WEBVTT - Iran Wavers on Peace Talks After US Seizes Ship 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.800 or watch us live on YouTube all our. 0:00:27.760 --> 0:00:32.120 Next guest writes, geopolitical shocks usually fade, but this one 0:00:32.440 --> 0:00:34.880 matters near term because it's an energy shock. 0:00:34.960 --> 0:00:36.240 Boy, that makes a lot of sense to me. 0:00:36.640 --> 0:00:39.879 Steve Parker joins US co head of Global Investment Strategy 0:00:39.880 --> 0:00:43.760 at JP Morgan Private Bank. Steve, what's the conversation you 0:00:43.800 --> 0:00:46.680 having with your private bank bank clients here these days 0:00:46.720 --> 0:00:49.279 about how about this black Swan event and what it 0:00:49.360 --> 0:00:51.800 might mean to their portfolio? I guess short term and 0:00:51.840 --> 0:00:52.960 maybe longer term. 0:00:53.040 --> 0:00:55.200 Yeah, you know, I think clients have done a good 0:00:55.320 --> 0:00:57.560 job because we've trained them well over the last couple 0:00:57.600 --> 0:01:01.360 of years to recognize, as you just said, that geopolitics 0:01:01.440 --> 0:01:04.080 rarely have long lasting impacts. So the first thing that 0:01:04.080 --> 0:01:06.559 we're seeing is the clients are staying discipline, They're sticking 0:01:06.600 --> 0:01:09.120 with their plan, and that's been the right move. I 0:01:09.200 --> 0:01:11.720 think the bigger question and the thing that matters longer 0:01:11.800 --> 0:01:14.880 term in the conversations that we're having is recognizing that 0:01:14.880 --> 0:01:17.640 we're in a world where it's not just this energy shock, 0:01:17.720 --> 0:01:20.920 but it's this shift towards global fragmentation, which means that 0:01:21.120 --> 0:01:24.000 inflation is probably a bigger part of the story going forward. 0:01:24.319 --> 0:01:27.280 The floor on inflation is probably higher, the volatility of 0:01:27.280 --> 0:01:31.080 inflation is probably greater. So thinking about the diversification part 0:01:31.120 --> 0:01:33.520 of your portfolio is not just about bonds, but also 0:01:33.560 --> 0:01:37.400 thinking about things like infrastructure, real assets, commodities as part 0:01:37.400 --> 0:01:38.760 of that inflation story. 0:01:38.959 --> 0:01:41.600 And also Steve's supply chains I think right are going 0:01:41.680 --> 0:01:44.959 to be reshaped because of not only COVID, which is 0:01:44.959 --> 0:01:47.200 I think what sort of raised the flag, but now 0:01:47.240 --> 0:01:51.040 this war and how does that have you thinking about opportunity. 0:01:51.120 --> 0:01:54.360 Yeah, I think you're right. We went through a multi 0:01:54.440 --> 0:01:56.960 decade period of globalization where it was all about the 0:01:57.080 --> 0:02:00.480 efficiency and low cost nature of your supply chain. That 0:02:00.520 --> 0:02:03.840 was great for margins and earnings and inflation. But I 0:02:03.840 --> 0:02:07.320 think between the pandemic, what's gone on in Ukraine and 0:02:07.360 --> 0:02:09.960 what's happening now, you know, there's a recognition of this 0:02:10.040 --> 0:02:14.280 shift towards as I said, more fragmentation. Countries and companies 0:02:14.280 --> 0:02:16.959 are going to focus more on the reliability and security 0:02:17.000 --> 0:02:20.200 of supply chains more so than the cost of supply chains. 0:02:20.400 --> 0:02:22.600 One of the interesting opportunities that we've been talking about 0:02:22.639 --> 0:02:25.799 with clients is this idea of investing in national champions 0:02:25.800 --> 0:02:29.000 and strategic industries, because I think whether it's you know, 0:02:29.280 --> 0:02:33.160 infrastructure and power in the US, security and defense in Europe, 0:02:33.200 --> 0:02:35.680 the technology sector in Asia, you're going to see much 0:02:35.720 --> 0:02:38.560 more of a focus on developing domestic champions as part 0:02:38.600 --> 0:02:39.680 of the supply chain story. 