Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jailely. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg terminal. But
Speaker 1: Michael J. F Margan Aid Management alongside us. Great to
Speaker 1: catch out with you above. As always, should we save
Speaker 1: Liverpool for later in the conversations? You want to start
Speaker 1: with markets. You had an interview with bloom Bake News yesterday.
Speaker 1: It was really really interesting about the risk that maybe
Speaker 1: this FED does not do enough. Can you talk to
Speaker 1: us about that risk? Yeah? I can't get two thousand
Speaker 1: and six out of my mind. The FED had raised
Speaker 1: rates from one percent to five and a quarter percent,
Speaker 1: four and twenty five basis points. Here we are today.
Speaker 1: They've raised rates by four hundred and twenty five basis
Speaker 1: points and then they stopped and was it enough or
Speaker 1: wasn't it enough? It took a while for things to
Speaker 1: slow down, and ultimately it ended in a financial crisis.
Speaker 1: But they got to five and a quarter. We're still
Speaker 1: at four in a quarter. Will they get to five?
Speaker 1: I think there's still a lot going on the labor
Speaker 1: markets type. China's reopening the housing market. Although prices are
Speaker 1: coming down, the competition for houses still very very high.
Speaker 1: So how conservative are you when it comes to this
Speaker 1: rally that was seeing a merge in the last couple
Speaker 1: of weeks, the last few months. Well, we've we've been
Speaker 1: part of it. We thought at the end of last
Speaker 1: year the markets were ripe for a rally. I was
Speaker 1: out meeting lots of clients in a lot of places,
Speaker 1: and a lot of them were telling me they're going
Speaker 1: back into the bond market for the first time in
Speaker 1: a while. And they didn't mean a year. A lot
Speaker 1: of them meant for the first time in sevent to
Speaker 1: eight years. But a lot of them were saying this
Speaker 1: is the first time they've been in the bond market
Speaker 1: since the financial crisis. So there was a lot of
Speaker 1: money desperate to get into bonds, waiting for high really
Speaker 1: else they got it. It's come in. The Fete's thrown
Speaker 1: a lot at this market. They're probably ripe for a pause.
Speaker 1: I think the market runs a bit more and then
Speaker 1: it pauses when the Fete pauses, I want to go
Speaker 1: back to two thousand six and your observation pre GFC
Speaker 1: and what's so important to me? And this goes without
Speaker 1: question the observation of the year last year, not seeing
Speaker 1: Toleb saying the gravity has returned to the system all
Speaker 1: of a sudden, the dynamics hearkened back to two thousand six,
Speaker 1: And what I remember then was the overshoot in real estate.
Speaker 1: It was hugely advanced, hugely inflated down we came in
Speaker 1: overshot through the lag regression. Are we going to see
Speaker 1: that this year with bonds where the yields the price
Speaker 1: moves so much that we overshoot in certain ways. Well, well,
Speaker 1: the overshooting real estate occurred because the apple supply of
Speaker 1: pretty much low cost money was around everywhere, and that's
Speaker 1: happened over the last couple of years. So that costless
Speaker 1: liquidity has been slashing around for a few years, and
Speaker 1: we've only recently started to remove it from the system.
Speaker 1: So yeah, I do get concerned that there will be
Speaker 1: an overshoot. We do get concerned that there are bubbles
Speaker 1: out there that will burst. It's really hard to identify them.
Speaker 1: But the one thing we're pretty sure of is the
Speaker 1: only way this ends is with the recession. You have
Speaker 1: to have a recession to really cool things down and reset.
Speaker 1: And REVS appreciated the Telegraph yesterday with Ken Rogoff. Lisa
Speaker 1: bram was talking with Kennan Dabos and Ken Roof may
Speaker 1: clear this is a different shadow bank than two thousand six,
Speaker 1: but nevertheless there are shadows within the banking system. How
Speaker 1: does that devolve in the JP Morgan fixed income? Well,
Speaker 1: by definition, shadow banking is shadowy. Um, so we need
Speaker 1: to be we can yeah, we need to be concerned
Speaker 1: about that, um. But there's a lot of shadow banking
Speaker 1: that's occurred in the private capital markets that have financed
Speaker 1: a lot of things that may have made sense two
Speaker 1: or three years ago, do they make sense today? Are
Speaker 1: there rightdowns coming there? Where? Will? There is there existence
Speaker 1: within private equity? I think we look at private capital
Speaker 1: in total, and we look at a lot of the
Speaker 1: private credit transactions. For sure, there are going to be
Speaker 1: restructuring exchanges. Is he talking about Menu? I'm not sure.
