Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Lisa Abramoids along with Tom Keen and Jonathan Ferrell,
Speaker 2: join us each day for insight from the best in economics, geopolitics,
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Speaker 3: I was distracted. The average heighte of a cruise passenger
Speaker 3: is forty seven years old. Hi, fool, didn't know that?
Speaker 1: Well, there you go.
Speaker 3: Didn't know that?
Speaker 1: Would you like to Nope?
Speaker 3: At least as some badges now investment strategists that Jpre
Speaker 3: Morgan glob wal have that listened to me about cruises.
Speaker 3: The stocks are doing great. At least, it's good to see.
Speaker 4: You, great to see you.
Speaker 3: Vibe shift, Let's talk about the vibe shift. We're not
Speaker 3: talking about recessions. What are we talking about.
Speaker 4: Look, we can sede at this point that we came
Speaker 4: into this year probably too pessimistic on the macro front.
Speaker 4: What we're seeing is this resurgence, or rather perseverance of
Speaker 4: the resilience in the US economic backdrop, and I think
Speaker 4: that's been driven by a handful of different dynamics, But
Speaker 4: it seems like a lot of people are kind of
Speaker 4: coming around, facing the music and trying to figure out
Speaker 4: where we go from here.
Speaker 3: Equity market rallies usually do that. People start to jump
Speaker 3: on board and now they're thinking about where else they
Speaker 3: need to be, what's missed out, what's lagged, and they're
Speaker 3: shifting towards the stike of the course. Banks had a
Speaker 3: great month in July. Do you see reason for that
Speaker 3: to continue?
Speaker 4: We do, actually, so I think it's really important to
Speaker 4: think about the anatomy of the year today equity market rally.
Speaker 4: Everyone at this point knows that it has been predominantly
Speaker 4: driven by the megacap complex that you know, kind of
Speaker 4: has been flying on the wings of artificial intelligence hopes.
Speaker 4: But we do think that this rally can start to
Speaker 4: broaden out. And that's a big reason why we've been
Speaker 4: encouraging investors to focus on the other four hundred and
Speaker 4: ninety three names in the S and P five hundred,
Speaker 4: which taken together are actually still trading at evaluation below
Speaker 4: their ten year average.
Speaker 1: What money are they going to use to buy these stocks?
Speaker 2: In other words, do you start to recommend that people
Speaker 2: take money out of money markets and put them into,
Speaker 2: so you know, the other sectors of the equity markets,
Speaker 2: or are you saying to people that you have to
Speaker 2: have a balance.
Speaker 1: I mean, how does this.
Speaker 2: Sort of come to for if you don't want people
Speaker 2: to necessarily cash out of big tech?
Speaker 4: Look, cash is a great place to start. We think
Speaker 4: we know that a lot of our clients are still
Speaker 4: heavily overweight excess cash based on the anonymioused client data
Speaker 4: that we look through for our mid year outlook exercise.
Speaker 4: So even in light of this shift in our macro
Speaker 4: view that the FED could possibly pull off a soft landing,
Speaker 4: we do still think that reinvestment risk is here. Come
Speaker 4: first quarter of next year, we think the FED could
Speaker 4: be in a place to start gradually cutting interest rates,
Speaker 4: and we would much prefer that investors take that excess
Speaker 4: cash exten duration or start rebuilding that equity portfolio that
Speaker 4: they want to carry through the next cycle.
Speaker 2: Does it bother you that you're looking at earnings yield
Speaker 2: on the S and P five hundred that are the
Speaker 2: lowest relative to what you're getting on a ten year
Speaker 2: treasury Going back to two thousand and one. Does that
Speaker 2: raise some alarm bells that maybe valuations are at a
Speaker 2: whack and that bonds look better than some people are
Speaker 2: making them out.
Speaker 4: Look, we continue to love core bonds. It's one of
Speaker 4: our highest conviction ideas, and it does bother me a
Speaker 4: little bit, but we certainly take it into account when
Speaker 4: we think through portfolio construction. I think investors more than
Speaker 4: ever need to be mindful of goals based or outcome
Speaker 4: oriented approach. And if that means then the choosing core
Speaker 4: fixed income with yields at these current elevated levels is
Speaker 4: enough to get you to your long term goals, then
Speaker 4: by all means, but long term ten year plus time horizon,
Speaker 4: we still see the potential for stocks to act as
Speaker 4: that engine of capital appreciation in portfolios, so we don't
Speaker 4: want to sleep on the opportunity.
Speaker 3: We started this conversation by talking about resilience, and about
Speaker 3: four minutes into it you were talking about right cuts.
