WEBVTT - Disappointing 1Q for European Data, Santos Says 0:00:05.720 --> 0:00:13.800 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.920 Bloomberg dot Com, and of course on the Bloomberg. A 0:00:34.080 --> 0:00:37.000 massive amount of attention being paid to the US tenure 0:00:37.040 --> 0:00:40.120 Treasury as it flirts with that three percent level, a 0:00:40.280 --> 0:00:42.400 level we haven't seen in more than four years. This 0:00:42.479 --> 0:00:45.040 doesn't have to be bad news for risk assets. In 0:00:46.159 --> 0:00:49.200 when yields searched through three pc, the equity market delivered 0:00:49.240 --> 0:00:51.280 one of its best years of the ball markets so far, 0:00:51.600 --> 0:00:54.680 with a gain of almost thirty percent. So why could 0:00:54.720 --> 0:00:56.720 it be different this time around? I want to bring 0:00:56.720 --> 0:00:59.160 in Vince Reinhardt b and Y Mellon, chief economist and 0:00:59.240 --> 0:01:02.040 chief in investment strategist, and it's always great to catch 0:01:02.080 --> 0:01:03.360 up with you. Just walk me through that. What it 0:01:03.400 --> 0:01:06.839 could be different this time around? We actually don't say 0:01:06.840 --> 0:01:12.240 that in my household. This time is never different. I 0:01:12.280 --> 0:01:15.160 think I think the story is is the Fed raising 0:01:15.319 --> 0:01:17.679 rates and seen as raising rates for the right reason, 0:01:17.880 --> 0:01:20.840 i e. The economy has got momentum, the equilibrium, real 0:01:20.920 --> 0:01:24.400 federal funds rate is rising. Think about it. Think how 0:01:24.520 --> 0:01:28.440 you describe the last six FED actions. When you consider 0:01:28.680 --> 0:01:32.520 the policy renormalizations last year and into this year. They 0:01:32.600 --> 0:01:36.240 got good press, they said Fed confident about the expansion 0:01:36.480 --> 0:01:41.280 and raising rates and and renormalizing policy, still keeping an 0:01:41.319 --> 0:01:45.280 accommodative in that environment, equity market can do pretty well. 0:01:45.440 --> 0:01:47.760 The difference this time around, though, if there is a 0:01:47.840 --> 0:01:51.000 key difference, I would say, looking back at verses now, 0:01:51.120 --> 0:01:53.520 is that back then, Vince, the two year note was 0:01:53.600 --> 0:01:55.600 fifty basis points and now it's two and a half 0:01:55.960 --> 0:01:57.640 UM and two and a half is pretty much where 0:01:57.640 --> 0:01:59.440 we started the year on the tenure. That's what we 0:01:59.480 --> 0:02:02.080 have seen, an aggressive repricing at the front end of 0:02:02.080 --> 0:02:04.760 the curve. Could that be what sort of spouse out 0:02:04.760 --> 0:02:08.000 a different story for risk assets this time around? Well, 0:02:08.040 --> 0:02:11.840 the reality is we're walking up a path of FED tightening, 0:02:12.000 --> 0:02:14.760 and so we're a hundred twenty five basis point higher 0:02:14.760 --> 0:02:17.919 on the funds rate. In that environment, the yield curve 0:02:18.000 --> 0:02:22.679 is gonna flatten. Is not necessarily threatening to economic expansions. 0:02:23.000 --> 0:02:26.080 In fact, it says that people think the FED will 0:02:26.120 --> 0:02:29.720 be slow to raise rates, not particularly fast. It doesn't 0:02:29.720 --> 0:02:31.440 have to meet impending doom. And I don't think many 0:02:31.480 --> 0:02:33.880 people on this program think that. In fact, the last 0:02:33.919 --> 0:02:36.920 time we have an inversion on the yield curve pre crisis, 0:02:36.960 --> 0:02:39.200 it was a couple of years before things really rolled over. 0:02:39.240 --> 0:02:41.440 So it doesn't have to mean anything immediately bad is 0:02:41.440 --> 0:02:44.000 going to happen. I think the story for me, Vince, 0:02:44.200 --> 0:02:47.239 is something that could happen in markets where the front 0:02:47.320 --> 0:02:49.880 end of treasuries gets attractive enough that it competes for 0:02:49.960 --> 0:02:53.160 capital in a more significant way with things like equities 0:02:53.520 --> 0:02:56.560 and credit as well, whether it's investment grade or high yield. 