Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. I have a
Speaker 1: summer reading list, but with the events going on, you
Speaker 1: need a late winter in spring reading list. And it's
Speaker 1: real stimple, so simple. I should say you need to
Speaker 1: read Angela's Stent and Elizabeth Economy. On Stent it's Putin's world,
Speaker 1: and for Elizabeth Economy it is the widely anticipated the world.
Speaker 1: According to China, her books have been definitive for decades.
Speaker 1: Dr Economy joins us this morning with the Hoover Institute. Liz,
Speaker 1: congratulations on the new effort. At the bottom of the book.
Speaker 1: After the Olympics, after Ukraine, you talk about the China reset.
Speaker 1: What is the reset towards the Party Congress? So yeah,
Speaker 1: the Party Congress, the twentie Party Congress is coming this
Speaker 1: fall October or perhaps November. Uh Hi Jinping will likely
Speaker 1: be reselected for his third term as General Secretary of
Speaker 1: the Communist Party. He has no amassed an enormous amount
Speaker 1: of institutional authority. Ruthless Lee rooted out his political enemies,
Speaker 1: whether in the Communist Party or you know, in the
Speaker 1: broader civil society. Uh, say a word against Hijin Ping
Speaker 1: and you will be disappeared for four years or eighteen years. Um.
Speaker 1: And so this will mark I think the beginning of
Speaker 1: the third term, uh for Stijn Ping, the third five
Speaker 1: year term. You know, he's got, as you say, he's
Speaker 1: got an ambitious agenda ahead of him. Um. You know
Speaker 1: again robust Chinese Communist Party at the fore from the
Speaker 1: political system, doubling per capita GDP by five, rostering the
Speaker 1: p l A. So got to see what he's able
Speaker 1: to do. It's all great, But to be honest, you've
Speaker 1: been absolutely original and saying he's more fragile domestically than
Speaker 1: we perceive. Do you stand by that absolutely? I mean,
Speaker 1: I think we can look just back to that first month,
Speaker 1: second month after the COVID pandemic broke out in China, Uh,
Speaker 1: and look at what happened on the internet when you had,
Speaker 1: you know, a week or so of freedom on the
Speaker 1: internet and you had you know, million people and more
Speaker 1: calling for freedom of speech and criticizing the government. Of
Speaker 1: course you didn't pain went and hunted them all down afterwards.
Speaker 1: But but I think we have to be uh, sort
Speaker 1: of a tune to the fact that just because we
Speaker 1: don't see dissent within the system, that it doesn't exist.
Speaker 1: Just because he's a mass institutional authority doesn't mean he
Speaker 1: has the full legitimacy that he would have if he
Speaker 1: were in you know, an electoral system. Uh. China is
Speaker 1: as polarized, even maybe more so than the United States,
Speaker 1: along gender lines, along ethnic lines. You have the battle
Speaker 1: between the entrepreneurs like Jack Ma, you know, who are
Speaker 1: being crushed right now, and the bureaucratic class, and you
Speaker 1: have this, you know, yawning gap in terms of income inequality.
Speaker 1: So I think it's you know, we we tend to
Speaker 1: focus on what she says, this grand vision of China
Speaker 1: proclaiming its centrality on the global stage. But you're very
Speaker 1: right to point to what's going on inside China, uh,
Speaker 1: and the kinds of challenges that she did. In basis, Elizabeth,
Speaker 1: doesn't matter if public sentiment is souring on j JM. Ping,
Speaker 1: or is Jim Ping's predominance over the entire region pretty
Speaker 1: much guaranteed regardless, And it just matters how hard Hell
Speaker 1: clamped down. So I think it does matter. Um, I
Speaker 1: think you know, it doesn't matter in the sense I don't.
