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Speaker 2: Next guest writes, geopolitical shocks usually fade, but this one
Speaker 2: matters near term because it's an energy shock.
Speaker 3: Boy, that makes a lot of sense to me.
Speaker 2: Steve Parker joins US co head of Global Investment Strategy
Speaker 2: at JP Morgan Private Bank. Steve, what's the conversation you
Speaker 2: having with your private bank bank clients here these days
Speaker 2: about how about this black Swan event and what it
Speaker 2: might mean to their portfolio? I guess short term and
Speaker 2: maybe longer term.
Speaker 4: Yeah, you know, I think clients have done a good
Speaker 4: job because we've trained them well over the last couple
Speaker 4: of years to recognize, as you just said, that geopolitics
Speaker 4: rarely have long lasting impacts. So the first thing that
Speaker 4: we're seeing is the clients are staying discipline, They're sticking
Speaker 4: with their plan, and that's been the right move. I
Speaker 4: think the bigger question and the thing that matters longer
Speaker 4: term in the conversations that we're having is recognizing that
Speaker 4: we're in a world where it's not just this energy shock,
Speaker 4: but it's this shift towards global fragmentation, which means that
Speaker 4: inflation is probably a bigger part of the story going forward.
Speaker 4: The floor on inflation is probably higher, the volatility of
Speaker 4: inflation is probably greater. So thinking about the diversification part
Speaker 4: of your portfolio is not just about bonds, but also
Speaker 4: thinking about things like infrastructure, real assets, commodities as part
Speaker 4: of that inflation story.
Speaker 5: And also Steve's supply chains I think right are going
Speaker 5: to be reshaped because of not only COVID, which is
Speaker 5: I think what sort of raised the flag, but now
Speaker 5: this war and how does that have you thinking about opportunity.
Speaker 4: Yeah, I think you're right. We went through a multi
Speaker 4: decade period of globalization where it was all about the
Speaker 4: efficiency and low cost nature of your supply chain. That
Speaker 4: was great for margins and earnings and inflation. But I
Speaker 4: think between the pandemic, what's gone on in Ukraine and
Speaker 4: what's happening now, you know, there's a recognition of this
Speaker 4: shift towards as I said, more fragmentation. Countries and companies
Speaker 4: are going to focus more on the reliability and security
Speaker 4: of supply chains more so than the cost of supply chains.
Speaker 4: One of the interesting opportunities that we've been talking about
Speaker 4: with clients is this idea of investing in national champions
Speaker 4: and strategic industries, because I think whether it's you know,
Speaker 4: infrastructure and power in the US, security and defense in Europe,
Speaker 4: the technology sector in Asia, you're going to see much
Speaker 4: more of a focus on developing domestic champions as part
Speaker 4: of the supply chain story.
Speaker 2: Steve, before the war, probably the driving force for these
Speaker 2: markets and sentiment was AI artificial intelligence, and I guess
Speaker 2: the market had evolved from simply I'm just throwing money
Speaker 2: in anything that's remotely close to an AI.
Speaker 3: So now I'm trying to discern maybe winners and losers.
Speaker 3: How are you guys, what's the conversation you're having these days?
Speaker 6: Yeah, I think that's right.
Speaker 4: And I think that shift really happened towards the end
Speaker 4: of last year when you saw a shift from these
Speaker 4: hyper scalers funding a lot of this capital spending from
Speaker 4: free cash flow to starting to engage credit markets, and
Speaker 4: I think that caused investors to take a step back
Speaker 4: and say, you know, we need to decipher not just
Speaker 4: every spend is good spend, but rather what's going to
Speaker 4: be effective spent. And I think that that's what we're
Speaker 4: seeing now, and I think you're going to continue to
Speaker 4: see that. The good news is we're continuing to see
Speaker 4: earnings revisions move higher. Valuations as we've seen a bit
Speaker 4: of a pause in these stocks have now gotten more attractive.
Speaker 4: So perhaps heading into this earning season, the bars a
Speaker 4: little bit lower, even with the rally we've seen in
Speaker 4: the last week.
Speaker 5: But the backdrop to all this, right is possibly higher
Speaker 5: oil for longer. What is your outlook for oil? I
Speaker 5: mean in terms of just how we experience it day
Speaker 5: to day when we go fill up. I mean, now
Speaker 5: we've got Churasury Secretary best And saying gas should hang
Speaker 5: around three dollars a gallon for the summer. But yet
Speaker 5: you got the Energy Secretary saying we might not dip
Speaker 5: below three dollars a gallon until next year.
