1
00:00:05,080 --> 00:00:08,440
Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

2
00:00:08,480 --> 00:00:12,280
Speaker 1: with Jonathan Faroe and Lisa Abramowitz. Join us each day

3
00:00:12,320 --> 00:00:16,800
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

4
00:00:17,239 --> 00:00:22,040
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

5
00:00:22,239 --> 00:00:26,560
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

6
00:00:26,600 --> 00:00:30,680
Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Right now,

7
00:00:30,840 --> 00:00:34,080
Speaker 1: Edward Morse Global had the commodity researcher City Group is

8
00:00:34,120 --> 00:00:36,760
Speaker 1: public service to the Nation a few years back, and

9
00:00:36,840 --> 00:00:41,839
Speaker 1: of course doctor Morse on hydrocarbons on oil on the

10
00:00:41,960 --> 00:00:45,760
Speaker 1: Global View ed I have never seen from you a

11
00:00:45,880 --> 00:00:51,320
Speaker 1: more indirect note. Edward Morse, stealing from Thatcher says, expect

12
00:00:51,440 --> 00:00:56,840
Speaker 1: the unexpected, define the unexpected out there along a burgeoning

13
00:00:57,040 --> 00:01:01,560
Speaker 1: reopening Pacific rim. Well, there's some wildcards that are now

14
00:01:01,760 --> 00:01:04,320
Speaker 1: abounding that it's really hard to know where to start.

15
00:01:04,880 --> 00:01:10,640
Speaker 1: We can start with the China reopening, long anticipated, over anticipated.

16
00:01:10,840 --> 00:01:13,319
Speaker 1: Now we're getting down to reality. The fact of the

17
00:01:13,360 --> 00:01:17,400
Speaker 1: matter is that China may get back to where oil

18
00:01:17,480 --> 00:01:21,440
Speaker 1: demand growth was two years ago. China is on its

19
00:01:21,480 --> 00:01:24,600
Speaker 1: way down. It's moving out of the world of oil consumption,

20
00:01:25,000 --> 00:01:28,800
Speaker 1: and it's almost imminently there after this recovery. I'd say

21
00:01:28,800 --> 00:01:31,759
Speaker 1: it's the last hurrah to demand in China and close

22
00:01:31,840 --> 00:01:34,520
Speaker 1: to the last hurah to demand around the world. So

23
00:01:34,560 --> 00:01:37,160
Speaker 1: that to starters is one of the things that's really

24
00:01:37,200 --> 00:01:41,199
Speaker 1: impact in the market. I look at the dynamics here.

25
00:01:41,600 --> 00:01:44,479
Speaker 1: Is it a study of supply or a study study

26
00:01:44,520 --> 00:01:47,600
Speaker 1: of demand? Which is the most important to you and

27
00:01:47,720 --> 00:01:51,800
Speaker 1: your city group team. I don't think we can separate

28
00:01:51,840 --> 00:01:53,840
Speaker 1: them out at this moment. We're in a period of

29
00:01:53,880 --> 00:01:57,320
Speaker 1: time when the world is definitively moving off of oil.

30
00:01:58,240 --> 00:02:02,040
Speaker 1: We're coming out of a slowdown eventually, which will have

31
00:02:02,200 --> 00:02:05,400
Speaker 1: a flash of oil demand. But it's really stunning to

32
00:02:05,520 --> 00:02:08,720
Speaker 1: look at large countries. We look at the three major

33
00:02:08,760 --> 00:02:13,560
Speaker 1: economies of the world. Europe's demand was down before the pandemic,

34
00:02:13,720 --> 00:02:16,960
Speaker 1: and it's going to continue to go down. China is demand.

35
00:02:17,000 --> 00:02:20,200
Speaker 1: If we look at major fuel uses, their demand for

36
00:02:20,320 --> 00:02:23,840
Speaker 1: diesel peaked in twenty fifteen. They're coming back to a

37
00:02:23,919 --> 00:02:27,720
Speaker 1: level that they're going to start retreating from. And indeed,

38
00:02:27,960 --> 00:02:30,280
Speaker 1: we expect diesel demand in China to be lower this

39
00:02:30,360 --> 00:02:32,960
Speaker 1: year than last year, and that's because of the surprise

40
00:02:33,040 --> 00:02:36,760
Speaker 1: of the world had with moving from natural gas where

41
00:02:36,800 --> 00:02:41,280
Speaker 1: prices were extraordinarily high, into diesel, and for China that

42
00:02:41,440 --> 00:02:44,720
Speaker 1: demand switch was between three hundred and five hundred thousand

43
00:02:44,720 --> 00:02:47,560
Speaker 1: barrels a day, and they're going back to natural gas

44
00:02:47,840 --> 00:02:50,600
Speaker 1: now that prices have come back to earth. And then

45
00:02:50,600 --> 00:02:52,799
Speaker 1: we look at the United States, and the stunning part

46
00:02:52,840 --> 00:02:55,760
Speaker 1: of the US, at least in terms of weekly data,

47
00:02:56,160 --> 00:02:59,000
Speaker 1: is that the US demand is down below where it

48
00:02:59,160 --> 00:03:04,280
Speaker 1: was a year ago, and US exports are up significantly

49
00:03:04,360 --> 00:03:06,840
Speaker 1: from where they were a year ago. The US, as

50
00:03:06,880 --> 00:03:10,200
Speaker 1: a result partly of the release of strategic oil but

51
00:03:10,280 --> 00:03:13,760
Speaker 1: only partly because of it, has become by far the

52
00:03:13,840 --> 00:03:17,320
Speaker 1: largest gross exporting country in the world. We're exporting close

53
00:03:17,360 --> 00:03:19,919
Speaker 1: to ten million dollars a day of oil, and that's

54
00:03:20,040 --> 00:03:24,160
Speaker 1: after the SPR release was over. That's more than Russia.

