00:00:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

00:00:27
Speaker 2: Right now, we want to turn our attention and we've decided we had to go to Japan. Shushrukiyamada drives the yen for Bank of America with wonderful academics out of the Massachusetts Institute of Technology and Stanford and joins us right now. She's Oki, are you surprised that we don't have a stronger yen moving from one sixty two stronger to one fifty eight and your key breakpoint of one fifty five?

00:00:56
Speaker 3: Well, thanks for inviting me here. Well, I think the authorities are determined to break one hundred fifty five this time around. I think right now they're probably waiting for events such as the Enerfy prints tomorrow. But this time around, I think the cost of failure is too high because they couldn't break hundred fifty five. If they can't break this time, I think the market will basically assume the authorities have run out of options to defend the end.

00:01:27
Speaker 2: The romance of this is George Soros and a guy named Druck and Miller a few years ago, where basically the market vigilanties tell the authorities what's going to happen. Is that an ancient idea or is the market telling the authorities in Japan and for that matter, the Secretary of Treasury what to do?

00:01:50
Speaker 3: Yeah, well, I think the Taka administration has potentially underestimated, you know, the market force, you know, up until now. But I do think, you know, the coordination with the US basically means Japan cannot, you know, indefinitely rely on intervention because you know, you ask someone to join your project, you have to have a goal and that goal cannot be just to buy time for yourself.

00:02:20
Speaker 1: Right.

00:02:21
Speaker 3: So I think this time around, this coordination appears to have been a well prepared in advance. I think that implies the Japanese government is this time prepared to respond with a comprehensive package, including faster bogy hikes.

00:02:40
Speaker 4: Sessh K. How important is it that the US worked in coordination with the Bank of Japan in this particular.

00:02:47
Speaker 3: Case, Well, I think it is quite important from two perspectives. One is that unilateral intervention obviously have a limit, which is the balance of FCS reserves Japan hold. But you know, as the US joins, ultimately the US can sell the U S dollar you know, it issues. So I think it removes a hard limit on the intervention. And secondly, I think, uh, you know, US coordination is key because without coordination on a broader community, I don't think that Japan has you know, Japan can determine to uh you know, uh respond with a comprehensive package because you know, Krent administration really you know, uh historically believes in easy monetary policy and uh uh you know, lose physical policy.

00:03:44
Speaker 4: So we understand that the US Fed sold euros to buy then as opposed to dollars, does that suggest maybe their commitment isn't as great as possibly could be.

00:03:57
Speaker 3: Yeah, I mean I think there are two aspects. I mean, first of all, they didn't sell US dollar the currency, so you know, obviously that could imply somewhat soft commitment at the moment. But I think there's an alternative aspect that is, because they sold europe there is a possibility that European policy makers may have been given an artist, So you know, this coordination could be you know, on a broader scale, let's say in the G seven community. We have to see, but I think the commitment could be that strong.

00:04:38
Speaker 2: I want to get this question because I think culturally it's just so so important our perception sisqu is the large multinationals drive the bus this time around, in this modern age, the domestic Japanese, the small business, the people politically and even financially. Do they have more power now where they're harmed by week yain, they're harmed by higher yields. Do they have more power than twenty or forty years ago.

00:05:09
Speaker 3: Well that's a tough question, but I have to say that this time it's not all bad, you know, when it comes to what's happening in Japan. I mean, here's the fact about Japan. Right since last spring, so that's when you know, the yen started to weaken again, Japanese equity has been the best performer in the market, right, and we've seen the biggest balance of payment surplus in Japan among the developed nations. Right, So I think economically or in the equity market, things are great. Japanese bank stocks have performed US bank stocks, so I think, you know, we're not in a recession, we're not in a dead crisis. The weekend hurts, but I think so. I think from the public, maybe the pressure is not as strong as you know people think outside of Japan. And obviously, you know, the question is why the end has been so weak despite you know, good things like you know, strong equity and you know policy risk is one. But you know, I think there is an alternative hypothesis, which is that the equity has been too strong, meaning you know, outperformance of Japanese equities has basically led to access end selling from foreign investors.

