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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg Terminal. I have a

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Speaker 1: summer reading list, but with the events going on, you

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Speaker 1: need a late winter in spring reading list. And it's

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Speaker 1: real stimple, so simple. I should say you need to

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Speaker 1: read Angela's Stent and Elizabeth Economy. On Stent it's Putin's world,

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Speaker 1: and for Elizabeth Economy it is the widely anticipated the world.

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Speaker 1: According to China, her books have been definitive for decades.

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Speaker 1: Dr Economy joins us this morning with the Hoover Institute. Liz,

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Speaker 1: congratulations on the new effort. At the bottom of the book.

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Speaker 1: After the Olympics, after Ukraine, you talk about the China reset.

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Speaker 1: What is the reset towards the Party Congress? So yeah,

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Speaker 1: the Party Congress, the twentie Party Congress is coming this

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Speaker 1: fall October or perhaps November. Uh Hi Jinping will likely

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Speaker 1: be reselected for his third term as General Secretary of

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Speaker 1: the Communist Party. He has no amassed an enormous amount

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Speaker 1: of institutional authority. Ruthless Lee rooted out his political enemies,

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Speaker 1: whether in the Communist Party or you know, in the

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Speaker 1: broader civil society. Uh, say a word against Hijin Ping

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Speaker 1: and you will be disappeared for four years or eighteen years. Um.

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Speaker 1: And so this will mark I think the beginning of

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Speaker 1: the third term, uh for Stijn Ping, the third five

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Speaker 1: year term. You know, he's got, as you say, he's

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Speaker 1: got an ambitious agenda ahead of him. Um. You know

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Speaker 1: again robust Chinese Communist Party at the fore from the

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Speaker 1: political system, doubling per capita GDP by five, rostering the

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Speaker 1: p l A. So got to see what he's able

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Speaker 1: to do. It's all great, But to be honest, you've

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Speaker 1: been absolutely original and saying he's more fragile domestically than

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Speaker 1: we perceive. Do you stand by that absolutely? I mean,

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Speaker 1: I think we can look just back to that first month,

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Speaker 1: second month after the COVID pandemic broke out in China, Uh,

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Speaker 1: and look at what happened on the internet when you had,

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Speaker 1: you know, a week or so of freedom on the

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Speaker 1: internet and you had you know, million people and more

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Speaker 1: calling for freedom of speech and criticizing the government. Of

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Speaker 1: course you didn't pain went and hunted them all down afterwards.

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Speaker 1: But but I think we have to be uh, sort

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Speaker 1: of a tune to the fact that just because we

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Speaker 1: don't see dissent within the system, that it doesn't exist.

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Speaker 1: Just because he's a mass institutional authority doesn't mean he

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Speaker 1: has the full legitimacy that he would have if he

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Speaker 1: were in you know, an electoral system. Uh. China is

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Speaker 1: as polarized, even maybe more so than the United States,

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Speaker 1: along gender lines, along ethnic lines. You have the battle

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Speaker 1: between the entrepreneurs like Jack Ma, you know, who are

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Speaker 1: being crushed right now, and the bureaucratic class, and you

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Speaker 1: have this, you know, yawning gap in terms of income inequality.

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Speaker 1: So I think it's you know, we we tend to

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Speaker 1: focus on what she says, this grand vision of China

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Speaker 1: proclaiming its centrality on the global stage. But you're very

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Speaker 1: right to point to what's going on inside China, uh,

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Speaker 1: and the kinds of challenges that she did. In basis, Elizabeth,

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Speaker 1: doesn't matter if public sentiment is souring on j JM. Ping,

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Speaker 1: or is Jim Ping's predominance over the entire region pretty

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Speaker 1: much guaranteed regardless, And it just matters how hard Hell

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Speaker 1: clamped down. So I think it does matter. Um, I

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Speaker 1: think you know, it doesn't matter in the sense I don't.

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Speaker 1: I'm not predicting that you're going to have, you know,

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Speaker 1: mass protests on the Chinese street calling for the downfall

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Speaker 1: of Sheet and Ping. But I think where it matters

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Speaker 1: is that if you have enough Headman's white, a really

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Speaker 1: slowing Chinese economy, the international pressures that are coming to

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Speaker 1: bear on China currently right, He's he's you know, created

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Speaker 1: so many of his own problems with regard to countries,

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Speaker 1: for example, in Europe or in parts of Asia. So

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Speaker 1: if you have these headwinds coming, you can have people

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Speaker 1: in the Chinese elite, other leaders who aren't happy about

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Speaker 1: the direction in which China is moving the country. Right again,

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Speaker 1: this crack down on the sort of what's been the

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Speaker 1: most innovative and creative part of the Chinese economy, right,

