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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: One of the great moments for Bloomberg's Surveillance is when

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Speaker 2: research notes are accompanied by the bow tie. Yes, I'm

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Speaker 2: in the background, hidden in the blurry view, but far

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Speaker 2: more important is Klaus the beast has a bow tie

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Speaker 2: on celebrate you the ninth birthday of Michael dartis dog Klaus.

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Speaker 2: I'm a vineyard, Michael Darta joints this morning. Is Klaus

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Speaker 2: Wisconsin a bow tie today? Michael?

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Speaker 3: Well, actually, Tom, Klaus is under the covers. It's a

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Speaker 3: little chilly this morning, so he has not arisen just

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Speaker 3: yet a little.

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Speaker 2: It's a little chick Washington. How does the international relations

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Speaker 2: moment fold into the markets or is it a distraction?

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Speaker 3: You know, that's a good one, Tom. You know, I

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Speaker 3: hate to be kurt here, but I think unless you're

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Speaker 3: really looking at a big disruption of commerce, these geopolitical

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Speaker 3: events don't have to don't tend to have large lasting

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Speaker 3: effects on market. So at least if we're talking about

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Speaker 3: the US equity market, I don't think you're going to

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Speaker 3: see much more than a fleeting impact here, unless there's

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Speaker 3: some kind of big, unexpected breakthrough, and then maybe you'll

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Speaker 3: get a little bit more than that, But you know,

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Speaker 3: my guess is that it won't be material and long lasting.

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Speaker 4: Michaels about a year ago that the FED began cutting rates.

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Speaker 4: Some folks are saying, all right, let's do a reducs

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Speaker 4: here this year. How do you expect their federal reaction

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Speaker 4: in September maybe guide for the remainder of the year.

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Speaker 3: Well, the markets are fully now for a twenty five

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Speaker 3: basis point rate reduction in September, and over the course

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Speaker 3: of the next year, markets are expecting the FED policy

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Speaker 3: rate to drop a little more than one hundred basis points.

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Speaker 3: But my view here is that a go slow approach

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Speaker 3: is appropriate. When I look at tracking estimates for the

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Speaker 3: third quarter, it looks like we're running pretty close to

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Speaker 3: five percent nominal. So Tom Keane figure there a five

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Speaker 3: percent nominal growth handle, frankly, is not indicative an economy

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Speaker 3: that needs emergency rate cuts.

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Speaker 5: And if you think about.

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Speaker 3: Where we were last fall when the FED kicked off

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Speaker 3: the easing with a fifty basis point reduction. We were

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Speaker 3: coming off peak policy rates one hundred basis points higher

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Speaker 3: than they are today. In the unemployment rate had been

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Speaker 3: moving up, triggering certain recession alarm bells. Inflation expectations were

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Speaker 3: rolling over really hard. That's not happening today's. So I

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Speaker 3: think against the current backdrop, the FED needs to be

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Speaker 3: pretty gradual, definitely. You know, I think the Treasury Secretary

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Speaker 3: out there saying, you know, the Fed's one hundred and

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Speaker 3: fifty to one hundred and seventy five basis points too high.

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Speaker 3: I don't know where that comes from. That looks completely

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Speaker 3: pop based to me.

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Speaker 2: You're thank Jonathan Ferrell for that interview that was talked

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Speaker 2: about to say the least last week. We welcome all

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Speaker 2: of you across the nation, and Serious XM channel will

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Speaker 2: help me. Paul one twenty one, Sure the Brain goes

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Speaker 2: on a Monday Channel one twenty one, Good Morning, Serious XM,

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Speaker 2: Hot applecar Play and Android Auto, ninety nine to one FM,

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Speaker 2: Karen Mosca Radio OH in Washington nineties and nine FM

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Speaker 2: in Boston. Good Morning, Bloomberg eleven three OLO on YouTube

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Speaker 2: on the vineyard on Nantucket. Subscribe to YouTube in your

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Speaker 2: office or at the beach house with Klaus Paul.

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Speaker 4: So, Michael, it looks like the consumer is kind of

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Speaker 4: hanging in there here. I mean, how do you view

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Speaker 4: the consumer with all these crosswinds out there?

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Speaker 3: The consumer is hanging in there, Paul, that's good news.

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Speaker 3: So right now it looks like real consumer spending is

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Speaker 3: probably running just above two percent for the third quarter. Again,

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Speaker 3: that's not a picture of an economy that necessarily needs

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Speaker 3: emergency policy rate reductions. And I think the reason for

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Speaker 3: that is we're coming through this uncertainty fog. Now. We

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Speaker 3: obviously got hit with with a big uncertainty and confidence

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Speaker 3: shock earlier in the year, but the labor market has

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Speaker 3: remained fully employed despite the slowdown in job growth. The

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Speaker 3: unemployment rate has been dead flat for the last year

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Speaker 3: four point two percent. That's fully employed based on any

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Speaker 3: reading of history. And you also have very high asset

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Speaker 3: prices right household net worth has been moving up with

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Speaker 3: the stock market, and as long as layoffs stay low here,

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Speaker 3: I think that's really the key feature. Because the labor

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Speaker 3: force growth has slowed with the shuttering of the border.

