker 1: downturn that is really painful? Well, I mean, you can 311 00:15:51,520 --> 00:15:53,400 Speaker 1: see from the outside looking in that they would appear 312 00:15:53,480 --> 00:15:56,400 Speaker 1: to be a certain logic. Germany's budget position, for instance, 313 00:15:56,760 --> 00:15:59,720 Speaker 1: looks more healthy than it's another large country, So from 314 00:15:59,760 --> 00:16:02,880 Speaker 1: that spectives you can see the logic building up. The 315 00:16:02,960 --> 00:16:05,520 Speaker 1: reality in Germany, however, is that a lot of the 316 00:16:05,560 --> 00:16:09,880 Speaker 1: fiscal power is localized um and that means that from 317 00:16:09,880 --> 00:16:14,120 Speaker 1: a practical perspective, it may not be that it may 318 00:16:14,160 --> 00:16:17,560 Speaker 1: not be very straightforward or simple to actually make the 319 00:16:17,600 --> 00:16:20,880 Speaker 1: decisions that bring forward a lot of fiscal stimulus. So 320 00:16:20,960 --> 00:16:25,000 Speaker 1: it could actually be quite a difficult proposition to actually 321 00:16:25,040 --> 00:16:29,320 Speaker 1: see through. So there will be more pressure. We've seen Germany, 322 00:16:29,360 --> 00:16:32,520 Speaker 1: of course, printer and negative GDP growth q and key 323 00:16:32,560 --> 00:16:35,880 Speaker 1: growth for for the second quarter. If we see another 324 00:16:35,960 --> 00:16:39,520 Speaker 1: negative print for the third quarter IU technical recession, then 325 00:16:39,600 --> 00:16:42,520 Speaker 1: clearly that pressure will build up and therefore there will 326 00:16:42,560 --> 00:16:46,600 Speaker 1: be increased pressure and perhaps more momentum within Germany to 327 00:16:46,600 --> 00:16:51,000 Speaker 1: to to ease those fiscal uh per strings. But um, 328 00:16:51,320 --> 00:16:56,120 Speaker 1: it's not necessarily the foregone conclusion that some of the 329 00:16:56,120 --> 00:16:59,240 Speaker 1: the commentary in the markets in the last few days, 330 00:16:59,240 --> 00:17:03,560 Speaker 1: few weeks would lead to believe. I think I'm struggling 331 00:17:03,600 --> 00:17:06,480 Speaker 1: to understand as we look at the interest rate picture 332 00:17:06,520 --> 00:17:08,200 Speaker 1: and as we look at what central banks are doing. 333 00:17:08,359 --> 00:17:10,320 Speaker 1: Certainly the e c B is preparing another round of 334 00:17:10,320 --> 00:17:12,800 Speaker 1: stimulus on there, and given the fact that Germany is 335 00:17:12,840 --> 00:17:15,359 Speaker 1: unlikely to come out with fiscal stimulus, I'm trying to 336 00:17:15,400 --> 00:17:20,399 Speaker 1: understand the relationship between the monetary policy and the f 337 00:17:20,800 --> 00:17:24,359 Speaker 1: X rates where where things are actually trading. I mean, 338 00:17:24,400 --> 00:17:29,280 Speaker 1: at what point do central banks lose power over currency 339 00:17:29,400 --> 00:17:34,400 Speaker 1: exchange rates? Well, of course, um, it's for an exchange 340 00:17:34,440 --> 00:17:37,600 Speaker 1: is not just driven by by effects rates. There is 341 00:17:37,600 --> 00:17:40,159 Speaker 1: a cause, an awful lot of political influence, and I 342 00:17:40,160 --> 00:17:42,439 Speaker 1: think this is very much the case in the detail 343 00:17:42,520 --> 00:17:44,680 Speaker 1: in the in the trance sort of Brexit sort of era. 344 00:17:44,760 --> 00:17:47,240 Speaker 1: There's a lot of political risk there. Now. You could 345 00:17:47,240 --> 00:17:51,480 Speaker 1: take in the Eurozone, you could take the Italian situation 346 00:17:51,520 --> 00:17:53,359 Speaker 1: now and ask the question, well, you know, is that 347 00:17:53,920 --> 00:17:56,840 Speaker 1: a negative euro fractor? Well, you know the answer