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Speaker 1: the fintech sector. Uh, you can have that sentiment that

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Speaker 1: broader of popular sentiment can feed into uh sort of

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Speaker 1: the other leader's claim that something needs to change, that

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Speaker 1: Chi needs to take a step back. So I think

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Speaker 1: there can be a constellation of forces that could course change,

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Speaker 1: not predicting it, but I think we have to again

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Speaker 1: remain at the possibility at the same time. Right now

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Speaker 1: we're looking at the mounting Russia Ukrainian conflict, and sort

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Speaker 1: of on the on the heels of this, you get

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Speaker 1: this tightening relationship between Vladimir Putin and Chiesi and pay

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Speaker 1: and this idea that if Urashia is somehow caught off,

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Speaker 1: cut off from the Western world, Ji Jumping could come

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Speaker 1: to his rescue. How close is that alliance? You know, Look,

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Speaker 1: Russia and China have had a long history of working together,

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Speaker 1: for example and United Nations, and and really since two

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Speaker 1: thousand and fourteen, you've seen the relationship become closer. Trade

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Speaker 1: has increased slowly, but Russia remains a major arms supplier

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Speaker 1: to China. They've increased the number and the scope of

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Speaker 1: their joint military exercises. When She Jumping gave a speech

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Speaker 1: in Moscow a couple of years back, he said that

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Speaker 1: Plutin was his best friend in the international community. UH.

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Speaker 1: And we saw, of course, yes, the joint statement during

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Speaker 1: the Olympics where they basically call for a new world order.

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Speaker 1: UH and so I think the relationship is close, doesn't

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Speaker 1: mean that there aren't problems. Also, I think it bears

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Speaker 1: noting that the China's ambassador to Ukraine last month put

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Speaker 1: peace in Ukrainian newspaper saying that China supported Ukrainian sovereignty.

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Speaker 1: So I do think China would probably come in and

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Speaker 1: backfill for Russia economically to help out. But I don't

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Speaker 1: think that there's sort of undelivered support for for any

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Speaker 1: sort of Russian military action in Ukraine by by the Chinese. Um.

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Speaker 1: I want to go back to the combination of Angela's

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Speaker 1: stents work at brookings In and your work as well.

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Speaker 1: Angela's stent talks about the risk. Then we end up

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Speaker 1: going back to Yalta in a tripolar international relations where

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Speaker 1: it is about America, Russia and a nascent China. Is

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Speaker 1: that what China wants? I mean this, China want a

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Speaker 1: new y Alta where it's just a triangulation and that's it.

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Speaker 1: I don't. I don't think so. I think China views, uh,

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Speaker 1: you know, it's rise on the global stage. Um, you know,

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Speaker 1: it's hope is to surpass the United States. I think

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Speaker 1: it looks at as at Russia largely as a junior

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Speaker 1: partner in all of this. I mean, I think the

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Speaker 1: Russian economy is about a tenth the size that of China,

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Speaker 1: and so I don't in many respects, I don't think

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Speaker 1: that China looks at Russia as a completely equal partner. Um.

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Speaker 1: I think Jing's vision is focused, you know, squarely on

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Speaker 1: the future of China and China's efforts to reclaim centrality

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Speaker 1: on the global stage. You know, it's looking to redraw

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Speaker 1: the map of the Asia Pacific, to push the United

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Speaker 1: States out as the regional hedgemon, to invent Chinese values

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Speaker 1: and policy preferences globally, to the to the extent that

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Speaker 1: Russia supports China in that effort, to the extent that

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Speaker 1: it bolsters China's efforts. I think China welcomes Russia's support,

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Speaker 1: but I don't. I don't think it looks out at

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Speaker 1: the world and thinks that they are going to be

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Speaker 1: three equal you know, partners sitting around a table, Russia, China,

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Speaker 1: and the United States, as always wanderful to hear from

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Speaker 1: you the absolutely brilliant Elizabeth Economy of the Hoover Institute

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Speaker 1: there right now, we are honored to bring you Robert

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Speaker 1: Horbett's ambassador Hormats with titament of social advisors. I should say,

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Speaker 1: in his work within various Republican and Democratic administrations, he

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Speaker 1: has tart and feathered as a member of the Clinton clan.

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Speaker 1: But what you don't know is Hormats has eleven thousand,

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Speaker 1: two hundred pages five point six linear feet and the

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Speaker 1: gerald Ford Library from his work with President four years ago.

