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Speaker 2: One of the great moments for Bloomberg's Surveillance is when
Speaker 2: research notes are accompanied by the bow tie. Yes, I'm
Speaker 2: in the background, hidden in the blurry view, but far
Speaker 2: more important is Klaus the beast has a bow tie
Speaker 2: on celebrate you the ninth birthday of Michael dartis dog Klaus.
Speaker 2: I'm a vineyard, Michael Darta joints this morning. Is Klaus
Speaker 2: Wisconsin a bow tie today? Michael?
Speaker 3: Well, actually, Tom, Klaus is under the covers. It's a
Speaker 3: little chilly this morning, so he has not arisen just
Speaker 3: yet a little.
Speaker 2: It's a little chick Washington. How does the international relations
Speaker 2: moment fold into the markets or is it a distraction?
Speaker 3: You know, that's a good one, Tom. You know, I
Speaker 3: hate to be kurt here, but I think unless you're
Speaker 3: really looking at a big disruption of commerce, these geopolitical
Speaker 3: events don't have to don't tend to have large lasting
Speaker 3: effects on market. So at least if we're talking about
Speaker 3: the US equity market, I don't think you're going to
Speaker 3: see much more than a fleeting impact here, unless there's
Speaker 3: some kind of big, unexpected breakthrough, and then maybe you'll
Speaker 3: get a little bit more than that, But you know,
Speaker 3: my guess is that it won't be material and long lasting.
Speaker 4: Michaels about a year ago that the FED began cutting rates.
Speaker 4: Some folks are saying, all right, let's do a reducs
Speaker 4: here this year. How do you expect their federal reaction
Speaker 4: in September maybe guide for the remainder of the year.
Speaker 3: Well, the markets are fully now for a twenty five
Speaker 3: basis point rate reduction in September, and over the course
Speaker 3: of the next year, markets are expecting the FED policy
Speaker 3: rate to drop a little more than one hundred basis points.
Speaker 3: But my view here is that a go slow approach
Speaker 3: is appropriate. When I look at tracking estimates for the
Speaker 3: third quarter, it looks like we're running pretty close to
Speaker 3: five percent nominal. So Tom Keane figure there a five
Speaker 3: percent nominal growth handle, frankly, is not indicative an economy
Speaker 3: that needs emergency rate cuts.
Speaker 5: And if you think about.
Speaker 3: Where we were last fall when the FED kicked off
Speaker 3: the easing with a fifty basis point reduction. We were
Speaker 3: coming off peak policy rates one hundred basis points higher
Speaker 3: than they are today. In the unemployment rate had been
Speaker 3: moving up, triggering certain recession alarm bells. Inflation expectations were
Speaker 3: rolling over really hard. That's not happening today's. So I
Speaker 3: think against the current backdrop, the FED needs to be
Speaker 3: pretty gradual, definitely. You know, I think the Treasury Secretary
Speaker 3: out there saying, you know, the Fed's one hundred and
Speaker 3: fifty to one hundred and seventy five basis points too high.
Speaker 3: I don't know where that comes from. That looks completely
Speaker 3: pop based to me.
Speaker 2: You're thank Jonathan Ferrell for that interview that was talked
Speaker 2: about to say the least last week. We welcome all
Speaker 2: of you across the nation, and Serious XM channel will
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Speaker 2: office or at the beach house with Klaus Paul.
Speaker 4: So, Michael, it looks like the consumer is kind of
Speaker 4: hanging in there here. I mean, how do you view
Speaker 4: the consumer with all these crosswinds out there?
Speaker 3: The consumer is hanging in there, Paul, that's good news.