0:02:56.639 --> 0:02:59.000 Do you see that story kind of materializing. Well, we're 0:02:59.000 --> 0:03:00.760 seeing that in money more gets. That's part of the 0:03:00.800 --> 0:03:03.880 reason library spreads are so wide, right ted spread or 0:03:04.000 --> 0:03:07.200 library oh I s uh. Those spreads have widened a 0:03:07.200 --> 0:03:10.480 bit in part because if you're a corporate treasurer and 0:03:10.560 --> 0:03:13.520 you see a nice, safe, risk free short rate as 0:03:13.560 --> 0:03:17.679 high as it is in such a long time, why 0:03:17.680 --> 0:03:20.040 do you want to take on risk? Uh? And so 0:03:20.160 --> 0:03:21.760 if it can happen at the front end, it can 0:03:21.800 --> 0:03:24.919 happen for for out maturities. But we're not there yet, 0:03:25.000 --> 0:03:26.360 and and so I just wonder what this means for 0:03:26.400 --> 0:03:29.000 financial conditions because for so many years the Federal Reserve 0:03:29.080 --> 0:03:31.480 has been able to hike interest rights now very slowly, 0:03:31.880 --> 0:03:35.640 very gradually, and financial conditions haven't tightened until really recently. 0:03:36.040 --> 0:03:37.480 Does that put the brakes on the Federal? Is that 0:03:37.480 --> 0:03:39.120 what the Fed ultimately wants to see. They want to 0:03:39.120 --> 0:03:41.960 see higher right interest rates and and some high conditions 0:03:41.960 --> 0:03:45.040 along with it. That's the desired policy outcome. Right, you 0:03:45.080 --> 0:03:48.040 can't slow the economy unless you've tightened financial conditions. And 0:03:48.080 --> 0:03:51.840 if you think the economy has no resource slack and 0:03:52.280 --> 0:03:55.240 is growing faster than the potential you want and modestly 0:03:55.360 --> 0:03:58.640 slow the expansion of aggregate demand, you do it by 0:03:58.760 --> 0:04:02.200 tightening financial conditions. Listening to Bill Dudley last week, that's 0:04:02.280 --> 0:04:05.800 what he was talking about. We have noted three quarters 0:04:05.880 --> 0:04:08.360 of an average I believe it's three point one percent 0:04:08.480 --> 0:04:12.160 or two point nine percent economic growth. Do you model 0:04:12.240 --> 0:04:15.880 it b n y melon A sustained three g d 0:04:16.040 --> 0:04:18.839 p Uh No, Because in the in the long run, 0:04:18.880 --> 0:04:21.960 we're anchored by the growth of aggregate supply. We have 0:04:22.040 --> 0:04:25.279 an aging population not increasing that fast, and for some 0:04:25.360 --> 0:04:28.599 reason in another we're not adding much to power work 0:04:28.640 --> 0:04:32.360 in the long run. Uh. Sure, I think that that's 0:04:32.400 --> 0:04:34.559 because that maps directly on what they think the equal 0:04:34.560 --> 0:04:38.120 abrim real federal funds. Right, long run growth is the 0:04:38.200 --> 0:04:43.960 attractor to everything, and we talk about the cyclical behavior 0:04:44.000 --> 0:04:47.120 of the economy relative to that trend within this is 0:04:47.120 --> 0:04:50.000 it my conversation at the i m F with the 0:04:50.200 --> 0:04:54.640 head of Treasury for Norway they lowered their target rate 0:04:54.760 --> 0:04:58.240 from an oil and duced two point five down to 0:04:58.279 --> 0:05:02.760 the conventional two percent. Is there any constituency, given that 0:05:02.880 --> 0:05:07.279 attractor of lower potential growth to bring the rate under 0:05:07.320 --> 0:05:11.280 two percent? Is there any research vision that we ought 0:05:11.320 --> 0:05:16.839 to go to one point eight percent target rate on inflation? Actually, 0:05:16.880 --> 0:05:19.400 the most of the research would say in terms of inflation, 0:05:19.440 --> 0:05:22.480 you'd go the other way, because when you lower potential 0:05:22.480 --> 0:05:25.599 output growth, you're probably lowering the equal broom real rate. 0:05:26.040 --> 0:05:29.000 And the lower the equal Broom real rate, the closer 0:05:29.080 --> 0:05:32.560 that zero bound phenomenally. So in fact, this should be 0:05:32.600 --> 0:05:36.800 an argument for raising for Goose. So it's it's chair 0:05:36.920 --> 0:05:40.960 and Paul the new ultimate Dove. I don't see him 0:05:41.000 --> 0:05:44.640 going there because two percent has been locked in the 0:05:44.680 --> 0:05:49.680 central bank discussion since when the FED talked about quantifying 0:05:49.960 --> 0:05:52.640 the inflation call. It might I point out this excuse me, 0:05:52.720 --> 0:05:55.800 this time is different, John, we got trillion dollar deficits. 