Speaker 3: What are the factors behind resilience of the year so
Speaker 3: far that you think are going to fade sufficiently enough
Speaker 3: that the Fed's cutting rates in early twenty twenty four.
Speaker 3: Can you identify the factors first and then just walk
Speaker 3: us through where you're seeing signs of weakness that you
Speaker 3: think will continue coming through that eventually are going to
Speaker 3: lead this fed to cut rates.
Speaker 1: Sure.
Speaker 4: So in terms of what's been driving the resilience, start
Speaker 4: first with the consumer. I think excess savings perhaps weren't
Speaker 4: drawn down as quickly as everyone thought they might have been,
Speaker 4: but we do see that kind of tapering to an
Speaker 4: end over the course of this year. You also have
Speaker 4: to consider the businesses and consumers. Both have been relatively
Speaker 4: insulated from interest rate pressures given that they locked in
Speaker 4: lower levels of financing. And you've got these tailwinds coming
Speaker 4: from the fiscal spending front related to the you know,
Speaker 4: more than two trillion dollars worth of infrastructure investment that's
Speaker 4: kind of you know, earmarked to be doled out over
Speaker 4: the course of the next ten years. So those are
Speaker 4: the reasons for resilience. And you add to that what
Speaker 4: we've been seeing in the labor market, which is pretty
Speaker 4: favorable trends when it comes to labor force participation, but
Speaker 4: to the extent that growth continues to slow and we
Speaker 4: are still calling for you know, flat to slightly negative
Speaker 4: growth in the first and second quarters of next year,
Speaker 4: maybe you do see a modest rise in the unemployment rate,
Speaker 4: and that I think continues to urge investors to heed
Speaker 4: some caution and not get two over the skis when
Speaker 4: it comes to adding risk.
Speaker 2: How much does that really hinge? An oil price is
Speaker 2: staying where they are, an inflation continuing to steadily come down.
Speaker 4: Look, I think oil prices are definitely kind of one
Speaker 4: of the you know, variables or X factors here. We'll
Speaker 4: be curious to see if prices do continue to consolidate higher.
Speaker 4: We're doing the work right now on our oil price outlook,
Speaker 4: but that could potentially change the outlook for the FED.
Speaker 4: And we know, just looking at the past year of data,
Speaker 4: right a year ago, when oil prices had exploded higher,
Speaker 4: that's when you had consumer confidence hitting all time lows.
Speaker 4: And so to the extent that we see that kind
Speaker 4: of rear its ugly head again, it could potentially weigh
Speaker 4: on the outlook and you know, bring a resurgence of
Speaker 4: bearish sentiment.
Speaker 3: Bring crude eighty five. At least this was great. Thanks
Speaker 3: for joining us and thanks for coming in of course,
Speaker 3: thank you. At least Austin, by that of JP Morgan
Speaker 3: Global Wealth Management, I could join us now seeing research
Speaker 3: ouna list at TD count Helene, let's talk about these
Speaker 3: airlines and the distinction that Lisa draws between the performance
Speaker 3: of the domestic focused airlines and international what's happening in
Speaker 3: the two markets at the moment, Helene.
Speaker 5: Well, Lisa hit it on ahead. We are seeing very
Speaker 5: good demand on the North Atlantic especially, and we're seeing
Speaker 5: less good demand in the US domestic market. And what
Speaker 5: we have been thinking is that twenty twenty one and
Speaker 5: twenty twenty two we're all about US domestic because there
Speaker 5: really wasn't a lot of places to go internationally. And
Speaker 5: now that the international markets are open again, people are
Speaker 5: traveling again, and we think this summer is all about
Speaker 5: Europe and next summer will be all about Asia, especially
Speaker 5: because the US passport is not going to get you
Speaker 5: as far as it gets you now, beginning in twenty
Speaker 5: twenty four, you're going to need a visa to go
Speaker 5: to Europe. You're going to need a visa to go
Speaker 5: to the UK. You can do it online, but it's
Speaker 5: going to cost you. And so I think you'll see
Speaker 5: that shift away from European countries to Asian countries.
Speaker 3: We've got a playbook with regards to that heline when
Speaker 3: we introduce the Esta visa for Europeans and others to
Speaker 3: come to the United States, do is it really hit
Speaker 3: travel in that way, given how easy it is to
Speaker 3: actually complete the thing. I remember many years ago I
Speaker 3: used to have to do that when I came to
Speaker 3: New York, when it actually moved the dial on visitors
Speaker 3: to Europe.
Speaker 5: Yeah, I think I think it'll be a combination of that.
Speaker 5: And I think fares have been really, really high this summer.