Speaker 1: I'm not predicting that you're going to have, you know,
Speaker 1: mass protests on the Chinese street calling for the downfall
Speaker 1: of Sheet and Ping. But I think where it matters
Speaker 1: is that if you have enough Headman's white, a really
Speaker 1: slowing Chinese economy, the international pressures that are coming to
Speaker 1: bear on China currently right, He's he's you know, created
Speaker 1: so many of his own problems with regard to countries,
Speaker 1: for example, in Europe or in parts of Asia. So
Speaker 1: if you have these headwinds coming, you can have people
Speaker 1: in the Chinese elite, other leaders who aren't happy about
Speaker 1: the direction in which China is moving the country. Right again,
Speaker 1: this crack down on the sort of what's been the
Speaker 1: most innovative and creative part of the Chinese economy, right,
Speaker 1: the fintech sector. Uh, you can have that sentiment that
Speaker 1: broader of popular sentiment can feed into uh sort of
Speaker 1: the other leader's claim that something needs to change, that
Speaker 1: Chi needs to take a step back. So I think
Speaker 1: there can be a constellation of forces that could course change,
Speaker 1: not predicting it, but I think we have to again
Speaker 1: remain at the possibility at the same time. Right now
Speaker 1: we're looking at the mounting Russia Ukrainian conflict, and sort
Speaker 1: of on the on the heels of this, you get
Speaker 1: this tightening relationship between Vladimir Putin and Chiesi and pay
Speaker 1: and this idea that if Urashia is somehow caught off,
Speaker 1: cut off from the Western world, Ji Jumping could come
Speaker 1: to his rescue. How close is that alliance? You know, Look,
Speaker 1: Russia and China have had a long history of working together,
Speaker 1: for example and United Nations, and and really since two
Speaker 1: thousand and fourteen, you've seen the relationship become closer. Trade
Speaker 1: has increased slowly, but Russia remains a major arms supplier
Speaker 1: to China. They've increased the number and the scope of
Speaker 1: their joint military exercises. When She Jumping gave a speech
Speaker 1: in Moscow a couple of years back, he said that
Speaker 1: Plutin was his best friend in the international community. UH.
Speaker 1: And we saw, of course, yes, the joint statement during
Speaker 1: the Olympics where they basically call for a new world order.
Speaker 1: UH and so I think the relationship is close, doesn't
Speaker 1: mean that there aren't problems. Also, I think it bears
Speaker 1: noting that the China's ambassador to Ukraine last month put
Speaker 1: peace in Ukrainian newspaper saying that China supported Ukrainian sovereignty.
Speaker 1: So I do think China would probably come in and
Speaker 1: backfill for Russia economically to help out. But I don't
Speaker 1: think that there's sort of undelivered support for for any
Speaker 1: sort of Russian military action in Ukraine by by the Chinese. Um.
Speaker 1: I want to go back to the combination of Angela's
Speaker 1: stents work at brookings In and your work as well.
Speaker 1: Angela's stent talks about the risk. Then we end up
Speaker 1: going back to Yalta in a tripolar international relations where
Speaker 1: it is about America, Russia and a nascent China. Is
Speaker 1: that what China wants? I mean this, China want a
Speaker 1: new y Alta where it's just a triangulation and that's it.
Speaker 1: I don't. I don't think so. I think China views, uh,
Speaker 1: you know, it's rise on the global stage. Um, you know,
Speaker 1: it's hope is to surpass the United States. I think
Speaker 1: it looks at as at Russia largely as a junior
Speaker 1: partner in all of this. I mean, I think the
Speaker 1: Russian economy is about a tenth the size that of China,
Speaker 1: and so I don't in many respects, I don't think
Speaker 1: that China looks at Russia as a completely equal partner. Um.