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Speaker 3: If layoffs, starts shooting up, that's a different story. But

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Speaker 3: those first time claims have been low hand stick.

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Speaker 2: You know.

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Speaker 6: Paul.

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Speaker 2: Somebody emails in they go is it too early to

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Speaker 2: go Nerd?

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Speaker 6: I said, it's never too early to go Nerd. We

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Speaker 6: go Nerd with Michael Darta.

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Speaker 2: Michael, you know we've got a wonderful tailor rule function

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Speaker 2: on the Bloomberg folks. It's got one, two, three, four, five, six,

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Speaker 2: seven plugins and John W. Taylor's out of Stanford is classic,

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Speaker 2: classic rule right now, the tailor rule, as you suggest,

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Speaker 2: Michael suggests rates where they are as fine and Secretary

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Speaker 2: Besson is wrong, wrong, wrong. Which attribute in the Taylor

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Speaker 2: rule is the most data unknown? Is it nayru, It's

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Speaker 2: not a jacket, folks. Is it the inflation? Guests? Which

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Speaker 2: is the variable most up to debate?

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Speaker 3: Well, Tom, you know, we really don't know where any

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Speaker 3: of those variables are going with any super precision. But

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Speaker 3: one question we can ask, and I think Larry Summers

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Speaker 3: mentioned this on x Twitter last night. If the FED

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Speaker 3: is dramatically above neutral for any period of time, we

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Speaker 3: would know it because the economy would crater, asset prices

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Speaker 3: would implode. So if you have a ten quarter average

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Speaker 3: nominal growth rate of five percent, pretty strong real growth

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Speaker 3: and soaring risk asset prices. That is highly unlikely to

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Speaker 3: be a scenario in which the Federal Reserve has short

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Speaker 3: term interest rates one hundred and fifty or one hundred

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Speaker 3: and seventy five basis points above neutral. Now we can

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Speaker 3: debate the forecast and where the economy is growing. But

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Speaker 3: if you're arguing out on one side of the mouth

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Speaker 3: that this is the best economy the world's ever seen,

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Speaker 3: and out of the other that we need hundreds of

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Speaker 3: basis points of rate cuts to support it, I'm sorry,

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Speaker 3: but that just does not compute.

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Speaker 2: Michael Darter, thanks so much, greatly, appreciate it. Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on Apple,

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Speaker 1: Karplay and Android Otto with the Bloomberg Business app, or

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Speaker 1: watch us live on YouTube.

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Speaker 2: With a question. Our interview of the Day. Angela Stent

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Speaker 2: was with us a few days ago. Her book Putin's

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Speaker 2: World is Definitive. This is a day of NATO and

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Speaker 2: the President of the United States Angela. I don't want

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Speaker 2: to turn it into a history lesson, but coming out

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Speaker 2: of nineteen forty nine, we pieced together this thing NATO,

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Speaker 2: and it's morphed over the years. And then we decided

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Speaker 2: somewhere in the vicinity of seven eight that we wanted

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Speaker 2: NATO to expand east. Did we make the right decision

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Speaker 2: in America that NATO should reach out to Eastern Europe

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Speaker 2: before mister Putin exploded? And part of that is the

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Speaker 2: Ukraine War.

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Speaker 5: I think we did. Good morning everyone.

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Speaker 7: Yeah, I mean, if you think about it, after the

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Speaker 7: Soviet Union collapsed, you had the countries of the former

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Speaker 7: Warsaw packed eastern Europe and.

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Speaker 5: They were kind of in limbo.

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Speaker 7: Many of these countries have been invaded either by the

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Speaker 7: Russian Empire or the Soviet Union.

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Speaker 5: They didn't really.

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Speaker 7: Have any place, and so was the right thing to

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Speaker 7: do was to include them in NATO to make sure

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Speaker 7: that I mean they were territories between a number of

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Speaker 7: these countries, Romania and Hungary and others, to make sure

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Speaker 7: that they were democratics. So this was not a mistake.

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Speaker 7: And you know, in hindsight, we can say if U

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Speaker 7: grained been a member of NATO, Russia wouldn't have invaded it.

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Speaker 2: What do you want? I can't imagine the history today,

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Speaker 2: Angelus stent back to when you and I were trying

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Speaker 2: to figure out the high the Berlin Wall. What do

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Speaker 2: we want to do here? So we don't have a

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Speaker 2: domino theory in Europe. Mister Stubbs of Finland is really

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Speaker 2: worried about that, isn't he?

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Speaker 5: He is?