Speaker 5: It's turned a lot of people off if you didn't
Speaker 5: book really early. And then and I think as Asia reopens,
Speaker 5: it's kind of you know, we did Europe, Now let's
Speaker 5: go someplace new. And I think that's the trend you're
Speaker 5: going to see probably beginning after a Labor Day this
Speaker 5: year and then going into twenty twenty four and five,
Speaker 5: and it'll probably be twenty five before we get whatever
Speaker 5: normal is going to be. You know, that single digit
Speaker 5: growth that's probably sustainable. The ten to twenty percent growth
Speaker 5: we're seeing in the industry and we've seen in the
Speaker 5: last couple of years is just not sustainable for a
Speaker 5: whole variety of reasons.
Speaker 2: I have to say we've done Europe, now let's do Asia.
Speaker 2: It makes it seem like we're all just living in
Speaker 2: this hard mentality of post pandemic reality.
Speaker 6: Helene.
Speaker 2: I'm looking right now also at visas to go to Europe,
Speaker 2: and they range from it looks like seven euros to
Speaker 2: forty euros depending.
Speaker 1: On where you're going.
Speaker 2: Although I could be getting this somewhat wrong, Helene. How
Speaker 2: much is this driven by business versus personal travel? How
Speaker 2: long can individuals and families continue to pay prices that
Speaker 2: seem pretty sticky and.
Speaker 1: Unresponsive to demand pressure it Anyway.
Speaker 5: I've been trying to figure that question out too, because
Speaker 5: the answer to that too, because it seems to me
Speaker 5: when I go on a plane and I make a
Speaker 5: right turn, all these families are making the left turn,
Speaker 5: and I'm trying to figure out, Gee, I've paid a
Speaker 5: lot of money for my ticket. I booked it two
Speaker 5: months ago or ten weeks ago, and how come you're
Speaker 5: going there and I'm not. And I think that there's
Speaker 5: going to be pushback. I mean, I do think that
Speaker 5: people will just say, Okay, we you know, we bought
Speaker 5: all our stuff during the pandemic, and then we did
Speaker 5: all our traveling after the pandemic, and now We're just
Speaker 5: going to get back to kind of a normal lifestyle
Speaker 5: of working because I think over time, as we get
Speaker 5: further and further away from the pandemic, companies are going
Speaker 5: to require people, even in a hybrid environment, to come
Speaker 5: to the office more off and then they've been.
Speaker 7: Going and that won't lend itself to traveling Thursday to
Speaker 7: Tuesday or Thursday to Monday, and then business travel will shift, right,
Speaker 7: You'll see that shift and mix.
Speaker 1: You're laughing at me, Well, no, I'm not laughing at you.
Speaker 2: Just the image that you paint of everybody who's not
Speaker 2: working going with their families, paying through the nose to do.
Speaker 3: Your going to give us a commentary on newborn babies
Speaker 3: and business class and whether they should be allowed in
Speaker 3: there or.
Speaker 2: To I'm just sitting here wondering, you know, how long
Speaker 2: can people keep networking and spending all their money. Have
Speaker 2: you seen any signs of pushback on the pricing, Helene,
Speaker 2: as of yet or is all of your anticipation of
Speaker 2: that simply an extrapolation of pure logic.
Speaker 5: Yeah, I think it's a combination of both. We have
Speaker 5: seen pushback on pricing. You've seen domestic prices come down
Speaker 5: pretty much on a year over year basis from really
Speaker 5: levels that again we're not sustainable, so you're still above
Speaker 5: twenty nineteen levels, but we're below twenty twenty two levels,
Speaker 5: so I think that's a positive. And then you know,
Speaker 5: when you think about shifting demand, airlines can shift demand
Speaker 5: by lowering ticket prices and people will respond to that.
Speaker 5: And then the last thing I would point out is
Speaker 5: in terms of visiting friends and relatives. You know, China
Speaker 5: was closed for years, right, three four years and it
Speaker 5: opened earlier this year, and you don't see a lot
Speaker 5: of business travel there, some business travel. You don't see
Speaker 5: a lot of leisure for sure, but what you do
Speaker 5: see is a lot of people who couldn't get home
Speaker 5: for a couple of years going home. So that's the trend.
Speaker 5: And then six eight months a year later, you start
Speaker 5: to see tourists pick up. But for sure, we're seeing
Speaker 5: pushback on pricing. And every Tuesday I get fair sale
Speaker 5: offerings from a lot of the airlines. You know, just
Speaker 5: sign up for the email alerts to monitor discounts, and
Speaker 5: the discounts are deeper than they were six months ago.
Speaker 5: So yes, we're seeing some pressure on price.
Speaker 3: Helene, I've got ten seconds. So just pick a name
Speaker 3: favorite airline right now? Which stock is it?
Speaker 5: Yeah, we're still on United. Okay, well we're domestic and
Speaker 5: higher international.