00:06:33
Speaker 2: Shizuki, Thank you so much, Shazuki Yamada with the Bank of America ahead of Japan FX rates. Stay with us more from Bloomberg Surveillance coming up after this.

00:06:52
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch US live weekday afternoons from seven to ten am Eastern Listen on aval, Karpe and Android Auto with the Bloomberg Business app, or watch US live on YouTube.

00:07:04
Speaker 2: Joining us now, an energy fellow at the University of Houston barely describes editor's just definitive global ability, folks. They have Paul sank with us, and that edit hers is what it's about. Down at the bottom of your note. I've been emphasizing this. The refinery world is turned upside down. Explain to mere mortals why the refinery world is in real issue, like diesel at one hundred and sixty dollars a barrel equivalent, and how we're going to extricate ourselves from that mess.

00:07:36
Speaker 5: I think I saw one hundred and seventy five. So the reason is there's a shortage of refined products across the globe, and here in the US we've been exporting refined products now for about ten years. We bring in more, we export what we don't use, and the US we've been doing wonderfully well to reduce our reliance upon refined products. We're seeing growth, not necessarily altogether in evs, but the hybrids, which get double the mileage of a normal automobile, and so the refineries have the ability the capacity to send product overseas. You know, as the war kicked offf Xon Mobile chartered a couple of tankers to start sending gasoline and diesel to the Asian markets. It is a great time to be a refiner, you know, once every twenty five years. It's a good time to be a refiner.

00:08:28
Speaker 4: I'm actually surprised, or maybe I put it this way. Should I be surprised that oil prices BNT are not higher than the army? We've got this war in the Middle East, we've got rush of sanctions, plus they're in a war. Why isn't oil rent like one hundred and fifty bucks?

00:08:44
Speaker 5: I don't understand, you know, I look at WTI because of course that's what we have to buy, and Brent should be whatever the transport cost is from from the Gulf of Mexico up to Brent.

00:08:56
Speaker 2: Brent.

00:08:56
Speaker 5: The amount of Brent crew that's produced today is less than a thousand barrels a day. And so the Brent benchmark is a fiction. It's a fiction. It's a fiction. It's in fact Brent includes a portion WTI includes a portion of riata, whatever the price is. Why aren't we there at one hundred and six million dollar one hundred and six million barrels a day pre war, with ten millions supposedly off the market, we should have seen a price of oil hit about two hundred dollars a barrel. Why we haven't, Well, China has cut its imports now by five million barrels a day. We've got increased production, or rather increased oil coming to market because the Venezuelan sanctions have been released. UAE has kicked up production significantly. We've been running down the spr at about two and a half million barrels a day. So the net effect that is about two million barrels a day off market. So that leads to a fifty percent price increase off the of the pre war price of fifty six dollars a barrel, which is what it was in January before the market priced in the war.

00:10:08
Speaker 4: As an energy person, do you just assume that the Middle East source of oil is going to be compromised for as long as we can see because the straight up Horn News arguably will never be open open.

00:10:23
Speaker 2: It's hard to say.

00:10:24
Speaker 5: I mean, you know, the Middle East has to sell that oil to somebody in order to make a living. In nineteen fifty six, with the Suez crisis, Eisenhower was approached by the UK, by France, by Israel to join in in retaking the Suez Canal because it was the bottleneck for oil going to Europe. And Eisenhower said, why you can just send it around. He didn't want to get involved with that. He knew that no matter who owned the oil in the Middle East, the only way it had value was for it to be sold. And eventually they'll all come to some sort of agreement or there will be demand destruction as they fight it out amongst themselves.