Speaker 1: I think Jing's vision is focused, you know, squarely on
Speaker 1: the future of China and China's efforts to reclaim centrality
Speaker 1: on the global stage. You know, it's looking to redraw
Speaker 1: the map of the Asia Pacific, to push the United
Speaker 1: States out as the regional hedgemon, to invent Chinese values
Speaker 1: and policy preferences globally, to the to the extent that
Speaker 1: Russia supports China in that effort, to the extent that
Speaker 1: it bolsters China's efforts. I think China welcomes Russia's support,
Speaker 1: but I don't. I don't think it looks out at
Speaker 1: the world and thinks that they are going to be
Speaker 1: three equal you know, partners sitting around a table, Russia, China,
Speaker 1: and the United States, as always wanderful to hear from
Speaker 1: you the absolutely brilliant Elizabeth Economy of the Hoover Institute
Speaker 1: there right now, we are honored to bring you Robert
Speaker 1: Horbett's ambassador Hormats with titament of social advisors. I should say,
Speaker 1: in his work within various Republican and Democratic administrations, he
Speaker 1: has tart and feathered as a member of the Clinton clan.
Speaker 1: But what you don't know is Hormats has eleven thousand,
Speaker 1: two hundred pages five point six linear feet and the
Speaker 1: gerald Ford Library from his work with President four years ago.
Speaker 1: We're thrilled at Bob Hormats could join us this morning. Bob,
Speaker 1: I I look at your work over time, and I
Speaker 1: want to go back to you as a newly minuted
Speaker 1: freshman at Toughs University. And there was a small matter
Speaker 1: of the Cuban missile crisis only years before we allowed
Speaker 1: Krishcheff to save face. How do we allow Putin to
Speaker 1: save face? Well, I think if there's a way that
Speaker 1: putentn saved face, sits to recognize that the Russians, as
Speaker 1: Angela sent has said, have a deep historical affinity for Ukraine.
Speaker 1: It's very closely connected to the Russian Orthodox Church. A
Speaker 1: lot of Russian Ukrainian history are tied up with one another.
Speaker 1: And Russia perceives that it has a right to have
Speaker 1: an influence, if not control, over Ukraine. It's part of
Speaker 1: Russia's notion of having an expanded influence in the New era,
Speaker 1: just as the Soviet Union did in that region decades ago.
Speaker 1: I think that the thing that he wants, probably most
Speaker 1: is a very clear indication, if not a firm commitment,
Speaker 1: that Ukraine will not join NATO. How do we thread
Speaker 1: that needle? That's critical? How do we do that when
Speaker 1: the Secretary says we want an open door policy. I
Speaker 1: think you can do it in the way we've done
Speaker 1: it in the Middle East, in a curious way, and
Speaker 1: that is you're not definitive about it. You simply say
Speaker 1: there are no plans and no media plans, and no
Speaker 1: medium term plans for Ukraine joining NATO without giving up
Speaker 1: the right of the Ukrainians and a NATO to bring
Speaker 1: NATO bring Ukraine Indian NATO at some given points. So
Speaker 1: you don't make a definitive commitment not to have Ukrainian NATO,
Speaker 1: but you make it very clear that there are no
Speaker 1: plans in the immediate future to do so. Ukrainians have
Speaker 1: more or less said that, and NATO is more or
Speaker 1: less said that. Man enables him to go back to
Speaker 1: his people and say, look, this is not gonna happen
Speaker 1: anytime soon. Don't worry about it. It's probably not gonna
Speaker 1: happen at all without us giving up the right to
Speaker 1: have a joint if it wants to. Based on the
Speaker 1: diplomat the diplomatic tea leaves that were hearing out of
Speaker 1: all sides, does it make sense to you that there
Speaker 1: is a relative complacency in the oil market. No, it
Speaker 1: does not, because if there's any small chance of an invasion,
Speaker 1: and Tony blancoln Is more or less said that he
Speaker 1: thought there was a high probability that would be very
Speaker 1: disruptive of the of the oil and the gas markets both.