Speaker 3: Scott Kirby getting it done over night, Helene, Thank you,
Speaker 3: Helene Becker of TD Jordan Rochester joins US now G
Speaker 3: ten FX strategiest for at Namura Jordan. What for to
Speaker 3: catch up with you, sir, Let's start with the Bank
Speaker 3: of England later this week. Is it twenty five? Is
Speaker 3: it fifty?
Speaker 8: Is it?
Speaker 3: What the ECB and the Federal Reserve delivered over the
Speaker 3: last week, which is a lot of communication about a
Speaker 3: ton of nothing?
Speaker 9: What is it?
Speaker 10: A ton of nothing? Well, in terms of the Bank
Speaker 10: of Ingland, we think they'll do twenty five. And the
Speaker 10: problem John for Sterling is that there's about thirty two
Speaker 10: and a half basis points price for that meeting, and
Speaker 10: that's going to move Sterling.
Speaker 9: Now, it's not too much.
Speaker 10: It's not like a fifty to fifty chance of them
Speaker 10: going for a fifty basis point hike at this meeting
Speaker 10: priced in. But you saw with the RBA overnight when
Speaker 10: there's around eight basis points are so priced in for
Speaker 10: potential hiking they don't deliver, it can see a big
Speaker 10: move lower in the currency. So it could be the
Speaker 10: case that on Thursday we have banking and doing twenty five.
Speaker 10: It's too early for them to declare a victory lap,
Speaker 10: that's the thing. So we think there's gonna be another
Speaker 10: few more hikes to come, maybe seventy five basis points
Speaker 10: overall from where we are now today this year, and
Speaker 10: that's the reason why sterling has relatively traded quite well.
Speaker 10: It's become a carry trade, John, it's one of the
Speaker 10: highest carry currencies the G ten. But all the charts
Speaker 10: we follow that tell us where inflation's going say it's
Speaker 10: going to slow down quite noticeably. So the good sector, John,
Speaker 10: really go to slow down this inflation is here. The
Speaker 10: problem with the UK with services inflation are indicators suggested
Speaker 10: it should have gone down starting around a few months.
Speaker 9: Ago, and it didn't.
Speaker 10: But the good news is the last CPI print was
Speaker 10: possibly the peak of service inflation in the UK. That's
Speaker 10: why the banking might take note of that and say,
Speaker 10: actually there's some early signs that policy is working to
Speaker 10: slow down that sector.
Speaker 9: But it's just one data point.
Speaker 10: We need a few more CPR reports until that victuy
Speaker 10: lap can be declared.
Speaker 3: On this side of the Atlantic, we've had a similar
Speaker 3: conversation about whether the Federal Reserve is sufficiently restrictive. When
Speaker 3: you put everything together that you've just said, Jordan, can
Speaker 3: you draw that conclusion that the Bank of England is
Speaker 3: sufficiently restrictive?
Speaker 9: I think they are. John.
Speaker 10: We're seeing evidence in terms of PMI, input prices, supply
Speaker 10: side all saying it's restrictive. Demand is slowing down, retail sales.
Speaker 10: All these sort of indicators are nowhere near astrong as
Speaker 10: what they were last year. But a lot of the
Speaker 10: analysis that goes into it sometimes just proves wrong in
Speaker 10: terms of the hard data. So the pms have been
Speaker 10: very weak on the manufacturing sector, but the industrial production
Speaker 10: figures haven't been as weak.
Speaker 9: The soft versus hard debate.
Speaker 10: So if you're looking at hard data, you're looking at
Speaker 10: realized inflation, you'd you're.
Speaker 9: The Bank of England saying we need to do more.
Speaker 10: But if you're in my space, if you're looking at
Speaker 10: the forward looking indicators, they suggest, yeah, we are pretty
Speaker 10: close to being sufficiently restrictive.
Speaker 2: That's over in England where John was mentioning UK housing
Speaker 2: prices which dropped the most since two thousand and nine,
Speaker 2: as you do see these rate increases, and we will
Speaker 2: talk about that later. Over in Europe and the European Union,
Speaker 2: there is a question around whether they are sufficiently restrictive
Speaker 2: at a time when core inflation has exceeded headline CPI
Speaker 2: the most going back to twenty twenty one, and at
Speaker 2: a time when you're starting to hear a little bit
Speaker 2: more of a dubbish conversation from some of the members.
Speaker 1: There can you still get bullish and long.
Speaker 2: Euro versus dollar if you do have that kind of
Speaker 2: shift even among the hucks.
Speaker 10: Indeed, we've had a shift already, and that's kind of
Speaker 10: why euro dollar has really fallen from the one twelve
Speaker 10: handle to where we are today just below one ten.