Speaker 1: I don't think so. Given us about this company, can
Speaker 1: we talk about how what's happening in private markets could
Speaker 1: introduce a new set of risk into public markets. I'm
Speaker 1: told repeatedly you are too that how you're the stronger,
Speaker 1: that the quality is much higher than it was maybe
Speaker 1: a few years ago, five, ten years ago, especially in
Speaker 1: the last decade. But do you push back against that
Speaker 1: knowing that there is this risk here in private markets
Speaker 1: that could spill into public markets. So I've heard those
Speaker 1: arguments before every single recession. This time, high yield will
Speaker 1: hold in. We have to remember, really the high yield
Speaker 1: market got started in the eighties when it became public
Speaker 1: and investors could get invested in it. So it's not
Speaker 1: been around for a long time and there have only
Speaker 1: been a handful of recessions. Every single time headed into
Speaker 1: a recession, it holds in well because this time is different,
Speaker 1: and every single time in a recession, credit spreads blow
Speaker 1: out to the minimum of eight hundred over and yes,
Speaker 1: it may look higher quality, but when defaults start to hit,
Speaker 1: when the economy goes into recession, when corporate profitability comes
Speaker 1: under a lot of pressure, investors will reprice that market.
Speaker 1: The one thing that I wearry about this time that
Speaker 1: is genuinely different is the amount of investment in the
Speaker 1: private credit markets. And if you start to have problems
Speaker 1: there where you start to get restructurings to fall exchanges
Speaker 1: that are in the neighborhood. Investors in no spaces may
Speaker 1: only have the public markets as their relief valve. You
Speaker 1: sound what you can, not what you want, defeature of
Speaker 1: what we could say. There's a question that's just been
Speaker 1: asked on the Bloomberg by a terminal subscribe, but I'd
Speaker 1: like to share with you. Could you ask Bob about
Speaker 1: how what's different this time versus two thousand and eight,
Speaker 1: and that we know the fen has que and they
Speaker 1: know how to use it. The risk of severe credit
Speaker 1: risk contagion was real back then, not anymore. Question mark,
Speaker 1: how would you respond to that? Um? I think what
Speaker 1: what is different this time is everyone's on the lookout
Speaker 1: for a bubble. There is there complacency or not. We've
Speaker 1: all been expecting a recession. It hasn't come yet. There
Speaker 1: are a lot of reasons why it may be pushed
Speaker 1: off until the back half of this year or maybe
Speaker 1: into two next year, and you do have new tools
Speaker 1: out there. I think one of the problem Albems is
Speaker 1: that while we have QUEE, we're also running QT now
Speaker 1: and that's an experiment that we haven't lived through before.
Speaker 1: I mean, let's face it, we are living through history
Speaker 1: and we don't know how it will be written. But
Speaker 1: we shut down the world for some period over the
Speaker 1: last three years, and now the last of it is
Speaker 1: just starting to emerge and return to normal, and we've
Speaker 1: got to adjust for all of that. It just seems
Speaker 1: very aspirational to me that it's all going to end
Speaker 1: in a soft landing, will reset and move on. Nothing
Speaker 1: about this is normal, that's for sure. But Michael J
Speaker 1: p muk and ASI management is going to be sticking
Speaker 1: with someplace to say going through to retail sales in
Speaker 1: about twenty minutes time. I think we can squeeze in
Speaker 1: some sport now. But what's going on your beloved Liverpool.
Speaker 1: We can talk about the Eagles in a moment because
Speaker 1: that's a better story, but your beloved Liverpool. I can
Speaker 1: take it this year last year with a bond bear market.
Speaker 1: If Liverpool had gone off the rows, that would have
Speaker 1: been a disaster. Right out there is a bond ball market.
Speaker 1: There has been some reset money's coming into the market.
Speaker 1: I can live with some restructuring of Liverpool. I like
Speaker 1: what Klop did in the f A club. He played
Speaker 1: the younger players. I'm hungrier they were live. You know,
Speaker 1: I'm the amateur here. Does the World Cup screw this up?
Speaker 1: I mean the TODs are playing in a cloud. Liverpool's
Speaker 1: SUBPARTI say the least. I mean, I get Arsenal there
Speaker 1: in the World Cup too, But the World Cup, as
Speaker 1: you say, in the middle of the season, has that
Speaker 1: it's disrupted. It's just it's disrupted me. I mean, I
Speaker 1: was just so I thought it might disrupt the teams
Speaker 1: with momentum in the Premier League. That was Arsenal in Italy,
Speaker 1: that was Napoli. We've restarted the season. No, I just thought.