to 348 00:17:56,840 --> 00:18:00,320 Speaker 1: that is, well, potentially it is. I mean today perhaps 349 00:18:00,359 --> 00:18:04,080 Speaker 1: because we've seen the markets reactor quite well to the 350 00:18:04,119 --> 00:18:08,040 Speaker 1: most recent news from Italy, and that's the assumption that 351 00:18:08,080 --> 00:18:10,040 Speaker 1: there may not be a snap election in the next 352 00:18:10,080 --> 00:18:12,760 Speaker 1: couple of months, that might be delayed until next year. 353 00:18:12,760 --> 00:18:14,600 Speaker 1: And therefore, if we're not having a snap election in 354 00:18:14,640 --> 00:18:17,679 Speaker 1: the next couple of months, we don't therefore have a 355 00:18:17,720 --> 00:18:21,359 Speaker 1: big budgetary conflict right now between Italy and the EU. 356 00:18:21,440 --> 00:18:24,680 Speaker 1: That's potentially further down the road. But it is all 357 00:18:24,720 --> 00:18:27,880 Speaker 1: about politics, i would say, as well as the economy, 358 00:18:27,920 --> 00:18:30,760 Speaker 1: as well as infra distrect differentials. But the central banks 359 00:18:31,119 --> 00:18:34,440 Speaker 1: certainly have a big part to pay play in foreign exchange. 360 00:18:34,440 --> 00:18:37,120 Speaker 1: And what we have now is of cause a big 361 00:18:37,160 --> 00:18:40,520 Speaker 1: emphasis on the September ECB policy meeting and a lot 362 00:18:40,560 --> 00:18:44,240 Speaker 1: of speculation that the the ECB will use and a 363 00:18:44,280 --> 00:18:46,600 Speaker 1: word that was used in the President in the last 364 00:18:46,640 --> 00:18:49,280 Speaker 1: week of the Zooker that they could do something quite significant. 365 00:18:49,320 --> 00:18:51,320 Speaker 1: And I think that one of the reasons that the 366 00:18:51,359 --> 00:18:54,600 Speaker 1: euro has been under pressure quite lately is this perception 367 00:18:54,640 --> 00:18:57,280 Speaker 1: that this isn't all about how much interestrate caps are 368 00:18:57,320 --> 00:18:59,600 Speaker 1: said can do over the next year or so, so 369 00:18:59,640 --> 00:19:02,520 Speaker 1: actually about where else and who else could be doing 370 00:19:02,560 --> 00:19:05,400 Speaker 1: these interest rate moves, And certainly I think the ECB 371 00:19:05,560 --> 00:19:08,680 Speaker 1: is right up there in the market's consciousness in the 372 00:19:08,760 --> 00:19:11,199 Speaker 1: next few weeks. Well, Jane, if they moved to tearing 373 00:19:11,280 --> 00:19:13,240 Speaker 1: on the deposit rate, it opens a new range of 374 00:19:13,280 --> 00:19:15,800 Speaker 1: possibilities up for just how low interest rates could go 375 00:19:15,880 --> 00:19:18,040 Speaker 1: at the u c B. Have you got a base 376 00:19:18,119 --> 00:19:19,840 Speaker 1: case for that, Jane, on how low things could go 377 00:19:20,440 --> 00:19:24,760 Speaker 1: for ECB deposit rates. It's it's very difficult to make 378 00:19:24,800 --> 00:19:28,720 Speaker 1: that judgment right now, clearly, because it's difficult to know 379 00:19:29,400 --> 00:19:32,040 Speaker 1: how bad the global economy can be and at a 380 00:19:32,119 --> 00:19:33,720 Speaker 1: time make those sorts of assumptions. You've got to try 381 00:19:33,720 --> 00:19:36,840 Speaker 1: and make a prediction on how far can tradeables go, 382 00:19:37,760 --> 00:19:41,960 Speaker 1: how far can the relationship deteriorate between China and the 383 00:19:42,119 --> 00:19:45,880 Speaker 1: US overall, so there's an awful lot of what if, which, 384 00:19:46,000 --> 00:19:49,760 Speaker 1: of course it always are in forecasting, but it does 385 00:19:50,160 --> 00:19:54,320 Speaker 1: the ECB don't want to use tearing immediately, but certainly 386 00:19:54,359 --> 00:19:57,920 Speaker 1: I think if conditions did worsen, they may have to. 387 00:19:58,400 --> 00:20:01,960 Speaker 1: You have a situation um where we are talking about 388 00:20:02,000 --> 00:20:05,000 Speaker 1: the potential of quantity division in Australia, where they're talking 389 00:20:05,040 --> 00:20:09,040 Speaker 1: about in September the Swiss National Bank cutting its interest 390 00:20:09,119 --> 00:20:11,840 Speaker 1: rates below where they already are and that's minus not 391 00:20:11,960 --> 00:20:15,920 Speaker 1: point seven five percent. So you have, um the the 392 00:20:16,200 --> 00:20:19,879 Speaker 1: discussion about world countries such as Sweden or Denmark have 393 00:20:20,000 --> 00:20:24,119 Speaker 1: to pass on negative rates to to retail deposits for instance, 394 00:20:24,119 --> 00:20:28,320 Speaker 1: So that there's there's a there's an enormous argument and 395 00:20:28,600 --> 00:20:32,920 Speaker 1: debate about how low can this really go and and 396 00:20:33,200 --> 00:20:36,359 Speaker 1: how effective can these sorts of policies be and what 397 00:20:36,480 --> 00:20:38,639 Speaker 1: sort of damage can they do in terms of the 398 00:20:38,720 --> 00:20:42,840 Speaker 1: damage to the models for banks in Europe and and 399 00:20:42,960 --> 00:20:46,119 Speaker 1: also for inequalities, weld in equalities, etceters. So there's a 400 00:20:46,320 --> 00:20:50,080 Speaker 1: there's a huge debate um and certainly you know tearing 401 00:20:50,600 --> 00:20:53,520 Speaker 1: is out there on the agenda as of a possibility 402 00:20:53,600 --> 00:20:55,080 Speaker 1: for the for the u c B, but it's very 403 00:20:55,119 --> 00:20:58,159 Speaker 1: difficult right now to to call the whens and how 404 00:20:58,280 --> 00:21:00,880 Speaker 1: locan this goes. Just the final question you Jane, you're 405 00:21:00,920 --> 00:21:02,560 Speaker 1: a dollar. There was a hope that we finally break 406 00:21:02,600 --> 00:21:05,040 Speaker 1: out of these really tight, narrow trading ranges, and we 407 00:21:05,160 --> 00:21:07,159 Speaker 1: just seem to have established a new one in and 408 00:21:07,240 --> 00:21:10,520 Speaker 1: around one eleven one twelve on the single currency against 409 00:21:10,560 --> 00:21:12,320 Speaker 1: the green bag. Jane, do you see us breaking out 410 00:21:12,359 --> 00:21:14,520 Speaker 1: of that range anytime soon? And where's the path at 411 00:21:14,560 --> 00:21:18,800 Speaker 1: least for resistance right now? Well, you know, I always 412 00:21:18,920 --> 00:21:20,920 Speaker 1: tended to be below the market forecast for quite a 413 00:21:20,960 --> 00:21:23,240 Speaker 1: while on near a dollar, and I've had one ten 414 00:21:23,640 --> 00:21:26,399 Speaker 1: pencil dinners as a as a as a forecast for 415 00:21:26,520 --> 00:21:28,600 Speaker 1: the end of this year, and to be honest with 416 00:21:28,680 --> 00:21:30,320 Speaker 1: some part of parts of this year, and I've I've 417 00:21:30,400 --> 00:21:32,760 Speaker 1: I've been so far out of consensus. I thought, you know, 418 00:21:32,920 --> 00:21:35,120 Speaker 1: do I have to change this? But you know, right now, 419 00:21:36,040 --> 00:21:37,879 Speaker 1: you know, we're pretty close to one ten, and I 420 00:21:37,960 --> 00:21:42,159 Speaker 1: think we do have to address the risks about potentially 421 00:21:42,359 --> 00:21:45,119 Speaker 1: going lower. And I think the answers to whether or 422 00:21:45,119 --> 00:21:47,880 Speaker 1: not we can break below one ten are very much 423 00:21:48,119 --> 00:21:51,400 Speaker 1: in what happens to European grows, what happens in terms 424 00:21:51,440 --> 00:21:55,159 Speaker 1: of the the ECB, and and whether or not the 425 00:21:55,240 --> 00:21:57,560 Speaker 1: market does continue to believe that we could get that 426 00:21:57,600 --> 00:22:00,280 Speaker 1: stimulus in Germany or not. Jane, always great to catch 427 00:22:00,320 --> 00:22:02,520 Speaker 1: out with you. Jane Foley, the head of FIC Strategy 428 00:22:02,520 --> 00:22:05,159 Speaker 1: at Raumba Bank, joining us Santa the City of London 429 00:22:05,480 --> 00:22:21,720 Speaker 1: on global foreign exchange and global central banking. We're so 430 00:22:21,840 --> 00:22:24,240 Speaker 1: lucky to have with us Brian Hook, us special representative 431 00:22:24,280 --> 00:22:27,840 Speaker 1: for Iran and Senior Palsy advisor to Secretary of State 432 00:22:28,119 --> 00:22:32,679 Speaker 1: Mike Pompeio, joining us here in our eleven three Oh studios. Um, 433 00:22:32,960 --> 00:22:35,200 Speaker 1: thank you so much, representative for being with us. I 434 00:22:35,280 --> 00:22:37,440 Speaker 1: just want to start with where where are we in 435 00:22:37,640 --> 00:22:40,920 Speaker 1: terms of the discussion with Iran, with the latest being 436 00:22:40,960 --> 00:22:44,800 Speaker 1: this crew tanker leaving Gibraltar. Well, the Iranian regime uses 437 00:22:44,880 --> 00:22:47,560 Speaker 1: oil sales to fund terrorism, and they use it to 438 00:22:47,680 --> 00:22:51,320 Speaker 1: fund proxies like Hezbollah and Hamas and the Hoothies and Yemen. 439 00:22:51,680 --> 00:22:55,000 Speaker 1: They use it to fund their missile program which has 440 00:22:55,080 --> 00:22:57,760 Speaker 1: done so much to cause bloodshed and suffering throughout the 441 00:22:57,800 --> 00:23:01,399 Speaker 1: Middle East. So right now we have the Islamic Revolutionary 442 00:23:01,440 --> 00:23:04,879 Speaker 1: Guard CORES, which is using oil tankers to try to 443 00:23:05,720 --> 00:23:10,879 Speaker 1: move oil covertly, and this vessel was seized by Gibraltar. 444 00:23:11,359 --> 00:23:14,879 Speaker 1: It was unfortunately released and we are now tracking the 445 00:23:14,960 --> 00:23:17,679 Speaker 1: movements of that tanker to our hard to do everything 446 00:23:17,760 --> 00:23:21,600 Speaker 1: we can to avoid it from achieving its destination. So 447 00:23:21,720 --> 00:23:24,040 Speaker 1: what has been the impact on Iran from you know, 448 00:23:24,160 --> 00:23:26,080 Speaker 1: our efforts to kind of choke off their one of 449 00:23:26,119 --> 00:23:28,960 Speaker 1: their key revenue streams, that being oil exports. Well, it's 450 00:23:28,960 --> 00:23:31,720 Speaker 1: been enormously successful. When the President got out of the 451 00:23:31,760 --> 00:23:34,560 Speaker 1: Iran deal, and may have last year, Iran was exporting 452 00:23:34,600 --> 00:23:37,359 Speaker 1: two point five million barrels of oil a day. You 453 00:23:37,480 --> 00:23:40,040 Speaker 1: may have seen press reports in June and July that 454 00:23:40,119 --> 00:23:44,119 Speaker 1: showed Iranian exports around one hundred thousand barrels of oil 455 00:23:45,119 --> 00:23:48,600 Speaker 1: and this um is three percent of the world's oil supply. 456 00:23:49,119 --> 00:23:51,719 Speaker 1: But we have been able to maintain a very stable 457 00:23:51,760 --> 00:23:54,600 Speaker 1: oil market because we've done a good job of balancing 458 00:23:54,640 --> 00:23:59,159 Speaker 1: our national security objectives UH and our economic interests. But um, 459 00:23:59,280 --> 00:24:03,080 Speaker 1: we have taken places to Iran. We have taken Iran 460 00:24:03,560 --> 00:24:07,560 Speaker 1: two places it's never been historically. Oil revenues are their 461 00:24:07,680 --> 00:24:10,639 Speaker 1: largest source of export revenue, and so much of that 462 00:24:10,800 --> 00:24:13,800 Speaker 1: is controlled by the Revolutionary Guard Corps and the Kuds 463 00:24:13,840 --> 00:24:16,560 Speaker 1: Force which is active around the Middle East and all 464 00:24:16,600 --> 00:24:19,840 Speaker 1: these Arab civil wars, and so by cutting off the oil, 465 00:24:19,960 --> 00:24:22,480 Speaker 1: we are denying the regime the revenue that it needs 466 00:24:22,560 --> 00:24:26,000 Speaker 1: to conduct a violent and expansionist foreign policy is the 467 00:24:26,119 --> 00:24:29,040 Speaker 1: ultimate goal regime change. No, the ultimate goal is a 468 00:24:29,160 --> 00:24:32,639 Speaker 1: change in regime's behavior. And one of the ways you 469 00:24:32,680 --> 00:24:34,720 Speaker 1: can do that. I think it was SISTERO who said 470 00:24:34,760 --> 00:24:37,480 Speaker 1: that money is the sinews of war. Iran has less 471 00:24:37,520 --> 00:24:39,560 Speaker 1: money today than it did two and a half years ago, 472 00:24:39,600 --> 00:24:42,120 Speaker 1: and we took office. The regime is weaker and its 473 00:24:42,160 --> 00:24:46,120 Speaker 1: proxies are weaker as a consequence of our maximum economic 474 00:24:46,160 --> 00:24:50,480 Speaker 1: pressure campaign. So if it's not regime change in terms 475 00:24:50,600 --> 00:24:54,920 Speaker 1: of the actual personnel, but regime behavior change, at what 476 00:24:55,119 --> 00:24:58,640 Speaker 1: point will there be enough behavioral change? What's the sort 477 00:24:58,680 --> 00:25:01,880 Speaker 1: of threshold for saying, Okay, we can relax these sanctions 478 00:25:02,000 --> 00:25:05,640 Speaker 1: and move forward with some diplomacy. Apart from this, well, 479 00:25:06,000 --> 00:25:09,119 Speaker 1: the diplomacy option has been open for the last couple 480 00:25:09,200 --> 00:25:12,080 Speaker 1: of years. The President and Secretary and the Secretary of 481 00:25:12,119 --> 00:25:14,560 Speaker 1: State had made clear repeatedly that they would like to 482 00:25:14,640 --> 00:25:19,520 Speaker 1: resolve our differences with Iran diplomatically. Iran has rejected diplomacy 483 00:25:19,600 --> 00:25:23,640 Speaker 1: too many times. They rejected the diplomatic overtures of Japanese 484 00:25:23,680 --> 00:25:27,080 Speaker 1: Prime Minister Abe when he visited Iran for the first 485 00:25:27,160 --> 00:25:30,520 Speaker 1: time any Japanese Prime minister has ever visited Iran. Not 486 00:25:30,640 --> 00:25:33,679 Speaker 1: only did the Supreme Leader of Iran reject his diplomacy, 487 00:25:33,760 --> 00:25:36,240 Speaker 1: he then blew up a Japanese oil tanker for good measure. 488 00:25:36,840 --> 00:25:40,800 Speaker 1: President McCrone has also um been on the receiving end 489 00:25:40,840 --> 00:25:46,000 Speaker 1: of Iranian rejections, and so we're intensifying our sanctions. We 490 00:25:46,320 --> 00:25:50,880 Speaker 1: are helping Iran to see that the that the costs 491 00:25:51,280 --> 00:25:54,400 Speaker 1: of trying to pursue a nuclear program, a missile program, 492 00:25:54,480 --> 00:25:57,760 Speaker 1: and regional aggression are simply too high. So pulling out 493 00:25:57,840 --> 00:26:01,960 Speaker 1: of the Iran agreement initially by President Trump, many argued 494 00:26:02,000 --> 00:26:05,040 Speaker 1: that that was destabilizing the region. What is your response 495 00:26:05,080 --> 00:26:08,280 Speaker 1: to that? It was the Iran nuclear deal that has 496 00:26:08,400 --> 00:26:12,560 Speaker 1: come at the expense of regional stability. And if you 497 00:26:12,640 --> 00:26:15,280 Speaker 1: read the Iran Nuclear Deal all hundred and forty seven 498 00:26:15,520 --> 00:26:18,520 Speaker 1: seven pages, in the beginning, it talks about how this 499 00:26:18,680 --> 00:26:22,520 Speaker 1: deal will promote regional peace and stability. Iran used the 500 00:26:22,560 --> 00:26:26,920 Speaker 1: sanctions relief and spent it on Assad in Syria, on 501 00:26:27,040 --> 00:26:29,879 Speaker 1: Hezbollah in Lebanon, on its proxies in Iraq, on the 502 00:26:29,920 --> 00:26:34,360 Speaker 1: Houthis and Yemen, and on Hamas. And as a consequence, 503 00:26:34,760 --> 00:26:39,840 Speaker 1: the Iran Deal allowed the Iranian regime to achieve record 504 00:26:40,000 --> 00:26:43,720 Speaker 1: levels of military spending and record levels of support for 505 00:26:43,840 --> 00:26:48,240 Speaker 1: its proxies. Since we have taken office, UM, Iran's proxies 506 00:26:48,240 --> 00:26:51,080 Speaker 1: are weaker. The first year we were in office, Iran's 507 00:26:51,080 --> 00:26:53,480 Speaker 1: military budget went down ten percent, and then in the 508 00:26:53,560 --> 00:26:56,960 Speaker 1: second year it went down twenty eight percent. We have 509 00:26:57,080 --> 00:26:59,320 Speaker 1: had stories in the New York Times and the Washington 510 00:26:59,400 --> 00:27:03,680 Speaker 1: Post doc commenting how American sanctions have weakened Iran's proxies. 511 00:27:03,760 --> 00:27:05,840 Speaker 1: This is a good thing for the Middle East. How 512 00:27:05,960 --> 00:27:09,480 Speaker 1: important is it to the administration to have coordination and 513 00:27:09,560 --> 00:27:13,720 Speaker 1: cooperation with Europe? Oh, It's very important. I'm in almost 514 00:27:13,800 --> 00:27:17,600 Speaker 1: regular daily contact with my counterparts in the UK, France 515 00:27:17,640 --> 00:27:20,480 Speaker 1: and Germany. Yesterday we had a very good meeting with 516 00:27:20,600 --> 00:27:24,560 Speaker 1: the Polish Foreign Minister. UM. We are I think the 517 00:27:24,600 --> 00:27:28,639 Speaker 1: press has overstated our disagreements the Transatlantic rift that the 518 00:27:28,720 --> 00:27:31,600 Speaker 1: press likes to report. We agree on much more than 519 00:27:31,640 --> 00:27:34,359 Speaker 1: we disagree. When I'm in the room with the Brits 520 00:27:34,400 --> 00:27:36,520 Speaker 1: and the French and the Germans, we share the same 521 00:27:36,560 --> 00:27:41,639 Speaker 1: threat assessment about Iran, the regional aggression, the ballistic missile testing, 522 00:27:41,720 --> 00:27:46,080 Speaker 1: the missile proliferation, UH the nuclear program. The world's leading 523 00:27:46,119 --> 00:27:49,159 Speaker 1: sponsor of terrorism can never be allowed to have a 524 00:27:49,280 --> 00:27:51,800 Speaker 1: nuclear weapon or even to come close to it. There's 525 00:27:51,840 --> 00:27:55,160 Speaker 1: no disagreement there. We have tactical disagreements over the Iran 526 00:27:55,280 --> 00:27:58,720 Speaker 1: nuclear deal. We have more leverage outside of the deal 527 00:27:58,800 --> 00:28:01,520 Speaker 1: to prevent Iran from gtting a nuclear weapon then inside 528 00:28:01,560 --> 00:28:04,160 Speaker 1: of it. That's a tactical disagreement, but we don't disagree 529 00:28:04,200 --> 00:28:06,520 Speaker 1: on the end state. Thank you so much for being 530 00:28:06,600 --> 00:28:09,520 Speaker 1: with us. Brian Hook, US Special representative for Iran and 531 00:28:09,560 --> 00:28:14,000 Speaker 1: senior policy advisor to Secretary of State Mike Pompeo. We incredit, 532 00:28:14,080 --> 00:28:17,840 Speaker 1: we appreciate your time. Thanks for listening to the Bloomberg 533 00:28:17,880 --> 00:28:23,800 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 534 00:28:24,200 --> 00:28:28,400 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 535 00:28:28,480 --> 00:28:32,679 Speaker 1: Tom Keene before the podcast. You can always catch us worldwide. 536 00:28:33,200 --> 00:28:34,240 Speaker 1: I'm Bloomberg Radio.