Speaker 10: We've had various moments this year where it felt like
Speaker 10: euro dollar might break to the upside and to the downside,
Speaker 10: but the pain has been this range that we've had
Speaker 10: for most of twenty twenty three. We need a trend,
Speaker 10: and these false breakouts are just mutton dressed as lamb.
Speaker 10: We need to have some sign that either the US
Speaker 10: disinflation story is strong enough and we'll see that dollar weakness,
Speaker 10: or that the ECB perhaps doesn't need to cut rates
Speaker 10: at all next year, or if they do towards the
Speaker 10: n Q four. If we get that sort of story,
Speaker 10: then euro dollar can be supported from the rates angle.
Speaker 10: But the problem at the moment, Lisa, equities are rallying,
Speaker 10: which is a reason to buy euro and it's the
Speaker 10: reason why we are long euro. We're looking for one
Speaker 10: fourteen by the end of September. But oil prices are
Speaker 10: picking back up and the rates market in the EGb
Speaker 10: space have softened. In terms of what's price for the
Speaker 10: ECB by your end, we think they're done. We think
Speaker 10: that's possibly the last rate hype by the ECB. Little
Speaker 10: bit of market price and that's left for year end.
Speaker 9: Will be disappointed. It's not too much.
Speaker 10: We are pricing less than one rate height now, but
Speaker 10: that is a drag on the euro. But if equities
Speaker 10: go to five thousand in the SMP like your previous
Speaker 10: guests were talking about, then the only way is for
Speaker 10: dollar weakness in that environment.
Speaker 2: In my view, how disruptive could higher oil process be
Speaker 2: and natural gas for that matter, given some of the
Speaker 2: recent disruptions and cost sun carriers.
Speaker 10: The biggest headache I have right now is oil prices.
Speaker 10: I would say it upsets the apple cart for sure,
Speaker 10: because the story is about US disinflation.
Speaker 9: Energy.
Speaker 10: Before this oil price rally was down forty percent year
Speaker 10: and new in the US, and if it had stayed
Speaker 10: at those levels before we had this rally, it would
Speaker 10: have really dragged down USCPI. But now we've seen retail
Speaker 10: gasoline prices in the US pick up by five percent
Speaker 10: towards the end of July, and it could go further.
Speaker 10: If we break ninety dollars a barrel in oil, I
Speaker 10: think central bankers will be too cautious and they'll say, actually,
Speaker 10: we don't need to even discuss about cutting grapes at all.
Speaker 10: We need to stay higher for longer or even surprise
Speaker 10: with another hike this year. And we think both the
Speaker 10: FED and the ECB are done. But if we have
Speaker 10: oil go to ninety dollars, let's say it goes to
Speaker 10: one hundred, that's clearly a mixture of supply concerns, but
Speaker 10: it probably is due to demand picking backups in a
Speaker 10: surprising fashion that we'll see a few central banks have
Speaker 10: to turn hawkish in the second half of this year,
Speaker 10: which we don't really expect. We think that most center
Speaker 10: banks are close to the end of their cycle. But
Speaker 10: if we get to ninety to one hundred lisa, a
Speaker 10: lot of things will have to change in the narratives
Speaker 10: that are out there.
Speaker 3: Jordan, I've got thirty seconds. Is it too early for
Speaker 3: aston Villa predictions for next season?
Speaker 10: Well, look, I think we're now a top ten club
Speaker 10: that's whole ten day after last year. Okay, that's a
Speaker 10: massive improvement of where we were when we had Gerard.
Speaker 3: Jordan, Rochester Namura with a subtle dig as Steven Gerrard
Speaker 3: Regina Mayor joints as clobal head of Clients and Markets
Speaker 3: over at pmg Regina, Let's start there and talk about
Speaker 3: this run and greater catch up with you and working
Speaker 3: program as always. What's on depending that rally through July
Speaker 3: and can it continue through August?
Speaker 8: Well, demand continues to outpace supply and opiq plus with
Speaker 8: its strategic cuts and even the Saudi's voluntary one million
Speaker 8: barrel per day that they've indicated they will extend through
Speaker 8: September has created buoyancy in the crew markets like Brent
Speaker 8: above eighty five, WTI once again above above eighty and
Speaker 8: that demand is outpacing supply. There are some analysts that
Speaker 8: are saying, when we're able to go back and analyze
Speaker 8: the actual demand figures that July, given it was one
Speaker 8: of the hottest months on record, or the hottest month
Speaker 8: on record, and we still rely on a lot of
Speaker 8: fossil fuels to drive cooling, that July of twenty twenty
Speaker 8: three will be the highest demand for hydrocarbons ever, outpacing
Speaker 8: August of twenty nineteen.