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Speaker 7: And you noticed that all of these major European leaders

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Speaker 7: are going to accompany President Zelenski today in the White

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Speaker 7: House with President Trump to make sure that he doesn't

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Speaker 7: just sell Ukraine short. And what they want to make

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Speaker 7: sure is that Russia ends this war and doesn't have

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Speaker 7: designs on other former Soviet states or even on rolling

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Speaker 7: back the native enlargement. So I would say the states

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Speaker 7: are pretty high today in the White House, and the

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Speaker 7: European leaders do not want to repeat of what happened

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Speaker 7: to poor President Zelenski, that dressing down a few months

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Speaker 7: ago in the White in the Oval Office by President

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Speaker 7: Trump and Vice President Vance.

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Speaker 4: So Angela, in reality, what is he verifiable win mister

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Speaker 4: le Zelenski and the European leaders.

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Speaker 7: Well, a verifiable win would mean that President Trump is

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Speaker 7: not going to try and persuade Ukraine that has to

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Speaker 7: give up territory that Russia doesn't even control. I mean,

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Speaker 7: just yesterday President Trump against it on truth social it's

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Speaker 7: up to Zelensky to end the war. It isn't up

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Speaker 7: to Zelensky. He didn't start the war. The Russian started

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Speaker 7: the war. So it's to make sure that Zelensky doesn't

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Speaker 7: have to give up territory he doesn't control, and to

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Speaker 7: get President Trump to agree, which we have hims on

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Speaker 7: that if there were a settlement, if the war were

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Speaker 7: to end, that the US went back, the Europeans up

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Speaker 7: in security guarantees for Ukraine to prevent Russia from waiting

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Speaker 7: a few years and then attacking Ukraine again and the

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Speaker 7: US agreeing to help the Europeans doing that.

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Speaker 4: And it seems like the reality is mister Putin has

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Speaker 4: no intention of stock the war. What's different management just

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Speaker 4: dragging things on.

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Speaker 2: Yeah, it's the heart of the matter.

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Speaker 6: That's kind of it here.

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Speaker 4: And he's got an American president that may allow that.

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Speaker 6: Who knows, right, I mean, it's.

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Speaker 5: Going to be very difficult.

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Speaker 2: You know.

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Speaker 5: President Trump completely reversed himself. He went into the.

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Speaker 7: Discussions in Alaska saying there had to be a ceasefire first,

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Speaker 7: and then they discussed the conditions and now so, I mean,

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Speaker 7: the thing that the Europeans and ukrain have to do

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Speaker 7: today is to persuade President Trump that that's just not

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Speaker 7: file right and that they have to push for a

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Speaker 7: ceasefire first.

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Speaker 2: Procrastination and around the world. Angela's stent with us this

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Speaker 2: morning from Brookings Institution, Angela the ft I mean, they

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Speaker 2: don't sugarcoat it. This is an editorial from the Financial

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Speaker 2: Times of London. Donald Trump's Alaska summit with Vladimir Putin

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Speaker 2: was an embarrassing failure. Worse, it was a terrible mistake.

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Speaker 2: And what I find interesting, Angela, let me quote this exactly.

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Speaker 2: For the Europeans, it means pushing back more assertive against

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Speaker 2: Trump's alignment with Putin, while appealing to congressional Republicans and

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Speaker 2: members of the administration who surely have grave misgivings about

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Speaker 2: the Alaska fiasco. I mean, angel that's an incredible to

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Speaker 2: do list for europe Who will lead that assertive pushback

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Speaker 2: of NATO? Does it come out of Brussels or is

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Speaker 2: it every nation for themselves?

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Speaker 7: Well, I think the Secretary General of Natil Mark Rutzer,

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Speaker 7: the former Netherland's Prime minister.

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Speaker 5: He seems to be a leader in this.

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Speaker 7: I mean, we have the other leaders there, the British

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Speaker 7: Prime Minister, French President, German Chancellor, the Italian Prime minister.

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Speaker 7: They'll all try and push, but I suspect that Mark

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Speaker 7: Rutzer will be the leader here. But it's a huge

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Speaker 7: tall order for them because they're very concerned that the

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Speaker 7: US will just kind of abandon Ukraine, and that is

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Speaker 7: not only Ukraine that's going to be threatened by Russia then,

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Speaker 7: but the.

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Speaker 5: Whole of Europe.

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Speaker 6: Angela.

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Speaker 4: Is there any role here, any voice here for the

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Speaker 4: US Congress?

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Speaker 7: Well there is, I mean, and we know that a

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Speaker 7: number of the US Senators, including Republicans, were very concerned

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Speaker 7: about what happened in Alaska and about President Trump really

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Speaker 7: seeing Putin what Putin wanted. So there is the question

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Speaker 7: is will the Congress stand up and you know, try

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Speaker 7: and persuade the Trump administration, particularly the Republicans at Congress

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Speaker 7: that they have to really.

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Speaker 2: Refresh on and this and thank you so much doctor

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Speaker 2: Stanners at Brookings Institution. Her book is definitive. It is

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Speaker 2: Putin or look for her essays at Brookings. Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. You can also listen live

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Speaker 1: on Amazon Alexa from our flagship New York station, Just

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Speaker 1: say Alexa Play Bloomberg eleven thirty.

