1 00:00:00,120 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:38,760 Speaker 2: Terminal and the Bloomberg Business App. Mohammad Allan of Queen's College, Cambridge, Mohammid, 10 00:00:38,760 --> 00:00:39,839 Speaker 2: Good mornagor it's going to see you. 11 00:00:39,880 --> 00:00:41,400 Speaker 1: Good morning, John, Thanks for saying all. 12 00:00:41,440 --> 00:00:43,520 Speaker 2: Just a bunch of happy talk, all these good things, 13 00:00:43,520 --> 00:00:45,080 Speaker 2: good vibes about the US economy. 14 00:00:45,479 --> 00:00:49,720 Speaker 3: It's happy talk, justified on where we've been, but it 15 00:00:49,800 --> 00:00:51,479 Speaker 3: is dangerous looking forward. 16 00:00:51,720 --> 00:00:54,360 Speaker 2: Jamie Diamond sounded like you earlier this week speaking to 17 00:00:54,360 --> 00:00:56,240 Speaker 2: Francine lacro I'm not sure if you've seen the conversation. 18 00:00:56,280 --> 00:00:57,320 Speaker 1: I'll bring you one of the quotes. 19 00:00:57,440 --> 00:00:59,640 Speaker 2: There's a lot of inflationary forces in front of us, 20 00:00:59,640 --> 00:01:01,480 Speaker 2: he said, but it gave us a list of reasons, 21 00:01:01,520 --> 00:01:03,840 Speaker 2: a list of reasons that you've given us before, the green, 22 00:01:03,880 --> 00:01:09,080 Speaker 2: economic remilitarization, infrastructure spending, trade disputes, large fiscal deficits. What 23 00:01:09,160 --> 00:01:11,160 Speaker 2: exactly is this FED a reserve fighting? 24 00:01:11,880 --> 00:01:14,240 Speaker 3: So first of all, Jamie and I have been on 25 00:01:14,280 --> 00:01:17,080 Speaker 3: the same wavelength for a while, so thank you for 26 00:01:17,120 --> 00:01:20,600 Speaker 3: saying that. Look, this is a reactive feed. This is 27 00:01:20,640 --> 00:01:24,640 Speaker 3: a data dependent FED. So when Jamie and others list 28 00:01:24,680 --> 00:01:27,960 Speaker 3: the things look going forward that are inflation in nature, 29 00:01:28,040 --> 00:01:30,320 Speaker 3: that's not something that the FED talks about. The FED 30 00:01:30,360 --> 00:01:33,119 Speaker 3: talks about the latest set of data and that we're 31 00:01:33,120 --> 00:01:35,520 Speaker 3: going to continue having a reactive FED. Because this is 32 00:01:35,560 --> 00:01:38,720 Speaker 3: a FED that loss self confidence back in twenty twenty 33 00:01:38,760 --> 00:01:41,080 Speaker 3: one when they try to be strategic and got the 34 00:01:41,160 --> 00:01:44,039 Speaker 3: call horribly wrong. So what is the safest thing to 35 00:01:44,040 --> 00:01:46,319 Speaker 3: do is to become data dependent and that's where. 36 00:01:46,160 --> 00:01:48,440 Speaker 2: The FED is So no strategic chutcare, which is what 37 00:01:48,520 --> 00:01:52,080 Speaker 2: you've talked about repeatedly, and hypersensitive from data point to 38 00:01:52,160 --> 00:01:55,040 Speaker 2: data point. Ultimately, what does that mean for financial markets? 39 00:01:55,040 --> 00:01:56,720 Speaker 2: Lots of volatility, bit trending higher. 40 00:01:57,840 --> 00:02:01,320 Speaker 3: Yes, as long as these the whiff I want to 41 00:02:01,320 --> 00:02:04,920 Speaker 3: stress it's a whiff of stagflation doesn't turn into something stronger. 42 00:02:04,960 --> 00:02:07,000 Speaker 2: Snackflactory winds, I think is what you've called them. 43 00:02:07,040 --> 00:02:09,400 Speaker 3: Correct, correct, And that's what you have to keep an 44 00:02:09,440 --> 00:02:11,600 Speaker 3: eye on, is that we don't want that to become 45 00:02:11,680 --> 00:02:13,119 Speaker 3: something much stronger. 46 00:02:13,200 --> 00:02:15,520 Speaker 4: When you say the FED is data dependent, how dangerous 47 00:02:15,560 --> 00:02:17,280 Speaker 4: is that when you have revisions like we had this 48 00:02:17,320 --> 00:02:18,519 Speaker 4: week with the PPI report. 49 00:02:19,080 --> 00:02:21,280 Speaker 3: No, it's very dangerous. It's dangerous first because the data 50 00:02:21,360 --> 00:02:24,040 Speaker 3: is very noisy, both in terms of month to month, 51 00:02:24,160 --> 00:02:28,200 Speaker 3: but also in terms of revisions. Is also dangerous because 52 00:02:28,240 --> 00:02:31,560 Speaker 3: the data's backward looking and the tools act with a lag. 53 00:02:31,960 --> 00:02:33,679 Speaker 3: So this is not where you want to be. And 54 00:02:34,080 --> 00:02:37,400 Speaker 3: that articles was another one yesterday where that they're trying 55 00:02:37,440 --> 00:02:40,000 Speaker 3: to encourage the FED to be more self confident and 56 00:02:40,080 --> 00:02:42,799 Speaker 3: look forward and be less data dependent. 57 00:02:42,639 --> 00:02:45,000 Speaker 1: When you talk about potentially stagflationary winds. 58 00:02:45,000 --> 00:02:47,160 Speaker 4: I recently caught up with the former World Bank head 59 00:02:47,200 --> 00:02:47,919 Speaker 4: David Malpass. 60 00:02:47,960 --> 00:02:49,480 Speaker 1: He's been talking about this for a while. 61 00:02:49,960 --> 00:02:52,560 Speaker 4: Where exactly would you see that showing up if we 62 00:02:52,560 --> 00:02:53,679 Speaker 4: were to see stagflation? 63 00:02:54,080 --> 00:02:55,720 Speaker 1: Where exactly would you be looking so? 64 00:02:55,760 --> 00:02:58,520 Speaker 3: And may you talked about it earlier? Listen to the 65 00:02:58,560 --> 00:03:02,320 Speaker 3: corporate calls that telling you that certain segments of the 66 00:03:02,320 --> 00:03:06,280 Speaker 3: consumer base are already having problems. Listen to the previous interview, 67 00:03:06,320 --> 00:03:09,000 Speaker 3: which was a very bullish interview about the economy, but 68 00:03:09,040 --> 00:03:13,359 Speaker 3: there was an admission right there that if anything happens 69 00:03:13,360 --> 00:03:16,480 Speaker 3: to the labor market, we have no buffers, we have 70 00:03:16,560 --> 00:03:20,320 Speaker 3: no spare tires, that balance sheets have really deteriorated. John 71 00:03:20,400 --> 00:03:24,280 Speaker 3: mentioned what happened in the interview where it's every segment 72 00:03:25,280 --> 00:03:28,760 Speaker 3: of the population that's now running much higher balances. So 73 00:03:28,800 --> 00:03:31,960 Speaker 3: we no longer have pandemic savings. We have higher balances 74 00:03:32,000 --> 00:03:34,440 Speaker 3: on credit cards, we have higher interest rates, so we 75 00:03:34,680 --> 00:03:38,400 Speaker 3: totally dependent on wage income. And if anything happens to 76 00:03:38,440 --> 00:03:40,120 Speaker 3: the labor market, which I hope it doesn't, but if 77 00:03:40,120 --> 00:03:43,240 Speaker 3: anything happens, then we are going to slow down really quickly. 