Speaker 3: Wow, Regina, where's that incremental demound coming from? Has it
Speaker 3: been Europe where we've had this massive heat the United States?
Speaker 3: Has it come from China? Where's it coming from?
Speaker 8: Well, China has just not given us the demand uptick
Speaker 8: that we keep expecting. I think I've been on your
Speaker 8: program multiple times and you know it's always Chinese demand
Speaker 8: will pick up in the next few months. Chinese demand
Speaker 8: will pick up in the next few months.
Speaker 1: The thing that's really.
Speaker 8: Created the added demand is industrial activity is picking up
Speaker 8: in the Western market. So the supply chain challenges, you know,
Speaker 8: the deep bottlenecking that's occurred, and the travel you all
Speaker 8: were talking about crews, passengers, there's still tremendous travel consumption,
Speaker 8: tremendous bullishness in the consuming population. We continue to consume,
Speaker 8: we continue to travel. Companies continue to produce, and that's
Speaker 8: driving record demand. On top of it's a really, really,
Speaker 8: really hot summer, and it takes a lot to drive
Speaker 8: the cooling.
Speaker 1: That we need, and it also is interrupting some of
Speaker 1: the processing. There was a piece out this.
Speaker 2: Morning talking about how the very hot weather has reduced
Speaker 2: some of the refining capabilities of certain companies. You also
Speaker 2: are seeing some of the shipping costs for even natural
Speaker 2: gas rising substantially over in Europe.
Speaker 1: How much is this fueling a call.
Speaker 2: From you that oil prices are going to go substantially higher,
Speaker 2: even natural gas over in Europe.
Speaker 8: I'm not as bit bullish that the prices will continue
Speaker 8: to go higher, Lisa. I do think that supply continues
Speaker 8: to meet the record demand that we're facing, and we're
Speaker 8: going to get a peak right summer. Travel is in
Speaker 8: the US is starting to tail off. I know in
Speaker 8: Europe it's kicking off for August, but there's an end
Speaker 8: to that, and so I don't think we'll see the
Speaker 8: big spikes that we've seen in the past. I think
Speaker 8: that demand continues to or supply continues to roughly meet demand.
Speaker 8: The story in the gasoline price spikes that we've seen
Speaker 8: in the US, it's just inventory. It's inventory inventory, inventory,
Speaker 8: and motor gasoline and refined products don't move around the
Speaker 8: world as well as as crew does, so they are
Speaker 8: very geographically specific. And in the US, motor gasoline stocks
Speaker 8: inventory stocks are down to its lowest level since twenty fifteen.
Speaker 8: I think that is a remarkable statistic.
Speaker 2: How do they rebuild that, especially at a time when
Speaker 2: there is concern about the strategic petroleum reserve of the
Speaker 2: US and there's a question about rebuilding that, and there
Speaker 2: is a lack of refineries in the United States.
Speaker 8: Yeah, so the refining industry has contracted significantly, but it's
Speaker 8: also incredibly more efficient than it ever was. Refineries are
Speaker 8: still running pretty flat out. The statistics I was looking
Speaker 8: at showed roughly ninety four percent utilization throughout the month
Speaker 8: of July, which is really about as high as it
Speaker 8: can get it. Maybe ninety five ninety six, but just
Speaker 8: a little bit a few basis points above what they're
Speaker 8: currently at. But we will see summer driving season come
Speaker 8: back down, the demand for motor gasoline will rationalize, and
Speaker 8: the refineries will be able to catch up. We will
Speaker 8: see a short term spike and gasoline prices, But I
Speaker 8: do see consumers seem to be less reactive to the
Speaker 8: price at the pump. Our survey KPMG recently did forty
Speaker 8: nine percent of consumers say they're moderately or concerned about
Speaker 8: the higher price of gasoline. That's down from seventy percent
Speaker 8: last year at this time. So I think there's less
Speaker 8: price sensitivity in terms of gasoline consumption as well.
Speaker 3: Regina, how do you do friendship between less price sensitivity
Speaker 3: and price is just not being as high as they
Speaker 3: were last year?
Speaker 1: Fairpoint?
Speaker 8: Fair point, John, But I do think because of this
Speaker 8: consumption boom and that there's inflationary pressure across a lot
Speaker 8: of activities. We've seen price spikes and different commodities like
Speaker 8: eggs over time, and you know, the prices for experiences
Speaker 8: and restaurant activity, travel costs, and we still see consumption moving.
Speaker 8: So I do think there is perhaps less price sensitivity
Speaker 8: overall with the consumer. Maybe we're becoming more immune to
Speaker 8: some of the inflationary impacts that'll only last for a
Speaker 8: certain period of time. But I do think we're benefiting
Speaker 8: from that lack of price sensitivity.