Speaker 1: I just thought stopping for a month would disrupt the
Speaker 1: momentum of the high flying teams. And that hasn't happened.
Speaker 1: That was such a I'm learning every day. NOI they
Speaker 1: pulled it off. It was a great World Cup. Before
Speaker 1: we come back, Come on, is that a which one?
Speaker 1: Liverpool Chelsea not about thank Everton. There's another blue team
Speaker 1: up in Merseyside something code Evertson or you would code Avidson.
Speaker 1: So so full hamm is on the way in the
Speaker 1: Heathrow where so that would be a West London Derby
Speaker 1: Chelsea Fullham well it, thank you. The dysfunction here of
Speaker 1: the flows in the capital ownership of debt is tangible,
Speaker 1: and you see it with a Japanese another percentage of debt.
Speaker 1: Do you have an inherent fear within your strategy when
Speaker 1: you see ratios like two or where another nation on
Speaker 1: the eight percent of France's debt. I've got so many
Speaker 1: thoughts on the Bank of Japan one. I think they
Speaker 1: missed an opportunity. I would have done something today and
Speaker 1: keep the process going of get to something that looks
Speaker 1: normal while the rest of the world is doing it.
Speaker 1: We talk about the top end of the band is
Speaker 1: half a percent, the targets actually zero, and official rates
Speaker 1: are actually minus ten basis points. So there's a lot
Speaker 1: of room to get things looking somewhat normal while you're
Speaker 1: printing for percent inflation, and then start the process of
Speaker 1: transitioning the bond market out of the b o J
Speaker 1: hands into public hands, into private investor hands. Get that
Speaker 1: process going. Now. As I'm saying that, I also get
Speaker 1: concerned about what that means for assets in the rest
Speaker 1: of the world, because many of us in the markets
Speaker 1: for a long time have known that Japan is the
Speaker 1: mother of the carry trade that Japan finances carry trades
Speaker 1: in the US market car market someone from the Todds
Speaker 1: and borrows that. I get that that's jargon. What is
Speaker 1: a carry trade? A carry trade is to use the
Speaker 1: very low cost of funding in Japan and then take
Speaker 1: your capital at your call to funding and then send
Speaker 1: it to somebody like me to invest in the US
Speaker 1: bond market, in the corporate bond market at yields of
Speaker 1: four or five percent or higher. So you're enjoying a
Speaker 1: much higher yield than you would have by staying in
Speaker 1: the Do you think these changes that we're seeing in
Speaker 1: the last month, potentially again in March will change how
Speaker 1: you do business and ultimately on the behalf of other
Speaker 1: people who want to invest abroad from Japan. Well, I
Speaker 1: think we're already starting to see some signs of repatriation.
Speaker 1: We're starting to see some clients that have had money
Speaker 1: um in the US market start to take it back
Speaker 1: and put it back into the Japan bond market. And
Speaker 1: when you look at US assets hedge back to end,
Speaker 1: you're actually coming out at a yield that's significantly lower
Speaker 1: than where the j GB market is. So a lot
Speaker 1: of it is the dynamic of the inverted yield curve
Speaker 1: in the U S, so so that's pretty punitive. I
Speaker 1: think the Bank of Japan has to be careful how
Speaker 1: they unwind all these things so they don't create this
Speaker 1: frenzy of repatriation. But as I said, I think they
Speaker 1: can be consistent without creating this sort of frenzy. There
Speaker 1: is a part of me that thinks, great price discovery returns,
Speaker 1: we can start calling these places markets again. Then I
Speaker 1: look at the size of the balance sheets and I
Speaker 1: just think, well, there's a real stock effect here that's
Speaker 1: going to exist for a long long time. But there's
Speaker 1: two ways of looking at it. Isn't that this is
Speaker 1: the final anchor around the neck global bond yields about
Speaker 1: to be released by Japan and that should should have
Speaker 1: some real consequences. The other way of looking at it
Speaker 1: is still we have these massive balance sheets at the ECB,
Speaker 1: the Federal Reserve, the b LJ. They're going to be
Speaker 1: around for a long time. Which one is it? I
Speaker 1: think it's both of those. This is the conversation I'm
Speaker 1: having a lot with our clients because we think we
Speaker 1: have put in a secular low and bond yields and
Speaker 1: a secular, the end of the secular free for all
Speaker 1: in ustless capital, and and we're in a trend that
Speaker 1: will return the cost of funding to something that looks
Speaker 1: historically more normal central bank rates, bond market rates to
Speaker 1: something that looks more normal. But it doesn't happen all
Speaker 1: at once. You don't go from zero to but on
Speaker 1: their time continuing, whatation are you in two years, two months,
Speaker 1: in three months, library to diamond. We got to be
Speaker 1: in three month library com It took twenty seven years
Speaker 1: to get the Fed funds rate from t to zero person,
Speaker 1: and you had a series of lower lows and lower highs.