78 00:03:43,600 --> 00:03:45,760 Speaker 5: But Muhammed, this is the thing I mean you've hit 79 00:03:45,760 --> 00:03:47,920 Speaker 5: the nail on the head, is that the data is uneven. 80 00:03:48,160 --> 00:03:51,800 Speaker 5: We're seeing a divergence between different types of consumers, except 81 00:03:51,800 --> 00:03:53,000 Speaker 5: perhaps when it comes to some of the. 82 00:03:53,040 --> 00:03:53,920 Speaker 1: Credit card data. 83 00:03:54,600 --> 00:03:56,520 Speaker 5: The data was built a long time ago when we 84 00:03:56,560 --> 00:03:59,080 Speaker 5: didn't have that type of divergence. It was trying to 85 00:03:59,120 --> 00:04:02,000 Speaker 5: capture an American economy that was a monolith do we 86 00:04:02,040 --> 00:04:04,600 Speaker 5: have the right tools to even evaluate the American economy 87 00:04:04,600 --> 00:04:05,280 Speaker 5: at this point. 88 00:04:05,440 --> 00:04:07,840 Speaker 3: So, Danny, that's a really important point. And also it 89 00:04:07,880 --> 00:04:10,520 Speaker 3: explains and Marie's point as to why the person in 90 00:04:10,560 --> 00:04:14,280 Speaker 3: the street doesn't feel as good as the macrodata suggests. Look, 91 00:04:14,440 --> 00:04:16,920 Speaker 3: during the pandemic, we had this wonderful moment where we 92 00:04:17,000 --> 00:04:21,200 Speaker 3: realized that our existing databases were too partial, and we 93 00:04:21,240 --> 00:04:24,240 Speaker 3: moved quickly to high frequency data, and suddenly we were 94 00:04:24,240 --> 00:04:26,960 Speaker 3: living in this world where we were as economists, we 95 00:04:26,960 --> 00:04:29,960 Speaker 3: were much more focused on let's get the best data, 96 00:04:30,000 --> 00:04:32,440 Speaker 3: let's get high frequency data. When we got out of 97 00:04:32,440 --> 00:04:34,840 Speaker 3: the pandemic, we went back to the old world, and 98 00:04:34,880 --> 00:04:37,120 Speaker 3: we don't use the high frequency data enough. Now our 99 00:04:37,160 --> 00:04:40,080 Speaker 3: efforts being made at the NBR and elsewhere to try 100 00:04:40,080 --> 00:04:43,640 Speaker 3: and incorporate that high frequency data. The big problem that 101 00:04:43,680 --> 00:04:45,960 Speaker 3: we don't talk about is that the providers of those 102 00:04:46,040 --> 00:04:49,200 Speaker 3: high frequency data, who used to provide it free, are 103 00:04:49,240 --> 00:04:52,800 Speaker 3: now charging money. So when you charge money, guess what happens. 104 00:04:53,080 --> 00:04:55,480 Speaker 3: The access to that data goes down. So this is 105 00:04:55,960 --> 00:04:58,040 Speaker 3: an issue that's being discussed in the economic profession. 106 00:04:58,360 --> 00:05:01,200 Speaker 2: Do you see mistakes being made this time around being 107 00:05:01,200 --> 00:05:03,600 Speaker 2: the reverse of the mistakes mate. Last time around, coming 108 00:05:03,640 --> 00:05:05,559 Speaker 2: out of the Great Financial Crisis, we were all waiting 109 00:05:05,600 --> 00:05:07,120 Speaker 2: for the economy to go back to what it used 110 00:05:07,120 --> 00:05:09,560 Speaker 2: to look like, and it never did. And it took 111 00:05:09,560 --> 00:05:11,719 Speaker 2: a while for everyone to start agreeing with Larry Summers, 112 00:05:11,760 --> 00:05:14,520 Speaker 2: and they eventually did. And coming out of the pandemic, 113 00:05:14,560 --> 00:05:16,320 Speaker 2: cultually we're waiting for the economy to go back to 114 00:05:16,360 --> 00:05:18,840 Speaker 2: what it used to look like, and maybe it never will. 115 00:05:19,080 --> 00:05:20,880 Speaker 2: And we heard this from Bridgewater this week at the 116 00:05:21,000 --> 00:05:24,880 Speaker 2: Qatar Economic forumpowered by Bloomberg. When Bridgewater is near Bardea said, 117 00:05:25,040 --> 00:05:27,280 Speaker 2: don't use the playbook for the last ten to fifteen 118 00:05:27,320 --> 00:05:29,839 Speaker 2: years for the next ten to fifteen years. So let's 119 00:05:29,880 --> 00:05:33,040 Speaker 2: maybe park next month's data, next quarter's data. What are 120 00:05:33,080 --> 00:05:35,240 Speaker 2: you looking at right now for the next decade or so, 121 00:05:35,440 --> 00:05:36,200 Speaker 2: what do you expecting? 122 00:05:36,440 --> 00:05:38,680 Speaker 3: So first of all, I think the big mistake coming 123 00:05:38,680 --> 00:05:41,240 Speaker 3: out of global financial crisis was to assume the shock 124 00:05:41,320 --> 00:05:43,719 Speaker 3: was cyclical if you like, like a V and not 125 00:05:43,760 --> 00:05:46,880 Speaker 3: too realized it was secular, thus Pinkle's new normal, which 126 00:05:46,920 --> 00:05:49,840 Speaker 3: came early on in two thousand and nine. I think 127 00:05:50,120 --> 00:05:52,279 Speaker 3: the big issue right now is that we as a 128 00:05:52,279 --> 00:05:54,360 Speaker 3: profession and we as a market are too influenced by 129 00:05:54,400 --> 00:05:57,640 Speaker 3: what happened after the global financial crisis. We believe, somehow 130 00:05:57,760 --> 00:06:00,440 Speaker 3: still in the back of our mind that law interest rates, 131 00:06:00,640 --> 00:06:02,880 Speaker 3: very low interest rates are the norm, not the exception. 