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Speaker 1: We're thrilled at Bob Hormats could join us this morning. Bob,

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Speaker 1: I I look at your work over time, and I

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Speaker 1: want to go back to you as a newly minuted

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Speaker 1: freshman at Toughs University. And there was a small matter

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Speaker 1: of the Cuban missile crisis only years before we allowed

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Speaker 1: Krishcheff to save face. How do we allow Putin to

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Speaker 1: save face? Well, I think if there's a way that

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Speaker 1: putentn saved face, sits to recognize that the Russians, as

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Speaker 1: Angela sent has said, have a deep historical affinity for Ukraine.

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Speaker 1: It's very closely connected to the Russian Orthodox Church. A

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Speaker 1: lot of Russian Ukrainian history are tied up with one another.

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Speaker 1: And Russia perceives that it has a right to have

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Speaker 1: an influence, if not control, over Ukraine. It's part of

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Speaker 1: Russia's notion of having an expanded influence in the New era,

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Speaker 1: just as the Soviet Union did in that region decades ago.

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Speaker 1: I think that the thing that he wants, probably most

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Speaker 1: is a very clear indication, if not a firm commitment,

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Speaker 1: that Ukraine will not join NATO. How do we thread

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Speaker 1: that needle? That's critical? How do we do that when

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Speaker 1: the Secretary says we want an open door policy. I

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Speaker 1: think you can do it in the way we've done

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Speaker 1: it in the Middle East, in a curious way, and

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Speaker 1: that is you're not definitive about it. You simply say

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Speaker 1: there are no plans and no media plans, and no

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Speaker 1: medium term plans for Ukraine joining NATO without giving up

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Speaker 1: the right of the Ukrainians and a NATO to bring

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Speaker 1: NATO bring Ukraine Indian NATO at some given points. So

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Speaker 1: you don't make a definitive commitment not to have Ukrainian NATO,

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Speaker 1: but you make it very clear that there are no

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Speaker 1: plans in the immediate future to do so. Ukrainians have

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Speaker 1: more or less said that, and NATO is more or

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Speaker 1: less said that. Man enables him to go back to

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Speaker 1: his people and say, look, this is not gonna happen

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Speaker 1: anytime soon. Don't worry about it. It's probably not gonna

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Speaker 1: happen at all without us giving up the right to

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Speaker 1: have a joint if it wants to. Based on the

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Speaker 1: diplomat the diplomatic tea leaves that were hearing out of

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Speaker 1: all sides, does it make sense to you that there

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Speaker 1: is a relative complacency in the oil market. No, it

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Speaker 1: does not, because if there's any small chance of an invasion,

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Speaker 1: and Tony blancoln Is more or less said that he

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Speaker 1: thought there was a high probability that would be very

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Speaker 1: disruptive of the of the oil and the gas markets both.

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Speaker 1: Russia is a major supplier the pipeline. At least one

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Speaker 1: of the two pipelines will probably be shut down. The

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Speaker 1: notion that we would sell oil or gas to Western

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Speaker 1: Europe in an inflationary environment, already in the United States

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Speaker 1: should be concerned enough to be wary of what oil

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Speaker 1: prices would do in the event of war. Well, but

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Speaker 1: there is this argument that Russia does not want that,

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Speaker 1: that Russia wants to maintain its dominance over oil supply

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Speaker 1: and gas supply to Europe. How much does that get

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Speaker 1: become an overly factored in aspect at a time when

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Speaker 1: Vladimir Putin definitely seems like he has a point that

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Speaker 1: he wants to make. Well, that's one of the dilemmas

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Speaker 1: Russia has at this point, and that is Russia clearly

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Speaker 1: wants to be a major supplier of gas and oil

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Speaker 1: to Europe and a war would disrupt that, disrupt that

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Speaker 1: quite since severely. Um So if when when Kutin makes

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Speaker 1: his calculations about whether there should be a war, he's

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Speaker 1: going to have to look at the Russian economy, which

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Speaker 1: is no great shanks at this point and UH and

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Speaker 1: and recognize that the oil market which is key to

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Speaker 1: the Russian economy and the gas market, particularly oil is key,

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Speaker 1: and that that would be disruptive and that would send

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Speaker 1: them very negative blow to UH, to the Russian economy

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Speaker 1: which he wants to bolster. So he culely once he

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Speaker 1: he can't really have it both ways. If he's once

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Speaker 1: have a war, he's going to have to suffer severe

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Speaker 1: economic consequence is and those would come through disruption in

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Speaker 1: the oil mark britiant and tremendous times. You want the

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Speaker 1: shy with us as owis bub homats of tam And Advices.

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Speaker 1: Kelsey Barrel has one of the toughest jobs on Wall Street.

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Speaker 1: There's a guy named Michael. She's got a report too,

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Speaker 1: and he is tough as nails. And that what what

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Speaker 1: that means is pro acuity. We do not talk about

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Speaker 1: overnight index swaps. That is massive, massive inside fixed income baseball.