Speaker 3: So right now it looks like real consumer spending is
Speaker 3: probably running just above two percent for the third quarter. Again,
Speaker 3: that's not a picture of an economy that necessarily needs
Speaker 3: emergency policy rate reductions. And I think the reason for
Speaker 3: that is we're coming through this uncertainty fog. Now. We
Speaker 3: obviously got hit with with a big uncertainty and confidence
Speaker 3: shock earlier in the year, but the labor market has
Speaker 3: remained fully employed despite the slowdown in job growth. The
Speaker 3: unemployment rate has been dead flat for the last year
Speaker 3: four point two percent. That's fully employed based on any
Speaker 3: reading of history. And you also have very high asset
Speaker 3: prices right household net worth has been moving up with
Speaker 3: the stock market, and as long as layoffs stay low here,
Speaker 3: I think that's really the key feature. Because the labor
Speaker 3: force growth has slowed with the shuttering of the border.
Speaker 3: If layoffs, starts shooting up, that's a different story. But
Speaker 3: those first time claims have been low hand stick.
Speaker 2: You know.
Speaker 6: Paul.
Speaker 2: Somebody emails in they go is it too early to
Speaker 2: go Nerd?
Speaker 6: I said, it's never too early to go Nerd. We
Speaker 6: go Nerd with Michael Darta.
Speaker 2: Michael, you know we've got a wonderful tailor rule function
Speaker 2: on the Bloomberg folks. It's got one, two, three, four, five, six,
Speaker 2: seven plugins and John W. Taylor's out of Stanford is classic,
Speaker 2: classic rule right now, the tailor rule, as you suggest,
Speaker 2: Michael suggests rates where they are as fine and Secretary
Speaker 2: Besson is wrong, wrong, wrong. Which attribute in the Taylor
Speaker 2: rule is the most data unknown? Is it nayru, It's
Speaker 2: not a jacket, folks. Is it the inflation? Guests? Which
Speaker 2: is the variable most up to debate?
Speaker 3: Well, Tom, you know, we really don't know where any
Speaker 3: of those variables are going with any super precision. But
Speaker 3: one question we can ask, and I think Larry Summers
Speaker 3: mentioned this on x Twitter last night. If the FED
Speaker 3: is dramatically above neutral for any period of time, we
Speaker 3: would know it because the economy would crater, asset prices
Speaker 3: would implode. So if you have a ten quarter average
Speaker 3: nominal growth rate of five percent, pretty strong real growth
Speaker 3: and soaring risk asset prices. That is highly unlikely to
Speaker 3: be a scenario in which the Federal Reserve has short
Speaker 3: term interest rates one hundred and fifty or one hundred
Speaker 3: and seventy five basis points above neutral. Now we can
Speaker 3: debate the forecast and where the economy is growing. But
Speaker 3: if you're arguing out on one side of the mouth
Speaker 3: that this is the best economy the world's ever seen,
Speaker 3: and out of the other that we need hundreds of
Speaker 3: basis points of rate cuts to support it, I'm sorry,
Speaker 3: but that just does not compute.
Speaker 2: Michael Darter, thanks so much, greatly, appreciate it. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: With a question. Our interview of the Day. Angela Stent
Speaker 2: was with us a few days ago. Her book Putin's
Speaker 2: World is Definitive. This is a day of NATO and
Speaker 2: the President of the United States Angela. I don't want
Speaker 2: to turn it into a history lesson, but coming out
Speaker 2: of nineteen forty nine, we pieced together this thing NATO,
Speaker 2: and it's morphed over the years. And then we decided
Speaker 2: somewhere in the vicinity of seven eight that we wanted
Speaker 2: NATO to expand east. Did we make the right decision
Speaker 2: in America that NATO should reach out to Eastern Europe
Speaker 2: before mister Putin exploded? And part of that is the
Speaker 2: Ukraine War.
Speaker 5: I think we did. Good morning everyone.
Speaker 7: Yeah, I mean, if you think about it, after the
Speaker 7: Soviet Union collapsed, you had the countries of the former
Speaker 7: Warsaw packed eastern Europe and.
Speaker 5: They were kind of in limbo.