Speaker 1: Russia is a major supplier the pipeline. At least one
Speaker 1: of the two pipelines will probably be shut down. The
Speaker 1: notion that we would sell oil or gas to Western
Speaker 1: Europe in an inflationary environment, already in the United States
Speaker 1: should be concerned enough to be wary of what oil
Speaker 1: prices would do in the event of war. Well, but
Speaker 1: there is this argument that Russia does not want that,
Speaker 1: that Russia wants to maintain its dominance over oil supply
Speaker 1: and gas supply to Europe. How much does that get
Speaker 1: become an overly factored in aspect at a time when
Speaker 1: Vladimir Putin definitely seems like he has a point that
Speaker 1: he wants to make. Well, that's one of the dilemmas
Speaker 1: Russia has at this point, and that is Russia clearly
Speaker 1: wants to be a major supplier of gas and oil
Speaker 1: to Europe and a war would disrupt that, disrupt that
Speaker 1: quite since severely. Um So if when when Kutin makes
Speaker 1: his calculations about whether there should be a war, he's
Speaker 1: going to have to look at the Russian economy, which
Speaker 1: is no great shanks at this point and UH and
Speaker 1: and recognize that the oil market which is key to
Speaker 1: the Russian economy and the gas market, particularly oil is key,
Speaker 1: and that that would be disruptive and that would send
Speaker 1: them very negative blow to UH, to the Russian economy
Speaker 1: which he wants to bolster. So he culely once he
Speaker 1: he can't really have it both ways. If he's once
Speaker 1: have a war, he's going to have to suffer severe
Speaker 1: economic consequence is and those would come through disruption in
Speaker 1: the oil mark britiant and tremendous times. You want the
Speaker 1: shy with us as owis bub homats of tam And Advices.
Speaker 1: Kelsey Barrel has one of the toughest jobs on Wall Street.
Speaker 1: There's a guy named Michael. She's got a report too,
Speaker 1: and he is tough as nails. And that what what
Speaker 1: that means is pro acuity. We do not talk about
Speaker 1: overnight index swaps. That is massive, massive inside fixed income baseball.
Speaker 1: It's something you'd see in chapter twenty three of Frank
Speaker 1: for Bosey. Kelsey Barrel joins us now from JP Morgan
Speaker 1: Asset Management. And what you're focused on is not the
Speaker 1: spot overnight index swap, but out a couple of years
Speaker 1: translate from mere mortals. Yeah. Absolutely, So the oh I
Speaker 1: asked curve, what it shows us the forward, OH I
Speaker 1: asked curve is the path for the Fed funds rate
Speaker 1: not just this year but into And one of the
Speaker 1: things that is really into resting about the curve right
Speaker 1: now is it's actually started to invert. So the market
Speaker 1: is pricing in rate cuts. And this is unusual because,
Speaker 1: I mean, the economy is still extremely strong, five average
Speaker 1: job growth per month UM, yet we're seeing these cuts.
Speaker 1: And the bottom line is this will continue until the
Speaker 1: market has proven wrong. They need to see the cut happen.
Speaker 1: They need to see the economy not breakdown as a
Speaker 1: result of higher rates. That's the only way you get
Speaker 1: that higher terminal rate that everyone's talks. So, for you
Speaker 1: and me, our world stops Friday night at seven pm.
Speaker 1: That's okay, hold on, I'll have another drink, but I've
Speaker 1: got to read JP Morgan Weekly Prospects right now. Farole
Speaker 1: and company are going to publish tonight off the FED
Speaker 1: speak today? Can the FED Speak today move your world? Now?
Speaker 1: I don't think the Fed Speak is going to move
Speaker 1: the world. This is what I noticed from the minutes.
Speaker 1: And I know you don't like to read the minutes,
Speaker 1: but let me just tell you about what what is
Speaker 1: was not said in the minutes. Right did a research, Tom,
Speaker 1: she did a research. It's not about what they said,
Speaker 1: it's actually the words they didn't say. So let me
Speaker 1: tell you or the words they didn't say transitory. Transitory
Speaker 1: is completely gone from the lexicon to the two other
Speaker 1: words they didn't say, gradual or steadily or measured. They
Speaker 1: have completely refused to categorize this site. So you get
Speaker 1: out in front of Bruce Casman now and talking fifty
Speaker 1: beeves for sure. Yeah, if the market is allowing it.