Speaker 1: I think we're seeing the mirror image of that. We're
Speaker 1: going where we're going to have a series of higher
Speaker 1: highs and higher lows. But every three to five hundred
Speaker 1: basis points shift in the cost of funding through central
Speaker 1: bank rates will have an impact, and then they'll have
Speaker 1: to come back and take some of that back, and
Speaker 1: then they'll start up again. I got two minutes on
Speaker 1: the clock. I've got to fit this in. And I've
Speaker 1: talked about this before. This is a huge thing that
Speaker 1: I think you're really at the forefront of. You're basically
Speaker 1: saying that it's going to take several cycles to basically
Speaker 1: unwind what we've seen over the last several decades. Can
Speaker 1: you tell me what's changing the secular story of the
Speaker 1: last thirty years and why you're projecting that out the
Speaker 1: next several cycles. What's changed? What's that powerful story that's
Speaker 1: going to unwind all of this? Well, there's one, certainly
Speaker 1: in the developed markets. I remember after the financial crisis,
Speaker 1: we're all sitting there going, oh my god, what do
Speaker 1: we do with all this housing stock? The baby boomers
Speaker 1: are rolling over into retirement, and the millennials are too young.
Speaker 1: The one burst at the time were what they were
Speaker 1: seventeen years old. Well, guess what, fourteen years has just passed.
Speaker 1: The births are now thirty two years old, still living
Speaker 1: with me, but well they're they're hitting their peak of earning, spending,
Speaker 1: and saving, much like the baby boomers did in the
Speaker 1: nineteen eighties, and suddenly all the housing we didn't invest
Speaker 1: in after the financial crisis we need it back again.
Speaker 1: So there are some real capital expenditure plans out there,
Speaker 1: sustainable investment, defense, infrastructure, healthcare, education, Those are things that
Speaker 1: a new emerging population of millennials X Y Z whatever
Speaker 1: you want to call it, they're going to be willing
Speaker 1: to spend an invest in. But Michael, this is awesome
Speaker 1: from Jay fantastic. It was too smart. I couldn't you go?
Speaker 1: Second question? Maybe next? Well, I want to try and
Speaker 1: understand from the Europeans time is whether the situation we
Speaker 1: went through this summer, last summer fearing this winter, whether
Speaker 1: we repeat that act this coming summer approaching next winter.
Speaker 1: Someone who help us with that? Simon French chief economist
Speaker 1: Pamer Gordon in the British media, particularly writing some really
Speaker 1: thoughtful essays. Simon, thank you so much for joining today.
Speaker 1: At the margin, it seems like Europe is being buffeted
Speaker 1: by good news, including Chinar reopening his Pam your Gordon
Speaker 1: shifted the two thousand twenty three euro call. No we haven't.
Speaker 1: We went into the year thinking that it's actually the
Speaker 1: behavioral response you were looking for across two parameters would
Speaker 1: play out in terms of a more dynamic behavior. One
Speaker 1: of those two parameters first of all, energy usage, and
Speaker 1: I think Jonathan gave a good sort of tea up
Speaker 1: in terms of next winter, what are the dynamics. Well,
Speaker 1: the strongest argument for why the dynamics might be more
Speaker 1: favorable than consensus, is that you're seeing quite significant behavior
Speaker 1: change in terms of energy consumption, which there is no
Speaker 1: reason with the extra twelve months why that can't actually
Speaker 1: be amplified. And the second thing we're seeing in corporate results,
Speaker 1: not just across Europe, but you mentioned, you know, corporate
Speaker 1: results in the United States as well, is signs now
Speaker 1: that households, which have paradoxically strengthened their balance sheets over
Speaker 1: the last two to three years, starting to divest more rapidly.
Speaker 1: Actually in the US them all the way through that cycle.