Speaker 7: Many of these countries have been invaded either by the
Speaker 7: Russian Empire or the Soviet Union.
Speaker 5: They didn't really.
Speaker 7: Have any place, and so was the right thing to
Speaker 7: do was to include them in NATO to make sure
Speaker 7: that I mean they were territories between a number of
Speaker 7: these countries, Romania and Hungary and others, to make sure
Speaker 7: that they were democratics. So this was not a mistake.
Speaker 7: And you know, in hindsight, we can say if U
Speaker 7: grained been a member of NATO, Russia wouldn't have invaded it.
Speaker 2: What do you want? I can't imagine the history today,
Speaker 2: Angelus stent back to when you and I were trying
Speaker 2: to figure out the high the Berlin Wall. What do
Speaker 2: we want to do here? So we don't have a
Speaker 2: domino theory in Europe. Mister Stubbs of Finland is really
Speaker 2: worried about that, isn't he?
Speaker 5: He is?
Speaker 7: And you noticed that all of these major European leaders
Speaker 7: are going to accompany President Zelenski today in the White
Speaker 7: House with President Trump to make sure that he doesn't
Speaker 7: just sell Ukraine short. And what they want to make
Speaker 7: sure is that Russia ends this war and doesn't have
Speaker 7: designs on other former Soviet states or even on rolling
Speaker 7: back the native enlargement. So I would say the states
Speaker 7: are pretty high today in the White House, and the
Speaker 7: European leaders do not want to repeat of what happened
Speaker 7: to poor President Zelenski, that dressing down a few months
Speaker 7: ago in the White in the Oval Office by President
Speaker 7: Trump and Vice President Vance.
Speaker 4: So Angela, in reality, what is he verifiable win mister
Speaker 4: le Zelenski and the European leaders.
Speaker 7: Well, a verifiable win would mean that President Trump is
Speaker 7: not going to try and persuade Ukraine that has to
Speaker 7: give up territory that Russia doesn't even control. I mean,
Speaker 7: just yesterday President Trump against it on truth social it's
Speaker 7: up to Zelensky to end the war. It isn't up
Speaker 7: to Zelensky. He didn't start the war. The Russian started
Speaker 7: the war. So it's to make sure that Zelensky doesn't
Speaker 7: have to give up territory he doesn't control, and to
Speaker 7: get President Trump to agree, which we have hims on
Speaker 7: that if there were a settlement, if the war were
Speaker 7: to end, that the US went back, the Europeans up
Speaker 7: in security guarantees for Ukraine to prevent Russia from waiting
Speaker 7: a few years and then attacking Ukraine again and the
Speaker 7: US agreeing to help the Europeans doing that.
Speaker 4: And it seems like the reality is mister Putin has
Speaker 4: no intention of stock the war. What's different management just
Speaker 4: dragging things on.
Speaker 2: Yeah, it's the heart of the matter.
Speaker 6: That's kind of it here.
Speaker 4: And he's got an American president that may allow that.
Speaker 6: Who knows, right, I mean, it's.
Speaker 5: Going to be very difficult.
Speaker 2: You know.
Speaker 5: President Trump completely reversed himself. He went into the.
Speaker 7: Discussions in Alaska saying there had to be a ceasefire first,
Speaker 7: and then they discussed the conditions and now so, I mean,
Speaker 7: the thing that the Europeans and ukrain have to do
Speaker 7: today is to persuade President Trump that that's just not
Speaker 7: file right and that they have to push for a
Speaker 7: ceasefire first.
Speaker 2: Procrastination and around the world. Angela's stent with us this
Speaker 2: morning from Brookings Institution, Angela the ft I mean, they
Speaker 2: don't sugarcoat it. This is an editorial from the Financial
Speaker 2: Times of London. Donald Trump's Alaska summit with Vladimir Putin
Speaker 2: was an embarrassing failure. Worse, it was a terrible mistake.
Speaker 2: And what I find interesting, Angela, let me quote this exactly.