132 00:06:03,520 --> 00:06:06,960 Speaker 3: We believe that inflation is not an issue. So look 133 00:06:07,000 --> 00:06:09,680 Speaker 3: what has happened to the Fed. The Fed pivoted on 134 00:06:09,720 --> 00:06:12,000 Speaker 3: the basis of data. It was the opposite of the 135 00:06:12,000 --> 00:06:16,400 Speaker 3: pivot they did in December when they pivoted on basis. 136 00:06:16,400 --> 00:06:18,520 Speaker 3: Now they have to do a U turn. As they're 137 00:06:18,520 --> 00:06:22,400 Speaker 3: doing the U turn and say higher for longer, the 138 00:06:22,440 --> 00:06:24,680 Speaker 3: market is going the other way. So you saw what 139 00:06:24,680 --> 00:06:26,160 Speaker 3: happened to the two years, So what happened to. 140 00:06:26,120 --> 00:06:26,520 Speaker 1: The ten year? 141 00:06:27,240 --> 00:06:30,480 Speaker 3: And then there are two really problematic issues that we 142 00:06:30,560 --> 00:06:34,760 Speaker 3: don't talk enough. How sensitive are the stubborn components of 143 00:06:34,800 --> 00:06:38,719 Speaker 3: inflation to interest rates? They're not very sensitive. That's problem 144 00:06:38,800 --> 00:06:41,919 Speaker 3: number one. Problem in number two, what indications are we 145 00:06:41,920 --> 00:06:45,400 Speaker 3: getting off The economy is slowly weakening. So it weighses 146 00:06:45,440 --> 00:06:47,520 Speaker 3: the issue that once again the Fed is going to 147 00:06:47,560 --> 00:06:50,240 Speaker 3: have to pivot, this time not on the basis of 148 00:06:50,240 --> 00:06:52,560 Speaker 3: the inflation numbers, but on the basis of the real 149 00:06:52,600 --> 00:06:55,760 Speaker 3: economy numbers. It will pivot yet again. And then there's 150 00:06:55,760 --> 00:06:57,600 Speaker 3: the big issue that I know no one wants to discuss, 151 00:06:58,160 --> 00:07:03,120 Speaker 3: and I insist stand that fully is the inflation target 152 00:07:03,120 --> 00:07:05,919 Speaker 3: the right target. We all talk about wanting to go 153 00:07:05,960 --> 00:07:09,159 Speaker 3: back to two percent. Every single quote you had this morning, YEP, 154 00:07:09,279 --> 00:07:11,640 Speaker 3: assumes that two percent is the right inflation target. Two 155 00:07:11,680 --> 00:07:16,080 Speaker 3: percent total arbitrary. But I understand why no one wants 156 00:07:16,080 --> 00:07:18,800 Speaker 3: to talk about this. But we should all realize that 157 00:07:18,800 --> 00:07:22,160 Speaker 3: if we are pursuing the wrong inflation target, the risk 158 00:07:22,240 --> 00:07:27,280 Speaker 3: of a mistake, and that mistake would mean sacrificing growth unnecessarily. 159 00:07:27,560 --> 00:07:29,560 Speaker 3: The risk of that mistake is high, especially when the 160 00:07:29,600 --> 00:07:31,000 Speaker 3: low income people are most at risk. 161 00:07:31,040 --> 00:07:32,800 Speaker 2: I know how much criticism you get every time you 162 00:07:32,840 --> 00:07:34,440 Speaker 2: bring this up, because you've been bringing it up with 163 00:07:34,480 --> 00:07:36,640 Speaker 2: me for the best part of twelve months, maybe longer. Now. 164 00:07:36,920 --> 00:07:38,960 Speaker 2: If we go back to the Jackson Hole speech from 165 00:07:39,040 --> 00:07:41,320 Speaker 2: chairm and Powell in August of twenty two, when he 166 00:07:41,400 --> 00:07:44,200 Speaker 2: talked about pain being required to get inflation under control, 167 00:07:44,520 --> 00:07:46,400 Speaker 2: then the experience of the last twelve months where we 168 00:07:46,440 --> 00:07:48,480 Speaker 2: all got seduced by this idea that maybe we don't 169 00:07:48,480 --> 00:07:51,840 Speaker 2: need pain whatsoever to get inflation back under control. Are 170 00:07:51,880 --> 00:07:54,560 Speaker 2: you saying that the pain that's required to go from 171 00:07:54,600 --> 00:07:56,680 Speaker 2: three to two just is not worth a squeeze. 172 00:07:56,880 --> 00:07:57,320 Speaker 1: Correct. 173 00:07:57,520 --> 00:08:01,679 Speaker 3: I'm saying that if you were to establishing an inflation 174 00:08:01,720 --> 00:08:04,680 Speaker 3: target today based on the secular issues, and let's talk 175 00:08:04,680 --> 00:08:08,360 Speaker 3: about it, the domestic paradigm is changing. We're no longer 176 00:08:08,400 --> 00:08:13,000 Speaker 3: in this Washington consensus of deregulation, liberalization, fiscal prudence. We 177 00:08:13,080 --> 00:08:18,200 Speaker 3: are in a world of industrial policy, government intervention, and 178 00:08:18,280 --> 00:08:23,640 Speaker 3: fiscal irresponsibility. Let's talk about the international We're no longer 179 00:08:23,920 --> 00:08:28,480 Speaker 3: talking about ever closer globalization, We're talking about fragmentation. Then 180 00:08:28,480 --> 00:08:31,480 Speaker 3: look at the transitions we have. We have major transitions 181 00:08:31,480 --> 00:08:35,560 Speaker 3: going on, not just generative AI, life sciences and sustainable energy. 182 00:08:35,840 --> 00:08:38,040 Speaker 3: You have things happening in healthcare. You have things happening 183 00:08:38,080 --> 00:08:40,760 Speaker 3: in defense, you have things happening in food security. If 184 00:08:40,760 --> 00:08:44,160 Speaker 3: you put all that together, it is a different inflation environment. 185 00:08:44,160 --> 00:08:47,120 Speaker 3: It's a world that's subject to higher inflation. And we've 186 00:08:47,160 --> 00:08:49,280 Speaker 3: come from a world that was subject to lower inflation. 187 00:08:49,880 --> 00:08:53,120 Speaker 5: But if the world still has that recency bias in 188 00:08:53,160 --> 00:08:55,160 Speaker 5: their mind that we're going to go back to two percent, 189 00:08:55,240 --> 00:08:58,959 Speaker 5: their entire industries that are extending and pretending and hoping 190 00:08:59,000 --> 00:09:01,439 Speaker 5: we're getting back there, think of the private capital world, 191 00:09:01,480 --> 00:09:03,960 Speaker 5: for example. So if you have financial markets that have 192 00:09:04,160 --> 00:09:07,160 Speaker 5: engineered themselves to be used to a low inflation world, 193 00:09:07,160 --> 00:09:09,880 Speaker 5: they've been used to rates getting somewhere to two percent, 194 00:09:10,320 --> 00:09:11,080 Speaker 5: what happens? 