Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: in New York. As a rascate joining us now HSBC
Speaker 1: chief Investment Strategist at HSBC Private Bank Americus. I was
Speaker 1: great to catch up with you walk us through that
Speaker 1: take well. I think if you look at where we are,
Speaker 1: you know clearly the FED had a tremendous effect on
Speaker 1: emerging markets last year, on markets and on the economy,
Speaker 1: and as a result, we feel the Fed as patient
Speaker 1: or on hold this year. Uh So, no question about it,
Speaker 1: and we think that's positive for markets, but largely priced
Speaker 1: in at this point. We're over to the fundamentals, psycho
Speaker 1: and how constructive value on those two things. Well, for us,
Speaker 1: it's those two things right and improving economy after Q
Speaker 1: one is going to be weak we think one point
Speaker 1: six percent, but we're average about two and a quarter
Speaker 1: the rest of the year. Uh and then earnings have
Speaker 1: to improve. John and I have mentioned this a number
Speaker 1: of times. Let's do a victory lamp on this again.
Speaker 1: I'm not picking the bottom of the market. Pharaoh was
Speaker 1: smart enough to do that. He used the games that
Speaker 1: he got there to buy his eight thousand lift shares
Speaker 1: that have tanked. But I wasn't smart enough to do it.
Speaker 1: If I just sort of randomly late December picked a
Speaker 1: spot off of Ben Laidler's recommendation and Jose Rascoe's recommendation. John,
Speaker 1: I'm up eighteen percent. I mean that's that's not only
Speaker 1: a year's performance, that's a bowl market. Now what what
Speaker 1: are the what are the optimists that have been so right?
Speaker 1: What's the now what for you? And now? What is volatility?
Speaker 1: Balls cheap? We we are concerned things are priced to perfection,
Speaker 1: and we think we're going to see more volatility as
Speaker 1: we head into a Q two in fit in the
Speaker 1: face of an improving economy, so because we think there's
Speaker 1: gonna be a lot of noise out there. So as
Speaker 1: a result, as earnings improve, more vol and we could
Speaker 1: see a bit of a retrenchment in the markets. But
Speaker 1: longer term we still think a little bit deeper here
Speaker 1: the catalysts for higher volatility. The u S data has
Speaker 1: been remarkably staple. I mean, I think it's a Deutsche
Speaker 1: Bank coming out with all the two's two percent inflation,
Speaker 1: two percent GDP growth, It has been remarkably staple. So
Speaker 1: walk me through what you think the catalysts for volatility
Speaker 1: would ultimately be. I think some of it will be earnings.
Speaker 1: On the earning side, We're gonna see some difficulty and
Speaker 1: we've seen, but we think we'll see upward revisions to
Speaker 1: earnings and that will be part of the adjustment we
Speaker 1: have as we go forward. The big ones we think
Speaker 1: will be political on the trade front, in particular. You
Speaker 1: do private bank, which means I need some coupon? Is
Speaker 1: coupon of any value right now? Are there fixed income
Speaker 1: of any value? Absolutely? Are you know, high net worth
Speaker 1: individuals are still looking for that that return, that yield. Absolutely,
Speaker 1: but they're looking for growth. And what we're seeing increasingly
Speaker 1: is clients are saying, you know, I'm seeing the market
Speaker 1: is up. What what do I do? How do I care?
Speaker 1: But is a dividend of proxy for yield? I and
Speaker 1: my all my radar goes up when I say that. Yeah, yeah, well,
Speaker 1: I think look, we've we've had some investors do it
Speaker 1: but you have to be really careful obviously with a
Speaker 1: dividend deal strategy. So where do you put fixed income
Speaker 1: for hitters right now? I mean, was it full faith
Speaker 1: and credit? Are you going out and find something goofy esoteric? Well,
Speaker 1: we're out in EM debt. We like EM debt. We
Speaker 1: like EM hard currency debt in particular. We've taken our
Speaker 1: winnings from from high yield. We still like high yield
Speaker 1: a bit, but but it did really well in the
Speaker 1: first couple of huge exactly. So we took our victory
Speaker 1: lap there as you just mentioned, and we're gonna sit
Speaker 1: back and we still like it, but not as much. Yeah,
Speaker 1: but now we're more and more focused on investment grade
Speaker 1: with this other pole being emerging market. So somebody walks
Speaker 1: on the door and they've got fifteen percent of their
Speaker 1: portfolio on Amazon because it used to be three, exactly,
Speaker 1: and it's not what come on, you're telling me to
Speaker 1: sell Amazon or Apple or Microsoft to the rest of
Speaker 1: these you know, linear moonshots that are out there. You know,
Speaker 1: we think back to two thousand one. The biggest problem
Speaker 1: we had in the market, the correction in the market
Speaker 1: in two thousand one was people allowed their portfolio to
Speaker 1: get out of whack. They did not redistribute profits, and
Speaker 1: that was a big part of the people rebalanced were
Speaker 1: looking out of the studio. Not weekly, but no, we
Speaker 1: have quarterly meetings with clients. Monthly meetings with clients, uh,
Speaker 1: to talk about rebalancing portfolios, especially with the volatility we
Speaker 1: see increasing going forward. What did I miss if I
Speaker 1: rebalanced Amazon just as you know, or Microsoft pick Microsoft
Speaker 1: in the last couple of months, years whatever in the
Speaker 1: last rebalanced Microsoft. Well, I mean, look, hindsight is twenty
Speaker 1: if if I right, And that's the thing with with
Speaker 1: you know, if you're gonna, if you're gonna do portfolio management,
Speaker 1: hindsight is twenty. But uh, you know, so put it
Speaker 1: all on one stock doesn't make a lot of sense.