00:11:03
Speaker 2: And we got to run. But I gotta get this in. When a professor comes in of his acclaim editors a claim at u age and he writes a separate paragraph, Hey, Tom's stupid Blackstone enervis ask me so private equity Blackstone wants to take AI and bring it into the oil business, and your apoplectic about it.

00:11:26
Speaker 5: Discuss So Intervius is compiling data on every user or every royalty owner and actually every oil producer. They have data down to the graneur level on wells, on property holdings. This is information that for example, exonmobile eog Chevron. Ordinarily they fight hammertong, tooth and nail not to let that out. But now Blackstone is putting itself in a position of grabbing all of this data across private companies. And of course, if you're a royalty owner, they know your bank account, they know your social security number. They know what your interest is in this well over here, the one in West Texas, the one in Colorado, the one in West Virginia.

00:12:13
Speaker 2: They have a plectic on landman.

00:12:16
Speaker 5: Well just imagine, just imagine Bloomberg having all of the private data here and then now they've gone into a banking mode. They will make you a payday loan on your royalties for the next three or four months. And you know, in Houston some of the wealthiest oil guys are actually the estate attorneys who've been making a market in the little fragments so that they taking.

00:12:39
Speaker 2: Out of this. For people scared of a they shouldn't.

00:12:42
Speaker 5: Be terrified, because what this system is doing is it's overseeing all of the data. It's filling and plugging numbers. You wind up as a user getting money taken out of your account. Interest numbers change, there can be different owner numbers, and plus they use open servers across the globe, and so any bad actor can just go right into it.

00:13:08
Speaker 2: We got to go, but editors, you got to come back and continue this discussion because this touches folks on the fears that so many people here.

00:13:16
Speaker 5: They're acting like a bank and they're not regulated like a bank.

00:13:19
Speaker 2: That's the point. The regulation's not there, Professor Hurst, thank you so much. Always with the University of Houston. Stay with us. More from Bloomberg Surveillance coming up after this.

00:13:38
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us Live on YouTube.

00:13:51
Speaker 2: And we made a commercial. Steve len Zone made a special commercial about the Standard Charter Bank. Yeah okay, and Steve Englander's brilliant foreign exchange. Suki Cooper has a privilege, is sitting with him global added commodities at a Standard Charter Bank with their whole Pacific room. How's a Pacific rim doing with the war in the Eastern Mediterranean is a general statement.

00:14:16
Speaker 6: I think there's so much market focus there, but we have to remember that the geopolitics, while it's been set in the tempo for much of the commodities, some of the base that's been set up by some of the structural drivers. We've seen this morning in terms of copper surprise still being one of the potentially one of the most underappreciated risks there. But for the gold market, we still see that structural demand is still wanting to lean in and an allocate once there's a little bit more clarity on uncertainty there.

00:14:44
Speaker 4: So we saw gold at five thousand dollars an ounce. You know, experts are tell me, boy, that's that's really really toppy here. But then we pull back the four thousand, a big move down. What's the fundamental.

00:14:57
Speaker 2: Call on gold today?

00:14:59
Speaker 4: Is it feel attractive or not?

00:15:01
Speaker 6: I'd say if we're looking on a longer term basis, it might look relatively expensive, but if we're looking at the macro risks right now, then it still looks underappreciated. So the base, we think has formed quite well, especially as we're in the middle of a seasonal week period for consumption. And on top of that, we have a lot of macro headwinds that have been priced in, especially with the market swinging so sharply to expecting great hikes and in the US. So we think that prices have held up very well at these sort of levels. And now I think if we're starting to see an unwinding of some of that positioning that was very in that hawkish stance, we'll see gold starting to gain more traction.

00:15:39
Speaker 4: Silver I see down fourteen percent this year. I mean, I don't know anything about the commodity space, but I always feel like gold and silver kind of trade in tender but not really. Here's what's the feeling on gold here? I mean, I'm sorry, silvers par.