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Speaker 2: Let's get into a first Jackson Hole brief here we

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Speaker 2: get to Wednesday, traveling out there. Lisa Bramwontz and myself

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Speaker 2: will be with you Friday with Michael McKee leading all

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Speaker 2: our coverage in Jackson Hole. A first brief with RBC

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Speaker 2: Capital Markets US rate Strategies Blake Quinn as well. Will

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Speaker 2: Powell move the bond market price up? Price down?

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Speaker 6: Well, it's hard to tell.

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Speaker 8: I mean the piece that I put out the preview,

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Speaker 8: I called it not your twenty twenty four Jackson Hole.

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Speaker 8: And I think looking back at last year, we had

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Speaker 8: a very very clear message from Powell. I mean, he

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Speaker 8: was could not have been more obvious that they were

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Speaker 8: going to cut now the fifty. Obviously we didn't know

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Speaker 8: they were going fifty yet, but made it very clear

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Speaker 8: that they were going to act at that next meeting.

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Speaker 6: But thanks were so much easier back then.

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Speaker 8: You had unemployment rate on a long trend, remember triggering

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Speaker 8: the Saw rule. Everybody was kind of freaked out about

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Speaker 8: the labor market. The same time, inflation was coming down

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Speaker 8: very steadily, very aggressively.

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Speaker 6: So he was in a much better position last year

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Speaker 6: to deliver a clear message. I don't think he has that.

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Speaker 6: The data is really pulling them in two directions this time.

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Speaker 4: So what should we look for, I mean, other than

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Speaker 4: sitting at the million dollar cowboy bar, I mean we're

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Speaker 4: going to be listening to Chairman Palin Friday.

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Speaker 6: What should we be listening for?

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Speaker 8: So I think one thing we might get is he

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Speaker 8: might try to clip that tale of a fifty base

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Speaker 8: point cut.

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Speaker 6: So we've heard daily kind of saying, you know that

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Speaker 6: that's not the right move. Now, we need to take

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Speaker 6: it a little bit more gradually.

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Speaker 8: So I think he may be willing to do that,

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Speaker 8: But as far as very clearly signaling a zero or

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Speaker 8: twenty five, it's just very hard for them to do,

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Speaker 8: especially when you have this, you know, one more round

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Speaker 8: of NFP, one more round of CPI kind of hanging

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Speaker 8: out there because last thing they want to do is

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Speaker 8: very clearly set up a cut, and then we get

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Speaker 8: to the next data, labor bounces and inflation is hot.

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Speaker 2: You guys have a vector of disinflation led by Ian Lingdon.

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Speaker 2: You guys are world class EMO capital Markets at RBC

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Speaker 2: Capital Markets, the whole thing. All the Canadian strategists just

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Speaker 2: seem to be on a vector of disinflation. Is your

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Speaker 2: call there at risk where we don't get lower yields?

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Speaker 6: No, So I mean we actually have inflation continuing to

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Speaker 6: go up.

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Speaker 8: I think we probably subscribe to the same theme that

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Speaker 8: the Fed does that this is going to be somewhat

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Speaker 8: you know, transitory if you will. But I think what's

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Speaker 8: becoming clear is it's not going to be transitory in

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Speaker 8: a clear way. You know, it's going to leak into services.

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Speaker 8: It's going to be in categories that you don't expect.

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Speaker 8: It's going to happen over said rate cut. We do,

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Speaker 8: but not until December, and Marcus, right now, you know

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Speaker 8: we're still pricing over two cuts.

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Speaker 6: And that's actually come off a lot. Last week.

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Speaker 8: There was a there was a period we were actually

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Speaker 8: pricing in some probability of a fifty basis point cut

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Speaker 8: in September.

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Speaker 6: That's actually come back a bit. We have them pausing.

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Speaker 2: But Jim Bianco last week, this is just absolutely fascinating.

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Speaker 4: If I put myselves in, if I put myself in

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Speaker 4: FED Chairman J. Pale's shoes, I would feel pressure to cut.

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Speaker 4: You think he feels pressure to cut. Whether it's political pressure,

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Speaker 4: market pressure, I don't know.

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Speaker 8: I mean, that's honestly, the best case that I can

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Speaker 8: draw for cutting in September mostly runs through these non

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Speaker 8: fundamental factors, Like if I just sit down and look

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Speaker 8: at the data. You know, a lot of the kind

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Speaker 8: of freak out we've had over labor data since those

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Speaker 8: NFP revisions I think is a little bit overdone. A

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Speaker 8: lot of those don't really look cyclical, their education, their government.

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Speaker 8: So I think the labor situation looks okay.

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Speaker 6: Meanwhile, you've got some hon.

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Speaker 8: Inflation prints that are a little bit worrying Muslem, you know,

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Speaker 8: from the FED set at best. I think he said

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Speaker 8: we're missing on inflation, now we're not missing on labor.