195 00:09:11,360 --> 00:09:12,720 Speaker 1: What happens if we don't get there? 196 00:09:13,080 --> 00:09:16,280 Speaker 3: You're absolutely right. And yesterday, the whole news yesterday was 197 00:09:16,320 --> 00:09:19,599 Speaker 3: about commercial real estate whether pot slowed. Right, we have 198 00:09:19,760 --> 00:09:24,360 Speaker 3: recognized and more importantly, investors have recognized that there's evaluation 199 00:09:25,000 --> 00:09:28,760 Speaker 3: issue ahead, and that's that's that's also an issue, is 200 00:09:28,800 --> 00:09:31,959 Speaker 3: you have slower moving segments that we finance in a 201 00:09:32,080 --> 00:09:34,360 Speaker 3: very discrete fashion that we're going to have to deal with. 202 00:09:34,559 --> 00:09:47,839 Speaker 2: Absolutely right, Stocks on pause, with markets at a crossroad, 203 00:09:47,920 --> 00:09:50,480 Speaker 2: Kenny Kaminsky of Out for Simplex right, in this the 204 00:09:50,559 --> 00:09:53,680 Speaker 2: market seems to be polarized between two views, bullish view 205 00:09:53,760 --> 00:09:56,760 Speaker 2: on equities and growth versus worry are the sticky inflation 206 00:09:56,840 --> 00:09:59,800 Speaker 2: and higher for longer As a result, trend signals with 207 00:10:00,040 --> 00:10:04,720 Speaker 2: long equities, with short fixed income, long dollar, and long commodities. 208 00:10:04,800 --> 00:10:07,199 Speaker 2: Katie joins us. Now for more, Katie, let's just sort 209 00:10:07,200 --> 00:10:09,240 Speaker 2: of break it down into its individual paths and start 210 00:10:09,280 --> 00:10:11,800 Speaker 2: with the bond market. Last time we spoke, you said 211 00:10:11,800 --> 00:10:14,480 Speaker 2: there were more reasons to be sure. What's happened in 212 00:10:14,520 --> 00:10:16,520 Speaker 2: between conversations. 213 00:10:16,960 --> 00:10:19,839 Speaker 6: Well, I mean, we've really seen a pullback this month 214 00:10:19,960 --> 00:10:24,160 Speaker 6: based on inflation coming not as hot as people might 215 00:10:24,160 --> 00:10:26,680 Speaker 6: have been worried about, and so I think we're getting 216 00:10:26,720 --> 00:10:30,680 Speaker 6: closer to a point where we might actually see cuts 217 00:10:30,679 --> 00:10:32,760 Speaker 6: this year, and we know the Fed wants to cut. 218 00:10:33,000 --> 00:10:35,640 Speaker 7: I think this trend it's been very confusing. 219 00:10:36,040 --> 00:10:38,920 Speaker 6: Look at bonds, they're trading a lot more like equities 220 00:10:39,000 --> 00:10:42,240 Speaker 6: fall as high and on the year, bonds are down. 221 00:10:42,720 --> 00:10:44,920 Speaker 6: So I think the really big question is going to 222 00:10:44,920 --> 00:10:48,199 Speaker 6: be who wins. Is it the inflation narrative staying longer, 223 00:10:48,720 --> 00:10:50,600 Speaker 6: or is it that equities are right that we can 224 00:10:50,679 --> 00:10:54,160 Speaker 6: sort of smooth in too rate cuts this year. So far, 225 00:10:54,320 --> 00:10:57,280 Speaker 6: signals are still short and fixed income because look at 226 00:10:57,280 --> 00:11:01,559 Speaker 6: the long term trend, it's still there despite the recent pullback. 227 00:11:01,760 --> 00:11:03,319 Speaker 2: So if you can help us go through what your 228 00:11:03,360 --> 00:11:06,680 Speaker 2: positioned for right now bottons versus commodities, and let's throw 229 00:11:07,000 --> 00:11:08,160 Speaker 2: foreign exchange in there too. 230 00:11:09,240 --> 00:11:12,160 Speaker 7: So I'd say, right now, what you see is that the. 231 00:11:11,840 --> 00:11:15,240 Speaker 6: Short bond signals really tell you higher for longer. 232 00:11:15,520 --> 00:11:16,800 Speaker 7: You're also seeing. 233 00:11:16,480 --> 00:11:18,800 Speaker 6: In the commodity markets, and I think that's the thing 234 00:11:18,840 --> 00:11:22,680 Speaker 6: that we're watching the most massive moves and commodities this year. 235 00:11:22,960 --> 00:11:26,320 Speaker 6: Commodity indices are up over ten percent. Take a at 236 00:11:26,400 --> 00:11:31,000 Speaker 6: the preciss metals. Copper in particular has been up tremendously lately. 237 00:11:31,360 --> 00:11:34,240 Speaker 6: So these are signs that are not talking about the consumer, 238 00:11:34,320 --> 00:11:37,320 Speaker 6: but really talking about prices of raw goods. And I 239 00:11:37,320 --> 00:11:40,680 Speaker 6: think you're still seeing that mixed picture where cross asset 240 00:11:40,720 --> 00:11:43,880 Speaker 6: themes suggest higher for longer and concern that it's going 241 00:11:43,960 --> 00:11:47,640 Speaker 6: to take longer to get over the inflation issue and 242 00:11:47,679 --> 00:11:51,319 Speaker 6: get inflation down than people would like. It's very fascinating 243 00:11:51,360 --> 00:11:54,600 Speaker 6: as well that the ECB might cut first. In some sense, 244 00:11:54,640 --> 00:11:56,880 Speaker 6: that'll be a good proof point to see what happens 245 00:11:57,320 --> 00:11:59,839 Speaker 6: when someone actually starts win a large economy like the 246 00:11:59,880 --> 00:12:01,440 Speaker 6: starts cutting. 247 00:12:01,960 --> 00:12:03,719 Speaker 5: Let's go there, then, Katie, what are you looking for? 248 00:12:03,760 --> 00:12:07,440 Speaker 5: What are the risks and potential takeaways from the reaction 249 00:12:07,480 --> 00:12:09,320 Speaker 5: to the bond market to the ECB that you can 250 00:12:09,320 --> 00:12:10,160 Speaker 5: apply to the US. 251 00:12:11,240 --> 00:12:14,239 Speaker 6: Well, if you look at inflation data, it looks steadier 252 00:12:14,320 --> 00:12:18,280 Speaker 6: in the Eurozone, and the Eurozone has definitely seen more 253 00:12:18,320 --> 00:12:23,199 Speaker 6: restrictive effects of policy, and thus they're Like your previous 254 00:12:23,240 --> 00:12:26,520 Speaker 6: guest said, more positioned to kind of have to deal 255 00:12:26,559 --> 00:12:29,960 Speaker 6: with that issue. The US is more confusing because the 256 00:12:30,160 --> 00:12:30,880 Speaker 6: data is just. 257 00:12:30,920 --> 00:12:31,800 Speaker 7: Much more mixed. 