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Speaker 1: It's something you'd see in chapter twenty three of Frank

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Speaker 1: for Bosey. Kelsey Barrel joins us now from JP Morgan

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Speaker 1: Asset Management. And what you're focused on is not the

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Speaker 1: spot overnight index swap, but out a couple of years

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Speaker 1: translate from mere mortals. Yeah. Absolutely, So the oh I

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Speaker 1: asked curve, what it shows us the forward, OH I

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Speaker 1: asked curve is the path for the Fed funds rate

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Speaker 1: not just this year but into And one of the

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Speaker 1: things that is really into resting about the curve right

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Speaker 1: now is it's actually started to invert. So the market

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Speaker 1: is pricing in rate cuts. And this is unusual because,

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Speaker 1: I mean, the economy is still extremely strong, five average

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Speaker 1: job growth per month UM, yet we're seeing these cuts.

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Speaker 1: And the bottom line is this will continue until the

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Speaker 1: market has proven wrong. They need to see the cut happen.

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Speaker 1: They need to see the economy not breakdown as a

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Speaker 1: result of higher rates. That's the only way you get

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Speaker 1: that higher terminal rate that everyone's talks. So, for you

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Speaker 1: and me, our world stops Friday night at seven pm.

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Speaker 1: That's okay, hold on, I'll have another drink, but I've

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Speaker 1: got to read JP Morgan Weekly Prospects right now. Farole

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Speaker 1: and company are going to publish tonight off the FED

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Speaker 1: speak today? Can the FED Speak today move your world? Now?

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Speaker 1: I don't think the Fed Speak is going to move

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Speaker 1: the world. This is what I noticed from the minutes.

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Speaker 1: And I know you don't like to read the minutes,

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Speaker 1: but let me just tell you about what what is

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Speaker 1: was not said in the minutes. Right did a research, Tom,

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Speaker 1: she did a research. It's not about what they said,

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Speaker 1: it's actually the words they didn't say. So let me

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Speaker 1: tell you or the words they didn't say transitory. Transitory

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Speaker 1: is completely gone from the lexicon to the two other

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Speaker 1: words they didn't say, gradual or steadily or measured. They

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Speaker 1: have completely refused to categorize this site. So you get

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Speaker 1: out in front of Bruce Casman now and talking fifty

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Speaker 1: beeves for sure. Yeah, if the market is allowing it.

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Speaker 1: They're going to rock through that door. Well, Michael was there.

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Speaker 1: I caught up with Bob earlier this week, causey he

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Speaker 1: wants to say fifty. What he said Cowsey was interesting,

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Speaker 1: and I know you two work really closely with each other.

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Speaker 1: It's what happens if we don't get a fifty basis

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Speaker 1: point hike. He actually thinks we get an adverse reaction

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Speaker 1: because the market starts to believe they have not got

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Speaker 1: control of this. What would you look for? Right, So,

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Speaker 1: the market doesn't like to be surprised, and the Fed

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Speaker 1: doesn't like to surprise the market. And so if the

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Speaker 1: market is pricing in a high probability of fifty basis points,

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Speaker 1: the Fed should take that opportunity to take it as

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Speaker 1: a blessing and go with it. I mean, I think

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Speaker 1: the thing here is that they want the market to

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Speaker 1: follow the data, and the data over the last couple

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Speaker 1: of weeks, we got the CPI report, we got the

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Speaker 1: payrolls report with the backward divisions for the full year.

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Speaker 1: All we're seeing is that the economy is still red hot.

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Speaker 1: And unless Powell comes out and walks this market back,

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Speaker 1: if the market is pricing fifty basis points the FED

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Speaker 1: should walk through that door. Let's talk about credit strategy. Now,

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Speaker 1: what is it councy? So in credit, we're still seeing

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Speaker 1: some opportunities, but we really do want to start focusing

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Speaker 1: on getting higher in quality and focusing on structures that

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Speaker 1: are shorter duration, so that's things like securitized credit bank loans.

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Speaker 1: And I'd also like to say, you know, we're looking

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Speaker 1: at e M local this year, which is a really

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Speaker 1: interesting one because you'd think with the central banks on

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Speaker 1: the move, this would not be a good time for

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Speaker 1: emerging market local debt, but actually it's been one of

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Speaker 1: the only areas of the fixed income market that has

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Speaker 1: had positive returns. And my observation here is that e

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Speaker 1: M central banks, who were hiking like crazy in twenty

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Speaker 1: twenty one, I've actually had the foresight and and the

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Speaker 1: diligence that DM central banks didn't have UM, and we're

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Speaker 1: the ones that were hiking rates now have the cushion

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Speaker 1: and have been able to withstand more of this volatility