Speaker 2: For the Europeans, it means pushing back more assertive against
Speaker 2: Trump's alignment with Putin, while appealing to congressional Republicans and
Speaker 2: members of the administration who surely have grave misgivings about
Speaker 2: the Alaska fiasco. I mean, angel that's an incredible to
Speaker 2: do list for europe Who will lead that assertive pushback
Speaker 2: of NATO? Does it come out of Brussels or is
Speaker 2: it every nation for themselves?
Speaker 7: Well, I think the Secretary General of Natil Mark Rutzer,
Speaker 7: the former Netherland's Prime minister.
Speaker 5: He seems to be a leader in this.
Speaker 7: I mean, we have the other leaders there, the British
Speaker 7: Prime Minister, French President, German Chancellor, the Italian Prime minister.
Speaker 7: They'll all try and push, but I suspect that Mark
Speaker 7: Rutzer will be the leader here. But it's a huge
Speaker 7: tall order for them because they're very concerned that the
Speaker 7: US will just kind of abandon Ukraine, and that is
Speaker 7: not only Ukraine that's going to be threatened by Russia then,
Speaker 7: but the.
Speaker 5: Whole of Europe.
Speaker 6: Angela.
Speaker 4: Is there any role here, any voice here for the
Speaker 4: US Congress?
Speaker 7: Well there is, I mean, and we know that a
Speaker 7: number of the US Senators, including Republicans, were very concerned
Speaker 7: about what happened in Alaska and about President Trump really
Speaker 7: seeing Putin what Putin wanted. So there is the question
Speaker 7: is will the Congress stand up and you know, try
Speaker 7: and persuade the Trump administration, particularly the Republicans at Congress
Speaker 7: that they have to really.
Speaker 2: Refresh on and this and thank you so much doctor
Speaker 2: Stanners at Brookings Institution. Her book is definitive. It is
Speaker 2: Putin or look for her essays at Brookings. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Let's get into a first Jackson Hole brief here we
Speaker 2: get to Wednesday, traveling out there. Lisa Bramwontz and myself
Speaker 2: will be with you Friday with Michael McKee leading all
Speaker 2: our coverage in Jackson Hole. A first brief with RBC
Speaker 2: Capital Markets US rate Strategies Blake Quinn as well. Will
Speaker 2: Powell move the bond market price up? Price down?
Speaker 6: Well, it's hard to tell.
Speaker 8: I mean the piece that I put out the preview,
Speaker 8: I called it not your twenty twenty four Jackson Hole.
Speaker 8: And I think looking back at last year, we had
Speaker 8: a very very clear message from Powell. I mean, he
Speaker 8: was could not have been more obvious that they were
Speaker 8: going to cut now the fifty. Obviously we didn't know
Speaker 8: they were going fifty yet, but made it very clear
Speaker 8: that they were going to act at that next meeting.
Speaker 6: But thanks were so much easier back then.
Speaker 8: You had unemployment rate on a long trend, remember triggering
Speaker 8: the Saw rule. Everybody was kind of freaked out about
Speaker 8: the labor market. The same time, inflation was coming down
Speaker 8: very steadily, very aggressively.
Speaker 6: So he was in a much better position last year
Speaker 6: to deliver a clear message. I don't think he has that.
Speaker 6: The data is really pulling them in two directions this time.
Speaker 4: So what should we look for, I mean, other than
Speaker 4: sitting at the million dollar cowboy bar, I mean we're
Speaker 4: going to be listening to Chairman Palin Friday.
Speaker 6: What should we be listening for?
Speaker 8: So I think one thing we might get is he
Speaker 8: might try to clip that tale of a fifty base
Speaker 8: point cut.
Speaker 6: So we've heard daily kind of saying, you know that
Speaker 6: that's not the right move. Now, we need to take
Speaker 6: it a little bit more gradually.