00:15:52
Speaker 6: If gold is our barometer for uncertainty, silver is our kicker on uncertainty plus the outlook for the industrial picture. Okay, and the silt, on the one hand, did incredibly well when we saw so much retail demands at the start of the year, but now we're starting to see some of these risks lurking in the background, rind substitution risk, especially for the solar industry. So on the one hand, you've got that AI demand boost that's growing, but the substitution risk on the solar side could be quite sharp.

00:16:18
Speaker 2: Okay, let's let's go let me. I happen to be in a small store on fifty seven Street, Tiffany the other day and the elevator randomly got me off with the silver floor. It was just packed packed. Is silver a big part of jewelry or is it really driven by solar panels?

00:16:36
Speaker 6: It's a significant part, but it's not the main part of jewelry consumption. It's at the moment we're seeing much more. Even though we're seeing the solar demand starting to shrink, it's still much larger. The industrial silver industrial usages are much larger. It's more than half of the consumption that is.

00:16:53
Speaker 2: There like a shortage of silver like mines versus gold.

00:16:58
Speaker 6: This is a really fascinating development because if we go back five years, I would have been satire saying silver's very well supply. There's plenty of above grind stock. But we've had five successive years of undersupplied market, so that readily available stock is no longer there, and that's one of the reasons we're seeing these shop moves.

00:17:15
Speaker 2: I'm ignorant on this. I feel like, right now I'm going to go read everything Sukie's written, plus three books on silver. You know, I just I'm just not up to speed. Why am I so dumb on silver? Why do we not look at silver like we look at gold or oil.

00:17:33
Speaker 6: Silver is fascinating in that it's used in so many different facets, like from water purification to wood preservation, and we don't realize how many parts of our lives. It touches and any got the ev demand aspect too, But I think it tends to be looked at more so as a precious metal rather than its industrial components.

00:17:49
Speaker 4: I mean, all I know tom about commodities is GLCL, GLCO. Go on the Bloomberg Terminal Global Commodity prices, and I click on the metals and it gives me the base metals. They're all up double digit this year. Fairest metals down. I don't know, it's iron ore and all that stuff. But then I got to precious metals, and the precious medals are down kind of fifteen percent across the board here really platinum palladium talking about about those, because what's driving this story there.

00:18:15
Speaker 6: The picture for the PGMs of platinum pladium has become much more micro in comparison to macro. So last year maybe you could have said that platinum was riding on the coattails of gold. But this year we've seen some of the supply concerns maybe take a back seat and much more focus on the demand side and whether we might see auto demand being scaled back, or whether there might be some challenges around the recycling side. But we still see that the platinum market's undersupplied for this year medium tilting into a surplus. But having said that, the investment demand has turned a lot weaker, there's still that structural story that is supportive of platinum.

00:18:52
Speaker 2: Two things are gonna get this said. So to summarize your long.

00:18:54
Speaker 6: Gold here, we still see upside risk from here. We have fosand six hundred and fifty as our people are average.

00:19:00
Speaker 2: Okay, this is a listener emails and it's part of the ask ratio. That's how it works. This is missus keane somewhere a number of streets up. Can you ask Suki? Is the ratio of the twenty nine thousand dollars also Peretti small bone cuff in yellow gold twenty nine thousand dollars versus two thousand, one hundred dollars for the same silver cuff. Is that a proper ratio to look at gold to silver for a mere mortal out there.

00:19:31
Speaker 6: The gold seal. The ratio is one that people like to look at over the longer term, and it tells us whether one is overvalued or undervalued. But there isn't a fundamental basis that drives what that long term average should be. So we're starting to see that ratio normalizing at the current levels, Tiffany, at the retail level, there's many many other dynamics that out of play, the manufacturing, the cast.

00:19:55
Speaker 4: Really why, I mean to me, when you look at diamonds and now you get the Lapo diamonds, that puts that in totally.