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Speaker 1: UM this year with the d M central banks moving

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Speaker 1: forward Kelsey. Until a couple of weeks ago, the FED

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Speaker 1: has really dominated all headlines with respect to markets, and

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Speaker 1: now we're being distracted or perhaps dominated by the Russia

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Speaker 1: Ukraine conflict. There's been a huge divide into what the

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Speaker 1: FED response would be and what the market response would

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Speaker 1: be should the escalation continue to get worse. What's your

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Speaker 1: view in terms of does it make it more likely

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Speaker 1: for the FED to go and hike more quickly or less? Yeah,

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Speaker 1: so in the very near term, we know that treasuries

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Speaker 1: serve as a safe haven, a flight to quality. They

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Speaker 1: go to the most liquid point on the curve, that's

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Speaker 1: seven to ten year point. That's what's going to rally

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Speaker 1: when there's a lot of uncertainty. But when I look

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Speaker 1: at the minutes, going back to those minutes, they mentioned

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Speaker 1: geopolitical tensions a number of times, and they only mentioned

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Speaker 1: it in the context of higher inflation upside inflation risks.

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Speaker 1: So I don't think that this conflict is going to

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Speaker 1: stop the FED from removing accommodation. This is the key

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Speaker 1: concern for a lot of people who are relying on

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Speaker 1: the FED as a put and maybe not explicitly, and

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Speaker 1: they realize that it's not going to be But what

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Speaker 1: is the implication for a market that could potentially be

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Speaker 1: torpedoed by an economy that's slowing in the face of

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Speaker 1: these higher oil prices, in the face of faster inflation,

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Speaker 1: but with the FED that does not respond. The FED

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Speaker 1: is in a very challenging spot. I mean, we've been

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Speaker 1: saying this for a while and it really hasn't gotten

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Speaker 1: any better. So I think the FED is going to

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Speaker 1: need to watch financial conditions closely. And you know, at

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Speaker 1: this point, financial conditions are still very easy, um. And

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Speaker 1: so they watch that. I know they watch credit spreads UM.

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Speaker 1: And at this point, although they are wider on the year, UM,

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Speaker 1: you know, there isn't an issue with companies being able

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Speaker 1: to get the liquidity that they need during the Committee

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Speaker 1: expects it will soon be appropriate to raise the target range.

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Speaker 1: The Committee decided to have lunch beginning in February. The

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Speaker 1: Committee will increase, It's all I'm reading. This is more

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Speaker 1: boring than I expected. Cassie came out with the cold

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Speaker 1: this year, um before almost everybody else, which was the

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Speaker 1: CP will hike this year Council, you said it in

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Speaker 1: early January. Then all of a sudden wake off the

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Speaker 1: wake off the week, everybody started to join in. What

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Speaker 1: changes for the FED this time around? When the e

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Speaker 1: c B is set to get involved as well. So

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Speaker 1: sell offs in US treasury yields are not generally sustainable

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Speaker 1: unless they're global in nature, because what happens, and we

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Speaker 1: saw this in for example, is that when the FED

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Speaker 1: tries to go on its own, the dollar strengthens, that

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Speaker 1: tightens financial conditions, and the Fed ultimately has to back down.

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Speaker 1: The fact that all the central banks are moving together

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Speaker 1: is very very powerful. So the ECB, sure, you know,

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Speaker 1: they're they're still a long way behind the Fed. They

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Speaker 1: they want to see wage growth, they have to end

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Speaker 1: quee um before they focus on raising rates, but they're

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Speaker 1: they're going to get there. And then I'll just say

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Speaker 1: the next shoot a job and and you know this

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Speaker 1: is still far out in the horizon, but this is

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Speaker 1: these are the types of things that we're really thinking

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Speaker 1: about further out in the futures. What happens with the

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Speaker 1: b o J and their yield curve target, What happens

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Speaker 1: when um Kuroda ends up moving out of the position

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Speaker 1: and someone else comes in and we start to see

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Speaker 1: inflation move higher. Because right now inflation there it's still negative,

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Speaker 1: but there's a lot of distortions there, so we do

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Speaker 1: actually think inflation is still low in Japan, but we

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Speaker 1: could be getting closer to positive inflation fairly soon. Corona

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Speaker 1: is the last man standing. What would track him a

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Speaker 1: wife from all of VISCOUNC. So not in the near term,

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Speaker 1: he's going to stay put. We just saw that the

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Speaker 1: Bank of Japan continued to UH to defend their yield

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Speaker 1: curve target, so they're not in any rush. Nothing is

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Speaker 1: really putting the same pressure on them. You know, they

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Speaker 1: still have negative inflation, whereas they don't need to deal

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Speaker 1: with headline of seven eight percent inflation like the U

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Speaker 1: s has. So they're not going to step away anytime soon.