Speaker 8: So I think he may be willing to do that,
Speaker 8: But as far as very clearly signaling a zero or
Speaker 8: twenty five, it's just very hard for them to do,
Speaker 8: especially when you have this, you know, one more round
Speaker 8: of NFP, one more round of CPI kind of hanging
Speaker 8: out there because last thing they want to do is
Speaker 8: very clearly set up a cut, and then we get
Speaker 8: to the next data, labor bounces and inflation is hot.
Speaker 2: You guys have a vector of disinflation led by Ian Lingdon.
Speaker 2: You guys are world class EMO capital Markets at RBC
Speaker 2: Capital Markets, the whole thing. All the Canadian strategists just
Speaker 2: seem to be on a vector of disinflation. Is your
Speaker 2: call there at risk where we don't get lower yields?
Speaker 6: No, So I mean we actually have inflation continuing to
Speaker 6: go up.
Speaker 8: I think we probably subscribe to the same theme that
Speaker 8: the Fed does that this is going to be somewhat
Speaker 8: you know, transitory if you will. But I think what's
Speaker 8: becoming clear is it's not going to be transitory in
Speaker 8: a clear way. You know, it's going to leak into services.
Speaker 8: It's going to be in categories that you don't expect.
Speaker 8: It's going to happen over said rate cut. We do,
Speaker 8: but not until December, and Marcus, right now, you know
Speaker 8: we're still pricing over two cuts.
Speaker 6: And that's actually come off a lot. Last week.
Speaker 8: There was a there was a period we were actually
Speaker 8: pricing in some probability of a fifty basis point cut
Speaker 8: in September.
Speaker 6: That's actually come back a bit. We have them pausing.
Speaker 2: But Jim Bianco last week, this is just absolutely fascinating.
Speaker 4: If I put myselves in, if I put myself in
Speaker 4: FED Chairman J. Pale's shoes, I would feel pressure to cut.
Speaker 4: You think he feels pressure to cut. Whether it's political pressure,
Speaker 4: market pressure, I don't know.
Speaker 8: I mean, that's honestly, the best case that I can
Speaker 8: draw for cutting in September mostly runs through these non
Speaker 8: fundamental factors, Like if I just sit down and look
Speaker 8: at the data. You know, a lot of the kind
Speaker 8: of freak out we've had over labor data since those
Speaker 8: NFP revisions I think is a little bit overdone. A
Speaker 8: lot of those don't really look cyclical, their education, their government.
Speaker 8: So I think the labor situation looks okay.
Speaker 6: Meanwhile, you've got some hon.
Speaker 8: Inflation prints that are a little bit worrying Muslem, you know,
Speaker 8: from the FED set at best. I think he said
Speaker 8: we're missing on inflation, now we're not missing on labor.
Speaker 8: So I think if I was just looking at the data,
Speaker 8: I wouldn't see a case to cut. All of the
Speaker 8: case to cut really comes to these tangential things. It's
Speaker 8: the political pressures, you know, the fact that the markets
Speaker 8: are already pricing in when we've seen the Fed not
Speaker 8: really want to surprise market, we.
Speaker 2: Get an RBC capital markets inflation. Do we risk a
Speaker 2: negative real wage I don't think that's in the zeitgeist yet.
Speaker 6: Yeah, I don't.
Speaker 2: I don't.
Speaker 8: I mean, i'd have to look at how that really
Speaker 8: interacts with the wages. I don't think it's really going
Speaker 8: to pass through as much to wage pressure. A lot
Speaker 8: of that's going to depend on what's happening on the
Speaker 8: labor side of it.
Speaker 5: Now.
Speaker 6: I will say on the labor.
Speaker 8: Side, I think one thing that's interesting with these NFPs
Speaker 8: with the payrolls. And this is part of the reason
Speaker 8: Palace saying you got to focus on the unemployment rate,
Speaker 8: not the payrolls.
Speaker 6: He said that at the last press conference.