Speaker 1: They're going to rock through that door. Well, Michael was there.
Speaker 1: I caught up with Bob earlier this week, causey he
Speaker 1: wants to say fifty. What he said Cowsey was interesting,
Speaker 1: and I know you two work really closely with each other.
Speaker 1: It's what happens if we don't get a fifty basis
Speaker 1: point hike. He actually thinks we get an adverse reaction
Speaker 1: because the market starts to believe they have not got
Speaker 1: control of this. What would you look for? Right, So,
Speaker 1: the market doesn't like to be surprised, and the Fed
Speaker 1: doesn't like to surprise the market. And so if the
Speaker 1: market is pricing in a high probability of fifty basis points,
Speaker 1: the Fed should take that opportunity to take it as
Speaker 1: a blessing and go with it. I mean, I think
Speaker 1: the thing here is that they want the market to
Speaker 1: follow the data, and the data over the last couple
Speaker 1: of weeks, we got the CPI report, we got the
Speaker 1: payrolls report with the backward divisions for the full year.
Speaker 1: All we're seeing is that the economy is still red hot.
Speaker 1: And unless Powell comes out and walks this market back,
Speaker 1: if the market is pricing fifty basis points the FED
Speaker 1: should walk through that door. Let's talk about credit strategy. Now,
Speaker 1: what is it councy? So in credit, we're still seeing
Speaker 1: some opportunities, but we really do want to start focusing
Speaker 1: on getting higher in quality and focusing on structures that
Speaker 1: are shorter duration, so that's things like securitized credit bank loans.
Speaker 1: And I'd also like to say, you know, we're looking
Speaker 1: at e M local this year, which is a really
Speaker 1: interesting one because you'd think with the central banks on
Speaker 1: the move, this would not be a good time for
Speaker 1: emerging market local debt, but actually it's been one of
Speaker 1: the only areas of the fixed income market that has
Speaker 1: had positive returns. And my observation here is that e
Speaker 1: M central banks, who were hiking like crazy in twenty
Speaker 1: twenty one, I've actually had the foresight and and the
Speaker 1: diligence that DM central banks didn't have UM, and we're
Speaker 1: the ones that were hiking rates now have the cushion
Speaker 1: and have been able to withstand more of this volatility
Speaker 1: UM this year with the d M central banks moving
Speaker 1: forward Kelsey. Until a couple of weeks ago, the FED
Speaker 1: has really dominated all headlines with respect to markets, and
Speaker 1: now we're being distracted or perhaps dominated by the Russia
Speaker 1: Ukraine conflict. There's been a huge divide into what the
Speaker 1: FED response would be and what the market response would
Speaker 1: be should the escalation continue to get worse. What's your
Speaker 1: view in terms of does it make it more likely
Speaker 1: for the FED to go and hike more quickly or less? Yeah,
Speaker 1: so in the very near term, we know that treasuries
Speaker 1: serve as a safe haven, a flight to quality. They
Speaker 1: go to the most liquid point on the curve, that's
Speaker 1: seven to ten year point. That's what's going to rally
Speaker 1: when there's a lot of uncertainty. But when I look
Speaker 1: at the minutes, going back to those minutes, they mentioned
Speaker 1: geopolitical tensions a number of times, and they only mentioned
Speaker 1: it in the context of higher inflation upside inflation risks.
Speaker 1: So I don't think that this conflict is going to
Speaker 1: stop the FED from removing accommodation. This is the key
Speaker 1: concern for a lot of people who are relying on
Speaker 1: the FED as a put and maybe not explicitly, and
Speaker 1: they realize that it's not going to be But what
Speaker 1: is the implication for a market that could potentially be
Speaker 1: torpedoed by an economy that's slowing in the face of
Speaker 1: these higher oil prices, in the face of faster inflation,
Speaker 1: but with the FED that does not respond. The FED
Speaker 1: is in a very challenging spot. I mean, we've been
Speaker 1: saying this for a while and it really hasn't gotten
Speaker 1: any better. So I think the FED is going to
Speaker 1: need to watch financial conditions closely. And you know, at
Speaker 1: this point, financial conditions are still very easy, um. And
Speaker 1: so they watch that. I know they watch credit spreads UM.