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Speaker 8: So I think if I was just looking at the data,

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Speaker 8: I wouldn't see a case to cut. All of the

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Speaker 8: case to cut really comes to these tangential things. It's

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Speaker 8: the political pressures, you know, the fact that the markets

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Speaker 8: are already pricing in when we've seen the Fed not

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Speaker 8: really want to surprise market, we.

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Speaker 2: Get an RBC capital markets inflation. Do we risk a

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Speaker 2: negative real wage I don't think that's in the zeitgeist yet.

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Speaker 6: Yeah, I don't.

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Speaker 2: I don't.

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Speaker 8: I mean, i'd have to look at how that really

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Speaker 8: interacts with the wages. I don't think it's really going

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Speaker 8: to pass through as much to wage pressure. A lot

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Speaker 8: of that's going to depend on what's happening on the

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Speaker 8: labor side of it.

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Speaker 5: Now.

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Speaker 6: I will say on the labor.

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Speaker 8: Side, I think one thing that's interesting with these NFPs

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Speaker 8: with the payrolls. And this is part of the reason

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Speaker 8: Palace saying you got to focus on the unemployment rate,

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Speaker 8: not the payrolls.

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Speaker 6: He said that at the last press conference.

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Speaker 8: Yeah, you really can't tell what payrolls mean right now

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Speaker 8: because the shifts we have an immigration because of retirements

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Speaker 8: going on.

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Speaker 6: You could actually, I mean this is an extreme.

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Speaker 8: Scenario, and I don't know that this is the case,

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Speaker 8: but you could actually have a scenario where we have

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Speaker 8: zero or negative payrolls, but labor markets are actually getting

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Speaker 8: tighter because we're losing people out of those jobs.

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Speaker 6: And companies have to replace them.

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Speaker 8: So you could end up in a scenario like that

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Speaker 8: where labor markets are getting tighter because of these lost

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Speaker 8: jobs and wage pressure is actually going up.

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Speaker 4: Ten year government bond is sitting here at four point

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Speaker 4: three zero percent.

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Speaker 6: Where do you think we're going to end a year?

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Speaker 6: You know what's funny, we're very close to our Yearend

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Speaker 6: targets right here. Yeah, I think we're probably going to

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Speaker 6: remain range bound.

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Speaker 5: You know.

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Speaker 8: I think even if we're right and we do see

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Speaker 8: that December start to the cut, you know, I think

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Speaker 8: people kind of near term probably price out. There's a

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Speaker 8: little bit to price out of the front end, but

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Speaker 8: I think the back end, you know, tens thirties, those

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Speaker 8: remain relatively well pegged. I think most of the volatility

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Speaker 8: is going to come in the five year year, five

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Speaker 8: year sector.

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Speaker 2: Paul Sweeney's world. Do you clip the coupon or do

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Speaker 2: you have risked a total return in fixed income?

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Speaker 8: I mean, I think the trade right now, because I

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Speaker 8: do not have a strong directional view on rates. At

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Speaker 8: these levels, things look pretty fair. I think the right

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Speaker 8: way to think about things. Is something like a twoes

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Speaker 8: tens flattener where you are picking up positive carry. It's

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Speaker 8: less for it's less because I think two tens is

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Speaker 8: going to flatten massively. But you are earning positive carry

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Speaker 8: to be in that trade, and you have a risk

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Speaker 8: that we price out some of those cuts at the front.

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Speaker 5: That's too much jargon for Monday, Sorry about that.

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Speaker 2: The same as a two cent flatner.

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Speaker 8: Two tens so basically being long the ten year sector

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Speaker 8: short to two year section. So you want the yields

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Speaker 8: of the front end go higher, eels in the back

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Speaker 8: end to go lower. But if that trade doesn't move,

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Speaker 8: if if it doesn't actually suit, it's a bit opposite

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Speaker 8: of the consensus. Most people want to be in the steepener,

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Speaker 8: but that costs you money. You're bleeding away those cupons

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Speaker 8: you mentioned about. You're bleeding away, Carrie to be in

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Speaker 8: that trade. It costs you money to be in that trade.

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Speaker 6: LISTA. Bromwitz.

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Speaker 4: She's the only one to understand this stuff as far

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Speaker 4: as I know. She tells me to look at the

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Speaker 4: two tens, and it is, you know, we have a

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Speaker 4: steep nerve about I don't know fifty five basis points.

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Speaker 4: What does that tell me we're kind of at the

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Speaker 4: top end of the range at that two stents.

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Speaker 8: If you look at where it's been kind of trading,

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Speaker 8: we've steepen flat and we've been kind of, you know,

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Speaker 8: moving about in this range.

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Speaker 6: We're at the top end of that range now.

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Speaker 8: Is just another reason I kind of like that flatner

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Speaker 8: because I do think we probably pulled back down into

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Speaker 8: that range.

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Speaker 2: So on Friday, he's going to speak, and as you say,

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Speaker 2: we have other economic data coming. What is the dynamic

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Speaker 2: if the world is disappointed and we get a Blake Gwin.