Speaker 8: Yeah, you really can't tell what payrolls mean right now
Speaker 8: because the shifts we have an immigration because of retirements
Speaker 8: going on.
Speaker 6: You could actually, I mean this is an extreme.
Speaker 8: Scenario, and I don't know that this is the case,
Speaker 8: but you could actually have a scenario where we have
Speaker 8: zero or negative payrolls, but labor markets are actually getting
Speaker 8: tighter because we're losing people out of those jobs.
Speaker 6: And companies have to replace them.
Speaker 8: So you could end up in a scenario like that
Speaker 8: where labor markets are getting tighter because of these lost
Speaker 8: jobs and wage pressure is actually going up.
Speaker 4: Ten year government bond is sitting here at four point
Speaker 4: three zero percent.
Speaker 6: Where do you think we're going to end a year?
Speaker 6: You know what's funny, we're very close to our Yearend
Speaker 6: targets right here. Yeah, I think we're probably going to
Speaker 6: remain range bound.
Speaker 5: You know.
Speaker 8: I think even if we're right and we do see
Speaker 8: that December start to the cut, you know, I think
Speaker 8: people kind of near term probably price out. There's a
Speaker 8: little bit to price out of the front end, but
Speaker 8: I think the back end, you know, tens thirties, those
Speaker 8: remain relatively well pegged. I think most of the volatility
Speaker 8: is going to come in the five year year, five
Speaker 8: year sector.
Speaker 2: Paul Sweeney's world. Do you clip the coupon or do
Speaker 2: you have risked a total return in fixed income?
Speaker 8: I mean, I think the trade right now, because I
Speaker 8: do not have a strong directional view on rates. At
Speaker 8: these levels, things look pretty fair. I think the right
Speaker 8: way to think about things. Is something like a twoes
Speaker 8: tens flattener where you are picking up positive carry. It's
Speaker 8: less for it's less because I think two tens is
Speaker 8: going to flatten massively. But you are earning positive carry
Speaker 8: to be in that trade, and you have a risk
Speaker 8: that we price out some of those cuts at the front.
Speaker 5: That's too much jargon for Monday, Sorry about that.
Speaker 2: The same as a two cent flatner.
Speaker 8: Two tens so basically being long the ten year sector
Speaker 8: short to two year section. So you want the yields
Speaker 8: of the front end go higher, eels in the back
Speaker 8: end to go lower. But if that trade doesn't move,
Speaker 8: if if it doesn't actually suit, it's a bit opposite
Speaker 8: of the consensus. Most people want to be in the steepener,
Speaker 8: but that costs you money. You're bleeding away those cupons
Speaker 8: you mentioned about. You're bleeding away, Carrie to be in
Speaker 8: that trade. It costs you money to be in that trade.
Speaker 6: LISTA. Bromwitz.
Speaker 4: She's the only one to understand this stuff as far
Speaker 4: as I know. She tells me to look at the
Speaker 4: two tens, and it is, you know, we have a
Speaker 4: steep nerve about I don't know fifty five basis points.
Speaker 4: What does that tell me we're kind of at the
Speaker 4: top end of the range at that two stents.
Speaker 8: If you look at where it's been kind of trading,
Speaker 8: we've steepen flat and we've been kind of, you know,
Speaker 8: moving about in this range.
Speaker 6: We're at the top end of that range now.
Speaker 8: Is just another reason I kind of like that flatner
Speaker 8: because I do think we probably pulled back down into
Speaker 8: that range.
Speaker 2: So on Friday, he's going to speak, and as you say,
Speaker 2: we have other economic data coming. What is the dynamic
Speaker 2: if the world is disappointed and we get a Blake Gwin.
Speaker 6: Call that that's that's more on the front and that's
Speaker 6: more on the two year part of that trade.
Speaker 8: Because I think what happens if he does clip that
Speaker 8: tale of a fifty markets are going to take that
Speaker 8: as a as a bit hawkish. I think if he
Speaker 8: comes out very clearly. Since you talked, do you talk
Speaker 8: to Amy whose Silverman?