Speaker 1: But we're starting to see the data in Europe suggesting
Speaker 1: that the backing of Q four, where it was thought
Speaker 1: of a slamming shut of the European wallets, was not
Speaker 1: that path. We saw both those behavioral changes coming to pass.
Speaker 1: I think the data is on our side, but look,
Speaker 1: we're still early days. There could be a new year hangover, right, Simon.
Speaker 1: We're talking earlier about the glide path and interest rates.
Speaker 1: There's an idea of disinflation, maybe ever so slight in
Speaker 1: the United Kingdom as well. There's a I'm gonna call
Speaker 1: the zeitgeist understanding in the United States. We come down,
Speaker 1: we don't know where to five percent four percent? Dare
Speaker 1: I say three percent? Maybe not two percent? Is there
Speaker 1: a consensus understanding of a disinflationary vector in Europe? I
Speaker 1: don't see it. No, No, there isn't in your the
Speaker 1: ECB commentary which you've been alluding to, if you like,
Speaker 1: reflect the national interests of the national governments in terms
Speaker 1: of how their economies may have quite different experience of
Speaker 1: stubborn core inflation, which really is going to be the
Speaker 1: headline piece of data, perhaps not on our screens each morning,
Speaker 1: but in terms of what's going to affect the ECB
Speaker 1: response function in each of the ECB Governing Councils decisions.
Speaker 1: So the fact that we have amongst investors a very
Speaker 1: very different view as to whether actually you mentioned a
Speaker 1: glide to five for three. I mean, there are quite
Speaker 1: a number of people who think will see active disinflation
Speaker 1: over or deflation by the sort of middle part of
Speaker 1: twenty four versus those people, and I think I sit
Speaker 1: in the latter camp who expect quite a lot of
Speaker 1: quite stubborn, quite sticky inflation because a lot of corporates
Speaker 1: are trying to rebuild margins, trying to delay the past
Speaker 1: through that they couldn't do in one go because of
Speaker 1: the price shocks of twenty twenty two, and therefore they're
Speaker 1: going to pass them through in twenty five as part
Speaker 1: of rebuilding their corporate margins and a delayed pastor of
Speaker 1: invasionary pressures. Something. Can we talk about who's in the
Speaker 1: driving seat at the European Central Bank? I got the
Speaker 1: impression at the last meeting with President the Guard that
Speaker 1: really felt like the bunders Bank was back in control.
Speaker 1: It was so punchy, the most hawkish I've ever heard
Speaker 1: her in a news conference. What did you make of
Speaker 1: that that it was going to be data dependent? Yes,
Speaker 1: it was hawkish, but as always, and we mustn't you know,
Speaker 1: this is far too clever an audience to fall into
Speaker 1: the idea that these are unconditional statements. For years both
Speaker 1: you know, when policy was left to the zero bound
Speaker 1: and we were talking about when we were going to
Speaker 1: leave that, and now when we're talking about the pathway
Speaker 1: through to a plateau through a terminal rate, we have
Speaker 1: to recognize that statements, even one as punchy as Decembers,
Speaker 1: was conditional to how the data revolves. And though the
Speaker 1: fact that we have now in devils this week and
Speaker 1: we're going to get in the run up to the
Speaker 1: next ECB Governing Council different takes on that data is
Speaker 1: that if you like turf war going on on, how
Speaker 1: you interpret that stickiness of involation and the degree to
Speaker 1: which that commentary and December persists through Q one there
Speaker 1: was a phrase that echoed in December. It was sufficiently restrictive,
Speaker 1: started with the Fed. We heard it at the e
Speaker 1: c B as well. If you'd ask me, Simon, what
Speaker 1: was sufficient restrictive for this c c B maybe a
Speaker 1: year ago, I'd say they're struggling to get to one, two,
Speaker 1: not three, because I thought this market would just completely
Speaker 1: collapse under the weight of what they were doing. Simon,
Speaker 1: that hasn't happened in a way that many people, including
Speaker 1: myself anticipated. I guess my question to you is, first
Speaker 1: of all, why do you think that is? Is the
Speaker 1: bondmarket more resilient than we thought it would be? And secondly,
Speaker 1: where do you see sufficient restrictive now? With that in mind? Well, look,
Speaker 1: that's very honest, Jonathan. Myself, I would put also put
Speaker 1: myself in the camp the urine, which I didn't. I
Speaker 1: didn't see this so We have to have a degree
Speaker 1: of humility, don't we when we're appraising what happens next.