0:02:40.000 --> 0:02:43.520 Steve, before the war, probably the driving force for these 0:02:43.560 --> 0:02:48.360 markets and sentiment was AI artificial intelligence, and I guess 0:02:48.360 --> 0:02:51.079 the market had evolved from simply I'm just throwing money 0:02:51.080 --> 0:02:52.919 in anything that's remotely close to an AI. 0:02:53.400 --> 0:02:56.320 So now I'm trying to discern maybe winners and losers. 0:02:56.320 --> 0:02:58.280 How are you guys, what's the conversation you're having these days? 0:02:58.320 --> 0:02:59.080 Yeah, I think that's right. 0:02:59.120 --> 0:03:01.040 And I think that shift really happened towards the end 0:03:01.080 --> 0:03:03.799 of last year when you saw a shift from these 0:03:03.880 --> 0:03:07.079 hyper scalers funding a lot of this capital spending from 0:03:07.120 --> 0:03:10.040 free cash flow to starting to engage credit markets, and 0:03:10.440 --> 0:03:12.639 I think that caused investors to take a step back 0:03:12.680 --> 0:03:14.480 and say, you know, we need to decipher not just 0:03:14.919 --> 0:03:17.840 every spend is good spend, but rather what's going to 0:03:17.840 --> 0:03:19.880 be effective spent. And I think that that's what we're 0:03:19.919 --> 0:03:21.480 seeing now, and I think you're going to continue to 0:03:21.520 --> 0:03:24.400 see that. The good news is we're continuing to see 0:03:24.600 --> 0:03:28.320 earnings revisions move higher. Valuations as we've seen a bit 0:03:28.320 --> 0:03:31.080 of a pause in these stocks have now gotten more attractive. 0:03:31.120 --> 0:03:33.280 So perhaps heading into this earning season, the bars a 0:03:33.280 --> 0:03:35.080 little bit lower, even with the rally we've seen in 0:03:35.120 --> 0:03:35.600 the last week. 0:03:35.640 --> 0:03:39.200 But the backdrop to all this, right is possibly higher 0:03:39.240 --> 0:03:43.160 oil for longer. What is your outlook for oil? I 0:03:43.160 --> 0:03:45.840 mean in terms of just how we experience it day 0:03:45.880 --> 0:03:47.680 to day when we go fill up. I mean, now 0:03:47.720 --> 0:03:51.000 we've got Churasury Secretary best And saying gas should hang 0:03:51.040 --> 0:03:53.640 around three dollars a gallon for the summer. But yet 0:03:53.680 --> 0:03:55.800 you got the Energy Secretary saying we might not dip 0:03:55.840 --> 0:03:57.760 below three dollars a gallon until next year. 0:03:57.920 --> 0:03:58.680 Yeah. Yeah. 0:03:58.920 --> 0:04:01.480 Our base case is that we do see oil prices 0:04:01.560 --> 0:04:04.400 continue to gradually move lower, call it eighty dollars a 0:04:04.400 --> 0:04:06.680 barrel over the next three to six months. I think 0:04:06.680 --> 0:04:09.400 that's a good environment for growth, inflation, picks up a 0:04:09.440 --> 0:04:11.840 little bit, but that's something we can manage. We also 0:04:11.920 --> 0:04:14.360 do a scenario analysis where we ask ourselves what happens 0:04:14.360 --> 0:04:16.440 if we stay around this one hundred dollars level, what 0:04:16.520 --> 0:04:18.520 happens if we see a spy higher? And at the 0:04:18.520 --> 0:04:20.479 one hundred dollars level, it's a little bit trickier for 0:04:20.520 --> 0:04:24.680 markets because stocks potentially feel some pressure from a growth slowdown, 0:04:25.040 --> 0:04:28.000 bonds feel some pressure from higher inflation. That's where you 0:04:28.040 --> 0:04:29.800 need to look at some of those diverse fires we 0:04:29.839 --> 0:04:32.799 talked about. Where this becomes more of an economic story 0:04:32.880 --> 0:04:34.800 is at that one hundred and twenty hundred and forty. 0:04:34.600 --> 0:04:36.400 Dollars a barrel for a while. 0:04:36.720 --> 0:04:40.400 Then you're looking at a scenario where modest growth year 0:04:40.560 --> 0:04:44.080 end outlook turns into potentially a modest recession. And that's 0:04:44.120 --> 0:04:45.560 what we're focused on. But we think that's a low 0:04:45.600 --> 0:04:46.440 probability outcome. 0:04:47.200 --> 0:04:48.880 What do you tell your clients to do in the 0:04:48.880 --> 0:04:51.240 bond market here, I've got a two year treasury, get 0:04:51.240 --> 0:04:53.480 paid three seventy five for sitting in a two year treasury. 