Speaker 1: So I think we want to make sure that that
Speaker 1: earning stream is solid for for investors going forward. They
Speaker 1: thank you so much. Can we get to three of you, you,
Speaker 1: Ben Laidler and Steve Major all on the set at
Speaker 1: the same time, or even who's who's the nutcase in
Speaker 1: for David? David Bloom to a guest is another The
Speaker 1: problem with Bloom is all he wants to do is
Speaker 1: talk English football. But where where's Bloom on for an exchange? Right? Interesting?
Speaker 1: I'm surprised you didn't mention the interesting qual with Stephen Major.
Speaker 1: You know what our qualit is on the tenure right
Speaker 1: two point? Yeah, you're still one dollar stability or even
Speaker 1: dollar strength. Right. Well, that's the problem is we're not
Speaker 1: looking for dollar strength. But to Bloom's point, and and
Speaker 1: you know, how do you see dollar weakness in an
Speaker 1: environment where everybody else is cutting? So congratulations to your back.
Speaker 1: You guys have been on fire. Thank you, HSBC Private.
Speaker 1: Should you welcome our next guest? Well, I'm going to
Speaker 1: take the welcome here because it doesn't look to impress
Speaker 1: with you. It's government's next chief economists and head of
Speaker 1: global economics and markets research. Yeah, and great to see
Speaker 1: you have anything to say to Tom after that? It's
Speaker 1: great to be here. And the trendier reception has always
Speaker 1: appreciated good. But seriously, to Jeff, how did you take
Speaker 1: Jeff curies working folded into what we're seeing and we
Speaker 1: were all at ourselves into pulled up the Business Week
Speaker 1: magazine article from Mr Hatzies. Dr Hatzi is here is
Speaker 1: inflation dead? Comment on there? Please? I don't think inflation
Speaker 1: is dead. But obviously we're in a very different regime
Speaker 1: from where we were in the nineteen nineteen eighties and
Speaker 1: nineteen nineties, and I think that's still a gradual adjustment
Speaker 1: of forecasters, you know, the idea that we're going to be,
Speaker 1: you know, not even with a three percent unemployment rate,
Speaker 1: not necessarily at two and a half percent plus on
Speaker 1: inflation is still something that that is taking a while
Speaker 1: to sink in. Now. Beyond that regime change, I think
Speaker 1: we've also seen some kind of more genuine downside surprises
Speaker 1: and some of the h inflation indicator US recently so
Speaker 1: or um. You know, if you'd asked me three, three
Speaker 1: or six months ago, I would have said late this year,
Speaker 1: we'd we'd be you know, maybe two and two and
Speaker 1: a quarter per sandals or for core pc inflation. And
Speaker 1: now it looks like that's not going to happen. Thank
Speaker 1: you so much, Thank you always. Let's bring it Dantan
Speaker 1: about shall we? P WC United States Principal and Global
Speaker 1: Sanctions Leader, Dan Let's begin with what happened yesterday, the
Speaker 1: concept of waivers for Irani and crude exports, and what's
Speaker 1: going to change in the next couple of weeks time.
Speaker 1: I think I'm going to the wrong parties, so no
Speaker 1: one's talking about sanctions where I go, or maybe you're
Speaker 1: going to the right party. That's fair. The announcement shouldn't
Speaker 1: really surprise anyone because the government has been telegraphing for
Speaker 1: the last few months that there weren't going to extend
Speaker 1: the waivers. The unpredictability they've been exhibiting over the last
Speaker 1: couple of years has made people skeptical that they would
Speaker 1: follow through. But the announcement came out. They want the
Speaker 1: world to go to zero on Iranian crude. The Iranians
Speaker 1: have respectfully disagreed, as well as a number of allies
Speaker 1: that still continue to trade, and so we're gonna have
Speaker 1: a bit of a standoff potentially. How quickly can you
Speaker 1: get to zero? I mean they waivers are due to
Speaker 1: expire on May second, so next week. I think it's
Speaker 1: very unlikely that anyone is going to zero by the
Speaker 1: end of next week. They have an Ahwah's oil field
Speaker 1: and Smari formation. They pump oil, it's put in barrels
Speaker 1: or whatever, or on boats. How do you actually sanction it?