Speaker 1: But in terms of why we haven't seen the level
Speaker 1: of if you like, market capitulation in the face of
Speaker 1: a rising rescree rate, there are two things to know
Speaker 1: on There is a delayed pass through. Monetary policy has
Speaker 1: famously long and variable lags. Have we seen the full
Speaker 1: impact of monetary tightening, particularly in private markets in fixed
Speaker 1: US every pricing the revaluation cycle though, I don't think
Speaker 1: we have, so the jury is still out in terms
Speaker 1: of long term economic impact. But and I've written quite
Speaker 1: a lot about this, and I think Tom has alluded
Speaker 1: to this in is very kind intro is potentially a
Speaker 1: return to a higher risk free rate has a nice
Speaker 1: side effect in terms of productivity improvement, the allocation of capital,
Speaker 1: the type of thing that has undermined economic growth. You know, Tom,
Speaker 1: I know you've talked a lot about the impact of
Speaker 1: financial repression on trend economic growth, on productivity. Potentially investors,
Speaker 1: and I've talked a lot investors who see the potential
Speaker 1: corallary of a high risk free rate return to more
Speaker 1: normalized levels of productivity and a welcome return that may
Speaker 1: be one of the explanatory factors. I mean, this is
Speaker 1: really important, folks in this centers on my optimism here
Speaker 1: and things clear. Corporations change if there's a misjudge. I
Speaker 1: was suggest Simon's led by the European, the American, the
Speaker 1: Pacific rim consumer is well, it pam your gordons some
Speaker 1: together your confidence the consumer can deliver the goods well
Speaker 1: if you take the data points in terms of the
Speaker 1: excess savings that took place throughout the pandemic years one.
Speaker 1: With the U S consumer has begun quite a considerable
Speaker 1: divestment phase, but they still have While the savings ratio
Speaker 1: is normalized and will possibly unders it is starting to undershoot.
Speaker 1: There is still a stock effect that can support consumer
Speaker 1: spending Europe and I include the UK, and this is
Speaker 1: on a much more delayed pathway. We've only just begun
Speaker 1: that divestment phase. But it's it circles round to consumer confidence,
Speaker 1: to sentiment. The degree to which balance she flecks from
Speaker 1: consumers is buttressed by the fact that the labor market
Speaker 1: remains strong. You think, UK, you don't need as much
Speaker 1: of a rainy day fund for potential redundancy unemployment because
Speaker 1: you think the labor mark will main strong. Those indicators
Speaker 1: are still very robust, and that allows if you like
Speaker 1: a divestment cycle to support the consumer. If the labor
Speaker 1: market starts turn, then we get a very very different
Speaker 1: response function in terms of consumers. And we'll see corporate
Speaker 1: reporting replicate that sentiment. Simon super smart as always, buddy,
Speaker 1: And it has been way too long as said this
Speaker 1: against so Simon French. There of Penmilk, Gord and some
Speaker 1: on the latest on the European and I guess global
Speaker 1: economy as well. Let's get the economic look and John,
Speaker 1: I want you to help me out your Veronica Clark
Speaker 1: conframe for the city group conundrum, which John I believe
Speaker 1: is Mr Hall and Hors discusses fifty or twenty five
Speaker 1: basis points? Do you want to bring Ms Clark in
Speaker 1: so we can decide and make some news that they
Speaker 1: had called a wonderful two let's talk about twenty three. Veronica,
Speaker 1: thank you for being with us. You've been leaning towards
Speaker 1: this idea. It that we get another fifty basis point
Speaker 1: move from this feder reserve. How challenge do you think
Speaker 1: that for you is now with the incoming information? Yeah,
Speaker 1: I mean it was already a close call. I think
Speaker 1: even going back a week ago when we got cp
Speaker 1: I UM and certainly what we've we've heard from FED
Speaker 1: ever since. UM. I do still think though that the
Speaker 1: market could be under appreciating, you know, the chance that
Speaker 1: the FED would opt to go fifty UM. I think
Speaker 1: the market is misinterpreting. You know that the FEDS commitment
Speaker 1: to getting rates above five percent. Certainly, Veronica, we're all
Speaker 1: slaves to the data. Every FED in every textbook and
Speaker 1: every history book is data dependent. You guys got out
Speaker 1: front of this, and the data has backed up the
Speaker 1: city group. Uh call, what is the data that matters
Speaker 1: to you? Less to February one and much more to
Speaker 1: look on to what we see May three or June fourteen. Yeah,
Speaker 1: I mean, I think the most important data is still
Speaker 1: inflation data UM and I would bump along with that,
Speaker 1: you know, wage data. Maybe we've seen some signs of
Speaker 1: of wage growth slowing, but you still have such a
Speaker 1: tight labor market that I wouldn't necessarily expect wages slowing
Speaker 1: back to something consistent with supercent inflation UM and and
Speaker 1: the most important inflation data I think should be the
Speaker 1: Fed's preferred core PC measure UM and some of the
Speaker 1: details of pp I that we got this morning will
Speaker 1: matter for that we are still expecting, you know, stronger
Speaker 1: COREPC than than what the Fed even has UM, certainly
Speaker 1: than what the markets expecting. Are you going to reaffirm
Speaker 1: right now? Fifty basis points? Is that what I'm hearing? Yeah,
Speaker 1: I think that that chance is still under appreciate it.