258 00:12:32,200 --> 00:12:35,400 Speaker 6: So it'll be interesting to see how the market actually reacts. 259 00:12:35,720 --> 00:12:38,520 Speaker 6: And if indeed we do see a pop up in inflation, 260 00:12:38,640 --> 00:12:41,840 Speaker 6: which is sort of your upside risk in the Eurozone, 261 00:12:41,960 --> 00:12:44,240 Speaker 6: then it's really going to get interesting this summer. So 262 00:12:44,280 --> 00:12:47,200 Speaker 6: there's really a lot of things that can cause markets 263 00:12:47,200 --> 00:12:50,400 Speaker 6: to be very trendy but also very volatile as we 264 00:12:50,480 --> 00:12:51,800 Speaker 6: try and navigate this pivot. 265 00:12:51,960 --> 00:12:54,160 Speaker 5: And that's exactly what we've had, Katie. We've had huge 266 00:12:54,160 --> 00:12:56,200 Speaker 5: amounts of volatility. You and the team have done the 267 00:12:56,200 --> 00:12:59,640 Speaker 5: research that bond volatility is something like fifty percent above 268 00:12:59,640 --> 00:13:02,280 Speaker 5: its pre tw twenty two level. That's great for you 269 00:13:02,320 --> 00:13:04,200 Speaker 5: in the team at Alpha Simplex, who can trade in 270 00:13:04,200 --> 00:13:07,079 Speaker 5: and out of bonds. What about the rest of investors, Katie, 271 00:13:07,120 --> 00:13:10,120 Speaker 5: that view bonds as something that you buy and you hold. 272 00:13:10,200 --> 00:13:13,320 Speaker 5: How does it change things when you see this market 273 00:13:13,360 --> 00:13:16,600 Speaker 5: that's known for being stayed, being more volatile, in some 274 00:13:16,679 --> 00:13:19,200 Speaker 5: cases more than equities and more than FX. 275 00:13:20,320 --> 00:13:22,120 Speaker 6: This is a very good point, and I think it's 276 00:13:22,160 --> 00:13:24,960 Speaker 6: the biggest and most important thing for investors to take 277 00:13:25,000 --> 00:13:28,760 Speaker 6: home when you're thinking about bonds as a risk off asset, 278 00:13:28,840 --> 00:13:32,280 Speaker 6: as a risk free, safe haven asset. That is not 279 00:13:32,440 --> 00:13:36,480 Speaker 6: the case an environment when inflation comes into play. In fact, 280 00:13:37,040 --> 00:13:41,600 Speaker 6: bond stock correlation has been positive for quite some time, 281 00:13:41,920 --> 00:13:45,120 Speaker 6: and bond volatility is higher. Like I said, bonds trade 282 00:13:45,120 --> 00:13:48,280 Speaker 6: a little bit more like equities. This means that investors 283 00:13:48,320 --> 00:13:51,720 Speaker 6: need to look around and find things that actually like 284 00:13:51,800 --> 00:13:55,640 Speaker 6: inflation and like this type of environment, that actually complement 285 00:13:55,679 --> 00:13:59,400 Speaker 6: their portfolios, because you just don't have that flight to 286 00:13:59,440 --> 00:14:03,199 Speaker 6: safety in the traditional sense. When we think about stocks 287 00:14:03,200 --> 00:14:06,000 Speaker 6: going down, we think about bonds being there as are ballast, 288 00:14:06,400 --> 00:14:09,760 Speaker 6: and in fact, when we're dealing with inflation, that ballast 289 00:14:09,840 --> 00:14:11,200 Speaker 6: is just not as good. 290 00:14:11,559 --> 00:14:15,280 Speaker 5: So are there strategies ben Katie that going forward should 291 00:14:15,280 --> 00:14:18,080 Speaker 5: cease to exist that investors shouldn't be looking into anymore. 292 00:14:18,080 --> 00:14:20,880 Speaker 5: I'm thinking of the risk parody, the sixty forties. We've 293 00:14:20,880 --> 00:14:22,560 Speaker 5: talked about the death of them for a long time. 294 00:14:22,600 --> 00:14:23,400 Speaker 5: It hasn't happened. 295 00:14:23,520 --> 00:14:23,960 Speaker 1: Is this it? 296 00:14:25,080 --> 00:14:25,120 Speaker 5: No? 297 00:14:25,400 --> 00:14:28,000 Speaker 6: I would say they still are there as an important 298 00:14:28,040 --> 00:14:31,640 Speaker 6: tool in your portfolio, but you just your portfolio isn't complete. 299 00:14:32,040 --> 00:14:34,720 Speaker 6: You need to start thinking about what assets will benefit 300 00:14:34,800 --> 00:14:39,120 Speaker 6: from changes in inflation. Things like commodity exposure, things like 301 00:14:39,280 --> 00:14:43,360 Speaker 6: assets that have real estate, for example. So really sort 302 00:14:43,400 --> 00:14:46,880 Speaker 6: of diversifying your portfolio to be aware of the potential 303 00:14:46,920 --> 00:14:50,280 Speaker 6: vulnerabilities of fixed cash flows in an inflation environment. 304 00:14:50,400 --> 00:14:51,760 Speaker 2: Hey, Katie, I think you said it at the start 305 00:14:51,760 --> 00:14:55,440 Speaker 2: of the conversation. The risk mitigation characteristics required depends on 306 00:14:55,480 --> 00:14:57,760 Speaker 2: what you think the dominant risk actually is and when 307 00:14:57,800 --> 00:14:59,640 Speaker 2: it goes through your quote again, the market seems to 308 00:14:59,680 --> 00:15:02,200 Speaker 2: be a rise between two views, a bullish few on 309 00:15:02,240 --> 00:15:05,880 Speaker 2: equities and growth versus over sticky inflation and high for longer. 310 00:15:06,400 --> 00:15:08,359 Speaker 2: What are the two ballats you need in the portfolio 311 00:15:08,400 --> 00:15:10,080 Speaker 2: to account for some of the risks out there, given 312 00:15:10,080 --> 00:15:11,880 Speaker 2: how polarized they are at the moment. 313 00:15:13,160 --> 00:15:15,400 Speaker 6: This is a good point because usually we just worry 314 00:15:15,440 --> 00:15:16,280 Speaker 6: about recession. 315 00:15:16,320 --> 00:15:18,360 Speaker 7: We worry about equities going down. 316 00:15:18,520 --> 00:15:21,280 Speaker 6: Right now, we have to worry about the impact of inflation. 