Speaker 6: Yeah. Yeah.
Speaker 4: Our base case is that we do see oil prices
Speaker 4: continue to gradually move lower, call it eighty dollars a
Speaker 4: barrel over the next three to six months. I think
Speaker 4: that's a good environment for growth, inflation, picks up a
Speaker 4: little bit, but that's something we can manage. We also
Speaker 4: do a scenario analysis where we ask ourselves what happens
Speaker 4: if we stay around this one hundred dollars level, what
Speaker 4: happens if we see a spy higher? And at the
Speaker 4: one hundred dollars level, it's a little bit trickier for
Speaker 4: markets because stocks potentially feel some pressure from a growth slowdown,
Speaker 4: bonds feel some pressure from higher inflation. That's where you
Speaker 4: need to look at some of those diverse fires we
Speaker 4: talked about. Where this becomes more of an economic story
Speaker 4: is at that one hundred and twenty hundred and forty.
Speaker 3: Dollars a barrel for a while.
Speaker 4: Then you're looking at a scenario where modest growth year
Speaker 4: end outlook turns into potentially a modest recession. And that's
Speaker 4: what we're focused on. But we think that's a low
Speaker 4: probability outcome.
Speaker 2: What do you tell your clients to do in the
Speaker 2: bond market here, I've got a two year treasury, get
Speaker 2: paid three seventy five for sitting in a two year treasury.
Speaker 3: That's not a bad living, but the credit risk above
Speaker 3: them ban that.
Speaker 4: So one we don't see major issues in the credit markets.
Speaker 4: We still think that there's opportunities focusing on higher quality credit,
Speaker 4: but opportunistically, where we've been focused, as you said, is
Speaker 4: on some of the shorter term bonds, whether that's treasuries
Speaker 4: or investment grade. Long term rates have been rather stable
Speaker 4: despite the pickup in oil prices. Where we've seen a
Speaker 4: huge move is on the short end of the curve.
Speaker 4: The markets went from pricing two or three FED cuts
Speaker 4: to a FED on hold. Outside of the US, markets
Speaker 4: are now pricing Central Bank hikes between now and the
Speaker 4: end of the year. And so far, our clients who
Speaker 4: are sitting on a lot of cash using this as
Speaker 4: an opportunity to extend duration a little bit, pick up
Speaker 4: and take advantage of some of that move that we've
Speaker 4: seen is an interesting opportunity.
Speaker 5: We were talking to Damian Sasaur earlier about emerging markets
Speaker 5: and we're seeing a lot of interest also in Africa
Speaker 5: as we talk about investments in renewable energy. What are
Speaker 5: your thoughts on EM in this environment, So we.
Speaker 4: Think EM is one of the most compelling opportunities out there. Yeah,
Speaker 4: we think that the story in EM is really one
Speaker 4: focused on earning's growth and revisions which have moved sharply higher,
Speaker 4: particularly when you think about Asia, particularly when you think
Speaker 4: about markets like Korea and Taiwan that are really essential
Speaker 4: to this AI capital spending story. And at the same time,
Speaker 4: even with the outperformance that you've seen in emerging markets
Speaker 4: over the last twelve to eighteen months, valuations are still
Speaker 4: at a pretty substantial discount. And while we don't have
Speaker 4: a specific view right Africa, I do think that this
Speaker 4: deglobalization story and this reorientation of supply chains, diversifying resources,
Speaker 4: natural resources and things, is going to benefit places like
Speaker 4: Latin America, which is an interesting investable opportunity.
Speaker 3: Alternative investments.
Speaker 2: I used to think a reasonable allocation to alternative investments
Speaker 2: would be like five percent, but that's like no way.
Speaker 2: People are allocating a lot more to alternative investments. How
Speaker 2: about the sleepy people, JP Morgan Private Bank. I mean,
Speaker 2: you're there to preserve my capital.
Speaker 3: Here, you know.