Speaker 1: And at this point, although they are wider on the year, UM,
Speaker 1: you know, there isn't an issue with companies being able
Speaker 1: to get the liquidity that they need during the Committee
Speaker 1: expects it will soon be appropriate to raise the target range.
Speaker 1: The Committee decided to have lunch beginning in February. The
Speaker 1: Committee will increase, It's all I'm reading. This is more
Speaker 1: boring than I expected. Cassie came out with the cold
Speaker 1: this year, um before almost everybody else, which was the
Speaker 1: CP will hike this year Council, you said it in
Speaker 1: early January. Then all of a sudden wake off the
Speaker 1: wake off the week, everybody started to join in. What
Speaker 1: changes for the FED this time around? When the e
Speaker 1: c B is set to get involved as well. So
Speaker 1: sell offs in US treasury yields are not generally sustainable
Speaker 1: unless they're global in nature, because what happens, and we
Speaker 1: saw this in for example, is that when the FED
Speaker 1: tries to go on its own, the dollar strengthens, that
Speaker 1: tightens financial conditions, and the Fed ultimately has to back down.
Speaker 1: The fact that all the central banks are moving together
Speaker 1: is very very powerful. So the ECB, sure, you know,
Speaker 1: they're they're still a long way behind the Fed. They
Speaker 1: they want to see wage growth, they have to end
Speaker 1: quee um before they focus on raising rates, but they're
Speaker 1: they're going to get there. And then I'll just say
Speaker 1: the next shoot a job and and you know this
Speaker 1: is still far out in the horizon, but this is
Speaker 1: these are the types of things that we're really thinking
Speaker 1: about further out in the futures. What happens with the
Speaker 1: b o J and their yield curve target, What happens
Speaker 1: when um Kuroda ends up moving out of the position
Speaker 1: and someone else comes in and we start to see
Speaker 1: inflation move higher. Because right now inflation there it's still negative,
Speaker 1: but there's a lot of distortions there, so we do
Speaker 1: actually think inflation is still low in Japan, but we
Speaker 1: could be getting closer to positive inflation fairly soon. Corona
Speaker 1: is the last man standing. What would track him a
Speaker 1: wife from all of VISCOUNC. So not in the near term,
Speaker 1: he's going to stay put. We just saw that the
Speaker 1: Bank of Japan continued to UH to defend their yield
Speaker 1: curve target, so they're not in any rush. Nothing is
Speaker 1: really putting the same pressure on them. You know, they
Speaker 1: still have negative inflation, whereas they don't need to deal
Speaker 1: with headline of seven eight percent inflation like the U
Speaker 1: s has. So they're not going to step away anytime soon.
Speaker 1: But when you think about what causes a more meaningful
Speaker 1: repricing and term premium across developed market nations, you you
Speaker 1: have to think behind beyond the US, and you have
Speaker 1: to think about the B O, J, the E, C,
Speaker 1: B and all of them moving together. Cassie, next time,
Speaker 1: one pm Friday, we will rate the minutes on blimberg
Speaker 1: Row Yote you know that read them on surveillance to
Speaker 1: J P. Muilgan Asset Management. Cassie, thank you very much.
Speaker 1: Let us get right to it. Andrew shoots with us,
Speaker 1: writing a wonderful summary of the Morgan Stanley View and
Speaker 1: this on cross asset analysis of course of London. Andrew,
Speaker 1: good morning, What will you write this weekend? I don't
Speaker 1: care about I'm gonna front run your clients right now.