317 00:15:21,760 --> 00:15:24,720 Speaker 6: And that's precisely the risk that you saw manifest itself 318 00:15:24,760 --> 00:15:25,240 Speaker 6: in April. 319 00:15:25,280 --> 00:15:27,600 Speaker 7: I know we've already forgotten about it after last. 320 00:15:27,360 --> 00:15:30,960 Speaker 6: Week's this week's big rally, but the truth is, the 321 00:15:31,120 --> 00:15:34,120 Speaker 6: key risks that we're facing is more that inflation is 322 00:15:34,440 --> 00:15:38,720 Speaker 6: really causing stress in our system and thus a risk 323 00:15:38,800 --> 00:15:42,240 Speaker 6: for investors is very different from a pre COVID type 324 00:15:42,280 --> 00:15:45,360 Speaker 6: of risk, where we're thinking about how inflation will affect 325 00:15:45,400 --> 00:15:48,120 Speaker 6: all of the assets that we hold and will cause 326 00:15:48,160 --> 00:15:53,120 Speaker 6: divergence across both monetary policy and also across regions geographically. 327 00:15:53,200 --> 00:15:55,240 Speaker 2: And this takes us to the commodity market, which you've 328 00:15:55,240 --> 00:15:58,320 Speaker 2: already referenced. It's a broad place, a broad space, Katie. 329 00:15:58,320 --> 00:16:00,280 Speaker 2: What would you pick out in a commodity market now? 330 00:16:00,320 --> 00:16:03,920 Speaker 2: Is it bise, metsos, precious metsos, fossil fuels, Where do 331 00:16:03,920 --> 00:16:04,440 Speaker 2: you want to bathe? 332 00:16:05,440 --> 00:16:07,480 Speaker 7: So so far are the things that have really been 333 00:16:07,520 --> 00:16:08,160 Speaker 7: working this year. 334 00:16:08,200 --> 00:16:10,800 Speaker 6: I mean, take a look at copper, cocoa, some of 335 00:16:10,840 --> 00:16:13,680 Speaker 6: these big commodities that have moved. I highlighted that the 336 00:16:13,720 --> 00:16:15,720 Speaker 6: index is up over eleven percent. 337 00:16:16,280 --> 00:16:17,320 Speaker 7: But you're also. 338 00:16:17,080 --> 00:16:19,880 Speaker 6: Seeing, I think the most interesting trend to start watching. 339 00:16:20,360 --> 00:16:23,960 Speaker 6: The one sector that has been disinflationary this year to 340 00:16:24,040 --> 00:16:29,480 Speaker 6: date has been agriculturals. And you've actually seen things like corn, wheat, soy, 341 00:16:29,880 --> 00:16:32,880 Speaker 6: many of the agricultural products actually starting to pivot for 342 00:16:32,920 --> 00:16:36,120 Speaker 6: the first time just as we're talking about cuts. So 343 00:16:36,200 --> 00:16:39,840 Speaker 6: that to me is very interesting. Watch energy, it's continued 344 00:16:39,880 --> 00:16:42,520 Speaker 6: to move up as well. So all of these things 345 00:16:42,560 --> 00:16:47,440 Speaker 6: are definitely putting a headwind against this inflation narrative, and 346 00:16:47,480 --> 00:16:49,640 Speaker 6: they're going to make this more tricky this. 347 00:16:49,640 --> 00:16:52,520 Speaker 1: Summer, Katie. One metal you didn't mention is gold continues 348 00:16:52,520 --> 00:16:52,920 Speaker 1: to rise. 349 00:16:52,960 --> 00:16:55,600 Speaker 4: But there's a lot of different reasons why some strategists 350 00:16:55,640 --> 00:16:57,760 Speaker 4: say it will continue on this trajectory. 351 00:16:57,760 --> 00:16:59,520 Speaker 1: What do you make of gold descent? 352 00:17:00,960 --> 00:17:03,920 Speaker 6: So gold is often seen as a great safe haven 353 00:17:04,000 --> 00:17:07,679 Speaker 6: investment for inflation, and so what was interesting to me 354 00:17:07,960 --> 00:17:11,280 Speaker 6: is just to watch the tremendous acceleration in gold around 355 00:17:11,280 --> 00:17:15,000 Speaker 6: the time where people started to get reconcerned about. 356 00:17:14,600 --> 00:17:18,359 Speaker 7: Inflation, particularly April. But what's even more interesting is that 357 00:17:18,440 --> 00:17:20,000 Speaker 7: it's continued into May. 358 00:17:20,440 --> 00:17:23,119 Speaker 6: So it seems in some sense that people are thinking 359 00:17:23,119 --> 00:17:26,560 Speaker 6: about gold as their safe haven asset instead of bonds, 360 00:17:26,920 --> 00:17:30,520 Speaker 6: given the volatility and the risk off properties dissipating in 361 00:17:30,560 --> 00:17:32,680 Speaker 6: those assets. So I think gold is something to watch 362 00:17:32,720 --> 00:17:36,280 Speaker 6: as a barometer of how people feel about the realities 363 00:17:36,320 --> 00:17:36,840 Speaker 6: of inflation. 364 00:17:37,200 --> 00:17:37,480 Speaker 1: Katy. 365 00:17:37,520 --> 00:17:51,160 Speaker 2: Thank you, Kitty Convinsky that of aphasimplex, FED officials maintaining 366 00:17:51,240 --> 00:17:54,480 Speaker 2: the Central Bank should hold rights higher for longer while 367 00:17:54,520 --> 00:17:57,400 Speaker 2: the ACP gives up to begin counting next month. Jill 368 00:17:57,480 --> 00:18:01,200 Speaker 2: MOWAKAVACSA Group saying this, we are con about the risk 369 00:18:01,520 --> 00:18:04,639 Speaker 2: of an intellectual contagion from the debates in the US. 370 00:18:04,840 --> 00:18:09,080 Speaker 2: The is asymmetric across the Atlantic. Reading Europe with American 371 00:18:09,160 --> 00:18:12,960 Speaker 2: lenses could lead to costly policy mistakes. She'll joined us 372 00:18:13,000 --> 00:18:15,280 Speaker 2: now for more wonderful perspectives. 373 00:18:15,520 --> 00:18:16,359 Speaker 1: Do you see that as a. 374 00:18:16,440 --> 00:18:21,880 Speaker 2: Very real and evident risk right now? In Europe? 375 00:18:22,040 --> 00:18:22,600 Speaker 7: As usual? 376 00:18:22,880 --> 00:18:26,240 Speaker 8: The US market is is the dominant market of the world, 377 00:18:27,119 --> 00:18:30,919 Speaker 8: and there might be a sense in Europe that diverging 378 00:18:31,000 --> 00:18:33,679 Speaker 8: too much from what the Fed is is about to 379 00:18:33,680 --> 00:18:37,159 Speaker 8: do or about not to do, would actually trigger a 380 00:18:37,280 --> 00:18:40,800 Speaker 8: further weakening of our currency, which in turn would trigger 381 00:18:41,400 --> 00:18:44,639 Speaker 8: more imported in inflation and would make our own progress 382 00:18:44,680 --> 00:18:49,679 Speaker 8: towards our inflation target harder to hit. So there is 383 00:18:49,760 --> 00:18:53,679 Speaker 8: this contagent channel which which is pretty traditional in policy 384 00:18:53,680 --> 00:18:57,199 Speaker 8: making in Europe. But what I would venture is that 385 00:18:58,200 --> 00:19:00,919 Speaker 8: first of all, the inflation story in Europe clearer than 386 00:19:00,920 --> 00:19:03,040 Speaker 8: in the US. It's heading down, I think, in a 387 00:19:03,080 --> 00:19:07,080 Speaker 8: more obvious manner than the US. And second, when we 388 00:19:07,119 --> 00:19:11,600 Speaker 8: still have issues with our inflationary process in Europe, it 389 00:19:11,680 --> 00:19:15,360 Speaker 8: does not it doesn't have anything to do with important inflation. 390 00:19:15,520 --> 00:19:19,639 Speaker 8: It's usually about domestic forces, services inflation in particular. So 391 00:19:19,840 --> 00:19:23,160 Speaker 8: even if we had a further degociation of the euro 392 00:19:23,359 --> 00:19:26,280 Speaker 8: in case of a growing divergence with the FED, I 393 00:19:26,320 --> 00:19:29,600 Speaker 8: don't think it would massively change the picture for our 394 00:19:29,600 --> 00:19:30,520 Speaker 8: inflation forecast. 395 00:19:30,640 --> 00:19:32,399 Speaker 2: So you think they should emphasize the importance of the 396 00:19:32,440 --> 00:19:33,800 Speaker 2: effects channel. Is that right? 397 00:19:34,680 --> 00:19:34,960 Speaker 1: Yes? 398 00:19:35,200 --> 00:19:39,399 Speaker 8: And that was something that was very obvious in the 399 00:19:39,480 --> 00:19:43,679 Speaker 8: latest minutes of the the cd Governing Council that clearly 400 00:19:43,760 --> 00:19:46,320 Speaker 8: spent quite a bit of time talking about inflation in 401 00:19:46,359 --> 00:19:49,000 Speaker 8: the US, talking about what it meant for the FED 402 00:19:49,520 --> 00:19:53,800 Speaker 8: uh And and again it's obvious the FED is the biggest, 403 00:19:53,800 --> 00:19:55,720 Speaker 8: the most important central bank of the world. You could 404 00:19:55,720 --> 00:19:58,919 Speaker 8: not completely ignore it. But our inflation story on this 405 00:19:59,280 --> 00:20:00,959 Speaker 8: point is it's very different. 406 00:20:01,320 --> 00:20:04,080 Speaker 2: Danny mentioned what we heard from is about Schnabel in 407 00:20:04,119 --> 00:20:07,560 Speaker 2: the Japanese newspaper Nike saying, based on current data, a 408 00:20:07,680 --> 00:20:10,400 Speaker 2: rakecom in July does not seem warranted. You know, based 409 00:20:10,400 --> 00:20:12,240 Speaker 2: on what you just said, what's your reaction to that 410 00:20:12,280 --> 00:20:14,760 Speaker 2: communication from a key executive board member. 411 00:20:15,840 --> 00:20:18,720 Speaker 8: I think you know, it's interesting on the positive side, 412 00:20:18,760 --> 00:20:20,199 Speaker 8: if you want to, we're in the on the dubbish 413 00:20:20,280 --> 00:20:24,680 Speaker 8: site it's usually my tribe, it's starts. They're already talking 414 00:20:24,720 --> 00:20:27,639 Speaker 8: about the next cut. The June cut seems to be 415 00:20:27,720 --> 00:20:29,560 Speaker 8: completely in the back, which in a way you could 416 00:20:29,600 --> 00:20:33,040 Speaker 8: find reassuring coming from someone like slish Level, who can 417 00:20:33,080 --> 00:20:35,919 Speaker 8: be a hawk. But you can see how the conversation 418 00:20:36,119 --> 00:20:39,360 Speaker 8: is already focusing on, well, we have to be very careful, 419 00:20:39,480 --> 00:20:43,239 Speaker 8: we have to be very very patient, very slow in 420 00:20:43,359 --> 00:20:47,560 Speaker 8: our in our own process, and the risk there is 421 00:20:47,600 --> 00:20:50,280 Speaker 8: that you end up proving actually under shooting your own inflation, 422 00:20:50,680 --> 00:20:54,200 Speaker 8: your own inflation target. And it's not a theoretical issue. 423 00:20:54,960 --> 00:20:57,280 Speaker 8: The Central Bank of Sweden has just had to to 424 00:20:57,400 --> 00:21:01,439 Speaker 8: cut trades without waiting the CD or without waiting for 425 00:21:01,520 --> 00:21:03,719 Speaker 8: the fair and when you look at their own inflection 426 00:21:03,840 --> 00:21:07,760 Speaker 8: forecast are already they already have inflation below two percent 427 00:21:07,920 --> 00:21:10,040 Speaker 8: in the latest forecast we've had from the Bank of England, 428 00:21:10,080 --> 00:21:13,240 Speaker 8: same thing for twenty twenty six. They're clearly concerned that 429 00:21:13,320 --> 00:21:16,320 Speaker 8: inflecation could fall below two percent. So I understand we 430 00:21:16,359 --> 00:21:18,320 Speaker 8: need to be prudent. And as far as I know, 431 00:21:18,520 --> 00:21:21,359 Speaker 8: no one is calling for a weight cut in July. Ascertainly, 432 00:21:22,440 --> 00:21:24,840 Speaker 8: I'm not calling for a weight cut in July. In 433 00:21:24,880 --> 00:21:28,720 Speaker 8: September would be fine after up to June, but it's 434 00:21:28,720 --> 00:21:32,159 Speaker 8: a sign of the ongoing tension within the Governing Council. 435 00:21:32,400 --> 00:21:34,600 Speaker 8: The debate has shifted from should we cut or no, 436 00:21:34,920 --> 00:21:39,600 Speaker 8: that's fine to how quickly? And the fivenessionable is already 437 00:21:39,920 --> 00:21:43,359 Speaker 8: warning against a July cut. I think you know betrays 438 00:21:43,400 --> 00:21:46,200 Speaker 8: this and reflects this. This this internal tension at the 439 00:21:46,200 --> 00:21:46,879 Speaker 8: Governing Council. 440 00:21:47,200 --> 00:21:50,120 Speaker 5: Gee, what I what I can understand is what's even 441 00:21:50,160 --> 00:21:52,720 Speaker 5: the point then of cutting in June? What difference does 442 00:21:52,760 --> 00:21:54,280 Speaker 5: it make if you cut in June and then you 443 00:21:54,320 --> 00:21:54,960 Speaker 5: pause for a while. 444 00:21:55,000 --> 00:21:56,280 Speaker 1: Let's say you go in September. 445 00:21:56,760 --> 00:21:59,480 Speaker 5: We're talking about twenty five basis points here, we're talking 446 00:21:59,680 --> 00:22:01,240 Speaker 5: about only a few months apart. 447 00:22:01,280 --> 00:22:02,879 Speaker 1: Why is this such a vigorous debate? 448 00:22:04,600 --> 00:22:06,879 Speaker 8: It's I think it's it's a vigorous debate because the 449 00:22:07,280 --> 00:22:11,080 Speaker 8: inflection point in your stance is always the most important one. 450 00:22:11,520 --> 00:22:15,439 Speaker 8: Because obviously the CB has been hiking for a while, 451 00:22:15,640 --> 00:22:19,560 Speaker 8: as continued hiking later than the FED that it stopped 452 00:22:19,720 --> 00:22:22,800 Speaker 8: three months before before the ECB. So there's a lot 453 00:22:22,800 --> 00:22:27,000 Speaker 8: of symbolic and policy focus around the infection point when 454 00:22:27,000 --> 00:22:30,240 Speaker 8: do you start cutting? Because everyone knows that once you 455 00:22:30,400 --> 00:22:33,760 Speaker 8: started cutting. Well, it's usually the beginning of a trajectory, 456 00:22:34,280 --> 00:22:36,760 Speaker 8: and it can may come in July, it may come 457 00:22:36,800 --> 00:22:40,040 Speaker 8: in September. It doesn't really matter. You are on the 458 00:22:40,119 --> 00:22:43,760 Speaker 8: downward trend. So the biggest fight, if you want, was 459 00:22:44,040 --> 00:22:47,439 Speaker 8: on should we cut it all. That's now completely in 460 00:22:47,480 --> 00:22:52,320 Speaker 8: the bag. Now we're talking about the trajectory and that. 461 00:22:52,480 --> 00:22:57,840 Speaker 8: I think it's actually less problematic if the CB waits 462 00:22:57,920 --> 00:23:00,920 Speaker 8: for two or three months after having provide this first cut, 463 00:23:01,280 --> 00:23:03,600 Speaker 8: because the entire market will know. Okay, you know, it 464 00:23:03,640 --> 00:23:05,520 Speaker 8: may take a bit of time, but the direction of 465 00:23:05,560 --> 00:23:06,440 Speaker 8: trouble is super clere. 466 00:23:07,080 --> 00:23:09,440 Speaker 5: I get that, But I mean, is it the same 467 00:23:09,720 --> 00:23:12,159 Speaker 5: this time around? I mean, this isn't a classic cutting 468 00:23:12,200 --> 00:23:14,320 Speaker 5: cycle as most of us know it. This isn't a 469 00:23:14,320 --> 00:23:17,639 Speaker 5: recession that the ECB needs to get somewhere in a hurry, 470 00:23:17,920 --> 00:23:19,720 Speaker 5: as you say, They can take their time. 471 00:23:19,840 --> 00:23:21,960 Speaker 1: This is more of a mid cycle tweak. 472 00:23:22,040 --> 00:23:23,800 Speaker 5: So can we really look at it the same way 473 00:23:23,840 --> 00:23:26,120 Speaker 5: that this is as big of an inflection point as 474 00:23:26,119 --> 00:23:29,280 Speaker 5: it usually is when an ECB, when a central bank 475 00:23:29,359 --> 00:23:30,320 Speaker 5: starts to cut. 476 00:23:32,040 --> 00:23:36,159 Speaker 8: I think it's still it really still matters because you 477 00:23:36,359 --> 00:23:39,800 Speaker 8: precisely because we've got this issue of potential divergence with 478 00:23:39,840 --> 00:23:44,000 Speaker 8: the FED. There is in the market a very strongly 479 00:23:44,000 --> 00:23:48,720 Speaker 8: held belief that usually it's the FED which sets the tone. 480 00:23:49,040 --> 00:23:51,600 Speaker 8: So I think that from a symbolic and more than 481 00:23:51,800 --> 00:23:54,240 Speaker 8: a symbolic from a policy point of view, that the 482 00:23:54,280 --> 00:23:58,560 Speaker 8: ECB would in June take the risk of diverging for 483 00:23:58,680 --> 00:24:02,359 Speaker 8: the FED, making its this for itself without necessarily waiting 484 00:24:02,400 --> 00:24:05,359 Speaker 8: for what happens across the Atlantic. I think it's a 485 00:24:05,480 --> 00:24:09,679 Speaker 8: very very strong signal that indeed, monetary policy in Europe 486 00:24:09,800 --> 00:24:14,040 Speaker 8: is decided based on the inflationary process. In Europe we 487 00:24:14,160 --> 00:24:18,760 Speaker 8: cannot entirely ignore whatever comes from the action rate channel, 488 00:24:18,960 --> 00:24:22,760 Speaker 8: whilst ninety percent of our decision making should be based 489 00:24:22,800 --> 00:24:26,280 Speaker 8: on domestic and domestic development. So I agree with you 490 00:24:26,320 --> 00:24:30,359 Speaker 8: there is a recession we need to deal with at 491 00:24:30,400 --> 00:24:33,480 Speaker 8: this moment, but I think the CP needs to send 492 00:24:33,520 --> 00:24:35,840 Speaker 8: this very clear message to the rest of the world 493 00:24:35,840 --> 00:24:38,800 Speaker 8: really and to public opinion in Europe. We make our 494 00:24:38,880 --> 00:24:41,600 Speaker 8: decisions based on what is good for Europe, and the 495 00:24:41,640 --> 00:24:45,199 Speaker 8: fact that the FED is facing currently difficulties with a 496 00:24:45,280 --> 00:24:50,240 Speaker 8: less clear disinflationary process should not stop THECP from making 497 00:24:50,280 --> 00:24:51,080 Speaker 8: the right decisions. 498 00:24:51,240 --> 00:24:53,680 Speaker 2: Jill Enjoy talking about this as always, sir, it's tuite 499 00:24:53,680 --> 00:24:56,760 Speaker 2: to catch up. Joe Marrick. There of access. This is 500 00:24:56,800 --> 00:25:01,159 Speaker 2: the Bloomberg Survenance Podcast, bringing you the best in markets, economics, 501 00:25:01,200 --> 00:25:04,160 Speaker 2: and geopolitics. You can watch the show live on Bloomberg 502 00:25:04,160 --> 00:25:07,320 Speaker 2: TV weekday mornings from six am to nine am Eastern. 503 00:25:07,640 --> 00:25:11,000 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 504 00:25:11,000 --> 00:25:13,639 Speaker 2: you listen, and as always, on the Bloomberg Terminal and 505 00:25:13,720 --> 00:25:14,960 Speaker 2: the Bloomberg Business app.