Speaker 3: Downtown, the airlines, Jana Thank you. Jina Mah of KPMG.
Speaker 2: We have been talking all day about the UK housing
Speaker 2: market and how much prices have declined. We're talking two
Speaker 2: thousand and nine levels at a time when the US
Speaker 2: has been bolliant, amazingly resilient, defin all expectations. Bizarre, however,
Speaker 2: you want to categorize at joining US now to do
Speaker 2: a much better job than I could. Jonathan Miller, President
Speaker 2: and CEO of Miller Samuel, who has an overview of
Speaker 2: US housing markets and global housing markets at a time
Speaker 2: where it has be fuddled pretty much everyone. What's your
Speaker 2: take on the resilience in a US market that should
Speaker 2: have been brought down by these higher rates akin to
Speaker 2: what we've.
Speaker 1: Seen in the UK.
Speaker 6: Right, It's the difference between variable and fixed rates. Most
Speaker 6: of the world relies on variable mortgage rates, and in
Speaker 6: the US people are locked in. Actually, the reason why
Speaker 6: we don't have a lot of inventory and inventory is
Speaker 6: the metric to focus on, or lack of listening inventory,
Speaker 6: and that's because people are wedded to their low rates
Speaker 6: because rates were probably kept too low for too long.
Speaker 1: There is a study that I was looking at.
Speaker 2: US homeowners are nearly twice as willing to sell if
Speaker 2: their mortgage rate is five percent or higher. But just
Speaker 2: one in five mortgaged homes.
Speaker 1: Meet that criteria. In other words, they have such low rates,
Speaker 1: they're not going to move right.
Speaker 6: It's like eighty percent, Yeah, eighty percent are sort of
Speaker 6: just sitting and waiting. There's uncertainty. Everybody's expecting a recession.
Speaker 6: We've been forecasting a recession for in six months for
Speaker 6: two years. You know, people are just sitting. When consumers
Speaker 6: are uncertain, they sit, they wait, and as a result,
Speaker 6: and also too people that may want to buy, they
Speaker 6: have to sell their house to do it, but they
Speaker 6: can't find a house, so they're stuck. Inventory is extremely
Speaker 6: low across most of the markets that we cover.
Speaker 2: Could you give us a sense of historical precedent of
Speaker 2: last time the inventory was so low. Basically, the number
Speaker 2: of homes on the market that you could potentially.
Speaker 6: Buy there hasn't been you know. The inventory now, for example,
Speaker 6: in Florida is sixty percent below pre pandemic levels. Many
Speaker 6: housing markets, you're looking at inventory thirty forty fifty percent
Speaker 6: lower than it was in twenty nineteen before the pandemic,
Speaker 6: when rates really dropped and demand surged and there was
Speaker 6: a frenzy. I'm not sure people realize how extensive the
Speaker 6: obliteration of listing inventory was during the pandemic. With rates
Speaker 6: being so low.
Speaker 1: Well, so here's a question.
Speaker 2: Right now, we see home builders going nuts, building as
Speaker 2: much as they possibly can because there is no inventory and.
Speaker 1: People need a place to live.
Speaker 2: If rates do come back down, if there is what
Speaker 2: of new housing supply? Could you see prices go down
Speaker 2: dramatically when the door is actually open to true price discovery?
Speaker 6: I think so. I mean the way to think of
Speaker 6: inventory coming back into the market. If rates drop substantially,
Speaker 6: you know, they're sort of in the sixes, you know,
Speaker 6: high sixes and low sevens. You know, if they're in
Speaker 6: the fives, maybe we start talking about more supply coming on.
Speaker 6: But we have unemployment at three and a half percent.
Speaker 10: You know, it.
Speaker 6: Seems like there's more rate cuts in store just on
Speaker 6: that item alone, which sort of goes in the opposite
Speaker 6: direction of rates falling.
Speaker 2: We were talking earlier about the UK, and I do
Speaker 2: want to just wonder if there is any corollary, what
Speaker 2: would happen in the US if there were variable rates.
Speaker 2: We saw prices fall at the fastest pace going back
Speaker 2: to two thousand and nine in the United Kingdom, they
Speaker 2: do have variable rates.
Speaker 1: We talked to at that earlier.
Speaker 2: Would that be what we would see in the US
Speaker 2: if we weren't shielded by a thirty year mortgage rate?
Speaker 6: Absolutely, that's you know, the idea here is that the
Speaker 6: psychologist people are locked in and they're able to enjoy
Speaker 6: a lower rate, while people new to the market can't.