Speaker 4: I think the first thing is really getting an understanding
Speaker 4: of investment horizon and objectives, right, And the nice thing
Speaker 4: for a lot of our clients who who are wealthy
Speaker 4: and they're thinking not just about short term capital needs
Speaker 4: and liquidity, They're really thinking about long term, multi generational wealth,
Speaker 4: and that's where alternatives do play a much bigger role
Speaker 4: when you can give up some of that liquidity in
Speaker 4: exchange for either you know, potentially enhance returns or diversification
Speaker 4: within your portfolio. We did a family office survey recently
Speaker 4: where we talked to the family offices of our largest clients,
Speaker 4: and on average, they've got about forty percent of their
Speaker 4: portfolio and alternatives. Again, that's because they're thinking out over
Speaker 4: decades and centuries.
Speaker 7: You know.
Speaker 4: For our other clients, we do think that introducing alternative
Speaker 4: allocations is important, as I said, both to enhance returns
Speaker 4: in places like private equity and real estate, but also
Speaker 4: to give you some diversification in things like infrastructure real.
Speaker 5: Quick as an alt investment in your mind crypto.
Speaker 4: So crypto is a you know, sort of not a
Speaker 4: new category, but it's an increasingly focused on category in
Speaker 4: our client with our in our client conversations, we haven't
Speaker 4: taken kind of a strategic view on incorporating crypto into
Speaker 4: our portfolios. You know, it introduces a lot of volatility,
Speaker 4: and when you're thinking about diversifiers, that's not necessarily where
Speaker 4: we want to focus our incremental dollar, but it's an
Speaker 4: area that we're doing a lot of work on and
Speaker 4: we're continuing to focus on.
Speaker 2: Steve, thanks so much, appreciate it. Steve Parker, co head
Speaker 2: of Global Investment Strategy, JP Morgan Private Bank, Any Progue
Speaker 2: regiate of the Common School School of Commerce at the
Speaker 2: University of Virginia.
Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: Joining us here in studio Isabel mateos Ilago Chief Group
Speaker 2: Economists B and P. Parrybought offices in Paris are just awesome,
Speaker 2: by the way, Isabell, thanks so much for joining us here.
Speaker 2: What are the conversations you're having with your clients today?
Speaker 2: Is it all about the war? Can they look past
Speaker 2: the war and try to think about economic fundamentals in
Speaker 2: the economy? What are the conversations' hearing with your clients
Speaker 2: these days?
Speaker 7: Hi, good morning, Paul. That's an excellent question, and I
Speaker 7: think by and large the clients are trying to look
Speaker 7: not through but beyond the war, I think there's a
Speaker 7: sense that we've been hit by shocks coming out of
Speaker 7: the US and at some point in the end and
Speaker 7: then life think, you know, resumes well at some point
Speaker 7: they're good or bad. But and so there's an intense
Speaker 7: desire to not get waylaid by the by the noise
Speaker 7: and then and the constant Yeah, the shocks that you know,
Speaker 7: resolve themselves and focus on, you know, what's really happening
Speaker 7: in the underlying economy and the answer as well, there's
Speaker 7: a lot of really interesting transformation. There's the AI story,
Speaker 7: there's the supply chain rewiring story, there's a defense story.
Speaker 7: So there's thatally, quite a lot of engines of resilience there.
Speaker 5: Earning season is kicking into high gear this week. We
Speaker 5: got about twenty percent of the S and P five
Speaker 5: hundred company is going to report, including some big names Tesla, Bowing,
Speaker 5: Intel Ge. The list goes on, Isabelle, how much are
Speaker 5: earnings driving the the performance for equities at the moment?
Speaker 6: A lot? I think, you know.
Speaker 7: I was in Washington, DC last week for the IMF meetings,
Speaker 7: and a lot of the conversation was around the apparent
Speaker 7: disconnect between how you know, well markets, stock markets have performed.
Speaker 7: I mean, we're above where we were at the start
Speaker 7: of the We're in the in US markets today versus
Speaker 7: this really enormous uncertainty about the war and the impact
Speaker 7: it's going to have on the economy. And I think
Speaker 7: the reason for that is exactly earnings, which so far
Speaker 7: have been very strong. Earnings expectations have been revised up,
Speaker 7: not down, and and I think this is again an
Speaker 7: indication that people think the damage from the war is
Speaker 7: going to be contained, including companies, if they're realising including companies.
Speaker 7: The problem with that is that it's not a certainty,
Speaker 7: it's just a bed that people have obviously confidence in.
Speaker 7: And that was also the mood you know, last week
Speaker 7: in Washington. But what I would say is that people
Speaker 7: from the region were the ones sounding a note of
Speaker 7: quotient of saying, look, this is going to be complicated.