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Speaker 6: Call that that's that's more on the front and that's

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Speaker 6: more on the two year part of that trade.

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Speaker 8: Because I think what happens if he does clip that

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Speaker 8: tale of a fifty markets are going to take that

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Speaker 8: as a as a bit hawkish. I think if he

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Speaker 8: comes out very clearly. Since you talked, do you talk

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Speaker 8: to Amy whose Silverman?

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Speaker 6: I talked to Laurie and Amy all the time.

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Speaker 2: My deepest sympathies. What does it do to their world

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Speaker 2: if we get a Blake in delay in race cuts.

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Speaker 6: They would not like that.

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Speaker 8: I cannot imagine equities are going to be taking that

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Speaker 8: well I'm sure I'm going to be answering mini phone

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Speaker 8: calls from Laurie and Amy on that, but yeah, I

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Speaker 8: mean they've you know, equities have been very sensitive to

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Speaker 8: what's going on in the race base recently. That's been

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Speaker 8: true the last year, and I think a lot of

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Speaker 8: you can just tell by the nature of the questions

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Speaker 8: you get from the equity side that a lot of

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Speaker 8: people want these rate cuts to happen.

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Speaker 6: So that would definitely come as a disappointment.

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Speaker 2: I think. Let me pause you right now across the nation.

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Speaker 2: Good morning and your commune. Good morning on YouTube as well.

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Speaker 2: It's our new digital distribution. You can watch us on YouTube.

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Speaker 2: Subscribe to Bloomberg Podcast. The President of the United States

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Speaker 2: on Twitter this morning in this Germaine to this afternoon,

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Speaker 2: A big day at the White House. We have never

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Speaker 2: had so many European leaders here at one time. A

442
00:22:09,200 --> 00:22:13,560
Speaker 2: great honor for America. Three exclamation points. Let's see what

443
00:22:13,600 --> 00:22:18,960
Speaker 2: the results will be. Three question marks, President d j T.

444
00:22:19,400 --> 00:22:22,800
Speaker 2: That's from President Trump here moments ago, Blickwin, Thank you

445
00:22:22,840 --> 00:22:28,960
Speaker 2: so much with RBCs Capital Markets. Stay with us. More

446
00:22:29,080 --> 00:22:39,399
Speaker 2: from Bloomberg Surveillance coming up after this.

447
00:22:39,400 --> 00:22:43,280
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

448
00:22:43,320 --> 00:22:46,320
Speaker 1: starting at seven am Eastern on Apple, Coarkway, and Android

449
00:22:46,359 --> 00:22:49,399
Speaker 1: Auto with the Bloomberg Business app. You can also watch

450
00:22:49,440 --> 00:22:52,399
Speaker 1: us live every weekday on YouTube and always on the

451
00:22:52,400 --> 00:22:53,520
Speaker 1: Bloomberg terminal.

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00:22:53,800 --> 00:22:56,320
Speaker 2: Joining us now. And I'm sorry to say, folks, this

453
00:22:56,600 --> 00:23:00,720
Speaker 2: is the most important conversation of the damn Sorry, Angela's

454
00:23:00,720 --> 00:23:05,120
Speaker 2: stan conne hack with us and what has happened to coffee.

455
00:23:05,160 --> 00:23:08,359
Speaker 2: Conne Haig is at a commodities it edn f Man.

456
00:23:08,880 --> 00:23:14,040
Speaker 2: She is absolutely encyclopedic on the SAFT. So coffee is drought,

457
00:23:14,440 --> 00:23:17,919
Speaker 2: but is it really just about demand? And particularly Kona

458
00:23:18,080 --> 00:23:20,560
Speaker 2: our demand a fancy coffee.

459
00:23:21,320 --> 00:23:23,439
Speaker 9: Okay, So it's supply and demand.

460
00:23:23,520 --> 00:23:24,480
Speaker 5: This is not just demand.

461
00:23:24,560 --> 00:23:28,480
Speaker 9: And right now we're in a situation where we've come

462
00:23:28,760 --> 00:23:32,320
Speaker 9: from two or three years of consecutive deficits, very much

463
00:23:32,400 --> 00:23:36,359
Speaker 9: led by the supply side. So we've had consecutive bad

464
00:23:36,359 --> 00:23:39,520
Speaker 9: weather events in countries like Brazil and Vietnam, which are

465
00:23:39,520 --> 00:23:42,520
Speaker 9: the major producers. And on top of that, as you mentioned,

466
00:23:42,560 --> 00:23:45,760
Speaker 9: on the demand side, demand is pretty and elastic. You're

467
00:23:45,760 --> 00:23:49,680
Speaker 9: not really seeing despite almost record prices, you're not really

468
00:23:49,720 --> 00:23:51,960
Speaker 9: seeing that much of a destruction in demand, and it's

469
00:23:52,640 --> 00:23:57,160
Speaker 9: because the consumption of coffee is pretty in anastic. You're

470
00:23:57,200 --> 00:23:59,680
Speaker 9: not It's a small price to pay compared to other

471
00:23:59,760 --> 00:24:03,720
Speaker 9: lock jerious items in this inflation environment, and I feel

472
00:24:03,720 --> 00:24:05,960
Speaker 9: like that's something that they're willing to pay a little

473
00:24:05,960 --> 00:24:09,080
Speaker 9: bit few more dollars for, irrespective of the fact that

474
00:24:09,160 --> 00:24:10,840
Speaker 9: you know, we've got a supply side deficit.