00:20:03
Speaker 2: See Sukie's like she's got to Charter. Look on, she's not layering this morning. Now what you do as your layer and you mix your gold in your silver. I learned this and you do that. I mean, thank you so much. I folks, my ignorance of silver is just stunning. I mean, I just have to read up about it. Is there like a silver council like a gold council.

00:20:24
Speaker 6: There's a silver institute.

00:20:25
Speaker 2: Lots of institute there is, so I should go to their website.

00:20:28
Speaker 6: Get Yes, there's lots of great days.

00:20:31
Speaker 2: Just don't be a stranger. I'm smarter, Suki Cooper, Thank you so much. Global had of commodities in silver. It's the standard Charter Bank. Stay with us. More from Bloomberg Surveillance coming up after this.

00:20:52
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Apple, Karpla and Android Otto with the Bloomberg Business Up, or watch us live on YouTube.

00:21:04
Speaker 2: At New York Life. She's at sweet Greens three days a week. Julia and herman joins us, do you go to sweepeas?

00:21:09
Speaker 7: Do you have to agree with the prices?

00:21:11
Speaker 2: Did you throw that a New York Life fam Is that what we're doing?

00:21:15
Speaker 5: That's what we will.

00:21:16
Speaker 2: You have a brilliant note. What do you expect out of notre day? It's like wicked conventional and I really respect that. Right now, what do you learn from a treasury curve? The vanilla difference between twos and tens? Or dare I say in a worst kind of way three months and thirty years?

00:21:35
Speaker 7: Well, really, what we've learned from the curve in the last few weeks is that investors are struggling with not if the Fed's going to contain inflation, but what their glide path forward is from here. And we can learn that because we can dissect what's happening in the tenure. In the thirty year, we know that inflation.

00:21:50
Speaker 2: Conditions are still spread tens thirties.

00:21:54
Speaker 7: Well, we're looking at spreads across the entirety of the curve. But if we just take the individual tenors themselves, we can break this down into inflation expectations versus real yild. It's real yield that has driven the rate move in the last few weeks. And this is almost all attributable to term premium. And we know that fiscal questions have been the huge contributing driver to that term premium increased lately. But what happened, of course, last week is now we have these increased contributions of questions of how the Fed is planning to contain inflation.

00:22:23
Speaker 4: But the Fed's not really telling us too much these days. Here is that frustrating for you and for the market. It seems like some certain folks in the market are saying, I don't like this new regime, this new sheriff in town.

00:22:34
Speaker 7: Well, you know, it's not necessarily frustrating because candidly, a lot of the curve has done a good job of tightening financial conditions even without a ton of guidance or specifically a rate move of course.

00:22:46
Speaker 6: By the Fed.

00:22:47
Speaker 7: Now, given of course, that the geopolitical situation is so tenuous right now, so uncertain and We also know that the fed's tools are not well suited to cope with a supply side inflation shock like the one where dealing with candidly, you know, if the FED cuts in the near tur excuse me, hikes in the near term, or stays on hold is less important right now than if financial conditions are tightening naturally across the curve.

00:23:11
Speaker 2: We have no rate rise right, Sorry, you have on a FED call. You have no rate rise right.

00:23:16
Speaker 7: We have the fedal hold through year.

00:23:17
Speaker 2: Why? Why?

00:23:18
Speaker 7: Because the FED is two mandates and if you look at the labor side of the Fed's mandate. Obviously we'll get the jobs report tomorrow, but candidly, the jobs market is in something as close to an equilibrium as a team of economists could really hope for. Yeah, we have wage growth decelerating to a really nice, sustainable three and a half is percent. Yes, hiring has been relatively stable, but it hasn't been reaccelerating in a huge way. This is not, to us a labor market that can tolerate a sustained hiking cycle. Of course, we also know it's not a labor market that has needed a lot of cuts for support.