Speaker 7: Even if a peace deal is signed today, it's going
Speaker 7: to take a while for things to normalize. And so
Speaker 7: you know, maybe hold your horses. All of you out
Speaker 7: there are who are bullish, but for now, this bullishness
Speaker 7: I think dominates as well.
Speaker 2: When this war started, I think the economic concerns given
Speaker 2: the shock that we've seen to the energy space would
Speaker 2: be perhaps slower economic growth, higher inflation. Have you adjusted
Speaker 2: your numbers at all to reflect that or what are
Speaker 2: you seeing out there?
Speaker 7: So we're waiting for the ceasefire to publish. It's been
Speaker 7: a bit of a moving target, but yes, the direction
Speaker 7: of try, I think it's hard to argue with this
Speaker 7: growth revised lower, inflation revis higher. The quantum is what
Speaker 7: we're still waiting to see. But you know, by and
Speaker 7: large we're very aligned with the IMF numbers and others,
Speaker 7: which is, you know, we were starting from a position
Speaker 7: of strength with a fairly good growth momentum everywhere, and
Speaker 7: that growth momentum is going to be slower. But you know,
Speaker 7: we're not looking at at a recession again unless things
Speaker 7: re escalate in the in the Gulf and the inflation
Speaker 7: shock is going to be meaningful, but you know, not
Speaker 7: something that would require central banks to you know, high
Speaker 7: interest rates by as much as they did in twenty
Speaker 7: twenty two.
Speaker 5: I want to ask about the disconnect between Europe and
Speaker 5: US traders because I'm looking at the WI screen here
Speaker 5: on the terminal showing me year to date percentages for
Speaker 5: the major indexes S and P five hundred and four
Speaker 5: percent year to date, the DACKS in Germany down about
Speaker 5: a third of a percent. So are European investors seeing
Speaker 5: this war and its implications differently than the way US
Speaker 5: and are.
Speaker 7: So I think it's just a reality of the components
Speaker 7: of the respective stock markets. You know, the U S
Speaker 7: stock market is take heavy and the US economy in
Speaker 7: general is less exposed to this energy shock, just because
Speaker 7: you know, US is in that energy exporter. Germany, out
Speaker 7: of all the European economy, is the most industrial and
Speaker 7: the most you know, carbon energy intensive, So yes, it
Speaker 7: is going to be hit disproportionately, and that's what you
Speaker 7: see in the performance of the DACKS that you just mentioned.
Speaker 7: But everything considered being down, what did you say, a
Speaker 7: quarter of represent is a bit of a shrug, frankly
Speaker 7: compared to what could be the scale of your shock.
Speaker 7: So I think it's telling you that even in Europe,
Speaker 7: and that's definitely true in Germany, there is a lot
Speaker 7: of resilience and there are a lot of other drivers
Speaker 7: of growth, notably the infrastructure and defense public investment effort
Speaker 7: that is underway in Germany that is going to continue
Speaker 7: to power growth through this shock.
Speaker 2: That's kind of where I wanted to go as about
Speaker 2: the positive economic development starting last year from the tariffs
Speaker 2: of on the part of Germany and maybe even some
Speaker 2: other European countries, in defense, in just infrastructure. Now that's
Speaker 2: got that offset a little bit, which is buoy the
Speaker 2: higher energy costs here. So what's the economic outlet broadly
Speaker 2: defined for Europe right now?
Speaker 7: So, look, we were expecting Europe to grow at around
Speaker 7: one and a half percent before the war. We're going
Speaker 7: to revise that down by exactly how much, I can't
Speaker 7: tell you, but we'll still be, you know, roughly around
Speaker 7: one percent. And that's because there are these other drivers
Speaker 7: of growth. Investment in the energy transition was already there.
Speaker 7: I would expect this will accelerate. And then there's also
Speaker 7: a lot of investment into tech modernization. Some of it
Speaker 7: is AI, some of it is more plain vanilla automation.
Speaker 7: But you know, all of that has to continue. This
Speaker 7: is what we're hearing from our clients in the real economy,
Speaker 7: and that's going to be a factor of resilience.
Speaker 5: Do your clients see the US dollar as still sort
Speaker 5: of the gold standard of safety safe haven assets?