Speaker 6: I talked to Laurie and Amy all the time.
Speaker 2: My deepest sympathies. What does it do to their world
Speaker 2: if we get a Blake in delay in race cuts.
Speaker 6: They would not like that.
Speaker 8: I cannot imagine equities are going to be taking that
Speaker 8: well I'm sure I'm going to be answering mini phone
Speaker 8: calls from Laurie and Amy on that, but yeah, I
Speaker 8: mean they've you know, equities have been very sensitive to
Speaker 8: what's going on in the race base recently. That's been
Speaker 8: true the last year, and I think a lot of
Speaker 8: you can just tell by the nature of the questions
Speaker 8: you get from the equity side that a lot of
Speaker 8: people want these rate cuts to happen.
Speaker 6: So that would definitely come as a disappointment.
Speaker 2: I think. Let me pause you right now across the nation.
Speaker 2: Good morning and your commune. Good morning on YouTube as well.
Speaker 2: It's our new digital distribution. You can watch us on YouTube.
Speaker 2: Subscribe to Bloomberg Podcast. The President of the United States
Speaker 2: on Twitter this morning in this Germaine to this afternoon,
Speaker 2: A big day at the White House. We have never
Speaker 2: had so many European leaders here at one time. A
Speaker 2: great honor for America. Three exclamation points. Let's see what
Speaker 2: the results will be. Three question marks, President d j T.
Speaker 2: That's from President Trump here moments ago, Blickwin, Thank you
Speaker 2: so much with RBCs Capital Markets. Stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Coarkway, and Android
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Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: Joining us now. And I'm sorry to say, folks, this
Speaker 2: is the most important conversation of the damn Sorry, Angela's
Speaker 2: stan conne hack with us and what has happened to coffee.
Speaker 2: Conne Haig is at a commodities it edn f Man.
Speaker 2: She is absolutely encyclopedic on the SAFT. So coffee is drought,
Speaker 2: but is it really just about demand? And particularly Kona
Speaker 2: our demand a fancy coffee.
Speaker 9: Okay, So it's supply and demand.
Speaker 5: This is not just demand.
Speaker 9: And right now we're in a situation where we've come
Speaker 9: from two or three years of consecutive deficits, very much
Speaker 9: led by the supply side. So we've had consecutive bad
Speaker 9: weather events in countries like Brazil and Vietnam, which are
Speaker 9: the major producers. And on top of that, as you mentioned,
Speaker 9: on the demand side, demand is pretty and elastic. You're
Speaker 9: not really seeing despite almost record prices, you're not really
Speaker 9: seeing that much of a destruction in demand, and it's
Speaker 9: because the consumption of coffee is pretty in anastic. You're
Speaker 9: not It's a small price to pay compared to other
Speaker 9: lock jerious items in this inflation environment, and I feel
Speaker 9: like that's something that they're willing to pay a little
Speaker 9: bit few more dollars for, irrespective of the fact that
Speaker 9: you know, we've got a supply side deficit.
Speaker 4: So talk to us about the supply of coffee. I've
Speaker 4: seen the map on the walls of some Starbucks around
Speaker 4: the world. I kind of get a senseetic certain parts
Speaker 4: of the globe is kind of where you grow up,
Speaker 4: but all those parts of the globe seem like they're
Speaker 4: subject of wild weather.
Speaker 6: Talked to us about the supply, Yeah.
Speaker 2: It is.