0:05:57.000 --> 0:05:58.720 I mean, there was this book a couple of years ago, 0:05:59.440 --> 0:06:02.479 roll goffin what was her name? I believe, I believe 0:06:02.480 --> 0:06:08.960 we were described as Reinhardt. And there's some there's some 0:06:09.040 --> 0:06:12.320 research since the Carmens that what they say, that's going 0:06:12.360 --> 0:06:14.679 to be the part of the conversation, and that's about 0:06:14.720 --> 0:06:19.320 financial depression, governments with big debt like inflation. So we 0:06:19.440 --> 0:06:23.800 may lation not because of j. Pale. I don't want 0:06:23.800 --> 0:06:25.240 to get you in trouble at home or out in 0:06:25.240 --> 0:06:28.320 that beautiful porch you've got. But the basic idea your 0:06:28.440 --> 0:06:32.880 Vince Reinhardt is Carmen Reinhardt and Ken Rogoff said when 0:06:32.920 --> 0:06:37.400 the deficits get to a point, things change? Did they change? 0:06:37.400 --> 0:06:39.200 With the T word? Are we at a point? And 0:06:39.360 --> 0:06:43.520 not speaking for Carmen Reinhart, but Vince Reinhardt's work, what's 0:06:43.520 --> 0:06:47.279 a trillion dollar deficit mean? Do you? Okay? Another favorite 0:06:47.279 --> 0:06:51.039 factory about out of the world economic outlook, if you 0:06:51.040 --> 0:06:55.320 look across advanced economies at their debt level in in 0:06:55.960 --> 0:06:59.159 two thousand seven, the ones with big debt were the 0:06:59.200 --> 0:07:03.400 ones that perform much more poorly. That is a problem 0:07:03.640 --> 0:07:06.240 deficits or a problem that will be pushing up on 0:07:06.320 --> 0:07:09.680 interest rates over the medium and longer term. That will 0:07:09.760 --> 0:07:11.800 be a scene anchor on the value of the dollar, 0:07:12.240 --> 0:07:14.760 and it will create the incentive for a little bit 0:07:14.760 --> 0:07:16.960 more inflation. Well, let's talk about the dollar just quickly. 0:07:17.000 --> 0:07:19.800 Vin some the dollar rebounding over the last five days, 0:07:19.840 --> 0:07:21.920 a bit of a pause in today's session. What do 0:07:21.920 --> 0:07:23.640 you make of that? Because a lot of people's investment 0:07:23.640 --> 0:07:26.560 decisions have been sort of being on the premise, particularly 0:07:26.680 --> 0:07:28.880 the M for anyone that's getting that exposure to the 0:07:29.000 --> 0:07:31.240 M currencies, on the idea that at the best the 0:07:31.240 --> 0:07:32.640 dollar is going to get weak and at worst the 0:07:32.680 --> 0:07:34.200 dollar is going to be stable. It could be a 0:07:34.240 --> 0:07:36.040 real pain trade if we get an unwind if that 0:07:36.080 --> 0:07:38.520 position and what what do you see happening? Yeah? I 0:07:38.560 --> 0:07:40.600 think you're right. It does feel like a crowded trade, 0:07:40.680 --> 0:07:43.040 isn't it. And the problem is you could be right 0:07:43.080 --> 0:07:45.320 in the medium and longer term and have your head 0:07:45.360 --> 0:07:48.720 handed in before that. We we view this as as 0:07:48.960 --> 0:07:53.760 as just the different forces near term, medium term, medium term. 0:07:53.840 --> 0:07:56.000 The list is pretty daunting about why you want to 0:07:56.040 --> 0:07:59.960 hold dollar assets, I e. Current accounts, the budget defice. 0:08:00.040 --> 0:08:05.040 It's big dad an attitude. Uh, that is basically contrary 0:08:05.040 --> 0:08:10.440 to internationalism. We're ruining their safety nassat value. That's probably 0:08:10.520 --> 0:08:12.840 why you have a medium to longer term view of 0:08:12.840 --> 0:08:16.880 the dollar depreciate. Before that the Fed is kind of 0:08:16.920 --> 0:08:20.120 tighten more than people think that that tends to appreciate. 