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Speaker 1: Broadcasting live to New York Cloomberg eleventh Rio to Washington,

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Speaker 1: d C, Bloomberg to Boston, Blueberg Weill Liners to San Francisco,

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Speaker 1: Bloomberg nine sixty to the Country Serious Exam Channel one

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Speaker 1: nineteen and around the globe the Bloomberg Radio Plus appen

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Speaker 1: Bloomberg dot com. This is Bloomberg Surveillance. Good morning. I'm

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Speaker 1: Karen Moscow along with Tom Keene and Michael McKee, and

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Speaker 1: the opening goal brought to you by s C. I

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Speaker 1: imagine when cognitive computing shapes the experience you create for

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Speaker 1: your investors. See how I see as Global operating platform

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Speaker 1: can be your canalyst for business intelligence at se i

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Speaker 1: C dot com. Slash imagine stocks that'll change to hire

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Speaker 1: at the open. The S and P five hundred is

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Speaker 1: up now a tenth of upper cent, up two points

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Speaker 1: to fourteen. Downtown's industrial average up a tenth of upper

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Speaker 1: center twenty two points to seventeen thousand, nine hundred sixty

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Speaker 1: Then as the accepplemost two tenths per cent or eight

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Speaker 1: points to forty nine sixty nine to in your treasury

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Speaker 1: is of three thirty seconds. The yield one point seven

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Speaker 1: zero percent yield and the two year points seven eight

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Speaker 1: percent nine max Scrude oil up one in a quarter percent,

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Speaker 1: or sixty two cents to fifty ninety eight cents of

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Speaker 1: barrel Comex gold up whined a quarter percent or fifteen

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Speaker 1: dollars seventy cents to twelve sixty two seventy ounce the

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Speaker 1: euro An dollar fourteen the end one oh six point

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Speaker 1: eight five Tvin Mike, Thank you very much, Karen Moscow.

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Speaker 1: Interesting headline just crossed the Bloomberg British Petroleum, noting that

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Speaker 1: global coal use dropped by the most on record in

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Speaker 1: two thousand fifteen. That is not good for people who

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Speaker 1: produce coal, but it does suggest there is a widespread

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Speaker 1: adoption of other fuel sources, particularly natural gas. Robert Campbell

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Speaker 1: is joining us. He's with oil production research from energy aspects,

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Speaker 1: and uh, Rob, this is an interesting development and it

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Speaker 1: basically confirms what we already in that coal is the

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Speaker 1: no longer what people want to buy, and that the

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Speaker 1: fracking revolution has made I guess natural gas so cheap

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Speaker 1: and oil so cheap that there are alternatives. Now, Uh, sure,

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Speaker 1: certainly there are alternatives, and it's it's a matter of

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Speaker 1: the fact that there's enough gas that it has the

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Speaker 1: price to to displace coal from the generation stack in

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Speaker 1: the US, and that's what we're seeing. And additionally, the

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Speaker 1: the regulatory pressure on the coal sector makes it unattractive

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Speaker 1: to retrofit aging coal plants to comply with environmental regulations

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Speaker 1: going forward. I think, you know, there's a similar pattern

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Speaker 1: in China as well, obviously, one of the other major

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Speaker 1: coal consumers, where the environmental concerns are making coal less

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Speaker 1: and less attractive, the government is actively looking to substitute

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Speaker 1: it out of the generation stack. And uh, you know

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Speaker 1: that's uh, that is what it is for the coal producers.

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Speaker 1: A couple of years ago, we would have said, um,

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Speaker 1: maybe the outlook for oil was similar, you know, a

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Speaker 1: fuel in decline. Everybody was looking to renewables, and now

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Speaker 1: with prices where they are, it's all about hydrocarbons. Again,

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Speaker 1: does does that continue? How How long is oil back?

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Speaker 1: In the conversation, I think a lot of people who

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Speaker 1: bought SUVs are in for a route awakening. Uh. If

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Speaker 1: you if we look at the supply and demand balances

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Speaker 1: going into twenty seventeen, that is we are going to

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Speaker 1: see a large draw down in inventories and our our

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Speaker 1: firm expects quite a considerable price increase to reflect the

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Speaker 1: the damage that's being done to non OPEC supply by

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Speaker 1: the low price environment. I mean this goes beyond the

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Speaker 1: shale areas and simply but we cannot the supply and

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Speaker 1: demand curves do not meet at this price. Well, quantify

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Speaker 1: what what? What does a large increase mean? We think

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Speaker 1: on average you'll be drawing a million parls a day

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Speaker 1: next year out of inventory, So we do have a

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Speaker 1: large overhang from the last couple of years. But ultimately, um,

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Speaker 1: that's not a sustainable way to go of op things. Uh.