Speaker 1: So I mean it is like you know, the confederacy
Speaker 1: where you put boats around our harbor. Well, I mean
Speaker 1: what they do with some of those boats. The whole
Speaker 1: fleet of ghost tankers that essentially are filled with oil
Speaker 1: and floating in the water, is floating supply depots because
Speaker 1: they just need to store the barrels somewhere. The sanctioning
Speaker 1: will come not necessarily against the Iranians, but against companies
Speaker 1: that are found to continue to trade in Iran. So
Speaker 1: if you're a bank that had financed the legal Iranian
Speaker 1: oil trade, you could potentially be at risk after the waivers.
Speaker 1: Just because Dan, this is so important folding China into this,
Speaker 1: because one of these nations is China, and yet we're
Speaker 1: trying to be happy, touchy feely with China right now,
Speaker 1: right This won't help, This won't help, thank you. I mean,
Speaker 1: maybe we look at is this compartmentalization. They don't write,
Speaker 1: they don't and this is going to get roped into
Speaker 1: the broader trade debate that's been ongoing. And I know
Speaker 1: ambassad Lightheiser's due to be on another delegation to Beijing.
Speaker 1: This will certainly be part of that agenda. But the
Speaker 1: Chinese do not compartmentalize like the U S. You're trying
Speaker 1: to on this issue. Every now and again we hear
Speaker 1: threats of shutting down the straight off Homus, which separates
Speaker 1: the Persian Gulf and the Gulf into the Arabian Say,
Speaker 1: which I think around about scent of global oil flows through.
Speaker 1: We hear those threats again in the last twenty four hours.
Speaker 1: How seriously should we take the prospect of Iran trying
Speaker 1: to shut down the Straight of almost I think that's
Speaker 1: an unlikely scenario that they're going to shut down that
Speaker 1: straight There's other countries that are allies to Iran, that
Speaker 1: are actually allies to the US, that would all potentially
Speaker 1: have an adverse reaction to that, and all that would
Speaker 1: be harmed, mostly the Iranians as a result of that,
Speaker 1: because other countries could come and punish them similarly, How
Speaker 1: harmed are they if we go to quote unquote zero,
Speaker 1: So you know, the as I understand it, oil makes
Speaker 1: up about of the Iranian economy. It would be a
Speaker 1: significant harm to the government and to the country of
Speaker 1: Iran if oil goes to zero. There are a number
Speaker 1: of trading partners, like India, like China that have no
Speaker 1: interest in suspending activity in trading in Iranian oil. Now.
Speaker 1: Of the eight countries that got waivers, Greece, Italy and
Speaker 1: Taiwan have already suspended, but that leaves five countries still
Speaker 1: in the mix, and two of them have large volumes.
Speaker 1: Is there a black market? I don't want to get
Speaker 1: in trouble with p WC, but the you know, forget
Speaker 1: about the visible market. Is there a black market where
Speaker 1: the people that desire Iranian oil get it? I don't
Speaker 1: think it's so much a black market, but a shifting
Speaker 1: of transactions out of US dollar denominated transactions and move
Speaker 1: them to the Euro to attempt to keep them entirely
Speaker 1: away from U S jurisdiction. That's been floated for years
Speaker 1: in response to the Iran related sanctions. The dollar is
Speaker 1: obviously a much more stable currency, that's why it's been
Speaker 1: pegged for oil. But that's always a scenario. And there's
Speaker 1: also mechanisms that the EU have set up, for example,
Speaker 1: to allow humanitarian trade to be processed called instincts, and
Speaker 1: that is a mechanism that is technically legal, even in
Speaker 1: the eyes of the U S, to facilitate humanitarian aid,
Speaker 1: but it goes outside the traditional banking sector. Down great
Speaker 1: to catch out with you busy twenty four hours. Again
Speaker 1: for you, I'm sure and no doubt down we'll be
Speaker 1: bank with us as we canty it down to the
Speaker 1: prospect of the wave is being removed and potentially an
Speaker 1: effort to send Irani and crude exports down to zero.
Speaker 1: Lindsay p X joins us right now with Staple, their
Speaker 1: chief economists. Lindsay, good morning. What part of why will
Speaker 1: C plus I plus G plus n X matters to you?