0:08:20.160 --> 0:08:21.440 It been great to have you with us. Thank you 0:08:21.560 --> 0:08:23.440 very much for joining us. B M. Y Mellon Chief 0:08:23.480 --> 0:08:40.400 Economists and Chief investment Strategists. Tom big theme in Europe 0:08:40.440 --> 0:08:43.559 at the moment has been disappointing economic data, and that 0:08:43.679 --> 0:08:46.719 disappointing economic data continues with the German business confidence and 0:08:46.800 --> 0:08:50.280 umber coming through this morning the EFO and it extends 0:08:50.480 --> 0:08:52.839 its drop over the last several months and through the 0:08:52.920 --> 0:08:56.280 year after peaking at the back end of To Talk Europe. 0:08:56.440 --> 0:09:00.920 Gabby Santos, Gabrielle Santos, JP, Morgan Asset Management, Doble Market Strategist, 0:09:00.960 --> 0:09:03.679 joining us around a table in New York. Gabriella always 0:09:03.720 --> 0:09:06.000 grab a catch up with you. You've just been to Europe, 0:09:06.240 --> 0:09:08.720 so walk me through your vacation and whether you see 0:09:09.040 --> 0:09:11.640 and improving European economy because it's not coming through in 0:09:11.679 --> 0:09:14.120 the data at the moment, we do see it very 0:09:14.200 --> 0:09:17.000 much in improving European economy. It was interesting to see 0:09:17.080 --> 0:09:21.079 that the dynamism, the energy, the enthusiasm I was just 0:09:21.200 --> 0:09:24.079 in Portugal last week. Um. But to your point, it 0:09:24.160 --> 0:09:27.679 has been a disappointing first quarter for European data, and 0:09:27.720 --> 0:09:30.120 I would separate that into two factors. The first is 0:09:30.160 --> 0:09:33.280 the survey data, things like the p M I, which 0:09:33.360 --> 0:09:36.280 have moderated significantly over the first quarter, but those have 0:09:36.440 --> 0:09:40.239 been signaling growth that was that was just not realistic. 0:09:40.559 --> 0:09:42.800 Right three and a half percent g d P was 0:09:42.880 --> 0:09:46.319 being signaled. That was not going to happen, unfortunately, So 0:09:46.440 --> 0:09:49.600 the survey data has moderated back to reality. And then 0:09:49.640 --> 0:09:52.400 the second pieces, the hard data has disappointed as well. 0:09:53.040 --> 0:09:55.040 So we do think that first quarter GDP is going 0:09:55.080 --> 0:09:56.880 to come in closer to one and a half, but 0:09:57.040 --> 0:10:00.280 we think that's due to probably temporary factors, which was 0:10:00.360 --> 0:10:03.360 the weather, the intense flu season, and that's likely to 0:10:03.440 --> 0:10:05.520 revert already in the second quarter. Just in terms of 0:10:05.640 --> 0:10:08.400 had a bond market is capturing capturing this story, Gabriella, 0:10:08.440 --> 0:10:10.720 we have this front end story two year buns versus 0:10:10.760 --> 0:10:13.760 two year treasuries the spread is now north the three 0:10:13.880 --> 0:10:17.319 hundred basis points. It is so so wide. I think 0:10:17.360 --> 0:10:19.880 that's a record wide, a new one as well that's 0:10:19.920 --> 0:10:22.360 been delivered over the last week. How much longer can 0:10:22.400 --> 0:10:25.120 we keep this divergence between what is happening with the 0:10:25.200 --> 0:10:27.920 ECP in Europe and the Eurozone economy and the Federal 0:10:27.920 --> 0:10:30.839 Reserve in the United States and the US economy, Well, 0:10:30.880 --> 0:10:32.600 I think they're they're marching to the beat of their 0:10:32.640 --> 0:10:34.920 own drums. Right. The US certainly has a lot of 0:10:35.040 --> 0:10:38.600 confidence on both the growth as well as the inflation outlook, 0:10:38.600 --> 0:10:40.760 and so it's going to keep its trapped for four 0:10:40.880 --> 0:10:43.160 rate HIGs this year, are probably even for next year 0:10:43.200 --> 0:10:46.320 as well, um and even probably some further rate HIGs 0:10:47.520 --> 0:10:50.400 as it continues winding down its balance sheet. Meanwhile, it 0:10:50.440 --> 0:10:55.200 doesn't seem like President drugs in any rush, especially after 0:10:55.360 --> 0:10:57.640 the soft patch in the data that we're speaking of 0:10:57.679 --> 0:10:59.760 in the first quarter, He's probably gonna want some conform 0:10:59.800 --> 0:11:02.720 me shin that that was probably a bit temporary grid. 0:11:02.720 --> 0:11:04.199 And that's kind of what I'm thinking about the moment 0:11:04.280 --> 0:11:07.240 when the treasuries can continue to slow grind high with yelds, 0:11:07.280 --> 0:11:10.199 and whether the European bond market can remain anchored. Do 0:11:10.240 --> 0:11:12.559 you already see a bond mark at a global bond market? 