Speaker 7: Well, I think you know the answer in the way
Speaker 7: you asked the question. So it's you know, it's not
Speaker 7: been the gold standard ever since nineteen seventy three, was it?
Speaker 7: But no, I think it's fair to say that looking
Speaker 7: at the behavior of both the dollar and US treasuries
Speaker 7: in these recent market wobbles, it's very clear that while
Speaker 7: they retain a lot of reasons to feature in portfolios,
Speaker 7: they're not the old weather risk hedge that they once were,
Speaker 7: and so people are looking to diversify from the dollar
Speaker 7: as a safe haven and to find other ways to
Speaker 7: introduce safety in their portfolios. And interestingly, and that's something
Speaker 7: again I heard a lot around Washington last week, is
Speaker 7: this is creating appetite for European assets and for certain
Speaker 7: emerging market assets.
Speaker 3: Isabelle, thank you so much for joining us. Really appreciate it.
Speaker 2: Isabel Mateo's Ilago Group, chief economists for B and p
Speaker 2: PR I bought based in Paris, but we appreciate getting
Speaker 2: her in our studio here today in New York City.
Speaker 6: Stay with us.
Speaker 8: More from Bloomberg Surveillance coming up after this.
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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: You know, doing the volatility so far this year, particularly
Speaker 2: around the rat and Iran war, it felt like trading in
Speaker 2: the equity markets, in the bond markets was wasn't panicked.
Speaker 3: It seemed like it was pretty reasonable.
Speaker 2: It did, and kind of reflecting what's going on out
Speaker 2: there in the marketplace. But now we've got stocks hitting
Speaker 2: new time all time highs. Here, we've got the bond
Speaker 2: markets sitting right where was seemingly before tenure treasury four
Speaker 2: zero point two six percent, that four to four and
Speaker 2: a half percent range. Here's somebody who does this stuff
Speaker 2: for it living, actually makes a living off of.
Speaker 3: The fixed income market.
Speaker 2: Matt Rezneesky, head of Fixed in Client portfolio Management at Vanguard. Matt,
Speaker 2: your market has been rock steady, it seems like. Talk
Speaker 2: to us about what you're seeing in your fixed income
Speaker 2: up market over the last six, seven, eight weeks.
Speaker 9: Well, thanks for having me today and good morning on
Speaker 9: this early Monday morning. Look at the bond market in
Speaker 9: some way and think about credit markets in general. Maybe
Speaker 9: have been sitting like an elephant in a little bit.
Speaker 9: There's a lot of resilience under the hood. And when
Speaker 9: you start to look at the returns in the bond
Speaker 9: market so far this year, you're up close to a percent,
Speaker 9: close to a percent in a number of areas of
Speaker 9: the market, which is quite interesting. A lot of that's
Speaker 9: coming because of the income that you're getting in the
Speaker 9: bond market, So yield is kind of driving the story
Speaker 9: for the bond market.
Speaker 5: Yeah, I'm looking the benchmark ten year treasury yield up
Speaker 5: fourteen percent since the start of the war. What could
Speaker 5: change this? I mean, are you looking at the Fed
Speaker 5: meeting really being the next cattle us? Because things just
Speaker 5: seem so I just keep coming back to that word
Speaker 5: chaotic this morning with regards to the war.
Speaker 6: Chaotic.
Speaker 9: I have two little boys, so I think about bedtime here, right, you.
Speaker 2: Know, you know all about Kaoa.
Speaker 9: It's whether you know, I need more water, I need this,
Speaker 9: I need that. We're going we're going back and forth.
Speaker 9: But I think when you kind of you know, peel
Speaker 9: peel the onion back and you look at look at
Speaker 9: the market right now, it is all about the price
Speaker 9: of oil right now, and it's all about the geopolitical
Speaker 9: headlines that we're getting right now. We got some you know,
Speaker 9: kind of a shift in tone over the weekend, the
Speaker 9: shifting total weekend after an exuberant Friday. But again we're
Speaker 9: still in this environment where the bond market hasn't really
Speaker 9: moved all that much. Credit spreads and the investment Great
Speaker 9: Index are you know, seventy nine basis points high yield
Speaker 9: or inside of three hundred basis points or so, you're
Speaker 9: clipping around five percent, And that's something that we think
Speaker 9: is really compelling for investors.
Speaker 2: So in the credit space, how much credit risk do
Speaker 2: you want to take these days? Because I can sit
Speaker 2: there and to your treasure and get three point seven percent,
Speaker 2: and there's something.
Speaker 9: How much credit risk are you in your clients taking
Speaker 9: these is? Look, it's important to have just the right
Speaker 9: amount of credit risk. There's a key thing I'd say
Speaker 9: here is it's better to do something than do nothing.
Speaker 9: But what we really like a lot of is is
Speaker 9: higher quality investment grade corporates. There's a lot of value
Speaker 9: in say financials. We've gone through, you know, this amazing
Speaker 9: stretch of bank earnings and what did the banks tell us?
Speaker 9: It's that the consumers in a pretty good spot. But
Speaker 9: beyond that, looking at lending, we're seeing you loan books
Speaker 9: on banks continue to expand. So overall, when we think
Speaker 9: about clipping a coupon getting around five percent or so,
Speaker 9: that's something that we think is quite compelling in this
Speaker 9: environment in a way to kind of power through some
Speaker 9: of the noise that you're getting in the market.
Speaker 5: I'm so glad you brought up banks because I was
Speaker 5: looking at smaller the regional banks. They're actually outperforming the
Speaker 5: major banks. You know, we heard from them last week
Speaker 5: in terms of earnings. But the KBW Nasdaq Regional Bank Index,
Speaker 5: so this tracks about fifty regional banks. It's up ten
Speaker 5: percent so far this year. Does that tell you that,
Speaker 5: I mean, I guess their business is driven by investor
Speaker 5: loans more than retail investor loans.
Speaker 9: Yeah, I mean, this is this is coming back to
Speaker 9: a story as a bond investment standpoint. Selection is what
Speaker 9: really really is important. You're you're bringing up, so what's
Speaker 9: going on the equity market. You know, one of the
Speaker 9: things that we've been talking about a lot is that
Speaker 9: this is a bond pickers market. We've moved from this
Speaker 9: beta trade in fixed income. The beginning of the conflict
Speaker 9: started this catalyst.
Speaker 3: With all of these.
Speaker 9: Issues we're going on, whether it's AI concerns, geopolitics, whether
Speaker 9: it's you know, worries about private credit, all of this
Speaker 9: has kind of created this environment where there's a lot
Speaker 9: of the spursion. You look under the hood, the spread
Speaker 9: moves in investment grade corporates have been interesting, but also
Speaker 9: be beneath that, the moves between energy and financials are
Speaker 9: something really worth watching. So again, selection is what you want.
Speaker 9: You want to work with a very well resourced active
Speaker 9: manager in this particular juncture to find good resilient income
Speaker 9: in this enduring environment for fixed income.
Speaker 2: We've seen technology companies who typically aren't big issues in
Speaker 2: the credit market. Boy, they've become big issues in the
Speaker 2: credit market. How does your market view them? How do
Speaker 2: you view those issues? They seem like if I ear
Speaker 2: an investment, I'd be like, keep it coming, you know,
Speaker 2: I would say, the new kids on the block into
Speaker 2: some way. There's a lot of new issuance in the market.
Speaker 2: All the big names, whether it's Meta, it's it's Alphabet's oracle.
Speaker 2: You know, we're thinking about how these can play within portfolios.
Speaker 2: But but again, under the hood, you look at the
Speaker 2: performance so far, they've actually lagged a little bit, you know,
Speaker 2: from us from a spread perspective, you look at returns,
Speaker 2: you know that the best performers have actually been energy
Speaker 2: so far, with within within, within, the corporate credit and
Speaker 2: thing so far. So again, it's a selection story. It's
Speaker 2: something you want to have a position in. But it's
Speaker 2: all about sizing. That's that's the real that's the real
Speaker 2: key right now, how you're thinking about.
Speaker 5: Things, all right, Matt Raznesky Rasneski, Yes, all right, Head
Speaker 5: of fixed income over at Vanguard, Matt, what are your
Speaker 5: expectations for next week's FED meeting.
Speaker 9: We're very focused on, you know, a couple of key
Speaker 9: things that read on how they're responding to the data
Speaker 9: and the data in particular as we get more understanding
Speaker 9: and closer through this this geopolitical risk that we're going through. Again,
Speaker 9: the inflation numbers, the headline inflation numbers were really really
Speaker 9: focused on, because that's whe're starting to see some of
Speaker 9: the the pickup of some of the energy worries and
Speaker 9: some of the risks there. But ultimately it's all about
Speaker 9: data at this point. How much duration risk are you taking?
Speaker 3: How far out do you want to go on the
Speaker 3: curve here these days.
Speaker 9: Look, we think a neutral position is quite important. And
Speaker 9: when we think about client portfolios and we have a
Speaker 9: chance to within our advisor business looking at hundreds and
Speaker 9: hundreds of investor portfolios, a couple things that are kind
Speaker 9: of interesting that The first thing I'd say is, on average,
Speaker 9: four to five portfolios that we look at have a
Speaker 9: duration shorter than the AG and about half of portfolios
Speaker 9: have a duration that's at least one year shorter than
Speaker 9: the AG. And the point here is this is an
Speaker 9: enduring environment for bonds. People have been putting money in
Speaker 9: cash looking at you know flows so far this year,
Speaker 9: ultra short has been something that's gained a lot of
Speaker 9: TRISTM investors are looking to park some money on the sidelines.
Speaker 9: We're really focused on getting investors at the right part
Speaker 9: of the curve. We say the smart part of the curve.
Speaker 9: Today it's really the belly of the curve. You have
Speaker 9: a lot of resilient income. You also have some potential
Speaker 9: price appreciation if we get a bit of a rally
Speaker 9: in the market. But this is the sweet spot for
Speaker 9: us overall today.
Speaker 5: What has demand been like or money flows into muni
Speaker 5: bonds at the moment.
Speaker 9: Muni bonds one of my favorite things to talk about.
Speaker 9: Look sweety too. Yeah really really, I had a nickname
Speaker 9: one point called Muni Matt. But look, the muni market
Speaker 9: has been kind of sopping up demand from investors here.
Speaker 9: Obviously we've gone through the March period as the market
Speaker 9: is notoriously known for some volatility around taxis and but
Speaker 9: what's interesting about munis is this is a steep yield curve.
Speaker 9: The muni market continues to have an even steeper yield
Speaker 9: curve than the treasury market. So what does that mean
Speaker 9: is you could pick up attractive income and roll down
Speaker 9: the curve kind of profit over the passage of time.
Speaker 9: We look at the any bond market, this is something
Speaker 9: that we say the media curve is steep and cheap
Speaker 9: relative to treasury. So if you're looking at income, you
Speaker 9: want to get some really attractive coupon that's tax advantaged.
Speaker 9: This is a really great opportunity for investors that have
Speaker 9: taxes on the mind.
Speaker 3: As I raised my hand there, Resid, thanks so much
Speaker 3: for joining us.
Speaker 2: Mattisonski head a fixed income client portfolio management at van Guardan.
Speaker 8: Stay with us. More from Bloomberg surveillance coming up after.
Speaker 1: This, you're listening to the Bloomberg Surveillance podcast Catch Us
Speaker 1: Live Weekday out.
Speaker 2: Joint Sellow Economics.
Speaker 3: In our relationship, what do you think is going on
Speaker 3: so great? Because we do in fact have a hot
Speaker 3: warn I ran.
Speaker 10: Yeah, I think, I mean, I I am of the
Speaker 10: policy community that is that is not so bullish. But
Speaker 10: you know, I also I speak with and watching Marcus closely,
Speaker 10: and so I think it was really it was the
Speaker 10: question that every conversation started with. And part of it,
Speaker 10: I think is exactly what you you just reported on,
Speaker 10: which is that earnings are coming in looking extremely positive.
Speaker 10: You have this this overarching understanding that AI is going
Speaker 10: to revolutionize the way we do business and and that
Speaker 10: will mean up, you know, an increase in productivity.
Speaker 6: But I mean, traders are also.
Speaker 10: Trading on on some on misleading tweets. So you have
Speaker 10: statements from Trump, you have you know, statements from from Iran,
Speaker 10: and a lot of them are just are trading tweet
Speaker 10: to tweet and expecting a short duration of the conflict.
Speaker 6: But the actual fallout will.
Speaker 10: Dominate world politics for months and possibly years and will
Speaker 10: weigh pretty heavily on the global economy. So you have
Speaker 10: Europe and Asia and Africa preparing right now for sustained
Speaker 10: energy shocks feeding.
Speaker 6: Into all of their different industries.
Speaker 10: And you know, in particular, you look at Europe with
Speaker 10: jet fuel shortages, Asia the same thing. It's going to
Speaker 10: impact travel and tourism, food, food scarcity, and inflecture. So
Speaker 10: I think we're looking at an absolute disconnect when you
Speaker 10: look at the golf people and in the in the
Speaker 10: at the World Bank meetings last week, we're really we're
Speaker 10: talking about the Golf needing to reevaluate its its business model,
Speaker 10: so it's not just having to claim force majure on
Speaker 10: exports and commitments, but beyond commodities, you know, the Golf
Speaker 10: was really building it up itself up as a safe haven,
Speaker 10: as an airline hub, as a data center hub. And
Speaker 10: then you have the hit to maritime navigation and what
Speaker 10: the Asian powerhouses are looking at Japan, Australian Philippines gearing
Speaker 10: up for potential disruptions and and enclosures of maritime navigation
Speaker 10: in the Indo Pacific. So there's not a lot of
Speaker 10: optimism out there for a swift resolution to the crisis,
Speaker 10: and yet you have markets, uh buoyant and reaching all
Speaker 10: time highs.
Speaker 5: And yet Heidi, speaking of Save Haven's, you have investors
Speaker 5: globally sort of questioning the dominance of the US dollar.
Speaker 5: And you say, at this meeting it was the first
Speaker 5: time real questions about dollar centrality were actually discussed by
Speaker 5: what you call serious people. What are the implications there?
Speaker 5: H So, I mean, the the it's been an enduring
Speaker 5: question the dollar as as the world's reserve currency, and
Speaker 5: you know, from from time to time there have been,
Speaker 5: you know, questions about how how durable that that that
Speaker 5: dollar dominance is. But there were some more serious people
Speaker 5: talking about the dollar centrality in the system.
Speaker 6: And I don't personally predict any.
Speaker 10: Kind of end imminent end to the to the to
Speaker 10: dollar dominance, but it's it's clear that countries are increasingly
Speaker 10: seeking alternative issuance options payment mechanisms beyond dollar and euro
Speaker 10: to ensure some redundancy. And what's happening in with with
Speaker 10: the choke hold on the Strait of Hormuz is really
Speaker 10: really forcing countries and companies to look to other currencies
Speaker 10: to be able to transact in. I mean, you look
Speaker 10: at it at a dollar, you know, the dollar as
Speaker 10: a reserve currency, it's a store of value, it's a
Speaker 10: medium of exchange and transaction, and it's also a unit
Speaker 10: of account. So it's not just it's not just the money,
Speaker 10: it's actually it's the infrastructure that's that's built in and
Speaker 10: underpins global trade. But this is really this is a
Speaker 10: time when we're watching capital flows pretty closely out of
Speaker 10: the US dollar and dollar assets.
Speaker 2: Uh.
Speaker 10: And then the counter to that is, really there's no
Speaker 10: other deep, liquid, safe market and with the potential for
Speaker 10: growth that we are anticipating in the United States.
Speaker 2: Heidi, I'll be interested to hear about kind of the
Speaker 2: folks you talk to, what are they saying about China here,
Speaker 2: because obviously all eyes are on what's happening with Iran.
Speaker 2: But the US and China are still set to meet
Speaker 2: i think May fourteenth and fifteenth, President g and President Trump,
Speaker 2: assuming that's still on. What's the expectation there for the
Speaker 2: US China relations going forward.
Speaker 10: Well, that meeting was always going to be a precarious
Speaker 10: balancing act of what was originally on the I think
Speaker 10: the president's President Trump and President She's agenda, which was
Speaker 10: trade and critical minerals and rare earths and basically a
Speaker 10: maintenance of stability and what what deliverables could be could
Speaker 10: could be on both sides. Right now, we're talking about
Speaker 10: choking off China's purchases of oil coming out of the Gulf.
Speaker 10: They buy eighty percent of Iranian oil, and this office
Speaker 10: with the management of the oil shipments coming out of
Speaker 10: the Strait of horror moves and the blockade that the
Speaker 10: US has put on. The Iranian blockade really directly impacts
Speaker 10: China and its oil purchases. So I think that's going
Speaker 10: to be an interesting all.
Speaker 2: Right, Hidi, thank you so much, really appreciate it. Hei
Speaker 2: to Creeboat Rehticker. She's a senior fellow.
Speaker 3: For Geoeconomics on the Council for Foreign Relationship.
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