Speaker 1: What will you look at first in the GDP report? Oh,
Speaker 1: I think everyone will be focusing on the sea the consumer,
Speaker 1: how healthy the consumer is as a one of the
Speaker 1: largest components, the largest component of the growth equation. It
Speaker 1: really depends on whether or not the consumer is happy
Speaker 1: and healthy out in the marketplace doing what they do best,
Speaker 1: which is spending on discretionary goods, new big screen TVs
Speaker 1: and new spring dresses. So we really need to look
Speaker 1: at how much the consumer is spending and whether or
Speaker 1: not they're able to maintain that spending trend going forward
Speaker 1: into the remaining quarters. Well, what does your work what's
Speaker 1: your forecast on that? I don't mean a single digit number,
Speaker 1: but but what what's the what's the Lindsay vector of consumption, Well,
Speaker 1: I think the consumer is still spending. That's the good news.
Speaker 1: The glass half empty, however, is that the consumers spending
Speaker 1: at a noticeably reduced pace to what we saw in
Speaker 1: For a number of reasons. There were a couple of
Speaker 1: very temporary but strong factors helping to prop up the
Speaker 1: consumer over the past couple of years, ramping up credit
Speaker 1: to above pre crisis levels, drawing down savings even that
Speaker 1: lingering wealth effects that consumers had accumulated from filling up
Speaker 1: their car lower cost. What about the tax plan? Come on,
Speaker 1: come on, everybody got hit over the head on taxes.
Speaker 1: Did that have a lot to do with this? Well,
Speaker 1: taxes did play a role here, but a lot of
Speaker 1: that boost for the consumer or was already spent. If
Speaker 1: you look at the consumption numbers, specifically the discretionary spending numbers,
Speaker 1: which we look at for the retail sales figures, consumers
Speaker 1: actually went and spent well above trend at the end
Speaker 1: of seen But nothing had happened in terms of taxes
Speaker 1: in seventeen, but consumers were more than willing to spend
Speaker 1: in anticipation of tax reform coming down the pipeline. But
Speaker 1: what we actually saw is when we turned the page
Speaker 1: into the expectations of tax reform. In terms of our
Speaker 1: after tax take home pay, we're well above reality, and
Speaker 1: consumers actually had to pull back, so we overspent, we
Speaker 1: intenipated more in terms of return, and then we reverted
Speaker 1: right back to the trend pace of expenditure for the
Speaker 1: latter part of eighteen and now we're starting to see
Speaker 1: that more downward bias in many people expected this first
Speaker 1: quarter to be soft. It's not actually as soft as
Speaker 1: I think some people would have thought it might have been.
Speaker 1: Going into January. Looking out and extrapolating this forward, lindsay,
Speaker 1: is this what the rest of the looks like? Something
Speaker 1: in the low twos. Is that what you're looking for? Well,
Speaker 1: I think actually we are going to see an annual
Speaker 1: paste below two percent. We're looking for an annual range
Speaker 1: of one and a half to one point eight percent,
Speaker 1: so still not terrible, right up near that two ish
Speaker 1: percent mark. But what we're seeing is this very clear
Speaker 1: decline in momentum from a top line perspective number. Four
Speaker 1: percent growth in the second quarters, three percent in the third,
Speaker 1: two percent by the end of the year. We're clearly
Speaker 1: seeing this this ladder cap down in terms of top
Speaker 1: line growth. Do you expect that to continue this year?
Speaker 1: I believe that's a linear vector four three to one
Speaker 1: blast off. Are you willing to predict blast off or
Speaker 1: are you going to get on the recession crew of Well,
Speaker 1: I do think that we see the first negative print
Speaker 1: by now, whether or not we fall into recession, we're
Speaker 1: kind of splitting hairs there. Of course, recession is typically
Speaker 1: back to back quarters of negative growth. And whether or
Speaker 1: not we see that dip in the first quarter, in
Speaker 1: third quarter, or some sort of combination. Are we do
Speaker 1: expect the economy to fall below zero in and whether
Speaker 1: or not again we maintain that consistency of negative growth,
Speaker 1: or more concerning lee we fall into a non accelerating
Speaker 1: growth platform, in meaning GDP falls consistently below one percent.
Speaker 1: I do think that we see the economy decelerate noticeably
Speaker 1: over the coming twelve to twenty four months. So is
Speaker 1: that accompanied by federals of right cuts? Is that in
Speaker 1: your base cases? Well, lindsay yes, we do think that
Speaker 1: the FED is going to acknowledge that the growing level
Speaker 1: of weakness. Now they've already acknowledged the fact that the
Speaker 1: data is not necessarily sending a clear signal to the
Speaker 1: upside or the downside. So the Fed this time around
Speaker 1: seems to be willing to make policy a bit more preemptively,
Speaker 1: and as they anticipate that decline and momentum going into
Speaker 1: we do think they're going to set the stage for
Speaker 1: the market, giving ample time and notification that they're willing
Speaker 1: to move into a defensive policy position, and we get
Speaker 1: that first rate cut in the first quarter of Lizzie.
Speaker 1: Thank you so much, Chief Economists. Thanks for listening to
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