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Speaker 1: But when you think about what causes a more meaningful

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Speaker 1: repricing and term premium across developed market nations, you you

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Speaker 1: have to think behind beyond the US, and you have

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Speaker 1: to think about the B O, J, the E, C,

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Speaker 1: B and all of them moving together. Cassie, next time,

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Speaker 1: one pm Friday, we will rate the minutes on blimberg

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Speaker 1: Row Yote you know that read them on surveillance to

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Speaker 1: J P. Muilgan Asset Management. Cassie, thank you very much.

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Speaker 1: Let us get right to it. Andrew shoots with us,

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Speaker 1: writing a wonderful summary of the Morgan Stanley View and

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Speaker 1: this on cross asset analysis of course of London. Andrew,

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Speaker 1: good morning, What will you write this weekend? I don't

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Speaker 1: care about I'm gonna front run your clients right now.

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Speaker 1: I want to know the theme that you're focused on

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Speaker 1: as you write this weekend. Well, look at Yeah, I

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Speaker 1: think the thing that been very focused on is this

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Speaker 1: idea that the year could really be kind of the

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Speaker 1: year of three acts or three parts. And I do

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Speaker 1: think we're in the hardest part right now. You know,

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Speaker 1: it's the first quarter where the growth uncertainty is the highest,

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Speaker 1: where the inflation uncertainty is the highest, because inflation is

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Speaker 1: high and it hasn't yet started to come down yet.

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Speaker 1: Where the policy uncertainty is the highest, because we haven't

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Speaker 1: yet had that very important March meeting where the FED

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Speaker 1: is going to give us I think, quite a bit

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Speaker 1: more detail about how it's thinking on policy and where

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Speaker 1: the geopolitical risk is the highest. And so I think

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Speaker 1: these are still major issues to the market. These are

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Speaker 1: still reasons we're not advising investors to buy the dip,

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Speaker 1: so to speak, but these are also factors that could

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Speaker 1: look very different as we're thinking about you know, April

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Speaker 1: and May, and I think that's also something that's important

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Speaker 1: to keep in mind. Andrew, know how close do you

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Speaker 1: work with Mike Wilson, And over the last few weeks,

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Speaker 1: I think was built up over there is something really

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Speaker 1: interesting on the growth side. You framed that as inflation first,

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Speaker 1: then policy response to it. The next leg is the

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Speaker 1: growth story in the back half of this year. Just

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Speaker 1: how bad, Andrew do you think this is going to be? Well?

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Speaker 1: I think there's a lot of uncertainty around it, and

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Speaker 1: I think this is where you know, the China policy

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Speaker 1: response is very important, and the fiscal pol the fiscal

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Speaker 1: story more broadly is very interesting. Right. You have contractionary

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Speaker 1: fiscal policy in the US and the UK, but you're

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Speaker 1: gonna have easing fiscal policy in China on our on

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Speaker 1: our forecasts, and easing fiscal policy in the Eurozone because

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Speaker 1: the recovery fund the recovery fund funds are finally going

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Speaker 1: to get spent. So I think this is a complex

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Speaker 1: picture overall. Morgan Stanley's economists think growth this year is

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Speaker 1: going to be solid. It's it's going to be be

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Speaker 1: good actually, But I think this is still a part

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Speaker 1: of your word that uncertainty and growth is pretty high

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Speaker 1: and where there's a lot that could happen in a

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Speaker 1: lot we don't know. So again hoping for more clarity

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Speaker 1: on that, but but don't think investors are going to

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Speaker 1: get that clarity maybe until you advance a little bit

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Speaker 1: further in the You so the main sound entry done

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Speaker 1: by the tip at the index level, what would you

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Speaker 1: be buying? Well, I do think this is a market

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Speaker 1: where you do have UM really diverse. I think vulnerabilities

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Speaker 1: and exposures to this narrative. Right, So so if we

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Speaker 1: take a step back, I think what investors are worried about.

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00:24:09,480 --> 00:24:13,320
Speaker 1: Our valuations are high, inflations are high, central banks are

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00:24:13,320 --> 00:24:16,560
Speaker 1: behind the curve. But you know, valuations aren't high in

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00:24:16,680 --> 00:24:20,359
Speaker 1: a lot of non US equity markets. UM inflation is

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00:24:20,400 --> 00:24:24,119
Speaker 1: not high in much of Asia, and central banks have

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00:24:24,320 --> 00:24:27,639
Speaker 1: not been slow to react in parts of EM So

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Speaker 1: I think focusing on cheaper global equity markets, I think

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00:24:31,280 --> 00:24:34,040
Speaker 1: like something a market like Japan, focusing on markets where