Speaker 1: I want to know the theme that you're focused on
Speaker 1: as you write this weekend. Well, look at Yeah, I
Speaker 1: think the thing that been very focused on is this
Speaker 1: idea that the year could really be kind of the
Speaker 1: year of three acts or three parts. And I do
Speaker 1: think we're in the hardest part right now. You know,
Speaker 1: it's the first quarter where the growth uncertainty is the highest,
Speaker 1: where the inflation uncertainty is the highest, because inflation is
Speaker 1: high and it hasn't yet started to come down yet.
Speaker 1: Where the policy uncertainty is the highest, because we haven't
Speaker 1: yet had that very important March meeting where the FED
Speaker 1: is going to give us I think, quite a bit
Speaker 1: more detail about how it's thinking on policy and where
Speaker 1: the geopolitical risk is the highest. And so I think
Speaker 1: these are still major issues to the market. These are
Speaker 1: still reasons we're not advising investors to buy the dip,
Speaker 1: so to speak, but these are also factors that could
Speaker 1: look very different as we're thinking about you know, April
Speaker 1: and May, and I think that's also something that's important
Speaker 1: to keep in mind. Andrew, know how close do you
Speaker 1: work with Mike Wilson, And over the last few weeks,
Speaker 1: I think was built up over there is something really
Speaker 1: interesting on the growth side. You framed that as inflation first,
Speaker 1: then policy response to it. The next leg is the
Speaker 1: growth story in the back half of this year. Just
Speaker 1: how bad, Andrew do you think this is going to be? Well?
Speaker 1: I think there's a lot of uncertainty around it, and
Speaker 1: I think this is where you know, the China policy
Speaker 1: response is very important, and the fiscal pol the fiscal
Speaker 1: story more broadly is very interesting. Right. You have contractionary
Speaker 1: fiscal policy in the US and the UK, but you're
Speaker 1: gonna have easing fiscal policy in China on our on
Speaker 1: our forecasts, and easing fiscal policy in the Eurozone because
Speaker 1: the recovery fund the recovery fund funds are finally going
Speaker 1: to get spent. So I think this is a complex
Speaker 1: picture overall. Morgan Stanley's economists think growth this year is
Speaker 1: going to be solid. It's it's going to be be
Speaker 1: good actually, But I think this is still a part
Speaker 1: of your word that uncertainty and growth is pretty high
Speaker 1: and where there's a lot that could happen in a
Speaker 1: lot we don't know. So again hoping for more clarity
Speaker 1: on that, but but don't think investors are going to
Speaker 1: get that clarity maybe until you advance a little bit
Speaker 1: further in the You so the main sound entry done
Speaker 1: by the tip at the index level, what would you
Speaker 1: be buying? Well, I do think this is a market
Speaker 1: where you do have UM really diverse. I think vulnerabilities
Speaker 1: and exposures to this narrative. Right, So so if we
Speaker 1: take a step back, I think what investors are worried about.
Speaker 1: Our valuations are high, inflations are high, central banks are
Speaker 1: behind the curve. But you know, valuations aren't high in
Speaker 1: a lot of non US equity markets. UM inflation is
Speaker 1: not high in much of Asia, and central banks have
Speaker 1: not been slow to react in parts of EM So
Speaker 1: I think focusing on cheaper global equity markets, I think
Speaker 1: like something a market like Japan, focusing on markets where
Speaker 1: inflation is so we're more bullish on fixed income in
Speaker 1: China where we think inflation is low and policy is
Speaker 1: still going to be easing, and even in some of
Speaker 1: those emerging markets where their way out in front have
Speaker 1: been much more aggressive on policy. It's on those markets
Speaker 1: where we feel more comfortable receiving interest rates, being more
Speaker 1: constructive on nduration. Most markets were not constructive unduration, but
Speaker 1: in some of those ems we are. And do do
Speaker 1: you think that equities really are pricing in the sixth
Speaker 1: rate hikes that the bond market seems to be pricing
Speaker 1: in well? On the U S side, we still think
Speaker 1: not quite. I mean, you know, the SMP this morning
Speaker 1: is roughly where our strategists we're we're my colleague Mike
Speaker 1: Wilson thinks will end the year. So that doesn't imply
Speaker 1: a lot of risk premium. Again, that kind of reflect
Speaker 1: the increasing rate risk and the fact that we think
Speaker 1: real interest rates keep going up. But you know, we
Speaker 1: think stocks in Europe, stocks in Japan, I think those
Speaker 1: markets are fine, iff rates are a bit higher. Those
Speaker 1: are markets with very high equity risk. Premium is a
Speaker 1: lot of ability we think to absorb higher interest rates.