55
00:03:24,240 --> 00:03:28,359
Speaker 1: That's more that's more than Saudi Arabia. It's more than

56
00:03:28,400 --> 00:03:32,600
Speaker 1: both countries combined. And our supply is way up. If

57
00:03:32,639 --> 00:03:38,480
Speaker 1: we look at real liquids, oil, biofuels, natural gas, liquids, Yeah,

58
00:03:38,520 --> 00:03:41,080
Speaker 1: and the gains we get for running running our refineries

59
00:03:41,160 --> 00:03:43,600
Speaker 1: fall out. We're at twenty one million dollar a day

60
00:03:44,040 --> 00:03:47,240
Speaker 1: producing country that's kind of extraordinary and nothing that we

61
00:03:47,360 --> 00:03:51,720
Speaker 1: expected a year ago when this Russia Ukraine conference started

62
00:03:51,720 --> 00:03:54,800
Speaker 1: and emerged. So let's take a se back because I'm

63
00:03:54,840 --> 00:03:57,760
Speaker 1: curious how the City Crew view of the world dramatically

64
00:03:57,760 --> 00:04:00,920
Speaker 1: differs from the JP Morgan view of the next ten years.

65
00:04:01,000 --> 00:04:03,400
Speaker 1: Are you saying that demand is going down because of

66
00:04:03,440 --> 00:04:07,000
Speaker 1: a lack of activity a sort of more recessionary type

67
00:04:07,000 --> 00:04:09,320
Speaker 1: of environment that perhaps the data points to, or is

68
00:04:09,360 --> 00:04:12,440
Speaker 1: it because of renewable energy, because of electric vehicles, because

69
00:04:12,440 --> 00:04:16,360
Speaker 1: of alternate uses that we've seen the transition really accelerate

70
00:04:16,400 --> 00:04:21,040
Speaker 1: simply since the pandemic, we actually have both going on. Yes,

71
00:04:21,040 --> 00:04:23,760
Speaker 1: the transition is accelerating, and we can see that in

72
00:04:23,839 --> 00:04:27,520
Speaker 1: electric vehicle sales, particularly in China where it's thirty nine

73
00:04:27,560 --> 00:04:31,279
Speaker 1: percent of all sales in twenty twenty two, phenomenal growth

74
00:04:31,279 --> 00:04:33,480
Speaker 1: in Europe and the US is really not far behind.

75
00:04:34,000 --> 00:04:37,200
Speaker 1: But it's also something happening in the trade environment. We've

76
00:04:37,200 --> 00:04:41,000
Speaker 1: seen obstacles to trade being put in place, starting in

77
00:04:41,000 --> 00:04:44,960
Speaker 1: the comb administration in the United States, followed by what

78
00:04:45,080 --> 00:04:49,720
Speaker 1: we call Bill Chip and IRA, the three extraordinary bills

79
00:04:50,040 --> 00:04:52,360
Speaker 1: that were passing the US over a one and a

80
00:04:52,400 --> 00:04:55,760
Speaker 1: half year period of time which really moves to block

81
00:04:55,839 --> 00:04:59,599
Speaker 1: trade and bring a various set of things home, not

82
00:04:59,680 --> 00:05:03,240
Speaker 1: home only to the US, because by America also includes

83
00:05:03,560 --> 00:05:07,120
Speaker 1: some twenty three credive Roman countries. We have Europe that

84
00:05:07,200 --> 00:05:10,559
Speaker 1: was moving in the same direction and that started before

85
00:05:10,760 --> 00:05:14,400
Speaker 1: Europe started mimicking the US and trying to put forward

86
00:05:14,480 --> 00:05:18,479
Speaker 1: something like the IRA. And we have China that for

87
00:05:18,760 --> 00:05:23,600
Speaker 1: energy and other security reasons is pulling back from seaborne prade.

88
00:05:23,960 --> 00:05:26,840
Speaker 1: So we have a retreat from prade that really started

89
00:05:27,080 --> 00:05:32,680
Speaker 1: in twenty eighteen twenty seventeen eighteen, and it's been reinforced

90
00:05:32,760 --> 00:05:35,839
Speaker 1: with various mechanisms. So we're not going to see with

91
00:05:35,920 --> 00:05:39,080
Speaker 1: this recovery, we're not going to see this greater pull

92
00:05:39,200 --> 00:05:42,279
Speaker 1: on demand coming back with the recovery. So yes, it's

93
00:05:42,279 --> 00:05:44,360
Speaker 1: a little bit of both. So ed, how are coming

94
00:05:44,440 --> 00:05:47,920
Speaker 1: recommending to investors that they go into commodities. This is

95
00:05:47,960 --> 00:05:51,000
Speaker 1: an attractive place to go. It is an attractive place

96
00:05:51,040 --> 00:05:54,160
Speaker 1: to go. And if we look at investments in the

97
00:05:54,279 --> 00:05:58,400
Speaker 1: renewable side, they're blossoming. The issue lists where to go,

98
00:05:58,680 --> 00:06:02,720
Speaker 1: where is the greatest afferty and where is the greatest danger.

99
00:06:02,920 --> 00:06:06,760
Speaker 1: But if we look at the numbers on the energy

100
00:06:06,800 --> 00:06:10,320
Speaker 1: transition side, the world had gotten to around eight hundred

101
00:06:10,440 --> 00:06:15,080
Speaker 1: and fifty billion dollars worth of investment in twenty twenty one,

102
00:06:15,360 --> 00:06:17,440
Speaker 1: and by we got the time we got through twenty

103
00:06:17,440 --> 00:06:21,000
Speaker 1: twenty two, that investment turned out to be a trillion

104
00:06:21,040 --> 00:06:25,719
Speaker 1: one hundred billion, And to compare that with oil capital spending,

105
00:06:25,760 --> 00:06:30,200
Speaker 1: it peaked in twenty fourteen at around eight hundred billion dollars.

106
00:06:30,240 --> 00:06:35,000
Speaker 1: So the opportunities are there. They're there in carbon capture,

107
00:06:35,080 --> 00:06:39,239
Speaker 1: they're there in hydrogen, they're there in the areas where

108
00:06:39,320 --> 00:06:44,480
Speaker 1: this new technology is working. That includes industry, it includes transportation,

109
00:06:44,880 --> 00:06:49,000
Speaker 1: it includes buildings. So the opportunities for investors is really high.