0:11:12.640 --> 0:11:16.240 Whet the US treasury market can almost decouple from everything, counsel, 0:11:16.240 --> 0:11:19.160 It's not actually likely. Well, I think what's interesting is 0:11:19.400 --> 0:11:22.680 not necessarily the two year yield um and that gap, 0:11:22.760 --> 0:11:26.439 but perhaps the tenure yield. Right. So, last week, as 0:11:26.520 --> 0:11:29.640 a tenure yield started marching higher higher in the US, 0:11:29.679 --> 0:11:32.000 it did so around the world as well. Right, So 0:11:32.120 --> 0:11:35.400 there was something that was common, which was this idea 0:11:35.520 --> 0:11:38.800 of higher oil prices, higher inflation um, as well as 0:11:38.840 --> 0:11:41.400 confirmation that probably the soft passion of first quarter growth 0:11:41.480 --> 0:11:44.400 was temporary. How do you deal with the bias that 0:11:44.480 --> 0:11:47.520 we're JP Morgan, we're genormous and we saw that clearly 0:11:47.600 --> 0:11:50.640 seriously in Mr Diamond's letter. People forget the scope and 0:11:50.720 --> 0:11:56.280 scale the company, and that institutional and client urge to 0:11:56.480 --> 0:11:59.800 only own the top two companies worldwide. There's this man 0:12:00.080 --> 0:12:04.040 sub urge comfort in big. How do you fight that 0:12:04.240 --> 0:12:06.800 every day at JP Morgan to actually look at mid 0:12:06.880 --> 0:12:11.160 caps well, comfort in big and also comfort in just 0:12:11.360 --> 0:12:14.720 one's uh area of comfort? Shall we say? There's there's 0:12:14.760 --> 0:12:18.200 always this very intense home bias, right, rather we talk 0:12:18.800 --> 0:12:21.080 depending on whether we talk about equities or fixed income. 0:12:21.520 --> 0:12:23.360 So that's something we talk a lot about, not just 0:12:23.520 --> 0:12:27.040 size of companies, but also geography as well, and I 0:12:27.120 --> 0:12:30.920 think that's becoming ever more important, especially for our US clients, right, 0:12:31.000 --> 0:12:33.520 which were in this environment where the US was the 0:12:33.559 --> 0:12:36.000 only house in the block. It was okay, you can 0:12:36.040 --> 0:12:38.319 get away with having a home bias. Probably not so 0:12:38.520 --> 0:12:41.120 if we fast forward the next ten years, that's probably 0:12:41.160 --> 0:12:43.319 not going to get you to your goals. You have 0:12:43.440 --> 0:12:45.160 to have some Europe, you have to have some Japan, 0:12:45.280 --> 0:12:47.320 you have to have some in well. One quick question, 0:12:47.360 --> 0:12:50.400 do you have to have cash? I think cash is 0:12:50.480 --> 0:12:53.800 becoming much more of an alternative now than it's been. 0:12:53.840 --> 0:12:58.880 Perfect year, yields are higher, right, it's it's kind of 0:12:58.920 --> 0:13:02.280 broadening your opportunity set beyond just equities and fixed income. 0:13:02.600 --> 0:13:05.080 You can add cash, and you can add commodities. Right, 0:13:05.120 --> 0:13:07.560 So your your opportunity set has become a little bit 0:13:07.640 --> 0:13:11.360 broader this year and over the next few years. Santos, 0:13:11.400 --> 0:13:25.199 thank you so much a champion Morgan Asset Management. John, 0:13:25.320 --> 0:13:26.880 I want you to bring in one of the best 0:13:27.000 --> 0:13:32.000 people we have on foreign exchange, Elsa Lignos RBC Capital Markets. Yeah, 0:13:32.000 --> 0:13:34.360 they glob ahead of FX strategy, joining us out of London. 