Speaker 1: We do have some some important FED speakers still to
Speaker 1: hear from UM, and the chances is lower, you know,
Speaker 1: certainly UM. But we also wouldn't necessarily adjust how high
Speaker 1: we think rates will end up going, even if it's
Speaker 1: not a fifty in February, would just expect that the
Speaker 1: Feds hiking for longer. Did she make news? Then start
Speaker 1: to the script I'm trying it calls any Trump trying
Speaker 1: for that was great. Thank you for the clock their
Speaker 1: City Global Markets, Lisa Brando's They're justin from the piano bar.
Speaker 1: Let me get my surveillance watch out and look at
Speaker 1: the time changes. Lisa Brandmos was one of my favorite people.
Speaker 1: Foughty b Roll of I e a good morning, Lisa,
Speaker 1: Good morning Tom, and thank you for that. I am
Speaker 1: here with Fotty b Roll executive director of the International
Speaker 1: Agency for Energy, And there is this question here at
Speaker 1: a time when you are the busiest ever of trying
Speaker 1: to get a handle in an energy market that has
Speaker 1: defied everyone. I was speaking yesterday with Chevron CEO and
Speaker 1: he said he could see an argument for oil prices
Speaker 1: going to a hundred and fifty are going to fifty dollars?
Speaker 1: Do you agree? I think he's a businessman. I am
Speaker 1: sure he knows what he's talking about because he makes
Speaker 1: money or loses money, and I hope he is a
Speaker 1: good view about the markets. But an allocate the markets
Speaker 1: this two empty three. There are many many uncertainties. But
Speaker 1: if you ask me who is the big biggest uncertainty,
Speaker 1: I would say it is China. The reason is very simple.
Speaker 1: Last year two, for the first time since forty years,
Speaker 1: Chinese oil and gas demand declined, so it never happened
Speaker 1: in the last fourty years. And this year Chinese economy
Speaker 1: is reopening, and we may see Chinese economy growing strongly.
Speaker 1: And if Chinese demand for oil is strong, it would
Speaker 1: put upward pressure on the process. So China is for
Speaker 1: me the biggest perhaps uncertainty, followed by the oil producing
Speaker 1: countries policies. Okay, so we'll get into the oil produces
Speaker 1: countries policies. Sticking with China for a moment, do you
Speaker 1: have a sense of how much energy, how much call,
Speaker 1: how much crude they've already stockpiled to get ahead of
Speaker 1: a reopening they could potentially dampen, how much activity could
Speaker 1: translate directly into demand for cruite. No. I think the
Speaker 1: Chinese oil demand will definitely increase this year. The question
Speaker 1: is how much. There is no question that. I don't
Speaker 1: believe that if there's a reopening of China which cost smoothly,
Speaker 1: as the Chinese leaders here and in China claim, it
Speaker 1: may mean and that the Chinese oil demand will increase
Speaker 1: unluck last which decline. So it means that it will
Speaker 1: be the biggest driver of the global oil demand because
Speaker 1: when you look at it in the in a normal year,
Speaker 1: about half of the global oil demand growth comes from China.
Speaker 1: Other half of the growth comes to everybody put together.
Speaker 1: So therefore Chinese oil demand will bring about eight hundred
Speaker 1: nine day additional oil demand growth to the markets. You
Speaker 1: just put out a paper that said that we're actually
Speaker 1: oversupplied right now, that there is more oil than there
Speaker 1: is demand in the markets. How much would it take
Speaker 1: to change that? Very little, because the cushion is not
Speaker 1: as big as the consumers of the would like to see.