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00:24:34,040 --> 00:24:37,879
Speaker 1: inflation is so we're more bullish on fixed income in

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00:24:38,080 --> 00:24:40,720
Speaker 1: China where we think inflation is low and policy is

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00:24:40,720 --> 00:24:42,840
Speaker 1: still going to be easing, and even in some of

439
00:24:42,840 --> 00:24:45,639
Speaker 1: those emerging markets where their way out in front have

440
00:24:45,760 --> 00:24:49,040
Speaker 1: been much more aggressive on policy. It's on those markets

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00:24:49,359 --> 00:24:52,240
Speaker 1: where we feel more comfortable receiving interest rates, being more

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00:24:52,240 --> 00:24:56,639
Speaker 1: constructive on nduration. Most markets were not constructive unduration, but

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00:24:56,680 --> 00:24:58,320
Speaker 1: in some of those ems we are. And do do

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Speaker 1: you think that equities really are pricing in the sixth

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00:25:00,600 --> 00:25:02,720
Speaker 1: rate hikes that the bond market seems to be pricing

446
00:25:02,760 --> 00:25:06,879
Speaker 1: in well? On the U S side, we still think

447
00:25:07,080 --> 00:25:09,680
Speaker 1: not quite. I mean, you know, the SMP this morning

448
00:25:09,760 --> 00:25:13,760
Speaker 1: is roughly where our strategists we're we're my colleague Mike

449
00:25:13,760 --> 00:25:16,560
Speaker 1: Wilson thinks will end the year. So that doesn't imply

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00:25:16,680 --> 00:25:20,480
Speaker 1: a lot of risk premium. Again, that kind of reflect

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00:25:20,560 --> 00:25:23,560
Speaker 1: the increasing rate risk and the fact that we think

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00:25:23,600 --> 00:25:26,560
Speaker 1: real interest rates keep going up. But you know, we

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00:25:26,640 --> 00:25:29,400
Speaker 1: think stocks in Europe, stocks in Japan, I think those

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00:25:29,440 --> 00:25:31,840
Speaker 1: markets are fine, iff rates are a bit higher. Those

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00:25:31,840 --> 00:25:34,480
Speaker 1: are markets with very high equity risk. Premium is a

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00:25:34,560 --> 00:25:37,960
Speaker 1: lot of ability we think to absorb higher interest rates.

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00:25:37,960 --> 00:25:40,040
Speaker 1: So you know, those are markets that we think can

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00:25:40,119 --> 00:25:42,919
Speaker 1: can end the year higher hired by double digits, and

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00:25:43,000 --> 00:25:45,199
Speaker 1: so I think there is a real divergence there. But

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00:25:45,320 --> 00:25:48,040
Speaker 1: still in the US assets where we're most concerned a

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00:25:48,040 --> 00:25:50,480
Speaker 1: little bit more risk premiums require Andrew, how are you

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00:25:50,520 --> 00:25:52,600
Speaker 1: thinking about oil as you take a look at this

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00:25:52,680 --> 00:25:55,640
Speaker 1: call right now? If oil prices stay where they are

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00:25:55,680 --> 00:25:57,840
Speaker 1: climbed to a hundred dollars a barrel, how does that

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00:25:57,920 --> 00:26:02,640
Speaker 1: change your asset allocation in the in the US and beyond. Yeah,

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00:26:02,680 --> 00:26:05,240
Speaker 1: so there's there's obviously a big debate around oil. Um,

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00:26:05,880 --> 00:26:07,600
Speaker 1: we're in the more bullish camp, I mean the more

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00:26:07,640 --> 00:26:11,159
Speaker 1: bullish camp, and so our thinking is that demand is

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00:26:11,320 --> 00:26:15,320
Speaker 1: ultimately going to be reasonably strong this year, or demand

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00:26:15,400 --> 00:26:18,800
Speaker 1: is going to keep increasing because you know, Morgan Stanley

471
00:26:18,880 --> 00:26:22,560
Speaker 1: is forecasting nominal GDP to increase by about six percent

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00:26:22,640 --> 00:26:24,520
Speaker 1: this year on a global basis. That you mean, more

473
00:26:24,560 --> 00:26:29,000
Speaker 1: oil is used and supply remains very low, and and

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00:26:29,040 --> 00:26:31,160
Speaker 1: that supply is going to take a long time to ramp.

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00:26:31,240 --> 00:26:33,440
Speaker 1: It's as as you were discussing in the last segments,

476
00:26:33,560 --> 00:26:36,200
Speaker 1: it's just not really responding to higher prices in the

477
00:26:36,240 --> 00:26:39,040
Speaker 1: way it usually does. So strong demand, more limited supply,

478
00:26:39,520 --> 00:26:41,280
Speaker 1: all of that makes us think that the oil price

479
00:26:41,280 --> 00:26:44,199
Speaker 1: will be higher. And the curve is also backwardated, so

480
00:26:44,240 --> 00:26:47,480
Speaker 1: it's not very hard or it's easier for oil to exceed.