0:13:34.440 --> 0:13:36.520 After a brief rally in the dollar that stretched to 0:13:36.559 --> 0:13:40.040 about five straight days, a real retracement of an ugly 0:13:40.920 --> 0:13:46.280 seventeen a tiny retracement of a massive move lower last year. ALSA, 0:13:46.440 --> 0:13:47.720 What do you make of the move in the dollar 0:13:47.760 --> 0:13:50.199 we've seen over the last week and how sustainable could 0:13:50.200 --> 0:13:54.920 it be. It's interesting because it's come along a backdrop 0:13:55.040 --> 0:13:59.080 of higher yields but also lower equities UM. And that's 0:13:59.120 --> 0:14:01.360 something we've done quite a bit of work on in 0:14:01.440 --> 0:14:05.079 the past and looked at what happens in that kind 0:14:05.080 --> 0:14:07.240 of quite unusual environment where you see a twin bond 0:14:07.280 --> 0:14:09.959 and exerty sell off UM, and actually it turns out 0:14:10.000 --> 0:14:12.400 to be a pretty strong environment for the U. S. Dollar. 0:14:13.080 --> 0:14:15.800 That's not to say this necessarily gonna last. We saw 0:14:15.840 --> 0:14:19.480 something similar in February and it reversed, but if it 0:14:19.600 --> 0:14:22.760 does continue, then it should be a pretty good environment 0:14:22.800 --> 0:14:25.360 for the dollar going forward. So also, correlation and causation 0:14:25.480 --> 0:14:28.920 obviously two very different things, and the correlation between yields 0:14:29.360 --> 0:14:31.240 and the dollar over the last week had many people 0:14:31.280 --> 0:14:34.040 scratching their heads and wondering whether rate differentials are starting 0:14:34.080 --> 0:14:36.240 to matter again. Was it that or was it just 0:14:36.360 --> 0:14:38.160 pure risk a version that was driving a bill into 0:14:38.160 --> 0:14:41.520 the dollar. It's hard to put it down to risk 0:14:41.560 --> 0:14:44.240 a version when you look at the performance of dollar yen, 0:14:45.280 --> 0:14:47.400 or even dollar Swiss for that matter. Good point, So 0:14:47.560 --> 0:14:50.240 it does seem to be something more US dollar specific. 0:14:51.240 --> 0:14:54.760 So can rate differentials be the deciding factor as we 0:14:54.840 --> 0:14:56.320 go forward from here? Because if you look at the 0:14:56.320 --> 0:14:58.760 spread at the front end between Europe and the United 0:14:58.840 --> 0:15:01.120 States are so it's such a yes that you're a 0:15:01.200 --> 0:15:02.880 dollar should be a whole lot lower than it is 0:15:03.040 --> 0:15:07.360 right now exactly, And and that's broken down for some 0:15:07.520 --> 0:15:10.000 time and has had a lot of people scratching their heads, 0:15:10.600 --> 0:15:12.480 Which is why I think it's interesting that this move 0:15:12.600 --> 0:15:15.000 appears to have been driven more by the back end. Um. 0:15:15.080 --> 0:15:18.040 This doesn't seem to be a kind of traditional vanilla 0:15:18.600 --> 0:15:21.320 rate differential story. Um, it does seem to be a 0:15:21.400 --> 0:15:24.320 little bit more about the kind of bond equity interaction. 0:15:25.040 --> 0:15:28.520 Is the dollar so big, so dominant that flows don't matter? 0:15:28.640 --> 0:15:30.480 Elso I bring this up with the backdrop of a 0:15:30.560 --> 0:15:33.240 week Swiss franc which a lot of people will say, 0:15:33.280 --> 0:15:35.560 are Russians moving money around and sits in and I 0:15:35.680 --> 0:15:40.200 get that, But can the dollar move and flows or 0:15:40.360 --> 0:15:45.720 is the dollar dynamic all about rate differentials? Absolutely, the 0:15:45.800 --> 0:15:47.680 dollar can move on flows, I know. I think we 0:15:47.800 --> 0:15:51.160 saw that most vividly in January, where we had a 0:15:51.280 --> 0:15:54.080 huge dollar move um and a lot of people were 0:15:54.080 --> 0:15:56.680 scratching their heads. I mean, I heard any number of 0:15:56.720 --> 0:15:58.880 reasons for why the dollar was so weak in January, 0:15:59.000 --> 0:16:01.560 but not many of that must stacked up by evidence. 0:16:01.680 --> 0:16:05.080 So you know, there are certainly times when people pile 0:16:05.160 --> 0:16:08.360 into a position, whether that's long dollars or short dollars um, 0:16:08.480 --> 0:16:11.400 and you get this huge outside moves that go well 0:16:11.480 --> 0:16:14.080 beyond what rate differentials a learned would suggest. But that 0:16:14.440 --> 0:16:17.280 doesn't tend to last. And we've seen that since February 0:16:17.440 --> 0:16:20.040 the dollar has actually been relatively stavor So what is 0:16:20.080 --> 0:16:21.680 your I want to be clear here before we go 0:16:21.880 --> 0:16:24.200 through the rest of this. What is the RBC call 0:16:24.720 --> 0:16:28.880 and dollar? So if you look at our forecast, we 0:16:29.000 --> 0:16:31.840 actually have some dollar strength into year end, not a 0:16:31.960 --> 0:16:34.920 huge amount, but our year end forecast for year a dollar, 0:16:35.000 --> 0:16:39.160 for example, is one eighteen UM. That's probably a lot 0:16:39.240 --> 0:16:41.640 weaker than many in the market would have it. Um 0:16:41.760 --> 0:16:43.880 and but this selective. You know, we we don't have 0:16:44.040 --> 0:16:47.360 dollars stronger across the board by any means. Yeah, I mean, 0:16:48.040 --> 0:16:50.760 and that describes against the ambiguity out there. Is there 0:16:50.800 --> 0:16:53.400 a trade right now? Or is the street flat? I mean, 0:16:53.480 --> 0:16:58.600 what's the bet and dollar right now? It's been fairly 0:16:58.640 --> 0:17:01.280 mixed it too. Recently, we've you've seen some evidence if 0:17:01.320 --> 0:17:03.800 you look at tourn Over and estimates of ton Over, 0:17:03.880 --> 0:17:06.840 we've seen evidence of investors getting more interested in relative 0:17:06.920 --> 0:17:10.840 value trades. To be honest, Um, so we've seen euroene 0:17:10.880 --> 0:17:13.239 pick up from kind of late January. More recently, there 0:17:13.280 --> 0:17:14.879 was a lot of interest in the cart crosses and 0:17:14.960 --> 0:17:17.800 sterling crosses. I think that reflects the fact that people 0:17:17.840 --> 0:17:19.320 have kind of given up a little bit on the 0:17:19.440 --> 0:17:22.399 US dollar and started looking for value alting. Yeah, I mean, 0:17:22.440 --> 0:17:24.639 I see that, John. I can't put it out the 0:17:24.680 --> 0:17:26.800 way grabs on the screen. But Bloomberg has got a 0:17:26.880 --> 0:17:30.439 high falutint series called O V d V which shows 0:17:30.560 --> 0:17:33.320 me the bets on any given currency pair, and it's 0:17:33.400 --> 0:17:37.520 remarkable how symmetric and even eurodollar is right now. That's 0:17:37.520 --> 0:17:39.600 so if we do get a recovery in the US dollar, 0:17:39.640 --> 0:17:41.800 is sustainable one and this continues. Where are we going 0:17:41.840 --> 0:17:45.399 to see the most pain? Oh, it has to be 0:17:45.440 --> 0:17:48.639 an emerging market. I mean that's really been one place 0:17:48.800 --> 0:17:51.440 where you know, you just have to look at dollar 0:17:51.520 --> 0:17:54.320 max for example, to see the pain that can be 0:17:54.440 --> 0:17:57.080 caused in just a few short days. Um, you know, 0:17:57.200 --> 0:17:59.320 dollar max was just trying to lower and lower and 0:17:59.400 --> 0:18:02.720 lower through librwery March makes one of the best performances 0:18:02.760 --> 0:18:04.520 year to date, and in the space of three or 0:18:04.520 --> 0:18:07.320 four five days at all reverses. So you know, I 0:18:07.440 --> 0:18:09.560 think that's where you've got to be most cautious, the 0:18:09.720 --> 0:18:12.320 highly positioned em currencies. Yeah, and speaking to a lot 0:18:12.359 --> 0:18:14.280 of fixed income investors that want to play the e 0:18:14.480 --> 0:18:17.840 M local currency story and they want the effects exposure, 0:18:17.880 --> 0:18:21.120 there seems to be this real comfort taking the effects 0:18:21.160 --> 0:18:24.040 exposure in emerging markets alside. So I just wonder what 0:18:24.119 --> 0:18:27.479 are you advising clients around the MFFX now and has 0:18:27.520 --> 0:18:30.760 it changed over the last few weeks so a that time, 0:18:30.800 --> 0:18:33.399 strategists has actually been quite cautious on a lot of 0:18:33.480 --> 0:18:36.080 these currencies since the start of the year. Um, you 0:18:36.160 --> 0:18:38.320 have a lot of political risk coming up, both in 0:18:38.720 --> 0:18:41.280 Brazil and in Mexico with elections coming up this year. 0:18:41.520 --> 0:18:43.800 The problem with these currencies is