Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: a joy, and it's particularly a Matthew joy because Carl
Speaker 1: Ricadatta of the Aerospace Engineering Persuasion knows the glide paths
Speaker 1: that are out there. The glide pass and economics are
Speaker 1: usually described through adverbs. In a paragraph in his recent report,
Speaker 1: he really nails this. He's a BMP Perry Boner, chief
Speaker 1: US Economists. You nail this strange word sufficiently. We are
Speaker 1: sufficient We are getting there. Inflation is now sufficiently entrant.
Speaker 1: Describe this sufficiently that your own power has to confront Wednesday.
Speaker 2: Sure, well, there's a tension there, but on the sufficiently side,
Speaker 2: we're seeing evidence of sufficiently restrictive monetary policy and that
Speaker 2: we're not just seeing disinflation or deflation. Important distinction. You
Speaker 2: drew earlier on the program, not just seeing it in
Speaker 2: energy prices. We've seen that spread into goods prices, which
Speaker 2: tells us a little bit about supply chain healing. But
Speaker 2: now importantly we're seeing it where it really counts, and
Speaker 2: that means we're seeing it on the service side of
Speaker 2: the CPI, both in rents and finally, just in the
Speaker 2: last couple of months, we're seeing this in what now
Speaker 2: has been called super core inflation, which is core services X,
Speaker 2: housing and shelter costs.
Speaker 1: We yearn for an X and to get out front
Speaker 1: Fed Belogney, there's no evidence of that since biblical history.
Speaker 1: Their ex post how far behind are they going to
Speaker 1: be when they get the sufficient courage up to accommodate.
Speaker 2: Well, I don't think they have the courage just yet,
Speaker 2: and because the factor in the back of their minds
Speaker 2: that's haunting them is the mistakes made in the nineteen
Speaker 2: seventies under Arthur Burns, and that was a FED that
Speaker 2: knew what prescription was needed, but lacked the conviction to
Speaker 2: keep the bitter medicine in place for long enough. And
Speaker 2: as the Fed's determining whether policy has been restrictive for
Speaker 2: long enough, I think they think that it's sufficiently restrictive. Now,
Speaker 2: it's just a matter of keeping that policy in place
Speaker 2: for a sufficiently long time. We'll use those adverbs you highlighted, Tom,
Speaker 2: And the thing that's haunting them is the fact that
Speaker 2: wage inflation is not back towards kind of what would
Speaker 2: be a two percent consistent level for broader inflation. And
Speaker 2: whether we look at the ECI or last Friday's average
Speaker 2: hour of the earnings numbers, we're simply not moving in
Speaker 2: the right direction swiftly enough to say, sure thing, let's
Speaker 2: start accommodating policy sooner.
Speaker 3: Why didn't j Powell push back more.
Speaker 2: Than I think he has pushed back in recent comments.
Speaker 2: He said it was premature to be thinking about the
Speaker 2: timing of rate cuts with any amount of conviction. So
Speaker 2: it was a bit of a diplomatic answer, But I
Speaker 2: think we'll see those kind of hawkish undertones in both
Speaker 2: the communicate and also the press conference later this week.
Speaker 2: You have to think in the back of your mind,
Speaker 2: Jerome Powell has been someone very focused on financial conditions.
Speaker 2: Financial conditions have eased tremendously, and that restricts the amount
Speaker 2: or the degree to which the Fed can pivot towards
Speaker 2: a more moderate tone. They have to keep some vestige
Speaker 2: of this tightening bias or hawkish concerns about inflation in place.
Speaker 3: This week, let's get away from predicting what they may
Speaker 3: or may not say or do and talk about the
Speaker 3: actual economic backdrop. There is a question about whether they
Speaker 3: are going to be late and whether this is going
Speaker 3: to essentially cause a recession. Whether the bias now to
Speaker 3: not go to the transitory debacle means that we're going
Speaker 3: to get a recession just by virtue of them not
Speaker 3: cutting rates in response to disinflation and to weakness. Is
Speaker 3: that your base case at this point, just because we
Speaker 3: are seeing a tightening and financial conditions, we are seeing
Speaker 3: people start to push back a little bit, and the
Speaker 3: theory is at this point you could actually start to
Speaker 3: see higher rates bite in a warming and meaningful way.
Speaker 2: We definitely are seeing higher interest rates bite in a
Speaker 2: more meaningful way as you highlight, and I think we'll
Speaker 2: see that in the retail sales numbers on Thursday. We're
Speaker 2: looking for about a zero point five decline at the
Speaker 2: headline in retail sales.
Speaker 4: Now.
Speaker 2: Part of that is lower energy prices and whatnot. But
Speaker 2: if you pay attention to what's happening to consumers. The
Speaker 2: excess saving story is largely washed out for lower and
Speaker 2: middle income households. At the same time, higher rates. We
Speaker 2: may have come off of the peaks on tenure yields
Speaker 2: and whatnot, but if you look at what households are
Speaker 2: diverting towards interest payments, so yes, most households locked in
Speaker 2: those low mortgage rates during the pandem, But if you
Speaker 2: look at everything else, whether it's car loans or helocks
Speaker 2: or credit cards or whatnot, the interest coverage for those
Speaker 2: is increasing pretty appreciably. That tells you that FED policy
Speaker 2: is still kind of working its way through the system
Speaker 2: and we haven't felt peak restriction now in terms of
Speaker 2: getting the pivot right. Monetary policy acts with a long
Speaker 2: and variable lag. That LAG's probably twelve months, and that
Speaker 2: means it's going to be very hard to kind of
Speaker 2: stick the landing.
Speaker 4: So sounds like he's from Chicago.
Speaker 2: Maybe not recession, maybe not recession next year, but I
Speaker 2: think the landing could be bumpier than people are anticipating.
Speaker 1: Bumpier from a GDP basis or bumpier from race because
Speaker 1: what's in the zeitgeist's weekend is Yeah, they're gonna come
Speaker 1: down disinflation. Oops, we reverse and we have a reflation.
Speaker 2: Well, that's the scenario they want to avoid, and the
Speaker 2: evidence pointing in that direction would be those sticky wage
Speaker 2: pressures that haven't improved.
Speaker 1: Jet.
Speaker 4: I think it's just ali about the job mark.
Speaker 2: It's about the job market, but also the inflation numbers,
Speaker 2: and we've gotten used to this very immaculate disinflation the
Speaker 2: course of Q three up Q four. I think that
Speaker 2: the inflation is going to look a lot less immaculate
Speaker 2: in Q one. In other words, Q one could look
Speaker 2: a bit like the mirror image of Q three of
Speaker 2: last year, and that we see slower growth and more
Speaker 2: persistent inflation pressures. I'm not saying that the trend is reversing.
Speaker 2: It's still moving broadly lower. But I think over the
Speaker 2: last few months it looked more like two percent ish inflation,
Speaker 2: and I think it'll look more three percent ish over
Speaker 2: the next few months.
Speaker 3: Slow down is sort of the perfect scenario that a
Speaker 3: lot of people are looking for who are bullish on
Speaker 3: risk assets. Is that basically what you're pointing to is
Speaker 3: just a pause to allow things to cool and then
Speaker 3: everybody can get going again, which is essentially the bull
Speaker 3: case that we keep hearing from Eddie Ardenny and others.
Speaker 2: We need slower growth to continue to rein in those
Speaker 2: imbalances in the economy and in turn the wage pressure story,
Speaker 2: and for that to play out perfectly in the first
Speaker 2: half of the year, I think is a possible scenario,
Speaker 2: but not necessarily the most plausible, since so I think
Speaker 2: there will be some tough sledding, some bumpiness there as
Speaker 2: a FED makes it clear that we're not in the
Speaker 2: you know, we're not free and clear yet to start
Speaker 2: reducing interest rates as swiftly as maybe market participants think.
Speaker 2: And I think we'll see some imbalances in the labor market,
Speaker 2: some challenges on the growth front. And as you think
Speaker 2: about the overall earnings trajectory, right, it's ultimately a function
Speaker 2: of top line growth and pricing power. And if you're
Speaker 2: talking about a moderating pace of economic activity and cooling
Speaker 2: inflation pressures, that's still a challenging dynamic for earnings.
Speaker 1: This is a sufficiently good interview, Carl Ricodona, Thank you
Speaker 1: so much.
Speaker 4: Perry.
Speaker 1: Body in shock is Sarah Hunt, chief market strategist at
Speaker 1: Alpine Sex's Woods, but you and I we follow that
Speaker 1: your Jenny for years and this is what he does
Speaker 1: with an economics and investment He extends out the X axis.
Speaker 1: Do you have the visibility to go out pass forth.
Speaker 4: Of July next year?
Speaker 5: I think it's tough to have the visibility to go
Speaker 5: out that far, to be honest, I think it really
Speaker 5: is going to depend a lot on how we start
Speaker 5: the beginning of next year. The equity markets got very
Speaker 5: excited at the end of September in the beginning of October, thinking,
Speaker 5: you know what the Fed has done. Rates are going
Speaker 5: to come down, and that's going to solve a lot
Speaker 5: of problems. I mean, you've got a story in the
Speaker 5: Bloomberg this morning about how fast rates have to come
Speaker 5: down because a lot of companies are going to be
Speaker 5: starting to refinance in twenty four and twenty five. And
Speaker 5: the question is, even if you started in June, you're
Speaker 5: not going to start with two percent down. You're going
Speaker 5: to start if you start a little bit. I'm not
Speaker 5: sure we're going to start in June. I think that
Speaker 5: that's I think that's a big question. And then you
Speaker 5: get into the political calendar, so the question of timing
Speaker 5: becomes an issue and you still have all these people
Speaker 5: waiting for lower rates, and that's been very positive for equities.
Speaker 4: Dovetail.
Speaker 1: What we heard from Sarah House of Wells Fargo, which
Speaker 1: is a cautious view on real GDP with the enthusiasm
Speaker 1: of corporations are going to move forward, move on to
Speaker 1: a greater bull market. Can you have a greater bull
Speaker 1: market if you get subdued economical.
Speaker 5: I don't think you can. And I think that's the
Speaker 5: biggest question of twenty twenty four is where growth is
Speaker 5: going to go? And can earnings really hold up or
Speaker 5: grow eleven percent or twelve percent? In twenty twenty four
Speaker 5: when we have that come down of inflation where some
Speaker 5: of the earnings that were higher were because of higher
Speaker 5: revenues because of inflation, you had this sort of rolling
Speaker 5: and rolling global recession or rolling global slow down, rolling
Speaker 5: slow down in sectors in the US. Now China's on
Speaker 5: the slower and if they stimulate, is that going to help?
Speaker 5: Is it enough to change the process of next year?
Speaker 5: And can we keep margins where they are? I think
Speaker 5: all these questions are unanswered, so I think.
Speaker 2: That that's it.
Speaker 5: It's tough to roll into an idea of where earnings
Speaker 5: are going to be. When you don't know the answer
Speaker 5: to questions with.
Speaker 3: The outlook that you just put out there, it makes
Speaker 3: me think maybe you're rotating out of stocks and going
Speaker 3: more into bonds.
Speaker 5: I think there's a real place for bonds, and I
Speaker 5: think the question of how fast rates come down, I
Speaker 5: mean a lot of investors are more interested in having
Speaker 5: more of a balanced portfolio than they were.
Speaker 2: You've got this.
Speaker 5: This goes back to the tension of are we going
Speaker 5: back to a pre financial crisis world where rates can
Speaker 5: have some sort of meaningful aspect in your portfolio.
Speaker 2: Where they settle is going to be the question.
Speaker 5: But we're not going back to zero. And I think
Speaker 5: the equity markets are getting excited that rates are coming down,
Speaker 5: and maybe they're coming down a lot further than people
Speaker 5: expect them to. I don't really know where that.
Speaker 4: Answer is yet.
Speaker 5: I don't think anybody does.
Speaker 3: One of your highest convictions this year has been the
Speaker 3: energy stop trade, and right now we're looking at a
Speaker 3: sort of surprise decline and price, which is particularly surprising
Speaker 3: given the disruption that we've seen and the Hamas Israel war.
Speaker 3: How much do you still lean into that? Do you
Speaker 3: still think that oil companies are goodbye here.
Speaker 5: So I think the biggest issue for this year has
Speaker 5: been much bigger supply than anybody was expecting. I think
Speaker 5: Paul Sanki did a great job talking about that a
Speaker 5: couple of days ago. The fact that everybody expected more
Speaker 5: battles to come off the market, both from Russia and
Speaker 5: Iran and the fact that they really didn't, and then
Speaker 5: other people increased supply. Robust demand has been fairly robust.
Speaker 5: If you get a really big slowdown, that's going to
Speaker 5: hit the demand side. So it's tough. But I still
Speaker 5: think longer term, you've got good dividend yields and you've
Speaker 5: got a longer tail on hydrocarbons, and that is going
Speaker 5: to be meaningful.
Speaker 1: I look at the hydrocarbons, I'm okay, they had a
Speaker 1: bad month, they had a bad week. I look at
Speaker 1: the banks, and I guess we could talk forever about that.
Speaker 1: All anybody's talking about are these super growers we have
Speaker 1: with thirty, forty and fifty multiples on them.
Speaker 4: That's not the textbooks? Is it?
Speaker 1: Do they do?
Speaker 4: Year two is the biggest surpriser. They just keep going.
Speaker 5: I think it's well, it's those kind of multiples are
Speaker 5: not in the textbook, No, but they really did have
Speaker 5: fantastic earnings this year, and Cameron Dawson's been quick to
Speaker 5: point that out right like how fast they were growing.
Speaker 5: The question then becomes can they keep that up? And
Speaker 5: if the delta is negative, if I'm growing, but I'm
Speaker 5: growing more by delta's negative way to change, if the
Speaker 5: rate of change is negative, so that I'm growing, but
Speaker 5: I'm growing less fast. Somebody briefer, I'm growing less fast.
Speaker 5: Do I deserve that thirty or fifty multiple? And I
Speaker 5: don't know the answer to that question because it depends
Speaker 5: on how fast we grow. I don't see it that fast.
Speaker 3: I like that you're just honest about this, and we've
Speaker 3: seen all these projections about you know, this is what
Speaker 3: we expect to happen in twenty twenty four, this is
Speaker 3: what we expect to happen in twenty twenty five. And
Speaker 3: it's almost the curse of having to come out with
Speaker 3: a full year's strategy. But if you had to, what
Speaker 3: would you be looking at towards the end of next year.
Speaker 5: I think one of the things that's been surprising is
Speaker 5: that with the strength of the labor market, you haven't
Speaker 5: seen wages increasing as fast as people predicted that they would.
Speaker 5: So when people say the labor market is still is
Speaker 5: still very strong, yes, but wages aren't increasing that much.
Speaker 5: If we can keep a labor market with an unemployment
Speaker 5: rate that's fairly low and I don't want what that
Speaker 5: number is, and you don't see as much wage acceleration,
Speaker 5: then that's going to help on the margin side. It's
Speaker 5: not going to help on the consumer side, right, because
Speaker 5: there's attention to that because people aren't getting paid as
Speaker 5: much and you go look at food. You know, inflation
Speaker 5: may be coming down, but going to the super market
Speaker 5: doesn't feel any better for anybody. And so I think
Speaker 5: that those are the kinds of things that make it
Speaker 5: difficult to say spending is going to be completely robust
Speaker 5: on the consumer side next year.
Speaker 3: Can I just say thank you because she knows. Sarah
Speaker 3: knows that I like the smell of pine trees when
Speaker 3: I walk by, So she got me pine tree.
Speaker 4: You didn't get those in pine Tree, Vermont.
Speaker 3: This weekend I'm going to share with you and you know,
Speaker 3: light our candles the general and think about what the head.
Speaker 4: Until place they did White Christmas.
Speaker 1: This weekend, I heard saw Rosemary Clooney.
Speaker 4: So there are you going to.
Speaker 3: Unwrap them so we can smell the pine, so the
Speaker 3: audience can sell the pine. Yes, we'll do that.
Speaker 2: Yes that in the next episode.
Speaker 4: We can smell it on TV dot Radio. Sarah Hunt,
Speaker 4: Thank you so much. Elpine, saxon what's here.
Speaker 1: In December and onto a new January of Iowa caucuses
Speaker 1: and New Hampshire primaries. Greg Villier briefs this morning she
Speaker 1: fires policy strategist at AGF Greg, Lisa wants to talk
Speaker 1: about the various and sundry wars we're in. I need
Speaker 1: to talk to you about the war that's coming in
Speaker 1: the presidential election. Is it that Trump's ahead or is
Speaker 1: it that Biden's behind.
Speaker 6: I think it's more the latter than anything else. Just
Speaker 6: listening to the sound bites over the weekend, Tom would
Speaker 6: cringe inducing really from both Biden and Trump. If we're
Speaker 6: in for another eleven months of this, this is cruel
Speaker 6: and unusual punishment for the American voter who still thinks
Speaker 6: there's a chance for somebody else.
Speaker 1: There's somebody else out there, but it's not going to
Speaker 1: be decided, I would believe at the Iowa caucus the
Speaker 1: New Hampshire primary as well. Where are we in February
Speaker 1: after those January political events.
Speaker 6: Well, Trump will win, obviously in Iowa, but maybe not
Speaker 6: by quite as much as people had expected. I think
Speaker 6: that he will be the presumptive nominee by the middle
Speaker 6: of the spring. That's not a real courageous call on
Speaker 6: my part. But with the Democrats, I still think there
Speaker 6: could be a surprise. Maybe this guy from Minnesota, this
Speaker 6: House member, he's way behind, but he's different, he's new.
Speaker 6: Even Robert Kennedy, who's pretty exotic in his views, has
Speaker 6: attracted some attention. I sense a lot of Democrats, not
Speaker 6: just David Axelrod, who are desperately looking for someone else.
Speaker 3: Greg your language is really colorful, the supporting cruel and
Speaker 3: unusual punishment for the American people at this has to continue,
Speaker 3: and the exotic views of a representative Kennedy. I am
Speaker 3: wondering how much you think the likelihood of President Biden
Speaker 3: stepping aside for another candidate is tied into some of
Speaker 3: the military conflicts that the US is currently supporting or
Speaker 3: involved with.
Speaker 6: Well, there's two big stories so that you allude to.
Speaker 6: Number one is the trouble that Trump will have with
Speaker 6: his son.
Speaker 4: This is going to go on and on, and.
Speaker 6: It's an embarrassment. It's a distraction. It's a plus for Trump.
Speaker 6: But the other big story is who lost Ukraine. I
Speaker 6: think that could be a devastating story for the Washington
Speaker 6: in general if we can't get money for Ukraine, and
Speaker 6: it looks unlikely this week. Maybe they'll get a pittance,
Speaker 6: maybe they'll get a haircut, but I don't see a
Speaker 6: huge chunk of money coming for you, and Vladimir Putin
Speaker 6: has to be very happy.
Speaker 3: Vladimir Zelenski is coming to Washington, DC this week, I believe,
Speaker 3: on Wednesday, to talk directly with Congress members, including how
Speaker 3: Speaker Johnson, to try to plead his case.
Speaker 4: Over the weekend, there.
Speaker 3: Was a lot of discussion about how essentially this comes
Speaker 3: down to funding and if Ukraine doesn't get funded, they're
Speaker 3: going to lose, and that was what a lot of
Speaker 3: people were talking about, especially because Russia is putting about
Speaker 3: forty percent of its budget into the military. Do you
Speaker 3: agree with that assessment that this is sort of the
Speaker 3: turning point where if Ukraine doesn't get aid, it kind
Speaker 3: of ends.
Speaker 6: I guess I say it all depends on the definition
Speaker 6: of lose. I don't think Ukraine is going to lose
Speaker 6: the war anytime soon, but they're clearly on the defensive.
Speaker 6: They're backpedaling, They've not had a good winter, they lack supplies.
Speaker 6: So I would say that the momentum right now is
Speaker 6: with Russia. And if that's true, what does Vladimir Putin
Speaker 6: think about Estonia, Lithuania, Latvia? Does he think about other
Speaker 6: Central European countries that might be next greg The news.
Speaker 1: Over the weekend on Gaza was just absolutely grim.
Speaker 4: There's no other way to put it.
Speaker 1: It's a point where it's almost subsued within the media
Speaker 1: because of just the weight of the grimness as well.
Speaker 1: What is the action the administration can do this week?
Speaker 6: I don't see a lot. I don't see much that
Speaker 6: we can do. We could send more aid, but I
Speaker 6: think if it's tied to Ukraine, that's not going to
Speaker 6: happen until after the new year begins.
Speaker 4: No.
Speaker 6: I do think though, that in terms of the Arab
Speaker 6: street and the world in general, the Israelis maybe only
Speaker 6: have a few weeks left before they totally lose support.
Speaker 6: I think the window is starting to close on the Israelis.
Speaker 6: They've got to wrap this up pretty.
Speaker 4: Quickly at least to jump in here. Please.
Speaker 3: Well, I'm just curious there was so much discussion over
Speaker 3: the weekend about the university of presidents, the potential resignation
Speaker 3: of Harvard's president after what we saw from UPenn. I'm
Speaker 3: just curious. We're hearing that a lot of conservatives are
Speaker 3: saying we told you so, and that universities have been
Speaker 3: constraining freedom of speech for a long time, and that
Speaker 3: this is just one example. How much do you actually
Speaker 3: see Democrats joining with that versus sort of voyeuristic arguments
Speaker 3: being made around this, and.
Speaker 6: Good work voyeuristic. I don't see anything that's going to
Speaker 6: change the political landscape quickly, but it is an embarrassment
Speaker 6: for the Ivy League, and I think that will persist
Speaker 6: for a while. One other thing, really quickly, the abortion
Speaker 6: fight in Texas has long term implications. I think that
Speaker 6: more and more people will be looking at this saying
Speaker 6: this is not right.
Speaker 4: Greg. Thank you so much.
Speaker 1: Greg Valier with a Monday Eclectic Brief. There are many
Speaker 1: many different topics here, including what we see in Ukraine
Speaker 1: joining us now with the biggest shoes to fill on
Speaker 1: Wall Street. Max Layton with Jeff Curry at Gold and
Speaker 1: Sachs and now we've had more. It's City Group, global
Speaker 1: head of Commodity Research, Max. I'm going to cut to
Speaker 1: the chase. You and mister Morris. Doctor Morris had the
Speaker 1: call of the year. Everybody was looking for oil resiliency,
Speaker 1: oil higher.
Speaker 4: You guys went south? How far south from Brent seventy five?
Speaker 4: Can we now head? Sure?
Speaker 7: We think overall a lot of the move is done.
Speaker 7: And you know OPEC plus is doing some work to
Speaker 7: rebalance the market in the first quarter, and you know
Speaker 7: our base cases they'll be successful in doing that. The
Speaker 7: pressure increases for them to roll these cuts forward through
Speaker 7: the remainder of the year. Actually, we forcussed around a
Speaker 7: million barrel a day surplus for the second quarter and
Speaker 7: around an overall surplus of abouzero point six million barrels
Speaker 7: a day through the whole of twenty twenty four. So
Speaker 7: you know, these cuts do need to be maintained to
Speaker 7: balance the market through the course of next year. In
Speaker 7: our kind of face case global growth environment.
Speaker 1: In the base case, what is the relationship of Saudi
Speaker 1: Arabia to oil producing Russia in Iran?
Speaker 7: Sure, Well, obviously there's a lot of complex factors going
Speaker 7: on with the political relationships between these countries. Overall, Saudi's
Speaker 7: taken the brunt of the cuts so far, and Russia
Speaker 7: is contributing, and we expect them to continue.
Speaker 4: To do so.
Speaker 7: They've been pretty forthright in what they want to do
Speaker 7: and in their expectations of countries meeting their quotas through
Speaker 7: the first quarter, and overall, I think that these you know,
Speaker 7: when you look at the trade off of the OPEK
Speaker 7: plus countries, they essentially maintain the existing cuts, have some
Speaker 7: incremental compliance, and they can balance this market and keep
Speaker 7: this price at seventy to eighty dollars if they work together.
Speaker 7: The alternative is obviously substantial. Spare capacity gets ramped up
Speaker 7: into and prices could be down thirty, forty, you know,
Speaker 7: even fifty percent if all of that spare capacity comes
Speaker 7: back online. So I think the alternative is just so
Speaker 7: painful that it's most likely you get this kind of
Speaker 7: half a million barrel a day cut through the through
Speaker 7: the course of next year at the right price. So well,
Speaker 7: seventy eighty dollars is the right kind of price levels.
Speaker 3: I want to develop that a little bit, max, because
Speaker 3: you're talking about a potential fifty percent price cut that
Speaker 3: could be a forty dollars hand doll and Brent crude
Speaker 3: even thirty five dollars on WTI. And this comes as
Speaker 3: we heard from Paul Sank last week, there is this
Speaker 3: risk that as the US ramps up production in as
Speaker 3: Saudi Arabia loses share market share to the US, the
Speaker 3: flood the market. They'll just say, look, you guys are
Speaker 3: going to do this. Let's go and put all the
Speaker 3: barrels out there and get prices low enough that people
Speaker 3: start cutting production. What holds them back from doing that?
Speaker 7: Well, I think obviously you know that kind of price
Speaker 7: decline will hurt everybody's profits and revenues. I think the
Speaker 7: stick or the stick that Saudi has is quite effective
Speaker 7: in the sense that they have the ability to raise
Speaker 7: production by twenty percent themselves, so they could offset, for example,
Speaker 7: on paper, a twenty percent decline in price with a
Speaker 7: big increase in their own production. Not many other frankly,
Speaker 7: very few other Ope plus countries have the ability to
Speaker 7: do that. So in the worst case scenario, it's potentially
Speaker 7: least painful for Saudi Arabia and more painful for everybody else.
Speaker 7: So I do think that that dynamic makes the stick
Speaker 7: quite effective. Obviously, if there was a hard landing on
Speaker 7: the demand side, if non OPEC supply continued to grow
Speaker 7: extremely strongly. And on that note, we do have a
Speaker 7: material slowdown sequentially in US growth in our forecast for
Speaker 7: the next twelve months. Most of the growth that we
Speaker 7: have is actually OPEC plus bringing back some barrels and
Speaker 7: or ramping up over the next twelve months. So if
Speaker 7: you take that out of the market, if these cuts
Speaker 7: were extended, you're actually running a deficit in the first
Speaker 7: quarter if the quotas are met as well, and overall,
Speaker 7: if broadly the quotas are met, because we are assuming
Speaker 7: some slippage to get our balanced small you know, one
Speaker 7: hundred thousand barrel a day surplus in the first quarter,
Speaker 7: So it does appear that it's within OPECK plus's grasp
Speaker 7: to hold the market together in the baseline. But yeah, look,
Speaker 7: a hard landing on the demand slide, big surprises on
Speaker 7: the upside on supply less disruptions and normal perhaps OPECK
Speaker 7: might break. But look, I just I think you have
Speaker 7: to get into a pretty dark global growth environment to
Speaker 7: even think about that.
Speaker 3: Which raises this question, are we in a narrow range.
Speaker 3: You said, you know, there could potentially be some sort
Speaker 3: of significant downside should production and come back online, but
Speaker 3: you see that as improbable. So are we in a
Speaker 3: pretty narrow range after a lot of really massive swings
Speaker 3: over the past couple of years.
Speaker 7: Yeah, I mean certainly, we think so. And positioning is
Speaker 7: extremely low now the spreads have collapsed, and yet the
Speaker 7: price is being supported here. It's found some you know
Speaker 7: base here. We think around seventy five dollars if anything,
Speaker 7: base cases we bounce back over the next month or two,
Speaker 7: prices stabilize a little bit.
Speaker 4: Here.
Speaker 7: We think, you know, China's going to roll out a
Speaker 7: significant easing package, significant as in to stabilize the ship.
Speaker 7: Not significant as in a ten percent easing as a
Speaker 7: share of GDP, but significant enough that the market thinks
Speaker 7: that China will be fine next year, be able to
Speaker 7: achieve four and a half five percent GDP growth. And
Speaker 7: you know, there's been some big builds lately that we
Speaker 7: expect to stop. Essentially, we expect a reduction in the
Speaker 7: builds in inventory that we've seen over the last three
Speaker 7: weeks over the next couple of months. So we are
Speaker 7: expecting to stabilization prices from here.
Speaker 1: Sure, Max, thank you so much and congratulations. Max Leyton
Speaker 1: is globalhead of Commodities for City Group. Subscribe to the
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