0:04:53.480 --> 0:04:55.720 That's not a bad living, but the credit risk above 0:04:55.720 --> 0:04:56.160 them ban that. 0:04:56.760 --> 0:05:00.920 So one we don't see major issues in the credit markets. 0:05:00.920 --> 0:05:03.839 We still think that there's opportunities focusing on higher quality credit, 0:05:03.880 --> 0:05:06.839 but opportunistically, where we've been focused, as you said, is 0:05:06.839 --> 0:05:09.840 on some of the shorter term bonds, whether that's treasuries 0:05:09.880 --> 0:05:13.720 or investment grade. Long term rates have been rather stable 0:05:13.800 --> 0:05:16.680 despite the pickup in oil prices. Where we've seen a 0:05:16.760 --> 0:05:18.400 huge move is on the short end of the curve. 0:05:18.600 --> 0:05:20.799 The markets went from pricing two or three FED cuts 0:05:20.839 --> 0:05:23.800 to a FED on hold. Outside of the US, markets 0:05:23.800 --> 0:05:25.960 are now pricing Central Bank hikes between now and the 0:05:26.040 --> 0:05:27.960 end of the year. And so far, our clients who 0:05:28.000 --> 0:05:30.360 are sitting on a lot of cash using this as 0:05:30.360 --> 0:05:33.160 an opportunity to extend duration a little bit, pick up 0:05:33.160 --> 0:05:34.920 and take advantage of some of that move that we've 0:05:34.920 --> 0:05:36.880 seen is an interesting opportunity. 0:05:37.360 --> 0:05:40.520 We were talking to Damian Sasaur earlier about emerging markets 0:05:41.279 --> 0:05:44.560 and we're seeing a lot of interest also in Africa 0:05:44.720 --> 0:05:47.800 as we talk about investments in renewable energy. What are 0:05:47.800 --> 0:05:49.960 your thoughts on EM in this environment, So we. 0:05:49.880 --> 0:05:53.400 Think EM is one of the most compelling opportunities out there. Yeah, 0:05:54.040 --> 0:05:57.040 we think that the story in EM is really one 0:05:57.080 --> 0:06:00.719 focused on earning's growth and revisions which have moved sharply higher, 0:06:00.760 --> 0:06:03.320 particularly when you think about Asia, particularly when you think 0:06:03.320 --> 0:06:07.200 about markets like Korea and Taiwan that are really essential 0:06:07.520 --> 0:06:11.040 to this AI capital spending story. And at the same time, 0:06:11.120 --> 0:06:13.640 even with the outperformance that you've seen in emerging markets 0:06:13.640 --> 0:06:16.680 over the last twelve to eighteen months, valuations are still 0:06:16.720 --> 0:06:19.800 at a pretty substantial discount. And while we don't have 0:06:19.800 --> 0:06:21.880 a specific view right Africa, I do think that this 0:06:22.600 --> 0:06:29.039 deglobalization story and this reorientation of supply chains, diversifying resources, 0:06:29.600 --> 0:06:32.640 natural resources and things, is going to benefit places like 0:06:32.720 --> 0:06:35.320 Latin America, which is an interesting investable opportunity. 0:06:35.839 --> 0:06:36.919 Alternative investments. 0:06:37.279 --> 0:06:39.800 I used to think a reasonable allocation to alternative investments 0:06:39.800 --> 0:06:43.159 would be like five percent, but that's like no way. 0:06:43.400 --> 0:06:46.760 People are allocating a lot more to alternative investments. How 0:06:46.760 --> 0:06:50.000 about the sleepy people, JP Morgan Private Bank. I mean, 0:06:50.160 --> 0:06:51.920 you're there to preserve my capital. 0:06:51.640 --> 0:06:52.359 Here, you know. 0:06:52.440 --> 0:06:55.320 I think the first thing is really getting an understanding 0:06:55.360 --> 0:06:58.560 of investment horizon and objectives, right, And the nice thing 0:06:58.640 --> 0:07:00.839 for a lot of our clients who who are wealthy 0:07:00.880 --> 0:07:03.960 and they're thinking not just about short term capital needs 0:07:03.960 --> 0:07:07.520 and liquidity, They're really thinking about long term, multi generational wealth, 0:07:07.839 --> 0:07:10.520 and that's where alternatives do play a much bigger role 0:07:10.560 --> 0:07:13.080 when you can give up some of that liquidity in 0:07:13.120 --> 0:07:16.880 exchange for either you know, potentially enhance returns or diversification 0:07:17.000 --> 0:07:20.520 within your portfolio. We did a family office survey recently 0:07:20.560 --> 0:07:23.000 where we talked to the family offices of our largest clients, 0:07:23.280 --> 0:07:25.400 and on average, they've got about forty percent of their 0:07:25.400 --> 0:07:29.200 portfolio and alternatives. Again, that's because they're thinking out over 0:07:29.520 --> 0:07:31.080 decades and centuries. 