481
00:26:47,600 --> 00:26:50,119
Speaker 1: What's what's currently priced in. Andrew, I've been focused on

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00:26:50,200 --> 00:26:52,240
Speaker 1: growth and you mentioned that. I love what you said.

483
00:26:52,280 --> 00:26:55,000
Speaker 1: They're about pretty good growth, is what Morgan Stanley says

484
00:26:55,080 --> 00:26:58,120
Speaker 1: to me. It is the great growth guess of two

485
00:26:58,160 --> 00:27:02,439
Speaker 1: thousand twenty two. Which of the growth guesses is the

486
00:27:02,480 --> 00:27:08,000
Speaker 1: market price for tepid growth Morgan Stanley growth or even

487
00:27:08,040 --> 00:27:11,920
Speaker 1: a surprise buoyant growth. Yeah, So, Tom, I think this

488
00:27:12,040 --> 00:27:14,240
Speaker 1: is fascinating because I think it depends on what market

489
00:27:14,359 --> 00:27:16,359
Speaker 1: you're looking at. If you look at the copper price,

490
00:27:17,080 --> 00:27:19,719
Speaker 1: it looks like the market is expecting very good growth.

491
00:27:20,320 --> 00:27:24,040
Speaker 1: If you look at the completely flat U K two's

492
00:27:24,080 --> 00:27:28,359
Speaker 1: tends curve or the inverted US two's tends curve one

493
00:27:28,440 --> 00:27:30,960
Speaker 1: year forward, it seems like the market is very skeptical

494
00:27:31,040 --> 00:27:34,440
Speaker 1: that growth can hold up to interest rate hikes. So

495
00:27:34,760 --> 00:27:37,480
Speaker 1: I think that there's a lot of this, you know,

496
00:27:37,560 --> 00:27:39,960
Speaker 1: on a cross asset basis, kind of very different growth

497
00:27:39,960 --> 00:27:43,320
Speaker 1: being priced in where you look. Ultimately, we think that

498
00:27:43,400 --> 00:27:47,120
Speaker 1: the market can can price in a higher terminal interest

499
00:27:47,240 --> 00:27:49,119
Speaker 1: rate that central banks are going to be able to

500
00:27:49,200 --> 00:27:53,320
Speaker 1: hike further before the cycle ultimately ends. Um. This is

501
00:27:53,359 --> 00:27:55,679
Speaker 1: also a case where we do think that the oil

502
00:27:55,720 --> 00:27:58,480
Speaker 1: price can can rise further to price and more more

503
00:27:58,520 --> 00:28:01,560
Speaker 1: growth optimism. And on the equity side, I think you

504
00:28:01,640 --> 00:28:05,560
Speaker 1: want to be expressing those cyclical exposures. You know, outside

505
00:28:05,560 --> 00:28:08,439
Speaker 1: of the U S. It's in European cyclicals and cyclicals

506
00:28:08,440 --> 00:28:10,280
Speaker 1: and parts of Asia where we think that there's more

507
00:28:10,480 --> 00:28:14,120
Speaker 1: much better risk reward around this idea that ultimately growth

508
00:28:14,119 --> 00:28:17,560
Speaker 1: will be okay, albeit with high answer Andrew Shakes, As always,

509
00:28:17,880 --> 00:28:20,080
Speaker 1: Morgan Stanley, looking at for the note This Sunday, The

510
00:28:20,119 --> 00:28:22,480
Speaker 1: Sunday Stop from Morgan Stanley always the best way to

511
00:28:22,480 --> 00:28:25,680
Speaker 1: stop in the wait. This is the Bloomberg Surveillance Podcast.

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00:28:26,000 --> 00:28:29,359
Speaker 1: Thanks for listening. Join us live weekdays from seven to

513
00:28:29,440 --> 00:28:33,520
Speaker 1: ten am Eastern. I'm Bloomberg Radio and on Bloomberg Television

514
00:28:33,840 --> 00:28:37,880
Speaker 1: each day from six to nine am for insight from

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00:28:37,880 --> 00:28:42,479
Speaker 1: the best in economics, finance, investment, and international relations. And

516
00:28:42,560 --> 00:28:47,680
Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

517
00:28:47,760 --> 00:28:51,040
Speaker 1: dot com, and of course on the terminal. I'm Tom

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00:28:51,160 --> 00:28:53,440
Speaker 1: Keene and this is Bloomberg