00:23:51
Speaker 4: It looks like the bond markets maybe doing the job for the FED. I mean, we've got rates that are higher here a ten year, you know, with a four to sixty four hand. I mean maybe that's maybe the market's already spoken.

00:24:04
Speaker 2: Yeah.

00:24:04
Speaker 7: I think it has in many ways, and it's contributed to volatility on the equity side of things because there is a mismatch between highly narrow, volatile cyclical market leadership. And by this I specifically mean the chip leadership within tech, and that's less compatible with a more tight rates environment. Not necessarily because these companies need a lot of interest rate support in order to continue their CAPEC cycle, but simply because the status of the economic cycle is a little bit more tenuous from here on out with a tighter rates environment.

00:24:37
Speaker 4: Global market strategist, that's your title. How do you think about the US versus rest of the world these days?

00:24:43
Speaker 7: Well, I've been hearing more whispers and thoughts about this sell America trade and it's something that we really push back on. If you look at actual treasury flows, we have seen consistent inflows from private foreign investors, and the only place where we've seen foreign investor conviction start to rattle has been in specific treasury flows from official investors, so foreign governments and foreign central banks. But this is a trend that started in twenty thirteen and has not been accelerating. So rather than a sell America trade, we think that there's actually a lot more robustness in the teenage trade that there is no alternative to.

00:25:17
Speaker 2: Plus Julia Herman with this New York Life investment management. You know, I look at this, Julia. In the long term in the financial media is what do you think, Paul six months? Yeah, I'll piss the world series maybe, yep. You have just is one statistic, three hundred and forty seven billion something in New York Life matched up against insurance and annuity liabilities. What do you say to the managers of a huge, multi billion dollar portfolio New York Life where their short term is ten years?

00:25:52
Speaker 7: Well, you know, we think about this on the strategy perspective of the asset management side, which is where our team sits from the perspective of how do changes in the rate environment impact our holistic allocation considerations. So, for example, with the recent move in the long end of the curve, that for us really influences our duration view for the shorter term, which is that up until this point this year, we have been trying to stick toward the shorter side of neutral on duration coming out Yeah at four six, four seven on the tenure, that's a place where we would see more value.

00:26:25
Speaker 2: Okay, well, let explain. I think our audience doesn't know this. I mean, duration for New York Life or any other insurance company is a lot longer term, isn't it. Do you are you going to buy forty year Google paper today?

00:26:39
Speaker 7: Well, so I can only speak from the asset.

00:26:41
Speaker 2: Management side of the business, right, Okay.

00:26:44
Speaker 7: So from from the asset management side, we would see a little bit more value at the four seven. You know what we have historically seen a little bit more of though, is that you know, systemically there's an institutional bid around five for the tenure, and so you know, being able to creep into duration from here is not to say that we can't see a little bit more upward pressure on long rates again, that term premium. These questions are on both fiscal and FED related risks are significant, but around four to seven we would see those risks asymmetric For investors.

00:27:13
Speaker 2: Credit risk?

00:27:14
Speaker 4: Is it worth taking credit risk?

00:27:15
Speaker 2: Hereity?

00:27:16
Speaker 4: You just clip the coupon that the US government's given you.

00:27:18
Speaker 7: It's a really good opportunity right now for not just short duration, but short maturity credit right now in our view, and that allows investors to think about that buy and hold opportunity, which, yes, which as a total return perspective, is going to lean you more toward the yield perspective. Keeping everything short maturity specifically, in our view, is as solved for the two key sources of volatility right now, rates of all, of course, but also questions about the shorter term economic outlook, given that the impact of higher gasoline prices stemming from Iran has already contributed to consumers trading down, for example, that's data out of the Beige Book in the last few weeks. And we can bolster portfolios against some of that near term economic outlook volatility by keeping things shorter maturity.

00:28:01
Speaker 2: Julie, thank you so much. Julia Herman with his director Global Market Strategy for the It's like Ohio State, the New York Life Investment Management.

00:28:12
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