0:07:31.280 --> 0:07:31.440 You know. 0:07:31.480 --> 0:07:34.920 For our other clients, we do think that introducing alternative 0:07:34.960 --> 0:07:38.040 allocations is important, as I said, both to enhance returns 0:07:38.040 --> 0:07:40.600 in places like private equity and real estate, but also 0:07:40.640 --> 0:07:43.480 to give you some diversification in things like infrastructure real. 0:07:43.400 --> 0:07:45.880 Quick as an alt investment in your mind crypto. 0:07:46.760 --> 0:07:49.640 So crypto is a you know, sort of not a 0:07:49.720 --> 0:07:53.360 new category, but it's an increasingly focused on category in 0:07:53.400 --> 0:07:56.440 our client with our in our client conversations, we haven't 0:07:56.440 --> 0:07:59.760 taken kind of a strategic view on incorporating crypto into 0:07:59.800 --> 0:08:03.640 our portfolios. You know, it introduces a lot of volatility, 0:08:03.640 --> 0:08:07.000 and when you're thinking about diversifiers, that's not necessarily where 0:08:07.080 --> 0:08:09.280 we want to focus our incremental dollar, but it's an 0:08:09.280 --> 0:08:10.600 area that we're doing a lot of work on and 0:08:10.600 --> 0:08:11.760 we're continuing to focus on. 0:08:11.960 --> 0:08:14.160 Steve, thanks so much, appreciate it. Steve Parker, co head 0:08:14.200 --> 0:08:17.640 of Global Investment Strategy, JP Morgan Private Bank, Any Progue 0:08:17.680 --> 0:08:19.680 regiate of the Common School School of Commerce at the 0:08:19.760 --> 0:08:22.000 University of Virginia. 0:08:23.320 --> 0:08:27.480 Stay with us. More from Bloomberg Surveillance coming up after this. 0:08:34.760 --> 0:08:38.320 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:08:38.400 --> 0:08:41.560 weekday afternoons from seven to ten am Eastern Listen on 0:08:41.640 --> 0:08:45.320 Applecarplay and Android Auto with the Bloomberg Business app, or 0:08:45.440 --> 0:08:47.160 watch us live on YouTube. 0:08:47.760 --> 0:08:52.320 Joining us here in studio Isabel mateos Ilago Chief Group 0:08:52.760 --> 0:08:56.520 Economists B and P. Parrybought offices in Paris are just awesome, 0:08:56.520 --> 0:08:59.080 by the way, Isabell, thanks so much for joining us here. 0:08:59.640 --> 0:09:02.440 What are the conversations you're having with your clients today? 0:09:02.559 --> 0:09:05.360 Is it all about the war? Can they look past 0:09:05.440 --> 0:09:08.920 the war and try to think about economic fundamentals in 0:09:09.200 --> 0:09:11.439 the economy? What are the conversations' hearing with your clients 0:09:11.480 --> 0:09:11.880 these days? 0:09:12.000 --> 0:09:15.760 Hi, good morning, Paul. That's an excellent question, and I 0:09:15.800 --> 0:09:18.320 think by and large the clients are trying to look 0:09:18.760 --> 0:09:21.920 not through but beyond the war, I think there's a 0:09:22.000 --> 0:09:25.640 sense that we've been hit by shocks coming out of 0:09:25.840 --> 0:09:28.120 the US and at some point in the end and 0:09:28.160 --> 0:09:31.640 then life think, you know, resumes well at some point 0:09:31.679 --> 0:09:35.480 they're good or bad. But and so there's an intense 0:09:35.720 --> 0:09:39.800 desire to not get waylaid by the by the noise 0:09:39.880 --> 0:09:45.040 and then and the constant Yeah, the shocks that you know, 0:09:45.160 --> 0:09:48.560 resolve themselves and focus on, you know, what's really happening 0:09:48.600 --> 0:09:51.000 in the underlying economy and the answer as well, there's 0:09:51.000 --> 0:09:55.480 a lot of really interesting transformation. There's the AI story, 0:09:55.559 --> 0:09:59.480 there's the supply chain rewiring story, there's a defense story. 0:09:59.520 --> 0:10:02.920 So there's thatally, quite a lot of engines of resilience there. 0:10:03.720 --> 0:10:05.760 Earning season is kicking into high gear this week. We 0:10:05.840 --> 0:10:07.480 got about twenty percent of the S and P five 0:10:07.520 --> 0:10:10.960 hundred company is going to report, including some big names Tesla, Bowing, 0:10:11.080 --> 0:10:15.040 Intel Ge. The list goes on, Isabelle, how much are 0:10:15.120 --> 0:10:20.679 earnings driving the the performance for equities at the moment? 0:10:20.960 --> 0:10:22.840 A lot? I think, you know. 0:10:22.960 --> 0:10:26.160 I was in Washington, DC last week for the IMF meetings, 0:10:26.200 --> 0:10:29.520 and a lot of the conversation was around the apparent 0:10:29.600 --> 0:10:35.240 disconnect between how you know, well markets, stock markets have performed. 0:10:35.280 --> 0:10:37.440 I mean, we're above where we were at the start 0:10:37.440 --> 0:10:40.160 of the We're in the in US markets today versus 0:10:40.240 --> 0:10:43.800 this really enormous uncertainty about the war and the impact 0:10:43.800 --> 0:10:45.760 it's going to have on the economy. And I think 0:10:45.760 --> 0:10:49.240 the reason for that is exactly earnings, which so far 0:10:49.720 --> 0:10:53.880 have been very strong. Earnings expectations have been revised up, 0:10:54.600 --> 0:10:57.600 not down, and and I think this is again an 0:10:57.640 --> 0:11:00.400 indication that people think the damage from the war is 0:11:00.440 --> 0:11:04.640 going to be contained, including companies, if they're realising including companies. 0:11:04.800 --> 0:11:07.719 The problem with that is that it's not a certainty, 0:11:08.200 --> 0:11:12.640 it's just a bed that people have obviously confidence in. 0:11:13.000 --> 0:11:16.200 And that was also the mood you know, last week 0:11:16.240 --> 0:11:18.640 in Washington. But what I would say is that people 0:11:18.679 --> 0:11:21.000 from the region were the ones sounding a note of 0:11:21.040 --> 0:11:24.080 quotient of saying, look, this is going to be complicated. 0:11:24.480 --> 0:11:27.160 Even if a peace deal is signed today, it's going 0:11:27.240 --> 0:11:29.840 to take a while for things to normalize. And so 0:11:30.280 --> 0:11:32.160 you know, maybe hold your horses. All of you out 0:11:32.200 --> 0:11:35.040 there are who are bullish, but for now, this bullishness 0:11:35.040 --> 0:11:37.120 I think dominates as well. 0:11:37.320 --> 0:11:41.079 When this war started, I think the economic concerns given 0:11:41.120 --> 0:11:43.480 the shock that we've seen to the energy space would 0:11:43.480 --> 0:11:48.600 be perhaps slower economic growth, higher inflation. Have you adjusted 0:11:48.640 --> 0:11:51.880 your numbers at all to reflect that or what are 0:11:51.920 --> 0:11:52.760 you seeing out there? 0:11:53.240 --> 0:11:57.120 So we're waiting for the ceasefire to publish. It's been 0:11:57.120 --> 0:11:59.640 a bit of a moving target, but yes, the direction 0:11:59.679 --> 0:12:01.600 of try, I think it's hard to argue with this 0:12:02.040 --> 0:12:06.280 growth revised lower, inflation revis higher. The quantum is what 0:12:06.320 --> 0:12:09.480 we're still waiting to see. But you know, by and 0:12:09.559 --> 0:12:12.160 large we're very aligned with the IMF numbers and others, 0:12:12.200 --> 0:12:14.319 which is, you know, we were starting from a position 0:12:14.360 --> 0:12:18.000 of strength with a fairly good growth momentum everywhere, and 0:12:18.040 --> 0:12:21.720 that growth momentum is going to be slower. But you know, 0:12:21.760 --> 0:12:24.920 we're not looking at at a recession again unless things 0:12:25.080 --> 0:12:27.440 re escalate in the in the Gulf and the inflation 0:12:27.520 --> 0:12:31.080 shock is going to be meaningful, but you know, not 0:12:31.280 --> 0:12:34.600 something that would require central banks to you know, high 0:12:34.600 --> 0:12:36.800 interest rates by as much as they did in twenty 0:12:36.840 --> 0:12:37.320 twenty two. 0:12:38.440 --> 0:12:41.640 I want to ask about the disconnect between Europe and 0:12:41.880 --> 0:12:44.760 US traders because I'm looking at the WI screen here 0:12:44.800 --> 0:12:47.920 on the terminal showing me year to date percentages for 0:12:48.000 --> 0:12:50.400 the major indexes S and P five hundred and four 0:12:50.400 --> 0:12:53.320 percent year to date, the DACKS in Germany down about 0:12:53.400 --> 0:12:56.520 a third of a percent. So are European investors seeing 0:12:56.520 --> 0:12:59.760 this war and its implications differently than the way US 0:12:59.760 --> 0:13:00.560 and are. 0:13:01.440 --> 0:13:03.679 So I think it's just a reality of the components 0:13:03.720 --> 0:13:06.160 of the respective stock markets. You know, the U S 0:13:06.160 --> 0:13:09.320 stock market is take heavy and the US economy in 0:13:09.400 --> 0:13:12.560 general is less exposed to this energy shock, just because 0:13:12.720 --> 0:13:15.920 you know, US is in that energy exporter. Germany, out 0:13:15.920 --> 0:13:18.360 of all the European economy, is the most industrial and 0:13:18.400 --> 0:13:22.080 the most you know, carbon energy intensive, So yes, it 0:13:22.200 --> 0:13:24.559 is going to be hit disproportionately, and that's what you 0:13:24.679 --> 0:13:27.160 see in the performance of the DACKS that you just mentioned. 0:13:27.240 --> 0:13:29.839 But everything considered being down, what did you say, a 0:13:29.920 --> 0:13:32.600 quarter of represent is a bit of a shrug, frankly 0:13:33.480 --> 0:13:36.320 compared to what could be the scale of your shock. 0:13:36.360 --> 0:13:38.320 So I think it's telling you that even in Europe, 0:13:38.320 --> 0:13:40.640 and that's definitely true in Germany, there is a lot 0:13:40.679 --> 0:13:42.960 of resilience and there are a lot of other drivers 0:13:43.000 --> 0:13:47.960 of growth, notably the infrastructure and defense public investment effort 0:13:47.960 --> 0:13:50.280 that is underway in Germany that is going to continue 0:13:50.320 --> 0:13:52.120 to power growth through this shock. 0:13:52.600 --> 0:13:54.120 That's kind of where I wanted to go as about 0:13:54.160 --> 0:13:58.840 the positive economic development starting last year from the tariffs 0:13:58.880 --> 0:14:02.280 of on the part of Germany and maybe even some 0:14:02.320 --> 0:14:06.680 other European countries, in defense, in just infrastructure. Now that's 0:14:06.720 --> 0:14:08.920 got that offset a little bit, which is buoy the 0:14:09.000 --> 0:14:12.680 higher energy costs here. So what's the economic outlet broadly 0:14:12.679 --> 0:14:14.240 defined for Europe right now? 0:14:14.640 --> 0:14:18.000 So, look, we were expecting Europe to grow at around 0:14:18.280 --> 0:14:21.080 one and a half percent before the war. We're going 0:14:21.120 --> 0:14:23.880 to revise that down by exactly how much, I can't 0:14:23.920 --> 0:14:26.600 tell you, but we'll still be, you know, roughly around 0:14:26.640 --> 0:14:29.800 one percent. And that's because there are these other drivers 0:14:29.840 --> 0:14:33.200 of growth. Investment in the energy transition was already there. 0:14:33.200 --> 0:14:35.840 I would expect this will accelerate. And then there's also 0:14:36.120 --> 0:14:39.800 a lot of investment into tech modernization. Some of it 0:14:39.840 --> 0:14:42.920 is AI, some of it is more plain vanilla automation. 0:14:43.080 --> 0:14:45.440 But you know, all of that has to continue. This 0:14:45.520 --> 0:14:48.080 is what we're hearing from our clients in the real economy, 0:14:48.280 --> 0:14:50.440 and that's going to be a factor of resilience. 0:14:50.640 --> 0:14:53.280 Do your clients see the US dollar as still sort 0:14:53.280 --> 0:15:00.960 of the gold standard of safety safe haven assets? 0:15:01.640 --> 0:15:03.800 Well, I think you know the answer in the way 0:15:03.840 --> 0:15:05.840 you asked the question. So it's you know, it's not 0:15:05.920 --> 0:15:09.240 been the gold standard ever since nineteen seventy three, was it? 0:15:10.320 --> 0:15:13.560 But no, I think it's fair to say that looking 0:15:13.600 --> 0:15:16.560 at the behavior of both the dollar and US treasuries 0:15:16.600 --> 0:15:20.760 in these recent market wobbles, it's very clear that while 0:15:20.760 --> 0:15:24.240 they retain a lot of reasons to feature in portfolios, 0:15:24.320 --> 0:15:28.440 they're not the old weather risk hedge that they once were, 0:15:28.920 --> 0:15:35.680 and so people are looking to diversify from the dollar 0:15:35.840 --> 0:15:38.000 as a safe haven and to find other ways to 0:15:38.640 --> 0:15:43.480 introduce safety in their portfolios. And interestingly, and that's something 0:15:43.480 --> 0:15:46.920 again I heard a lot around Washington last week, is 0:15:46.960 --> 0:15:51.840 this is creating appetite for European assets and for certain 0:15:52.200 --> 0:15:53.520 emerging market assets. 0:15:53.840 --> 0:15:56.000 Isabelle, thank you so much for joining us. Really appreciate it. 0:15:56.040 --> 0:15:59.800 Isabel Mateo's Ilago Group, chief economists for B and p 0:15:59.800 --> 0:16:01.960 PR I bought based in Paris, but we appreciate getting 0:16:01.960 --> 0:16:05.680 her in our studio here today in New York City. 0:16:07.480 --> 0:16:08.440 Stay with us. 0:16:08.440 --> 0:16:11.680 More from Bloomberg Surveillance coming up after this. 0:16:18.920 --> 0:16:22.520 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:16:22.560 --> 0:16:25.760 weekday afternoons from seven to ten am Eastern Listen on 0:16:25.800 --> 0:16:29.200 Apple Karplay and Android Auto with the Bloomberg Business app, 0:16:29.400 --> 0:16:31.239 or watch us live on YouTube. 0:16:31.400 --> 0:16:34.200 You know, doing the volatility so far this year, particularly 0:16:34.320 --> 0:16:37.640 around the rat and Iran war, it felt like trading in 0:16:37.680 --> 0:16:41.280 the equity markets, in the bond markets was wasn't panicked. 0:16:41.320 --> 0:16:43.040 It seemed like it was pretty reasonable. 0:16:43.200 --> 0:16:46.120 It did, and kind of reflecting what's going on out 0:16:46.120 --> 0:16:48.000 there in the marketplace. But now we've got stocks hitting 0:16:48.240 --> 0:16:50.560 new time all time highs. Here, we've got the bond 0:16:50.600 --> 0:16:54.800 markets sitting right where was seemingly before tenure treasury four 0:16:55.000 --> 0:16:57.200 zero point two six percent, that four to four and 0:16:57.200 --> 0:16:59.720 a half percent range. Here's somebody who does this stuff 0:16:59.720 --> 0:17:01.840 for it living, actually makes a living off of. 0:17:01.760 --> 0:17:02.800 The fixed income market. 0:17:03.080 --> 0:17:08.200 Matt Rezneesky, head of Fixed in Client portfolio Management at Vanguard. Matt, 0:17:08.280 --> 0:17:11.800 your market has been rock steady, it seems like. Talk 0:17:11.840 --> 0:17:14.639 to us about what you're seeing in your fixed income 0:17:14.680 --> 0:17:16.840 up market over the last six, seven, eight weeks. 0:17:17.240 --> 0:17:20.199 Well, thanks for having me today and good morning on 0:17:20.240 --> 0:17:25.119 this early Monday morning. Look at the bond market in 0:17:25.160 --> 0:17:27.600 some way and think about credit markets in general. Maybe 0:17:27.640 --> 0:17:29.520 have been sitting like an elephant in a little bit. 0:17:30.240 --> 0:17:32.520 There's a lot of resilience under the hood. And when 0:17:32.520 --> 0:17:34.879 you start to look at the returns in the bond 0:17:34.920 --> 0:17:38.480 market so far this year, you're up close to a percent, 0:17:39.280 --> 0:17:40.960 close to a percent in a number of areas of 0:17:41.000 --> 0:17:42.800 the market, which is quite interesting. A lot of that's 0:17:43.720 --> 0:17:45.480 coming because of the income that you're getting in the 0:17:45.520 --> 0:17:47.919 bond market, So yield is kind of driving the story 0:17:47.960 --> 0:17:48.720 for the bond market. 