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Speaker 1: Now you know you can get get well into the

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Speaker 1: future and start prognosticating. I mean, our firm's focus is

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Speaker 1: mainly on the shore you know, one to two year

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Speaker 1: horizon and simply put, you know, the current state of

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Speaker 1: demand in the current state of supply are not compatible.

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Speaker 1: How did I ask this question earlier the morning, and

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Speaker 1: I think it's still true here at cents Brant. The

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Speaker 1: elasticity or responsiveness is of the technology of American oil.

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Speaker 1: Are the Saudi's aware of that? Are they aware of

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Speaker 1: the new technology in America? It makes for different microeconomics

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Speaker 1: underlying the price. I think the Saudis are well aware

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Speaker 1: of this. UM. There's been a lot of misconceptions about

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Speaker 1: what the Saudis have been doing. UM. The Saudis are

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Speaker 1: not concerned about shale so much as they're concerned about

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Speaker 1: the lower cost producers such as Iraq and Iran taking

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Speaker 1: market share from the UH. In the end, they don't

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Speaker 1: mind a higher cost producers such as the US, and

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Speaker 1: they're willing to, you know, live in a lower price

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Speaker 1: environment to sustain oil as a as a as a

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Speaker 1: as a resource that that can be sold. And I

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Speaker 1: think that the latest statements from the Saudi officials pretty

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Speaker 1: much confirmed this. I would note on the shale side

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Speaker 1: of things that you know, everybody loves to talk about

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Speaker 1: how costs have come down, but this is entirely well,

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Speaker 1: not entirely, but a large amount of this will be

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Speaker 1: UH will be will be sixical factors because nobody's doing

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Speaker 1: any work. So I don't think the Schlumberg's of the

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Speaker 1: world are going to continue to operate at near lost

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Speaker 1: UH near in near lost conditions should activity recover. And

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Speaker 1: we've certainly heard this from our clients that they may

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Speaker 1: be happy to hedge their exposure at these prices, but

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Speaker 1: when it comes to they're quite concerned about what their

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Speaker 1: costs will be. What about the argument that you see

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Speaker 1: prices rise, the factors all come back. Oh yeah, I

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Speaker 1: mean that we we do anticipate them coming back. We

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Speaker 1: do anticipate the rising price to stimulate drilling. But I

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Speaker 1: think it's worth noting that the shale sector as a

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Speaker 1: whole has been cash flow negative for almost every quarter

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Speaker 1: since two thousand and eight, and the huge losses that

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Speaker 1: have been absorbed over the last you know, six months

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Speaker 1: or so, I think are really going to trigger a

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Speaker 1: bit of a change in the mindset from those who

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Speaker 1: are providing the dollars to to undertake this drilling. We'll

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Speaker 1: certainly see people supporting companies in growth mode and what

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Speaker 1: have you, but there will be a lot greater focus

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Speaker 1: on on achieving actual returns from from their investment. Mean,

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Speaker 1: go ahead if you if if you're an equity investor

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Speaker 1: in a shale company right now, the company has no

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Speaker 1: hope of ever paying an dividend and so you're only

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Speaker 1: exit is is M and A. But who's going to

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Speaker 1: take you over? If if the whole sector is bleeding cash?

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Speaker 1: Can you extrapolate where a gallon of gas is going

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Speaker 1: back to is it over three dollars? You know? I mean,

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Speaker 1: I mean our view on crude is that we get

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Speaker 1: back to around uh, you know, the seventies next year.

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Speaker 1: And on that basis, yeah, you could see three dollars

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Speaker 1: in parts of the United States. Uh. This is why

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Speaker 1: I did remark about people who were buying all the SUVs.

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Speaker 1: Maybe in for surprise again, but I mean currently the

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Speaker 1: price is you know, twenty to thirty cents below where

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Speaker 1: it was a year ago, and that's obviously very supportive

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Speaker 1: for demand prices. Um. And you know, if I don't

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Speaker 1: own a car from when you fill it up, it's

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Speaker 1: amazing how cheap. Well we can go to someone who's

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Speaker 1: Robert Campbell will continue with this with energy aspects, this

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Speaker 1: chat on oil from thirty to fifty two thirty three

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Speaker 1: on Brent you bought at the bottom, John Tucker? Was

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Speaker 1: it the hummer you got? That used hummer? Was dollar?

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Speaker 1: How loo did he get in New Jersey? Uh? But

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Speaker 1: one fifty? Yeah, it's up to two oh six though

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Speaker 1: in my neighborhood. Okay, so it's still good. Yeah, is

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Speaker 1: Campbell just said Michael McKee one of the challenges we

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Speaker 1: have is you're the only one within like a zoop

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Speaker 1: dumb enough of a car checking with us. We look

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Speaker 1: at that when these bonds, currencies, commodities, it will save

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Speaker 1: us yet out to new strength one oh six eighty four.

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Speaker 1: That's a wow statistic. Let me get up the end

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Speaker 1: inter day chart. Going back, I'm gonna put this out

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Speaker 1: on Bloomberg at Radio Plus. I got a seven day

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Speaker 1: inter day on yen. The low is one oh six

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Speaker 1: thirty eight on June five at five pm exactly. We're

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Speaker 1: not there, but we're breaking down. We've got a couple

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Speaker 1: of levels to go through. You may get a retest

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Speaker 1: of that June six, June five, strength and end one

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Speaker 1: oh six thirty eight. Right now one oh six eighty four. Uh,

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Speaker 1: the markets are opened out up sixty and the vix

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Speaker 1: thirteen point eight five. We're right at eighteen thousand. We

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Speaker 1: can round it up to that, showing the resiliency of

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Speaker 1: the equities. You're Dennis Gartman earlier saying the challenges of

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Speaker 1: short term gaming the markets, given all that's going on,

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Speaker 1: particularly negative interest rates and the other distortions that are

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Speaker 1: out there. I'm with Mike McKee. All it comes down

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Speaker 1: to the data dependent staggering to the next economic data.

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Speaker 1: This sour of surveillance has brought you by Westchester suber

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Speaker 1: u is at Westchester Subaru dot com. Here's John Tucker

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Speaker 1: with news headlines you want some nor numbers. Former Secretary

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Speaker 1: of State Clinton, who was declared the Democratic presentive nominee

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Speaker 1: by the APO Monday, one four of six contests on Tuesday,

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Speaker 1: further extending her lead over Bernie Sanders. The vote tally

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Speaker 1: show in California, with nine percent of the vote counted,

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Speaker 1: Clinton had four hundred thousand votes more than Sanders, about

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Speaker 1: fifty six percent of the total. In Doublegate Rich New Jersey,

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Speaker 1: the final tally shows Clinton six percent to Sanders thirty

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Speaker 1: six percent. That's a difference of about two hundred at

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Speaker 1: forty thousand votes. Still, Sanders Valley to continue his quest

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Speaker 1: for the White House, telling supporters in California will fight

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Speaker 1: on to compete in next week's primary in Washington, d c.

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Speaker 1: And Violence in the Middle East increased last year while

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Speaker 1: the rest of the world largely got safer, just scoring

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Speaker 1: a global inequality in peace. This according to an annual

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Speaker 1: study the Economic Cost of Violence. In twenty fifteen, thirteen

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Speaker 1: point six trillion dollars thirteen point three percent of the

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Speaker 1: global world gross domestic product, according to the Institute for Economics,

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Speaker 1: Peace and Global Peace Global Peace Index and Global News

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Speaker 1: twenty four hours a day, powered by a twenty four

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Speaker 1: hundred journalists in more than one hundred fifty news vireos

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Speaker 1: around the world. I'm John Tucker, Michael and Tom and John,

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Speaker 1: thanks so much. The two year yield point to ten

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Speaker 1: year one point seven one percent. Germany gets a bid

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Speaker 1: Finally a little bit higher yields lower boon prices. This morning,

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Speaker 1: Michael McKee and Tom Keen from New York Bloomberg Surveillance.

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Speaker 1: Bloomberg's a Allances brought to you you by your Mercedes Benz

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Speaker 1: Tri State Dealer. The star you've been wishing for is

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Speaker 1: waiting at the Mercedes ben Summer event. Hew, do your

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Speaker 1: Mercedes Benz Tri State dealer for more details. Hurry before

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Speaker 1: a day at Bloomberg dot Com, the Radio plus mobile app,

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Speaker 1: and on your radio. This is a Bloomberg Business Flash

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Speaker 1: and I'm Karen Moscow. US stocks are moving higher, with

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Speaker 1: the SNP five hundred at its highest level since July

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Speaker 1: amid speculation, borrowing costs le remade lower for longer amid

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Speaker 1: moderate growth. We checked the markets every fifteen minutes throughout

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Speaker 1: the trading day. On Bloomberg SNP five hundred up three

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Speaker 1: tens per center six points to eighteen Downtown's industrial average

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Speaker 1: of four tenths per cent or seventy three points to

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Speaker 1: eighteen thousand, eleven NASDAC of a quarter percent or twelve

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Speaker 1: points to forty nine seventy four ten year treasury up

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Speaker 1: to thirty seconds. The YELD one point seven one per

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Speaker 1: cent yelled done. The two year point seven eight are set.