475
00:24:11,400 --> 00:24:14,360
Speaker 4: So talk to us about the supply of coffee. I've

476
00:24:14,359 --> 00:24:17,120
Speaker 4: seen the map on the walls of some Starbucks around

477
00:24:17,119 --> 00:24:19,320
Speaker 4: the world. I kind of get a senseetic certain parts

478
00:24:19,359 --> 00:24:20,800
Speaker 4: of the globe is kind of where you grow up,

479
00:24:20,800 --> 00:24:23,159
Speaker 4: but all those parts of the globe seem like they're

480
00:24:23,560 --> 00:24:25,359
Speaker 4: subject of wild weather.

481
00:24:25,440 --> 00:24:28,320
Speaker 6: Talked to us about the supply, Yeah.

482
00:24:28,119 --> 00:24:28,439
Speaker 2: It is.

483
00:24:28,520 --> 00:24:31,840
Speaker 9: It's pretty much held in grown in all the tropical countries,

484
00:24:31,880 --> 00:24:35,560
Speaker 9: which as we know now, it is increasingly susceptible to

485
00:24:35,640 --> 00:24:39,359
Speaker 9: climate change and therefore extreme weather events, whether it's more

486
00:24:39,400 --> 00:24:43,240
Speaker 9: floods or more droughts, or the severity of either of

487
00:24:43,280 --> 00:24:46,800
Speaker 9: those happening at a more frequent level. So inevitably it

488
00:24:46,880 --> 00:24:51,399
Speaker 9: means that perfect conditions for prolonged periods, it's just not

489
00:24:51,600 --> 00:24:55,480
Speaker 9: something that we can continue to expect. So while normally

490
00:24:55,560 --> 00:24:59,840
Speaker 9: high prices normally lead to greater husbandry and greater farmer planting,

491
00:25:00,240 --> 00:25:05,040
Speaker 9: make more acred Unfortunately, you still have the vulnerability of

492
00:25:05,080 --> 00:25:06,920
Speaker 9: the weather. And this is where we see a little

493
00:25:07,200 --> 00:25:09,800
Speaker 9: issue because most recently, the reason why coffee prices have

494
00:25:09,840 --> 00:25:12,639
Speaker 9: been rising again after having dipped quite a bit is

495
00:25:12,640 --> 00:25:15,240
Speaker 9: because it's a sort of a frost vent in Brazil.

496
00:25:15,200 --> 00:25:20,480
Speaker 2: Currently an interview. I did log coffee back fifty years,

497
00:25:20,520 --> 00:25:23,080
Speaker 2: five oh years. You can do this on the Bloomberg

498
00:25:23,119 --> 00:25:27,520
Speaker 2: Professional Service. You do logarithmic coffee and I ran it.

499
00:25:27,640 --> 00:25:32,040
Speaker 2: We're out five standard deviations, which is like a medical chart.

500
00:25:32,359 --> 00:25:35,879
Speaker 2: We've come back. We're now three point two standard deviations.

501
00:25:35,920 --> 00:25:39,600
Speaker 2: Do you see a permanence KNA to this? Because of

502
00:25:39,640 --> 00:25:43,120
Speaker 2: our inelastic demand, I have to have my cupa sank

503
00:25:43,160 --> 00:25:44,480
Speaker 2: or I can't get through the day.

504
00:25:47,160 --> 00:25:50,960
Speaker 9: No, As you said, we've already come down from five

505
00:25:51,040 --> 00:25:54,359
Speaker 9: log to three. At some when we will come down

506
00:25:54,400 --> 00:25:57,680
Speaker 9: even more, but not necessarily back to where we were

507
00:25:58,280 --> 00:26:01,919
Speaker 9: in the two thousand and eight teens, when the green

508
00:26:01,960 --> 00:26:05,399
Speaker 9: coffee was about one hundred hundred and fifty cents per pound.

509
00:26:05,800 --> 00:26:08,679
Speaker 9: Today we're about three times at three hundred cents per

510
00:26:08,720 --> 00:26:13,320
Speaker 9: pound with good reason. Now, yes to money's in elastic,

511
00:26:13,400 --> 00:26:16,159
Speaker 9: but we are expecting not necessarily this year. This year

512
00:26:16,200 --> 00:26:18,639
Speaker 9: has been a bad crop in terms of Brazil. But

513
00:26:18,800 --> 00:26:21,040
Speaker 9: next year we should see a bigger Brazil crop and

514
00:26:21,080 --> 00:26:23,399
Speaker 9: that should allow prices to come off a little bit more.