0:17:48.920 --> 0:17:51.520 Yeah, I'm looking the benchmark ten year treasury yield up 0:17:51.600 --> 0:17:56.760 fourteen percent since the start of the war. What could 0:17:56.840 --> 0:17:58.440 change this? I mean, are you looking at the Fed 0:17:58.520 --> 0:18:00.919 meeting really being the next cattle us? Because things just 0:18:00.960 --> 0:18:03.720 seem so I just keep coming back to that word 0:18:03.800 --> 0:18:05.920 chaotic this morning with regards to the war. 0:18:06.440 --> 0:18:06.960 Chaotic. 0:18:07.119 --> 0:18:10.040 I have two little boys, so I think about bedtime here, right, you. 0:18:10.000 --> 0:18:12.160 Know, you know all about Kaoa. 0:18:12.520 --> 0:18:16.760 It's whether you know, I need more water, I need this, 0:18:16.880 --> 0:18:18.720 I need that. We're going we're going back and forth. 0:18:18.720 --> 0:18:20.240 But I think when you kind of you know, peel 0:18:20.320 --> 0:18:22.159 peel the onion back and you look at look at 0:18:22.160 --> 0:18:26.040 the market right now, it is all about the price 0:18:26.080 --> 0:18:29.280 of oil right now, and it's all about the geopolitical 0:18:29.320 --> 0:18:31.760 headlines that we're getting right now. We got some you know, 0:18:31.840 --> 0:18:33.840 kind of a shift in tone over the weekend, the 0:18:33.880 --> 0:18:37.360 shifting total weekend after an exuberant Friday. But again we're 0:18:37.400 --> 0:18:40.560 still in this environment where the bond market hasn't really 0:18:40.640 --> 0:18:42.880 moved all that much. Credit spreads and the investment Great 0:18:42.920 --> 0:18:46.200 Index are you know, seventy nine basis points high yield 0:18:46.240 --> 0:18:48.320 or inside of three hundred basis points or so, you're 0:18:48.359 --> 0:18:50.920 clipping around five percent, And that's something that we think 0:18:51.000 --> 0:18:52.320 is really compelling for investors. 0:18:53.080 --> 0:18:55.359 So in the credit space, how much credit risk do 0:18:55.400 --> 0:18:57.160 you want to take these days? Because I can sit 0:18:57.200 --> 0:18:59.959 there and to your treasure and get three point seven percent, 0:19:00.000 --> 0:19:00.920 and there's something. 0:19:00.680 --> 0:19:02.640 How much credit risk are you in your clients taking 0:19:02.640 --> 0:19:05.680 these is? Look, it's important to have just the right 0:19:05.960 --> 0:19:08.400 amount of credit risk. There's a key thing I'd say 0:19:08.400 --> 0:19:10.400 here is it's better to do something than do nothing. 0:19:10.400 --> 0:19:12.719 But what we really like a lot of is is 0:19:12.840 --> 0:19:17.439 higher quality investment grade corporates. There's a lot of value 0:19:17.480 --> 0:19:20.760 in say financials. We've gone through, you know, this amazing 0:19:20.920 --> 0:19:23.239 stretch of bank earnings and what did the banks tell us? 0:19:23.240 --> 0:19:26.159 It's that the consumers in a pretty good spot. But 0:19:26.359 --> 0:19:31.000 beyond that, looking at lending, we're seeing you loan books 0:19:31.000 --> 0:19:34.040 on banks continue to expand. So overall, when we think 0:19:34.040 --> 0:19:36.840 about clipping a coupon getting around five percent or so, 0:19:37.200 --> 0:19:38.960 that's something that we think is quite compelling in this 0:19:39.080 --> 0:19:41.000 environment in a way to kind of power through some 0:19:41.040 --> 0:19:42.399 of the noise that you're getting in the market. 0:19:42.560 --> 0:19:44.439 I'm so glad you brought up banks because I was 0:19:44.440 --> 0:19:47.919 looking at smaller the regional banks. They're actually outperforming the 0:19:47.960 --> 0:19:50.000 major banks. You know, we heard from them last week 0:19:50.040 --> 0:19:53.440 in terms of earnings. But the KBW Nasdaq Regional Bank Index, 0:19:53.680 --> 0:19:57.840 so this tracks about fifty regional banks. It's up ten 0:19:57.960 --> 0:20:00.399 percent so far this year. Does that tell you that, 0:20:00.440 --> 0:20:03.119