Speaker 6: And there's a premium for that. And one of the
Speaker 6: premiums is to sit and wait. It's a luxury rather
Speaker 6: that to sit and wait. You don't have to. You know,
Speaker 6: we have home equity at you know, some of the
Speaker 6: highest levels in history. There's no stress for people having
Speaker 6: to sell economies pretty good. People just sit and wait.
Speaker 6: And so I think this whole process is going to
Speaker 6: take time, which as opposed to, you know, a few
Speaker 6: years rather than a few quarters.
Speaker 2: One thing that some people will say is that the
Speaker 2: housing market is bottomed and you're seeing a recovery. Is
Speaker 2: that an accurate way of careterizing a market that's essentially stagnating.
Speaker 6: So I think when you refer to that, the reference
Speaker 6: is really to pricing, because pricing has leveled off and
Speaker 6: is rising in some markets from pandemic highs if you will.
Speaker 6: But sales activity, you know, is still way off and
Speaker 6: the rate of descent is slowed. It's somewhat stable. But
Speaker 6: sales activity is held back because of inventory, and inventory
Speaker 6: is held back because of high rates, and high rates
Speaker 6: are held back because of low unemployment. I mean, it's
Speaker 6: just this whole domino thing.
Speaker 1: Talking about the domino effect.
Speaker 2: You speak to a lot of mortgage brokers, I'm sure,
Speaker 2: and people who work in real estate.
Speaker 6: Yes, what's the mood like, Well, it's interesting. Over the
Speaker 6: last year, there's been this sentiment that, hey, you know,
Speaker 6: rates are going to come down, and I keep asking
Speaker 6: the question. You know, with unemployment, you know, add or
Speaker 6: near record lows consistently, how can rates be cut? You know,
Speaker 6: maybe they'll drift lower. If the FED stabilizes for a while,
Speaker 6: we can. I think it's reasonable to expect that, but
Speaker 6: not a sharp decline. The economy is too strong on
Speaker 6: the unemployment side, so it really, you know, the FED
Speaker 6: is going to have to keep using their baseball bat
Speaker 6: to damage the economy.
Speaker 2: Well, if the rate structure, if we stayed around five
Speaker 2: and a half percent, or even if we go down
Speaker 2: to five percent, say for a full year. What does
Speaker 2: that do to inventory? What does that do to the
Speaker 2: mortgage market?
Speaker 6: So, first of all, that would be great to get
Speaker 6: things going. You know, rates in the mid fives even,
Speaker 6: I think would pull a lot more people into the market,
Speaker 6: which would not in a panic sort of flood of inventory,
Speaker 6: but it would be it would normalize to a certain degree.
Speaker 6: And we see transactions pick up right now because of
Speaker 6: the lack of inventory. We're seeing bidding wars start to
Speaker 6: approach forty to fifty percent of local housing markets, meaning
Speaker 6: sales that close above the last asking price. We're seeing
Speaker 6: some big numbers in certain markets, and that's because of
Speaker 6: chronic lack of supply. So the demand is still there
Speaker 6: even with higher rates. Yeah, so New York Metro is
Speaker 6: a prime example. In Southern California another example where we're
Speaker 6: seeing bidding wars at nearly half of the close transactions
Speaker 6: in the quarter last quarter.
Speaker 1: Are you seeing any soft patches?
Speaker 6: Not really, I mean, you know, soft patch to me
Speaker 6: would be defining it by price. Pricing is stable in
Speaker 6: terms of activity, sales that is certainly almost every market
Speaker 6: is very slow, and it's because everybody's stuck. No supply,
Speaker 6: no sales.
Speaker 1: Is a Sun Belt still as hot as it used
Speaker 1: to be?
Speaker 2: I mean, I shouldn't have said that bad metaphor, but
Speaker 2: i'm you know, is it still as popular?
Speaker 6: I should say as a star, I'd say it's hotter
Speaker 6: than outside the Sunbelt, but to use that same phrase,
Speaker 6: but yeah, I mean, but not as robust as it was.
Speaker 6: But I think in a lot of the Sun Belt
Speaker 6: markets inventory is even tighter than in say markets like
Speaker 6: the Northeast, where inventory while it's in many markets twenty
Speaker 6: percent off a pre pandemic, it's not sixty percent off.
Speaker 1: Jonathan Miller, thank you so much.
Speaker 2: This is really one of the most fascinating times I
Speaker 2: could possibly imagine for the housing market of Miller, Samuel.
Speaker 2: I look forward to reading your next report, which will
Speaker 2: highlight all of the latest trends. Subscribes the Bloomberg Surveillance
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Speaker 1: Thanks for listening.
Speaker 2: I'm Lisa Abramowitz and this is bloomberghm