Speaker 1: So you know, those are markets that we think can
Speaker 1: can end the year higher hired by double digits, and
Speaker 1: so I think there is a real divergence there. But
Speaker 1: still in the US assets where we're most concerned a
Speaker 1: little bit more risk premiums require Andrew, how are you
Speaker 1: thinking about oil as you take a look at this
Speaker 1: call right now? If oil prices stay where they are
Speaker 1: climbed to a hundred dollars a barrel, how does that
Speaker 1: change your asset allocation in the in the US and beyond. Yeah,
Speaker 1: so there's there's obviously a big debate around oil. Um,
Speaker 1: we're in the more bullish camp, I mean the more
Speaker 1: bullish camp, and so our thinking is that demand is
Speaker 1: ultimately going to be reasonably strong this year, or demand
Speaker 1: is going to keep increasing because you know, Morgan Stanley
Speaker 1: is forecasting nominal GDP to increase by about six percent
Speaker 1: this year on a global basis. That you mean, more
Speaker 1: oil is used and supply remains very low, and and
Speaker 1: that supply is going to take a long time to ramp.
Speaker 1: It's as as you were discussing in the last segments,
Speaker 1: it's just not really responding to higher prices in the
Speaker 1: way it usually does. So strong demand, more limited supply,
Speaker 1: all of that makes us think that the oil price
Speaker 1: will be higher. And the curve is also backwardated, so
Speaker 1: it's not very hard or it's easier for oil to exceed.
Speaker 1: What's what's currently priced in. Andrew, I've been focused on
Speaker 1: growth and you mentioned that. I love what you said.
Speaker 1: They're about pretty good growth, is what Morgan Stanley says
Speaker 1: to me. It is the great growth guess of two
Speaker 1: thousand twenty two. Which of the growth guesses is the
Speaker 1: market price for tepid growth Morgan Stanley growth or even
Speaker 1: a surprise buoyant growth. Yeah, So, Tom, I think this
Speaker 1: is fascinating because I think it depends on what market
Speaker 1: you're looking at. If you look at the copper price,
Speaker 1: it looks like the market is expecting very good growth.
Speaker 1: If you look at the completely flat U K two's
Speaker 1: tends curve or the inverted US two's tends curve one
Speaker 1: year forward, it seems like the market is very skeptical
Speaker 1: that growth can hold up to interest rate hikes. So
Speaker 1: I think that there's a lot of this, you know,
Speaker 1: on a cross asset basis, kind of very different growth
Speaker 1: being priced in where you look. Ultimately, we think that
Speaker 1: the market can can price in a higher terminal interest
Speaker 1: rate that central banks are going to be able to
Speaker 1: hike further before the cycle ultimately ends. Um. This is
Speaker 1: also a case where we do think that the oil
Speaker 1: price can can rise further to price and more more
Speaker 1: growth optimism. And on the equity side, I think you
Speaker 1: want to be expressing those cyclical exposures. You know, outside
Speaker 1: of the U S. It's in European cyclicals and cyclicals
Speaker 1: and parts of Asia where we think that there's more
Speaker 1: much better risk reward around this idea that ultimately growth
Speaker 1: will be okay, albeit with high answer Andrew Shakes, As always,
Speaker 1: Morgan Stanley, looking at for the note This Sunday, The
Speaker 1: Sunday Stop from Morgan Stanley always the best way to
Speaker 1: stop in the wait. This is the Bloomberg Surveillance Podcast.
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Speaker 1: Keene and this is Bloomberg