515
00:26:23,840 --> 00:26:25,000
Speaker 2: So we're about a.

516
00:26:25,000 --> 00:26:29,119
Speaker 9: Year away from that big crop now, and obviously anything

517
00:26:29,160 --> 00:26:31,919
Speaker 9: can happen, but for now, assume we get a massive

518
00:26:31,960 --> 00:26:35,199
Speaker 9: supply response, which we're expecting in about a you know,

519
00:26:35,680 --> 00:26:38,760
Speaker 9: set nine months time, then hopefully that can bring the

520
00:26:38,760 --> 00:26:40,959
Speaker 9: supply demount a little bit more into balance, and then

521
00:26:41,000 --> 00:26:42,880
Speaker 9: that should allow prices to come off a little bit.

522
00:26:43,560 --> 00:26:46,320
Speaker 9: But obviously we've got for the US consumer that you've

523
00:26:46,320 --> 00:26:49,399
Speaker 9: got the tariffs. Brazil has got a fifty percent input

524
00:26:49,440 --> 00:26:52,840
Speaker 9: typing post on it and coffee is not exempt. So

525
00:26:53,680 --> 00:26:57,359
Speaker 9: not unfortunately, even if the world sees low green enterprices,

526
00:26:57,680 --> 00:27:00,159
Speaker 9: the US consumer may have to sub that fifty s

527
00:27:00,200 --> 00:27:01,280
Speaker 9: and input ourself.

528
00:27:01,400 --> 00:27:02,159
Speaker 6: Get one more.

529
00:27:02,080 --> 00:27:06,160
Speaker 2: Question here, Paul, because you're a Starbucks eight times a week, all.

530
00:27:06,160 --> 00:27:10,120
Speaker 4: Right, So Tom, Tom's concerned about coffee as many people are.

531
00:27:10,359 --> 00:27:13,959
Speaker 4: John Tucker and I are concerned about energy oil WTI

532
00:27:14,040 --> 00:27:16,920
Speaker 4: crude oil sixty two dollars a barrel here? How low

533
00:27:17,080 --> 00:27:17,760
Speaker 4: can this thing go.

534
00:27:19,280 --> 00:27:19,760
Speaker 5: Bye again?

535
00:27:19,880 --> 00:27:23,920
Speaker 9: So OPICK plus are ramping up, non OPIQ is ramping up.

536
00:27:25,000 --> 00:27:30,000
Speaker 9: We have a potential reduction in geopolitical risk premium with this.

537
00:27:30,280 --> 00:27:32,879
Speaker 9: You know, if we if these post Alaska, if the

538
00:27:32,960 --> 00:27:35,920
Speaker 9: Washington talks with Ze Landscape come up to some kind

539
00:27:35,920 --> 00:27:39,719
Speaker 9: of ceasefi ideal, that could potentially lead to you know,

540
00:27:39,880 --> 00:27:43,159
Speaker 9: a massive exporter of the massive region where oil is

541
00:27:43,200 --> 00:27:45,400
Speaker 9: exported coming into more normal situation.

542
00:27:45,520 --> 00:27:46,440
Speaker 2: And you know, we.

543
00:27:46,440 --> 00:27:50,600
Speaker 9: Could see a pre you know, post sanctioned era where

544
00:27:51,119 --> 00:27:54,240
Speaker 9: things are getting slightly back to normal and traplaws resumed

545
00:27:54,240 --> 00:27:57,240
Speaker 9: back to right clear toly. So I think that's that's

546
00:27:57,240 --> 00:27:59,879
Speaker 9: a fundamentals and a little bit are reduced g Gibil

547
00:28:00,040 --> 00:28:03,879
Speaker 9: the whispering which is full closing downward pressure on prices.

548
00:28:04,119 --> 00:28:06,320
Speaker 2: ConA, thank you so much for the brief. Usually we

549
00:28:06,359 --> 00:28:09,080
Speaker 2: do like bigger, like sixty thousand FISA if I just

550
00:28:09,160 --> 00:28:11,119
Speaker 2: want to know what a cup of coffee is going

551
00:28:11,200 --> 00:28:14,359
Speaker 2: to be. ConA haeik is absolutely definitive at Ed and

552
00:28:14,520 --> 00:28:17,120
Speaker 2: f Mann here in the soft commodities really appreciate it.

553
00:28:17,200 --> 00:28:22,000
Speaker 1: This is the Bloomberg Surveillance podcast available on Apple, Spotify,

554
00:28:22,119 --> 00:28:26,400
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

555
00:28:26,520 --> 00:28:29,960
Speaker 1: seven to ten am Eastern on Bloomberg dot Com, the

556
00:28:30,080 --> 00:28:34,080
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You

557
00:28:34,119 --> 00:28:37,480
Speaker 1: can also watch us live every weekday on YouTube and

558
00:28:37,680 --> 00:28:39,440
Speaker 1: always on the Bloomberg terminal