that they're very expensive 0:18:43.880 --> 0:18:46.680 to short. You know, like you mentioned, fixed income investors 0:18:47.000 --> 0:18:49.720 take the currency risk because if you were too short, 0:18:50.080 --> 0:18:51.639 if you were to hedge the currency, you would be 0:18:51.760 --> 0:18:54.960 left with very little or any yield pick up at all. 0:18:55.400 --> 0:18:58.399 So UM, I think it pays to just be a 0:18:58.480 --> 0:19:00.800 little bit more careful with these very very heavily positioned 0:19:00.880 --> 0:19:04.159 DM currencies like max, and perhaps look for opportunities in 0:19:04.240 --> 0:19:07.639 areas which are less positioned, like Asia or email. To 0:19:07.760 --> 0:19:10.919 John's point, how do you play oil? I mean, we're 0:19:11.080 --> 0:19:13.040 whatever price, sure you want to call all of a sudden, 0:19:13.160 --> 0:19:15.760 seventy five dollars on Brent crude is a that's a 0:19:15.880 --> 0:19:19.479 hello quote we get to eighty, you know, essentially nobody 0:19:19.560 --> 0:19:22.840 called that, but ELSA. How do you play long oil? 0:19:24.560 --> 0:19:26.520 So one that we like, it might be a little 0:19:26.600 --> 0:19:30.240 obscure is long KNOCKI stocky two scandy currencies one against 0:19:30.320 --> 0:19:33.760 the other. Um Norwegian corona obviously exposed to oil. Swedish 0:19:33.800 --> 0:19:37.280 corona UM clearly not. And it's also a central bank play. 0:19:37.359 --> 0:19:40.480 So you know, they're all trades out there. I means, oh, 0:19:40.680 --> 0:19:44.040 use an email Sarah from Cincinnati. John Ferrell emails in 0:19:44.520 --> 0:19:51.920 a nacky stocky and and soca. She says she's g 0:19:52.359 --> 0:19:55.320 she says, you know she's quick. I'm looking at it. Okay. 0:19:55.359 --> 0:19:57.800 So so you're your based on your basic idea here 0:19:57.880 --> 0:20:02.600 is to go long Stockholm on there or about longslo. 0:20:02.720 --> 0:20:06.439 You're going longslow long slow shorts dot com. Yeah, yeah, Okay. 0:20:06.880 --> 0:20:09.960 Eliza MARTHINUSI joining us now Bloomberg's managing editor for finance 0:20:10.040 --> 0:20:12.720 in Europe and joining us on the phone. Really great 0:20:12.760 --> 0:20:15.080 to have you, Eliza, and just walk me through what 0:20:15.200 --> 0:20:17.960 we've learned about the new CEO and how the management 0:20:18.320 --> 0:20:21.920 is slightly taking shape at Deutsche Bank. Yes, John, I 0:20:21.960 --> 0:20:26.119 guess what's interesting about disappointment is that it's another Deutsche 0:20:26.119 --> 0:20:29.159 Bank Lifa, much like the new CEO as Christian serving 0:20:29.680 --> 0:20:33.720 and you know, principally with exposure to the domestic businesses. 0:20:33.880 --> 0:20:35.800 So there seems to be a bit of a pattern 0:20:35.840 --> 0:20:38.639 emerging in terms of the new leadership. Now, so what 0:20:38.840 --> 0:20:42.000 next for this bank? Because every single morning, whenever there's 0:20:42.040 --> 0:20:44.240 a Deutsche Bank story, it's usually the most read story 0:20:44.240 --> 0:20:47.000 on the Bloomberg And guess what it is again? As 0:20:47.080 --> 0:20:50.280 Deutsche Bank considers cuts to the Investment Bank and the 0:20:50.359 --> 0:20:52.720 presence in the United States. Eliza, where is this going 0:20:52.760 --> 0:20:54.600 and what are they looking at more specifically for their 0:20:54.640 --> 0:20:57.600 next move? Well, I guess what we're hearing now is 0:20:57.640 --> 0:21:00.840 that this project Columbo, which we have reporting about for 0:21:00.880 --> 0:21:03.919 a few weeks, is gathering pace. And so this review 0:21:04.000 --> 0:21:07.320 the Investment Bank and a closer analysis of where it 0:21:07.480 --> 0:21:09.040 is that they're making money and where it is that 0:21:09.160 --> 0:21:12.399 they perhaps ought to be treating is now coming to 0:21:12.480 --> 0:21:15.200 an end. And the picture that's emerging is that the 0:21:15.400 --> 0:21:19.200 US equities business use cash business is perhaps one where 0:21:19.280 --> 0:21:22.119 you know they will be retreating. As I was just 0:21:22.280 --> 0:21:25.840