110
00:06:49,920 --> 00:06:55,040
Speaker 1: Emphasized that by the tax credits given and the direct

111
00:06:55,040 --> 00:06:58,520
Speaker 1: subsidies offered by major governments in the world. And this

112
00:06:58,640 --> 00:07:01,080
Speaker 1: was wonderful to get a spen Devazo White said most

113
00:07:01,120 --> 00:07:14,200
Speaker 1: that of City Group, this is a joy in is

114
00:07:14,320 --> 00:07:17,640
Speaker 1: incredibly well timed. He is with the Bank of England,

115
00:07:17,760 --> 00:07:19,880
Speaker 1: or was with the Bank of England, and we're not

116
00:07:19,920 --> 00:07:21,760
Speaker 1: going to ask him if the Bank of England is

117
00:07:21,760 --> 00:07:26,480
Speaker 1: declaring victory. But Spencer Dale has a unique portfolio to

118
00:07:26,520 --> 00:07:28,960
Speaker 1: bring to us today. It is not only his work

119
00:07:29,000 --> 00:07:33,600
Speaker 1: in Economics at Wales at Warwick or Warwick. Thank you.

120
00:07:34,160 --> 00:07:37,120
Speaker 1: It's good to know that. But Spencer Dale also here

121
00:07:37,120 --> 00:07:39,840
Speaker 1: with his work with the British Petroleum Group. Lord Brown

122
00:07:39,920 --> 00:07:43,000
Speaker 1: has been someone that supported our economics for years and

123
00:07:43,040 --> 00:07:46,200
Speaker 1: we're thrilled that we can dovetail in what BPC's out

124
00:07:46,200 --> 00:07:50,760
Speaker 1: there in energy with the heritage of British Petroleum. I

125
00:07:50,800 --> 00:07:54,040
Speaker 1: thought Oswald clinant Bernstein was great on the day where

126
00:07:54,040 --> 00:07:56,920
Speaker 1: BP said we're gonna have to walk away from all

127
00:07:56,960 --> 00:07:59,760
Speaker 1: that we did on Russia. How big. It's a turmoil

128
00:08:00,080 --> 00:08:03,080
Speaker 1: right now in global oil like a year ago in

129
00:08:03,200 --> 00:08:06,480
Speaker 1: BP said we've got to walk away from Russia. I

130
00:08:06,520 --> 00:08:09,600
Speaker 1: think that the oil market remains very uncertain, but I

131
00:08:09,600 --> 00:08:13,360
Speaker 1: think the biggest surprise over the last year is Russian

132
00:08:13,480 --> 00:08:18,600
Speaker 1: exports of crude haven't changed. You look now compared to

133
00:08:19,280 --> 00:08:22,600
Speaker 1: a year ago, they're pretty much unaffected. Where they're being

134
00:08:22,800 --> 00:08:25,680
Speaker 1: exported two has changed very dramatically. A lot of it

135
00:08:25,720 --> 00:08:28,640
Speaker 1: was going to Europe, and you've seen an almost massive

136
00:08:28,800 --> 00:08:31,880
Speaker 1: shift away from Europe now, particularly with the ban into

137
00:08:33,240 --> 00:08:37,120
Speaker 1: India in particular and China, But overall flows of Russian

138
00:08:37,200 --> 00:08:40,640
Speaker 1: oil pretty much unaffected. Everybody has to lean forward when

139
00:08:40,679 --> 00:08:43,240
Speaker 1: BP stuttles studies have seen you do this within your

140
00:08:43,280 --> 00:08:46,720
Speaker 1: annual survey as well. What is the distinction we have

141
00:08:46,840 --> 00:08:51,040
Speaker 1: to know about mister Putin in the cash coming in

142
00:08:51,080 --> 00:08:54,000
Speaker 1: from his oil seals. So I think we spent quite

143
00:08:54,000 --> 00:08:56,440
Speaker 1: a long time thinking about how the war may affect

144
00:08:56,760 --> 00:08:59,720
Speaker 1: energy markets. And I think the way the simplest way

145
00:08:59,720 --> 00:09:01,880
Speaker 1: I think about this, if you sat in the ballroom

146
00:09:01,880 --> 00:09:05,160
Speaker 1: a BP or in government officials around the world a

147
00:09:05,240 --> 00:09:08,400
Speaker 1: year or two ago, all the conversation was about the

148
00:09:08,440 --> 00:09:11,280
Speaker 1: importance of decarbonizing the energy system, the race to get

149
00:09:11,280 --> 00:09:14,720
Speaker 1: to next to the Euro That urgency stays, but the

150
00:09:14,760 --> 00:09:17,040
Speaker 1: war has been a sort of a collective reminder about

151
00:09:17,040 --> 00:09:19,679
Speaker 1: the other things. Energy systems need to generate, so they

152
00:09:19,720 --> 00:09:22,240
Speaker 1: need to give us energy security, and they also need

153
00:09:22,240 --> 00:09:25,000
Speaker 1: to give us energy affordability. You put those three things together,

154
00:09:25,280 --> 00:09:29,480
Speaker 1: so energy economists will often talk about security, affordability and

155
00:09:29,559 --> 00:09:33,520
Speaker 1: sustainability as the energy trilemma. You can't solve a trilemma,

156
00:09:33,600 --> 00:09:35,440
Speaker 1: but the points that the importance of the trilemmas you

157
00:09:35,480 --> 00:09:38,400
Speaker 1: need to balance all three of those different elements if

158
00:09:38,400 --> 00:09:41,080
Speaker 1: you're going to have a successful and enduring transition. And

159
00:09:41,120 --> 00:09:43,560
Speaker 1: I think there is a danger that prior to the war,

160
00:09:44,040 --> 00:09:46,240
Speaker 1: the world had come focusing on just one element and

161
00:09:46,280 --> 00:09:49,199
Speaker 1: had lost touch in those other two. We heard from

162
00:09:49,280 --> 00:09:51,640
Speaker 1: Ed Morris of City Group earlier today and he was

163
00:09:51,679 --> 00:09:55,280
Speaker 1: talking about a pretty radical view that Chinese and global

164
00:09:55,320 --> 00:09:58,200
Speaker 1: oil demand maybe close to its peak and it's probably

165
00:09:58,240 --> 00:10:01,000
Speaker 1: on its way down because of the lemma and how

166
00:10:01,360 --> 00:10:04,679
Speaker 1: different economies are trying to solve it with other forms

167
00:10:04,679 --> 00:10:07,360
Speaker 1: of energy. Do you agree? So I guess two things

168
00:10:07,400 --> 00:10:10,800
Speaker 1: about China. One is, in the near term, everybody's been

169
00:10:11,040 --> 00:10:15,000
Speaker 1: surprised by just the pace at which the China's relaxation

170
00:10:15,080 --> 00:10:17,920
Speaker 1: of the COVID policy has happened, and so've revised up

171
00:10:17,960 --> 00:10:21,760
Speaker 1: their views of all demand growth this year. So a

172
00:10:21,880 --> 00:10:24,200
Speaker 1: story if you look at most people now, they would

173
00:10:24,679 --> 00:10:27,160
Speaker 1: consensus out there would have all demand growth for about

174
00:10:27,160 --> 00:10:29,920
Speaker 1: two million pouds a day this year. Of that, around

175
00:10:29,920 --> 00:10:32,160
Speaker 1: half of that is China, So they're massively important in

176
00:10:32,200 --> 00:10:34,760
Speaker 1: the near term. The story, which I guess relates to

177
00:10:34,880 --> 00:10:37,959
Speaker 1: Ed's pieces. When you think about energy security, country is

178
00:10:38,000 --> 00:10:40,840
Speaker 1: worrying more and more about energy security, A natural instinct

179
00:10:40,840 --> 00:10:43,280
Speaker 1: will be to say I want to reduce a level

180
00:10:43,320 --> 00:10:46,920
Speaker 1: of imports I'm making of energy and instead boost my

181
00:10:47,040 --> 00:10:50,559
Speaker 1: domestic energy. And the nature of that is most domestic

182
00:10:50,640 --> 00:10:53,160
Speaker 1: energy for many parts of the world, include in China,

183
00:10:53,440 --> 00:10:56,439
Speaker 1: is non fossil fuels, it's wind, it's solar, it's nuclear,

184
00:10:56,480 --> 00:10:59,360
Speaker 1: it's hydro. Most of the energy that you import in

185
00:10:59,360 --> 00:11:02,160
Speaker 1: the round around the world, particularly in China, is oil

186
00:11:02,200 --> 00:11:04,480
Speaker 1: in gas. And so one of the stories that we

187
00:11:04,520 --> 00:11:06,760
Speaker 1: have in our outlook is we think the war is

188
00:11:06,800 --> 00:11:10,120
Speaker 1: likely to accelerate the energy transition because of this energy

189
00:11:10,160 --> 00:11:14,520
Speaker 1: security effect. Import less oil and gas, boost your domestic renewables,

190
00:11:14,160 --> 00:11:16,760
Speaker 1: and that's has a positive in terms of the energy transit.

191
00:11:16,840 --> 00:11:19,000
Speaker 1: It's such an important point when people look at commodities.

192
00:11:19,000 --> 00:11:21,520
Speaker 1: It's almost a proxy for global growth. If the economy

193
00:11:21,559 --> 00:11:24,200
Speaker 1: does well, supposed low oil prices should go up. If

194
00:11:24,200 --> 00:11:26,760
Speaker 1: the economy goes into recession, oil prices should go down.

195
00:11:27,080 --> 00:11:29,000
Speaker 1: Are you getting on board with the idea the oil

196
00:11:29,040 --> 00:11:33,199
Speaker 1: prices can stay low even with a decent global economy

197
00:11:33,320 --> 00:11:36,520
Speaker 1: because of all of these alternative forms of energy. So

198
00:11:36,559 --> 00:11:41,480
Speaker 1: I think one is those alternative forms of energy. We've

199
00:11:41,480 --> 00:11:44,960
Speaker 1: also seen a key factor which I think helps to

200
00:11:45,000 --> 00:11:47,800
Speaker 1: balance markets is what's happening here in America in terms

201
00:11:47,840 --> 00:11:51,040
Speaker 1: of US title US shail oil and the nature of

202
00:11:51,040 --> 00:11:54,520
Speaker 1: those businesses and at one point they were able to

203
00:11:54,640 --> 00:11:57,720
Speaker 1: sort of act as a moderating influence on oil prices.

204
00:11:57,960 --> 00:11:59,680
Speaker 1: I think the nature of those business models you guys,

205
00:12:00,000 --> 00:12:01,760
Speaker 1: I've talked about it a long time has changed now

206
00:12:01,840 --> 00:12:05,600
Speaker 1: far more focus on giving returns back to shareholders, reinvesting

207
00:12:05,679 --> 00:12:07,480
Speaker 1: less and there's a result of which I think that's

208
00:12:07,520 --> 00:12:09,600
Speaker 1: caused the sort of the price at which those reefs

209
00:12:09,640 --> 00:12:11,360
Speaker 1: start to come on to be higher now than it

210
00:12:11,480 --> 00:12:13,200
Speaker 1: was a year or two ago. A spencer, where does

211
00:12:13,240 --> 00:12:17,440
Speaker 1: coal consumption fits in here? Particularly in Europe? So I

212
00:12:17,440 --> 00:12:20,760
Speaker 1: think coal consumption in the very near term has gone

213
00:12:20,840 --> 00:12:24,640
Speaker 1: up essentially as you've been scrambling around for resources. But

214
00:12:25,040 --> 00:12:27,360
Speaker 1: further out, I think we're seeing a story in Europe

215
00:12:27,679 --> 00:12:32,439
Speaker 1: of a mass movement away from that coal and seemed

216
00:12:32,520 --> 00:12:35,439
Speaker 1: very significant reductions in sort of could fire power generations

217
00:12:35,760 --> 00:12:38,880
Speaker 1: in the UK in Europe, and I think that that

218
00:12:38,960 --> 00:12:40,920
Speaker 1: trend I don't think is going to go away. The

219
00:12:41,040 --> 00:12:46,080
Speaker 1: three factors behind Europe's better performance, that's consuming less gas,

220
00:12:46,080 --> 00:12:48,120
Speaker 1: bringing coal back online, and just the fact that weather

221
00:12:48,160 --> 00:12:50,439
Speaker 1: has been milder. Do you see Europe being able to

222
00:12:50,480 --> 00:12:53,120
Speaker 1: repeat that act next winter? The winter after that, the

223
00:12:53,200 --> 00:12:56,440
Speaker 1: one after that, and I think that's a key point, John,

224
00:12:56,720 --> 00:13:00,920
Speaker 1: is the underlying story is still that the Europe and

225
00:13:01,440 --> 00:13:05,640
Speaker 1: the global market is short of natural gas. In some sense,

226
00:13:05,720 --> 00:13:07,920
Speaker 1: we got a lucky break this year because the weather

227
00:13:08,280 --> 00:13:11,840
Speaker 1: was very mild. You come through next winter and there's

228
00:13:11,880 --> 00:13:14,440
Speaker 1: no guarantee that's going to happen, and so that market

229
00:13:14,520 --> 00:13:18,240
Speaker 1: remains very fraught. There is some signs, both in terms

230
00:13:18,280 --> 00:13:20,960
Speaker 1: of the sort of residential heating and in terms of

231
00:13:21,000 --> 00:13:24,600
Speaker 1: the way businesses are using natural gas in Europe that's declined,

232
00:13:24,640 --> 00:13:27,560
Speaker 1: and so some of that may persist. But that underlining

233
00:13:27,640 --> 00:13:30,640
Speaker 1: foreign vulnerability that the world, that Europe needs to import

234
00:13:30,679 --> 00:13:33,280
Speaker 1: an awful lot more of its gas via global markets

235
00:13:33,400 --> 00:13:36,199
Speaker 1: rather than ry Russia means that that shortage is there,

236
00:13:36,400 --> 00:13:39,640
Speaker 1: and so prices today we say, well, that's great, they've

237
00:13:39,640 --> 00:13:41,959
Speaker 1: come down a lot. They're still double what they used

238
00:13:42,000 --> 00:13:44,800
Speaker 1: to be. They're still roughly about five times higher than

239
00:13:44,840 --> 00:13:47,280
Speaker 1: in America, and that's at a good time, and there's

240
00:13:47,280 --> 00:13:49,440
Speaker 1: a risk that they can go higher if we see

241
00:13:50,080 --> 00:13:52,040
Speaker 1: sort of cold winter next year. You've got forty seconds.

242
00:13:52,080 --> 00:13:55,760
Speaker 1: You can do the bank avingudor chausea. It's your choice.

243
00:13:55,960 --> 00:13:59,280
Speaker 1: I think Chelsea is just a waiting game, and I'm

244
00:13:59,679 --> 00:14:02,440
Speaker 1: fully behind the team, and I think this time next

245
00:14:02,520 --> 00:14:04,560
Speaker 1: year I have a big smile in my favorite if

246
00:14:04,640 --> 00:14:07,440
Speaker 1: John and I are there, Tad's Chelsea here on Sunday?

247
00:14:07,480 --> 00:14:10,240
Speaker 1: Can you get us into the VP backs I wish

248
00:14:10,320 --> 00:14:11,920
Speaker 1: I tell you what, if you were, I'd be fighting

249
00:14:11,920 --> 00:14:15,760
Speaker 1: me first, spending straight. Let's do it more often, spence

250
00:14:15,800 --> 00:14:17,760
Speaker 1: it down there. Thank you of the VP group and

251
00:14:17,840 --> 00:14:24,960
Speaker 1: formerly of course, of the Bank of England. Ben Layer

252
00:14:25,040 --> 00:14:28,000
Speaker 1: joins US now global market strategist at A too. Ben,

253
00:14:28,000 --> 00:14:30,000
Speaker 1: if we can just kick off by asking for your

254
00:14:30,040 --> 00:14:32,320
Speaker 1: comments on that, because I imagine might see things differently,

255
00:14:32,360 --> 00:14:34,480
Speaker 1: I'll read it again. The bear market rally that began

256
00:14:34,520 --> 00:14:37,440
Speaker 1: in October from reasonable prices and low expectations has morphed

257
00:14:37,440 --> 00:14:41,080
Speaker 1: into a speculative frenzy based on a FED pause pivot

258
00:14:41,120 --> 00:14:42,960
Speaker 1: that isn't coming. What do you say to that, Ben,

259
00:14:43,480 --> 00:14:46,400
Speaker 1: I guess I respectfully and partly disagree. I think this

260
00:14:46,600 --> 00:14:49,640
Speaker 1: rally has been very fundamentally driven. It's been this easy

261
00:14:49,720 --> 00:14:53,120
Speaker 1: inflation and interest rate shock and less bad growth data.

262
00:14:53,120 --> 00:14:55,240
Speaker 1: Would you would you've just been talking about. I think

263
00:14:55,240 --> 00:14:57,840
Speaker 1: that's very fundamental. I guess what it would degree. I

264
00:14:57,840 --> 00:15:00,600
Speaker 1: would agree it's there's going to be a pause. I mean,

265
00:15:00,640 --> 00:15:04,520
Speaker 1: you cannot annualize the degree of performance we've had this year.

266
00:15:04,560 --> 00:15:06,000
Speaker 1: I mean that would tell you to twice what the

267
00:15:06,080 --> 00:15:09,240
Speaker 1: SMP five hundred has ever done in a year. And

268
00:15:09,600 --> 00:15:11,680
Speaker 1: maybe some of the disruptive tech names, which are up

269
00:15:11,680 --> 00:15:14,600
Speaker 1: on average by a third this year, even more than

270
00:15:14,600 --> 00:15:17,000
Speaker 1: that of the October lows. I mean, with bondiolds now

271
00:15:17,120 --> 00:15:20,240
Speaker 1: rising and investor sentiment, you know, maybe not as depressed.

272
00:15:20,280 --> 00:15:24,200
Speaker 1: I mean, those are absolutely due a breather. Men, just

273
00:15:24,280 --> 00:15:26,040
Speaker 1: as the VIX is a measurement here, and I know

274
00:15:26,160 --> 00:15:28,520
Speaker 1: we went out to twenty five level in December, but

275
00:15:28,560 --> 00:15:30,480
Speaker 1: we've had a spake up in the VIX showing your

276
00:15:30,480 --> 00:15:33,720
Speaker 1: anks out there rebec above twenty two twenty two point

277
00:15:33,840 --> 00:15:37,120
Speaker 1: verse zero. Does Ben Laidler's shift from a measured ball

278
00:15:37,160 --> 00:15:41,240
Speaker 1: to who are more outrageously optimistic ball? Is the VIX adjusts.

279
00:15:42,000 --> 00:15:43,920
Speaker 1: I think we can argue that the VIX is probably

280
00:15:43,920 --> 00:15:47,320
Speaker 1: a sort of broken indicator here, but I mean we

281
00:15:47,360 --> 00:15:50,680
Speaker 1: would definitely be pulling back on some of the higher

282
00:15:50,760 --> 00:15:52,680
Speaker 1: risk elements of the market here. I mean I just

283
00:15:52,720 --> 00:15:54,640
Speaker 1: said him, you know, if you've been lucky enough to

284
00:15:55,120 --> 00:15:57,840
Speaker 1: ride that sort of fifty percent disruptive tech rally off

285
00:15:57,840 --> 00:16:00,760
Speaker 1: the October lows. I think now is the moments to

286
00:16:01,080 --> 00:16:04,480
Speaker 1: rotate into cheaper, more cash flow, sort of defensive bits

287
00:16:04,480 --> 00:16:07,160
Speaker 1: of the market. I think October was the low. I

288
00:16:07,160 --> 00:16:10,920
Speaker 1: think this is very fundamentally driven, you know. But these

289
00:16:11,000 --> 00:16:14,800
Speaker 1: higher bond yields are beginning to put a ceiling on valuations.

290
00:16:14,880 --> 00:16:18,640
Speaker 1: And what was extraordinarily depressed invest in sentiment three or four,

291
00:16:18,920 --> 00:16:21,720
Speaker 1: you know, months ago, is you know, now less depressed.

292
00:16:21,760 --> 00:16:24,440
Speaker 1: And that has been a sort of gasoline that's been

293
00:16:24,440 --> 00:16:27,840
Speaker 1: poured on this rally in the last in the last

294
00:16:27,880 --> 00:16:30,800
Speaker 1: few months. Ben, Is this a question then of leadership

295
00:16:30,960 --> 00:16:33,240
Speaker 1: in the equity rally and where you see it coming

296
00:16:33,280 --> 00:16:35,840
Speaker 1: from and a shift there, or is this a question

297
00:16:35,880 --> 00:16:38,800
Speaker 1: of you becoming perhaps less optimistic than you have in

298
00:16:38,840 --> 00:16:42,240
Speaker 1: the fat past because of the challenge to the leadership

299
00:16:42,280 --> 00:16:44,720
Speaker 1: we've seen here to date. I think the drivers are

300
00:16:44,760 --> 00:16:47,320
Speaker 1: just different. You know, we've seen a lot less growth risks.

301
00:16:47,320 --> 00:16:50,000
Speaker 1: I think earnings are becoming less of a concern now

302
00:16:50,000 --> 00:16:54,160
Speaker 1: with all the data that you're seeing. But we're seeing

303
00:16:54,200 --> 00:16:56,480
Speaker 1: a cat coming in from valuations and the rally this

304
00:16:56,560 --> 00:16:59,560
Speaker 1: year has all been driven by valuations with bond yields

305
00:16:59,600 --> 00:17:02,360
Speaker 1: now rise sort of fair value PEP s andp by bondreit.

306
00:17:02,680 --> 00:17:05,119
Speaker 1: You know, it's down at fifteen sixteen times, it's not

307
00:17:05,240 --> 00:17:08,000
Speaker 1: sort of eighteen. Now that's an issue in the US,

308
00:17:08,080 --> 00:17:10,119
Speaker 1: that's much less an issue in the rest of the world.

309
00:17:10,400 --> 00:17:12,400
Speaker 1: You know, why's Europe being the best before we reached

310
00:17:12,400 --> 00:17:14,320
Speaker 1: in the world this year? Yes, you've had a sort

311
00:17:14,400 --> 00:17:16,880
Speaker 1: road story, but you're coming off you know, eleven twelve

312
00:17:16,960 --> 00:17:19,080
Speaker 1: times earning, so I think you know it's cheap on

313
00:17:19,200 --> 00:17:22,280
Speaker 1: more cash flow generative stocks that are less exposed to

314
00:17:22,359 --> 00:17:25,159
Speaker 1: this sort of potential valuation reset. And then they're going

315
00:17:25,200 --> 00:17:27,960
Speaker 1: to be rude here and take every advantage of your

316
00:17:27,960 --> 00:17:31,879
Speaker 1: time as an award winning strategist at HSBC. They're in

317
00:17:31,920 --> 00:17:35,679
Speaker 1: the news here and I'm fascinated, mister Laidler. If you

318
00:17:35,840 --> 00:17:41,360
Speaker 1: feel you can envision a separated HSPC into their Asian

319
00:17:41,400 --> 00:17:44,679
Speaker 1: business which generates seventy two or seventy eight percent of

320
00:17:44,840 --> 00:17:48,520
Speaker 1: profits and everything else in London can, then Laidler believe

321
00:17:48,880 --> 00:17:53,359
Speaker 1: there could ever be separate HSPCs. I don't know. I

322
00:17:53,359 --> 00:17:55,280
Speaker 1: think history tells you that when you have these you know,

323
00:17:55,359 --> 00:17:57,199
Speaker 1: these big companies and you're try and split them up,

324
00:17:57,280 --> 00:18:00,240
Speaker 1: especially in regulated businesses like banks. Yeah, it's not to

325
00:18:00,240 --> 00:18:04,360
Speaker 1: say it's impossible, but it's it's certainly it's only difficult.

326
00:18:04,800 --> 00:18:07,040
Speaker 1: M But you know the broader point there I think,

327
00:18:07,200 --> 00:18:09,800
Speaker 1: I mean, they reported seemingly great numbers today, right, and

328
00:18:10,160 --> 00:18:12,600
Speaker 1: that's been leading. You know, banks have been performing very

329
00:18:12,680 --> 00:18:14,840
Speaker 1: very well. You're touching it with with CF so it's

330
00:18:14,840 --> 00:18:17,800
Speaker 1: happen to be performing well. But there's combination of strong

331
00:18:17,840 --> 00:18:23,200
Speaker 1: earnings beats, higher interest rates and you know, well under

332
00:18:23,520 --> 00:18:26,960
Speaker 1: value valuations. It's you know, a pretty attractive proposition. And

333
00:18:27,240 --> 00:18:29,400
Speaker 1: you know were touched in Europe earlier. It's been leading

334
00:18:29,440 --> 00:18:32,760
Speaker 1: the European rally. Let's say you address that question, Tom

335
00:18:32,760 --> 00:18:34,800
Speaker 1: without addressing that question? Did you like that? Did I

336
00:18:34,800 --> 00:18:37,560
Speaker 1: address it, addressed it and didn't you know to come

337
00:18:37,600 --> 00:18:42,359
Speaker 1: back of HSBC Ben laded the Ben Thank you sir. Later,

338
00:18:55,000 --> 00:18:57,360
Speaker 1: this is something we love to do at Bloomberg Surveillance

339
00:18:57,400 --> 00:19:01,480
Speaker 1: and that has talked to securities analysts with this steamed experience.

340
00:19:01,520 --> 00:19:03,880
Speaker 1: She goes back to Leman. Karen Shart joins us now

341
00:19:04,119 --> 00:19:07,160
Speaker 1: with credit sweez to say she's an analyst barely describes

342
00:19:07,400 --> 00:19:13,400
Speaker 1: the trophies on the mantelpiece, including the very challenging Starmine Awards.

343
00:19:13,480 --> 00:19:16,440
Speaker 1: Karen Short, thank you so much for joining us today.

344
00:19:16,480 --> 00:19:18,560
Speaker 1: I want to start at the top of the income statement.

345
00:19:18,600 --> 00:19:22,280
Speaker 1: When you look at unit in price dynamics it big retail,

346
00:19:22,560 --> 00:19:24,800
Speaker 1: what do they look like? Hi, thanks very much for

347
00:19:24,840 --> 00:19:28,560
Speaker 1: having me. Well, I mean, I think, as you said Wart,

348
00:19:28,680 --> 00:19:31,800
Speaker 1: this is one of the Walmart better quarters on top line.

349
00:19:32,440 --> 00:19:36,119
Speaker 1: The issue is flow through really on bottom line, and

350
00:19:36,160 --> 00:19:41,840
Speaker 1: then that translates into the guide imply guide for the

351
00:19:41,960 --> 00:19:45,359
Speaker 1: P and L for twenty calendar twenty three. I mean,

352
00:19:45,400 --> 00:19:47,400
Speaker 1: I think you know, we have two of the big

353
00:19:47,440 --> 00:19:50,200
Speaker 1: box retailers out there today this morning, Home Depot and

354
00:19:50,280 --> 00:19:56,239
Speaker 1: Walmart slightly different tales on retail. Walmart's clearly seeing trading in,

355
00:19:56,720 --> 00:20:01,520
Speaker 1: but Walmart's clearly also seeing a higher to serve, as

356
00:20:01,720 --> 00:20:07,240
Speaker 1: is Holibo. And that's the biggest question is these essential

357
00:20:07,320 --> 00:20:10,560
Speaker 1: retailers that have all benefited for the last three years,

358
00:20:10,960 --> 00:20:14,120
Speaker 1: what is the sustainability on the P and L on

359
00:20:14,320 --> 00:20:20,159
Speaker 1: actual operating profit margins relative to top line growth that

360
00:20:20,240 --> 00:20:24,400
Speaker 1: they've gained and sustained. And it just appears that it's

361
00:20:24,400 --> 00:20:28,480
Speaker 1: a higher cost to serve do they use traditional retail

362
00:20:28,640 --> 00:20:32,960
Speaker 1: management practices to an adapt and adjust, say into the

363
00:20:33,080 --> 00:20:36,680
Speaker 1: back to school holiday season, or can Karen Short say

364
00:20:36,720 --> 00:20:43,000
Speaker 1: this time is different for big box retail. I personally

365
00:20:43,080 --> 00:20:45,440
Speaker 1: think this time is different for big box retail from

366
00:20:45,440 --> 00:20:49,040
Speaker 1: the perspective that you know, we were very neutral on

367
00:20:49,760 --> 00:20:53,720
Speaker 1: almost our entire coverage universe when we initiated in December,

368
00:20:53,880 --> 00:20:58,080
Speaker 1: and I think the issue is that some investors believe

369
00:20:58,160 --> 00:21:00,639
Speaker 1: that the top line just will naturally flow through to

370
00:21:00,680 --> 00:21:04,080
Speaker 1: a higher margin structure, and I don't think that's the case.

371
00:21:04,160 --> 00:21:07,399
Speaker 1: I think the problem retailer is in a face is

372
00:21:07,440 --> 00:21:10,280
Speaker 1: that it's just a higher cost to serve and margin

373
00:21:10,359 --> 00:21:15,320
Speaker 1: structure may be just much, very similar to pre pandemic

374
00:21:15,440 --> 00:21:19,040
Speaker 1: levels on a much higher sales base because costs keeps

375
00:21:19,040 --> 00:21:22,240
Speaker 1: flowing through and kateson point, you know, Walmart called it

376
00:21:22,240 --> 00:21:26,480
Speaker 1: out obviously earlier prior to reporting on labor, and Walmart

377
00:21:26,480 --> 00:21:29,040
Speaker 1: did or Story Home Depot did today in terms of

378
00:21:29,080 --> 00:21:32,520
Speaker 1: their billion dollar investment in labor, cost to service just

379
00:21:32,600 --> 00:21:35,160
Speaker 1: going up, and margin structures may not be any better

380
00:21:35,560 --> 00:21:39,760
Speaker 1: structurally than they were pre pandemic, despite twenty thirty forty

381
00:21:39,800 --> 00:21:43,600
Speaker 1: percent sales improvements per box. Depending on which retailer you're

382
00:21:43,640 --> 00:21:46,439
Speaker 1: talking about. Is this a story that really goes across

383
00:21:46,520 --> 00:21:48,919
Speaker 1: the retail sector. Are you basically seeing the same margin

384
00:21:49,000 --> 00:21:52,000
Speaker 1: pressures in Walmart and Home Depot or is it more

385
00:21:52,040 --> 00:21:54,679
Speaker 1: in Home Depot less in Walmart. To expect it to

386
00:21:54,720 --> 00:21:58,560
Speaker 1: not necessarily be consistent throughout the retail complex, I don't

387
00:21:58,560 --> 00:22:01,199
Speaker 1: think it's consistent. What you really have to look at

388
00:22:01,359 --> 00:22:07,639
Speaker 1: is some retailers really leaned into investing during their sales gains.

389
00:22:07,640 --> 00:22:11,439
Speaker 1: So tract Or Supply, for example, really leaned in and

390
00:22:11,480 --> 00:22:15,960
Speaker 1: did not flow through margins. They invested, invested, invested, invested,

391
00:22:16,280 --> 00:22:19,200
Speaker 1: and their margins and structure hasn't really changed. And I'm

392
00:22:19,200 --> 00:22:23,479
Speaker 1: talking to operating from margins when I say margins didn't

393
00:22:23,600 --> 00:22:27,680
Speaker 1: change much even with a much higher sales based other retailers,

394
00:22:27,680 --> 00:22:30,760
Speaker 1: and I'm not saying this about Walmart and Home Depo necessarily,

395
00:22:30,840 --> 00:22:36,120
Speaker 1: but other retailers definitely harvested. And I think what's catching

396
00:22:36,200 --> 00:22:39,200
Speaker 1: up to many retailers is you couldn't. You should never

397
00:22:39,320 --> 00:22:42,760
Speaker 1: harvest your sales games. You always have to reinvest. And

398
00:22:43,200 --> 00:22:46,800
Speaker 1: the better retailers have reinvested. I mean Walmart clearly has

399
00:22:46,840 --> 00:22:50,440
Speaker 1: reinvested in wages. They announced that several weeks ago. Home

400
00:22:50,480 --> 00:22:54,040
Speaker 1: Depot just announced another wage investment. But you know, I

401
00:22:54,080 --> 00:22:57,320
Speaker 1: think retailer investors are going to be shocked by the

402
00:22:57,359 --> 00:23:01,320
Speaker 1: fact that, you know that those massive margin increases across

403
00:23:01,520 --> 00:23:04,679
Speaker 1: much of retail are just going to be completely imploded

404
00:23:04,720 --> 00:23:08,639
Speaker 1: and probably even be down relative to pre pandemic levels

405
00:23:08,720 --> 00:23:12,880
Speaker 1: because costs to do business have gone up and sales

406
00:23:13,080 --> 00:23:15,600
Speaker 1: are or you know, maybe higher or maybe not, depending

407
00:23:15,600 --> 00:23:17,800
Speaker 1: on the retailer. Well, Karen, let's talk about that. So

408
00:23:17,840 --> 00:23:20,000
Speaker 1: the cost of surft is coming up, got it. Marching

409
00:23:20,040 --> 00:23:22,320
Speaker 1: structures won't be any better than pre pandemic, got it,

410
00:23:22,320 --> 00:23:24,520
Speaker 1: there might be worse, got it. Let's just lean on

411
00:23:24,560 --> 00:23:27,160
Speaker 1: something else you said, whether it's coming off a bigger

412
00:23:27,240 --> 00:23:30,800
Speaker 1: or smaller revenue base. Karen, what are the retailers you

413
00:23:30,840 --> 00:23:33,160
Speaker 1: think around there that can off set something that marching

414
00:23:33,200 --> 00:23:37,240
Speaker 1: pressure with just better top line growth. But I mean, obviously,

415
00:23:37,400 --> 00:23:40,840
Speaker 1: so my coverage is essential retail, So it's you know,

416
00:23:41,040 --> 00:23:46,040
Speaker 1: I can't comment across much more discretionary, but within my coverage,

417
00:23:47,119 --> 00:23:50,600
Speaker 1: I mean I would say that the big sorry, the

418
00:23:50,640 --> 00:23:52,920
Speaker 1: club stores. So like if you take a cost go

419
00:23:53,040 --> 00:23:57,520
Speaker 1: in a BJ's there de leverage and or leverage points

420
00:23:57,600 --> 00:24:00,320
Speaker 1: or so much lower because they're fixed costs or much

421
00:24:00,320 --> 00:24:03,239
Speaker 1: lower so like a costco and a BJ probably has

422
00:24:03,400 --> 00:24:08,119
Speaker 1: more ability to retain margin improvement. But the rest of

423
00:24:08,160 --> 00:24:11,600
Speaker 1: the retailers, I think you have another investment cycle coming.

424
00:24:11,640 --> 00:24:15,240
Speaker 1: I mean, I think you have that for the dollar stores. Obviously,

425
00:24:15,280 --> 00:24:17,840
Speaker 1: we just heard from Walmart and Home Depot that they

426
00:24:17,840 --> 00:24:19,919
Speaker 1: will have that. I mean, I think you'll probably hear

427
00:24:19,960 --> 00:24:22,920
Speaker 1: that from Target. I think you could hear that from

428
00:24:22,960 --> 00:24:26,080
Speaker 1: best Buy. I mean, I just think across the board

429
00:24:26,720 --> 00:24:29,480
Speaker 1: there is another investment cycle coming. And I don't think

430
00:24:29,480 --> 00:24:31,879
Speaker 1: that you could talk. I don't think I could point

431
00:24:31,880 --> 00:24:34,720
Speaker 1: to many retail names that I cover that will have

432
00:24:35,200 --> 00:24:40,480
Speaker 1: up ebit or up EPs even if sales are flat

433
00:24:40,560 --> 00:24:43,520
Speaker 1: to slightly up. Karen, this was amazing. Can't jam with you?

434
00:24:43,600 --> 00:24:45,800
Speaker 1: Thank you? Can I show it that of credit swaste?

435
00:24:45,960 --> 00:24:49,800
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and

436
00:24:49,960 --> 00:24:54,120
Speaker 1: anywhere else you get your podcasts. Listen live every weekday

437
00:24:54,400 --> 00:24:57,919
Speaker 1: starting at seven am Eastern. Im Bloomberg dot Com, the

438
00:24:58,000 --> 00:25:02,520
Speaker 1: iHeartRadio app, too In, and the Bloomberg Business app. You

439
00:25:02,600 --> 00:25:06,640
Speaker 1: can watch us live. I'm Bloomberg Television and always I'm

440
00:25:06,680 --> 00:25:10,600
Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and

441
00:25:10,760 --> 00:25:12,320
Speaker 1: this is Bloomberg