Speaker 9: It's pretty much held in grown in all the tropical countries,
Speaker 9: which as we know now, it is increasingly susceptible to
Speaker 9: climate change and therefore extreme weather events, whether it's more
Speaker 9: floods or more droughts, or the severity of either of
Speaker 9: those happening at a more frequent level. So inevitably it
Speaker 9: means that perfect conditions for prolonged periods, it's just not
Speaker 9: something that we can continue to expect. So while normally
Speaker 9: high prices normally lead to greater husbandry and greater farmer planting,
Speaker 9: make more acred Unfortunately, you still have the vulnerability of
Speaker 9: the weather. And this is where we see a little
Speaker 9: issue because most recently, the reason why coffee prices have
Speaker 9: been rising again after having dipped quite a bit is
Speaker 9: because it's a sort of a frost vent in Brazil.
Speaker 2: Currently an interview. I did log coffee back fifty years,
Speaker 2: five oh years. You can do this on the Bloomberg
Speaker 2: Professional Service. You do logarithmic coffee and I ran it.
Speaker 2: We're out five standard deviations, which is like a medical chart.
Speaker 2: We've come back. We're now three point two standard deviations.
Speaker 2: Do you see a permanence KNA to this? Because of
Speaker 2: our inelastic demand, I have to have my cupa sank
Speaker 2: or I can't get through the day.
Speaker 9: No, As you said, we've already come down from five
Speaker 9: log to three. At some when we will come down
Speaker 9: even more, but not necessarily back to where we were
Speaker 9: in the two thousand and eight teens, when the green
Speaker 9: coffee was about one hundred hundred and fifty cents per pound.
Speaker 9: Today we're about three times at three hundred cents per
Speaker 9: pound with good reason. Now, yes to money's in elastic,
Speaker 9: but we are expecting not necessarily this year. This year
Speaker 9: has been a bad crop in terms of Brazil. But
Speaker 9: next year we should see a bigger Brazil crop and
Speaker 9: that should allow prices to come off a little bit more.
Speaker 2: So we're about a.
Speaker 9: Year away from that big crop now, and obviously anything
Speaker 9: can happen, but for now, assume we get a massive
Speaker 9: supply response, which we're expecting in about a you know,
Speaker 9: set nine months time, then hopefully that can bring the
Speaker 9: supply demount a little bit more into balance, and then
Speaker 9: that should allow prices to come off a little bit.
Speaker 9: But obviously we've got for the US consumer that you've
Speaker 9: got the tariffs. Brazil has got a fifty percent input
Speaker 9: typing post on it and coffee is not exempt. So
Speaker 9: not unfortunately, even if the world sees low green enterprices,
Speaker 9: the US consumer may have to sub that fifty s
Speaker 9: and input ourself.
Speaker 6: Get one more.
Speaker 2: Question here, Paul, because you're a Starbucks eight times a week, all.
Speaker 4: Right, So Tom, Tom's concerned about coffee as many people are.
Speaker 4: John Tucker and I are concerned about energy oil WTI
Speaker 4: crude oil sixty two dollars a barrel here? How low
Speaker 4: can this thing go.
Speaker 5: Bye again?
Speaker 9: So OPICK plus are ramping up, non OPIQ is ramping up.
Speaker 9: We have a potential reduction in geopolitical risk premium with this.
Speaker 9: You know, if we if these post Alaska, if the
Speaker 9: Washington talks with Ze Landscape come up to some kind
Speaker 9: of ceasefi ideal, that could potentially lead to you know,
Speaker 9: a massive exporter of the massive region where oil is
Speaker 9: exported coming into more normal situation.
Speaker 2: And you know, we.
Speaker 9: Could see a pre you know, post sanctioned era where
Speaker 9: things are getting slightly back to normal and traplaws resumed
Speaker 9: back to right clear toly. So I think that's that's
Speaker 9: a fundamentals and a little bit are reduced g Gibil
Speaker 9: the whispering which is full closing downward pressure on prices.
Speaker 2: ConA, thank you so much for the brief. Usually we
Speaker 2: do like bigger, like sixty thousand FISA if I just
Speaker 2: want to know what a cup of coffee is going
Speaker 2: to be. ConA haeik is absolutely definitive at Ed and
Speaker 2: f Mann here in the soft commodities really appreciate it.
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