Speaker 1: It's a very tiny bit. If the Chinese economy, for exams,
Speaker 1: surprises us on the higher side, if the economic grows
Speaker 1: instead of four persons in five six percent, that cushion
Speaker 1: will disappear very quickly. So therefore, VI should be relaxed
Speaker 1: to see that the oil markets this year will be
Speaker 1: comfortable and we have that any problems this will be
Speaker 1: more on the optimistic side. Looking from the the words
Speaker 1: consumers point of view, are there any lessons taken? And
Speaker 1: from what we saw in the summer of last year
Speaker 1: with respect to demand destruction? At what level the price
Speaker 1: has to get to include where people to stop buying?
Speaker 1: And there's sort of a natural ceiling. And it's depending
Speaker 1: on the country. I mean, it's different in the United States,
Speaker 1: different in Europe, different in India and the lower income countries.
Speaker 1: But I see that if the process come around seventy
Speaker 1: seventy five dollars, it is that a good signal for
Speaker 1: the consumers around the world, but that that's a good
Speaker 1: conflict that they will continue to buy. But higher than that,
Speaker 1: not so much. It's especially for the value located numbers.
Speaker 1: It's especially for the developing world, which is the most
Speaker 1: important one, because their financial musters are much weaker compared
Speaker 1: to North American or the European or the Japanese consumers.
Speaker 1: I think it's above SI it becomes a very difficult
Speaker 1: for them to absorb that increase In the presence, Do
Speaker 1: you feel like there needs to be more investment in
Speaker 1: fossil fuel companies that have been abandoned in the past
Speaker 1: couple of years for E s G types of priorities.
Speaker 1: I think the when talk about for some United States,
Speaker 1: I don't think that the oil companies have difficulties to
Speaker 1: invest in terms of available toy of the money. They
Speaker 1: have a lot of money in their pocket, and I
Speaker 1: think what they have preferred instead of investing, they have
Speaker 1: preferred to pay it back to the the shareholders. And
Speaker 1: when you look at the last year twenty two the
Speaker 1: oil and gas industry, the windfall revenues reach for trillion
Speaker 1: US dollars. In a normal year, normal it's about one
Speaker 1: point five trillion, and last year they make four trillion.
Speaker 1: So nobody can commission that they don't have enough money
Speaker 1: to invest. To be honest with you, it missed. They
Speaker 1: don't have the intention they pay back to their shareholders.
Speaker 1: We've been talking about the potential for an upside surprise
Speaker 1: with respect to demand if China comes back online. What
Speaker 1: if there is a fairly deep recession or even a
Speaker 1: mild recession. How much could oil prices fall from here
Speaker 1: just because of people honkering down and not being as active.
Speaker 1: I think if depending on how deep recession is, how
Speaker 1: vital recession is. But if it's a mild recession, I
Speaker 1: don't think that we will see a big drop of
Speaker 1: the the oil process as we have seen during the
Speaker 1: COVID times, but it would definitely put a downward pressure
Speaker 1: on the process if there's a wide spread session around
Speaker 1: the world. But I don't believe that China, the largest
Speaker 1: oil important of the world, we'll go to a recession,
Speaker 1: hopefully not this year. How do you think that the refueling,
Speaker 1: the refilling I should say, of the strategic patrol reserve
Speaker 1: in the US this year, potentially starting next month, will
Speaker 1: affect pricing. Do you think that this is sort of
Speaker 1: going to be a swing factor in I don't believe so.
Speaker 1: I believe the US government will make it in a
Speaker 1: gradual manner and a careful manner so that it doesn't
Speaker 1: create a major challenge for the oil markets. And we
Speaker 1: should not forget it when the process shoot up about
Speaker 1: our hundred dollar The spr created a very good role
Speaker 1: for US and for the global oil markets. So you
Speaker 1: actually thought it was a positive move very much. So
Speaker 1: I think I believe all U S citizens and the
Speaker 1: entire gold should be very hippy to have sprs in
Speaker 1: the United States and many other countries in the world.
Speaker 1: Fatty buall of the I A A thank you so
Speaker 1: much for being with us, John setting it back to you.
Speaker 1: Thank you fantastic work Ans always she missed over here
Speaker 1: in New York City. Laser pramis alongside Fanny Baby Robert
Speaker 1: of the I A with the iconic Bank Trump in Dallas, Switzerland, SUMP.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
Speaker 1: us live weekdays from seven to ten a m Eastern
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from
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Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg