WEBVTT - Pond: Correlation between oil and headline inflation

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<v Speaker 1>Broadcasting live to New York Gloomberg Even to Washington, d C.

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<v Speaker 1>Bloomber to Boston, Bloomberg twelve Honors, to San Francisco Bloomberg

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<v Speaker 1>This is Bloomberg Surveillance. Good morning and is seven thirty

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<v Speaker 1>on Wall Street. I'm Michael McKee along with Lisa Brownwit

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<v Speaker 1>sitting in this morning for Tom Keane. It's an earnings day,

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<v Speaker 1>lots of numbers coming out, just crossing the Bloomberg three

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<v Speaker 1>m company earnings for share of two dollars and five cents.

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<v Speaker 1>That sales of seven point four one billion, and that

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<v Speaker 1>exceeds the estimate of seven point three two billion, the

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<v Speaker 1>consensus of analyst surveyed proctoring Gamble fiscal third quarter profit

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<v Speaker 1>topping estimates eighty six cents to share excluding some items.

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<v Speaker 1>Santalists have projected eighty two cents sales, though down six

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<v Speaker 1>point fifteen point eight billion. That was the estimate. DuPont

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<v Speaker 1>gonna merge this year, with Dow Chemical raised its earnings

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<v Speaker 1>outlook for the year. UH to buy ten cents this

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<v Speaker 1>year to three dollars, five cents, three dollars and twenty cents.

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<v Speaker 1>Chrysler earnings a few moments ago on a European basis,

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<v Speaker 1>sales were twenty six point six billion euros, not quite

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<v Speaker 1>as high as the twenty seven point seven point eight

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<v Speaker 1>twenty seven point eight that were forecasts. So lots of earnings. Uh.

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<v Speaker 1>And of course Candra Moscow throughout the morning will have

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<v Speaker 1>all those for you. But first we're gonna check in

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<v Speaker 1>with Michael Barr and get the latest world and national headlines. Mike, Lisa,

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<v Speaker 1>thank you very much. It is primary day in five

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<v Speaker 1>Northeast states. Contests will be held in Connecticut, Delaware, Rhode Island, Pennsylvania,

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<v Speaker 1>and Maryland. A strong day my Democrat Hillary Clinton could

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<v Speaker 1>bring her almost within a few votes of clinching the nomination.

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<v Speaker 1>Last night in the town Hall on MSNBC, Clinton said

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<v Speaker 1>she wants rival Bernie Sanders support if she wins the nomination,

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<v Speaker 1>just like she supported then Senator Barack Obama in two

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<v Speaker 1>thousand eight. We got to the end in June and

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<v Speaker 1>I did not put down conditions. I didn't say, you

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<v Speaker 1>know what is senta Obama does, X, Y and Z.

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<v Speaker 1>Maybe I'll support him. Republican presidential front runner Donald Trump

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<v Speaker 1>had a message for rivals Ted Cruz and John Ksick.

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<v Speaker 1>They ought to both drop out of the race, so

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<v Speaker 1>we ought to unify the Republican Party. Trump campaigned in

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<v Speaker 1>Wilkesbury Township, Pennsylvania yesterday. Global News twenty four hours a day,

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<v Speaker 1>powered by our twenty four hundred journalists more than a

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<v Speaker 1>hundred fifty news bureaus from around the world. I'm Michael Barr,

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<v Speaker 1>Mike Lisa, thank you Mill Time Now for the Landrover

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<v Speaker 1>Parcipani Bloomberg. NBC Sports Update with John stash Our. All right,

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<v Speaker 1>Mike Nathan of Ald. He was just looking for a

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<v Speaker 1>win after starting the season O and two, ended up

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<v Speaker 1>flirting with a no hitter, lost in the seventh inning

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<v Speaker 1>with the Yankees won three one at Texas, solo and

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<v Speaker 1>runs by Jacobe Elsberry and Starling and Castro. Noah Syndergard

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<v Speaker 1>tacked on nine more strike out though a no decision.

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<v Speaker 1>Mets be Cincinnati five to three. Neil Walker's go ahead

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<v Speaker 1>to run Homer seventh, then he came after Syndergarden was

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<v Speaker 1>gone for Walker already eight home runs. Lucas dud to

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<v Speaker 1>Michael Confordo also Homer Mets of Aty Homers. The last

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<v Speaker 1>ten games they won nine in the last they let him.

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<v Speaker 1>There'll be a new Stanley Cup champion. Chicago lost Game

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<v Speaker 1>seven at St. Louis three to two. Nashville took Anaheim

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<v Speaker 1>three one. They've got Game seven tomorrow, and the Islanders

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<v Speaker 1>have Game one of Round two tomorrow at Tampa Bay.

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<v Speaker 1>Deflate gate not over never is. Indications now Tom Brady

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<v Speaker 1>will appeal his loss, perhaps to the U S Supreme Court.

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<v Speaker 1>After the NFL one it's appeal putting Brady's four game

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<v Speaker 1>suspension for the Patriots use of inflated football's fifteen months

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<v Speaker 1>to go back on the draft Thursday, Eagles had to

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<v Speaker 1>take quarterback, so starting QB Sam Bradford reportedly wants a

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<v Speaker 1>trade out of Philly. For the Bloomberg NBC Sports Update,

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<v Speaker 1>I'm John Stanshall, Thank you, John Well. We're looking at

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<v Speaker 1>market that has no real enthusiasm, but at least is

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<v Speaker 1>leaning towards a higher open S and p futures up

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<v Speaker 1>by three points a tenth of a percent down future

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<v Speaker 1>is thirty two higher. That is a two tents rise

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<v Speaker 1>on the day you're listening to Bloomberg Radio worldwide. Welcome

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<v Speaker 1>back to Bloomberg Surveillance. I might come McKey. Lisa Abramowitz

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<v Speaker 1>is sitting in for Tom Keene today. We are on

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<v Speaker 1>FED Watched. The meeting should get underwigh in about an

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<v Speaker 1>hour and a half or so. It's two day meeting

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<v Speaker 1>decision two pm tomorrow afternoon, and we will be uh

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<v Speaker 1>presenting that to you here on Bloomberg Radio two pm.

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<v Speaker 1>I'll be anchoring our coverage along with Scarlet Fou and

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<v Speaker 1>Joe Weisenthal. So you'll want to tune in for that

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<v Speaker 1>bond market ahead of that flattening a bit. The two

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<v Speaker 1>year note yield is an eighty five basis points. The

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<v Speaker 1>tenure is at one point nine one percent. Coming up,

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<v Speaker 1>we're gonna be talking with Michael Pond. He is head

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<v Speaker 1>of of course, Global inflation linked Research at the at

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<v Speaker 1>Barclays and will get his view on maybe what the

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<v Speaker 1>Fed should be doing. But first, the Bloomberg n j

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<v Speaker 1>I t STEM Report brought to you by the New

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<v Speaker 1>I T dot E DU. Here's John Tucker and a

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<v Speaker 1>good morning to you, Michael. Let's see what's the making

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<v Speaker 1>news in science, technology engineering at MATH this morning. Mobile

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<v Speaker 1>numbers five or nine on a basic device. This according

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<v Speaker 1>to a statement from the Telecom Ministry in New Delhi.

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<v Speaker 1>All manufacturers, includes companies such as Apple and Samsung Electronics,

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<v Speaker 1>would need to comply or When he started powermat Technologies

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<v Speaker 1>in two thousand six, Rain Polka and envisioned a cordless

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<v Speaker 1>future where millions of consumers would watch television, charge their phones,

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<v Speaker 1>and that is this morning's Bloomberg j I T Steam Report.

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<v Speaker 1>Michael and Lisa, you're sitting next to our guest Michael Pond. Yes,

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<v Speaker 1>Michael Pond is with US Barkley's head of Global Inflation

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<v Speaker 1>linked Research on this day when arguably inflation discussions are

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<v Speaker 1>as important as ever. This is sort of the big

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<v Speaker 1>debate underpinning a lot of bond talk recently, which is

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<v Speaker 1>is the bond market too complacent about inflation never rearing

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<v Speaker 1>its head? And I want to start with oil. You know,

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<v Speaker 1>people have been looking to oil as a proxy for

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<v Speaker 1>inflation expectations over the past few years. Do you think

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<v Speaker 1>that the link between oil and bonds will break down

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<v Speaker 1>or has to break down? Well, Lisa, Mike John, thanks

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<v Speaker 1>for having me on again. You know, there has been

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<v Speaker 1>a decent correlation between oil and headline inflation. Headline inflation

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<v Speaker 1>recently was was bouncing along zero for for quite a

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<v Speaker 1>while because of the oil component. Oil often drives most

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<v Speaker 1>of the volatility and headline inflation, and that could pass

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<v Speaker 1>through into into core and again, consumers tend to focus

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<v Speaker 1>on inflation that experience that they experienced most often, and

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<v Speaker 1>that's things like gasoline prices, food prices, rather than broader

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<v Speaker 1>price pressures in the economy, so that can influence volatility,

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<v Speaker 1>and energy prices can influence consumer inflation expectations. Those have

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<v Speaker 1>been trend ding down, and the FED has now started

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<v Speaker 1>to become a bit more concerned that they are starting

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<v Speaker 1>to lose credibility and their ability to get inflation back

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<v Speaker 1>up to their two pc targets. So, you know, it's

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<v Speaker 1>interesting because I was talking with prem Psera from TV

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<v Speaker 1>Securities yesterday and she said that there is a risk

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<v Speaker 1>that the FED will overshoot and will wait too long

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<v Speaker 1>to raise rates and therefore will allow inflation to jump

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<v Speaker 1>up more than they expect. Do you think this is

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<v Speaker 1>a risk? It is a risk, but we think that

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<v Speaker 1>would be a good problem to have. One of the

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<v Speaker 1>things that cherry Yelling is uh noted recently is that

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<v Speaker 1>monetary policy at the near zero lower bounds should be

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<v Speaker 1>a symmetric that they should be looking to overshoot rather

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<v Speaker 1>than undershoot, because when inflation is too high the economy

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<v Speaker 1>is a bit too hot, they know what to do.

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<v Speaker 1>They have one lever to pull, that's the short term

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<v Speaker 1>interest rate, and they can keep pulling it until the

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<v Speaker 1>economy slows down. When the economy is too often inflation

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<v Speaker 1>is too low all of a sudden, they're in this

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<v Speaker 1>experimental world with potentially negative rates or quantitative easing. It's

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<v Speaker 1>monetary policy is difficult when when growth is too low

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<v Speaker 1>and inflation is too low, and inflation expectations start to

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<v Speaker 1>creep lower. They'd rather deal with the problem of too

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<v Speaker 1>high inflation right now rather than persistently too low inflation

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<v Speaker 1>expectations have been creeping higher. You know, you're the guy

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<v Speaker 1>that has to follow inflation. I got just about a

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<v Speaker 1>minute left. Is its starting to come back? Well, it's

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<v Speaker 1>starting to come back. We we've bounced off the very

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<v Speaker 1>lows of February, but uh most forward inflation expectations are

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<v Speaker 1>still lower than where they were at year end, and

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<v Speaker 1>even at current levels they're quite low. So the five

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<v Speaker 1>year five year forward implied break even from the market

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<v Speaker 1>based measures from TIPS is around one sixty. So again

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<v Speaker 1>that's well below the fenced target. So the market is

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<v Speaker 1>saying that the Fed won't achieve its inflation target even

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<v Speaker 1>over the medium term. Michael Pond is with us from

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<v Speaker 1>barclay Sees, the head of Global Inflation linked months. We

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<v Speaker 1>do note that um the brake evens Lisa have been

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<v Speaker 1>creeping a little bit higher. But interesting that, as Michael

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<v Speaker 1>pointed out to US earlier, the consumer surveys of inflation,

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<v Speaker 1>the Michigan surveys, suggests that people see less inflation out there. Yeah,

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<v Speaker 1>it's it's been a strange thing. And then you know,

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<v Speaker 1>the the US five year break events have actually reached

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<v Speaker 1>the highest level UH in nine months, signaling that people

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<v Speaker 1>are sort of more UH. We encouraged about the idea

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<v Speaker 1>of inflation going forward. So we shall see which gauge

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<v Speaker 1>is correct. We shall see. Well, right now, certainly the

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<v Speaker 1>bond market is not betting on a lot of inflation

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<v Speaker 1>to your note yield eight six basis points. This is

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<v Speaker 1>Bloomerk surveillance on Bloomberg Radio. We are coumming down to

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<v Speaker 1>the opening bell, less than two hours to go, and

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<v Speaker 1>we'll fill that time by talking about the Fed. With

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<v Speaker 1>the Fed and it's primary dire I almost forgotten