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Speaker 1: Nimex crude oil left one per cent or eighty eight

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Speaker 1: cents to four of barrel co mix gold up one

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Speaker 1: point four percent or seventeen dollars forty cents at twelve

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Speaker 1: sixty four forty announced the euro and other thirty seven

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Speaker 1: the N one oh six point eight seven Canadian pension fund.

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Speaker 1: British Columbia Investment Management said to be an advanced talks

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Speaker 1: to buy a ten percent steak in Glencore's agricultural unit

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Speaker 1: that a headline just crossing the Bloomberg bluilmon Athletica is

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Speaker 1: up two point one per cent after posting first quarter

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Speaker 1: sales that beat Unelos estimates, helped by new products like

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Speaker 1: an expanded selection of women's tops. And that's a Bloomberg

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Speaker 1: business flash, Tom and Mike Curnow, Thanks so much. Bloombergs

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Speaker 1: That's i b k R dot com slash Trade Worldwide.

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Speaker 1: Robert Campbell with us an oil with energy aspects. Robert,

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Speaker 1: you're from Canada, right, that's correct. They have had an

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Speaker 1: adjustment from hundred dollars a barrel. Is Big Oil adjusting

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Speaker 1: to the new landscape? Or is it business as usual? Uh? No,

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Speaker 1: very much not. I mean, these these companies are really

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Speaker 1: hacking away at things. They've they've cut the fat. Now

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Speaker 1: they've cut their cutting into the muscle on the bone

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Speaker 1: in a lot of places. You know, they're I think

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Speaker 1: the the extraordinary lengths that some of these firms have

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Speaker 1: gone through to sustain their dividends. Uh, you know, speaks

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Speaker 1: volumes about what they're going to be able to do

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Speaker 1: going forward, uh, in terms of investing in new capacity.

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Speaker 1: And I think that you know, the financial discipline that's

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Speaker 1: been demanded of them by the markets will will will

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Speaker 1: inhibit the investment cycle at the beginning. When do we

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Speaker 1: see an investment cycle? Yeah, I think the companies will

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Speaker 1: want to see a sustained price increase. I mean, if

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Speaker 1: you're in, if you're you know, if you're if you're

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Speaker 1: looking to invest, you don't really care about a week

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Speaker 1: of higher prices or what have you. Anybody was a

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Speaker 1: slightly long memory will recall that Q two last year,

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Speaker 1: we had run up to the sixties that quickly melted

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Speaker 1: down and you know, we ended up in the thirties

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Speaker 1: or uh, you know, eight months later. So I think

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Speaker 1: there'll be definitely some caution here. But I mean, our

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Speaker 1: sense is that the mood is turning and that people

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Speaker 1: within these firms do see a large deficit in the

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Speaker 1: market that coming next year. Uh. And obviously that is

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Speaker 1: supportive for cash flows and future investment. But there's been

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Speaker 1: very little exploration done in recent years because of the cutbacks,

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Speaker 1: you know, and these are the you know, if you're

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Speaker 1: an ex on or a shell. You know, if a

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Speaker 1: few small ten thousand browl that they feel aren't going

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Speaker 1: to really make moves the need for you, you've nailed it, is,

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Speaker 1: You've absolutely nailed it. Is the needle going to get

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Speaker 1: moved again in the next five years? Is a spirit

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Speaker 1: going to be there for upstream to go out and

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Speaker 1: find the next puddle of oil? Uh? You know, I

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Speaker 1: think if you look back in the history of people

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Speaker 1: making prognostications about the oil market, everybody who looks five

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Speaker 1: years ahead tends to get it wrong. But I mean

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Speaker 1: that you know, you will, you know, we we have

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Speaker 1: to move into a price environment that's more supportive of investment.

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Speaker 1: UH and and ultimately UH the OPACT nations will gain

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Speaker 1: market share. But the the there is a space for

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Speaker 1: non OPAC supply to be in there. But if you

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Speaker 1: need to think a hundred million dollars or more in

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Speaker 1: the deep water wells, you need to have a pretty

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Speaker 1: decent understanding of your return environment, and at this time

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Speaker 1: they don't really have it. Um. The shift in Saudi

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Speaker 1: policy is pretty decisive here. I mean the fact that

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Speaker 1: they've said that they're not going to uh basically underwrite

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Speaker 1: a put in this market anymore. Uh, makes it much

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Speaker 1: more questionable. But when you're going to get your return

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Speaker 1: on these megaprojects, and uh, ultimately that means the costs

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Speaker 1: need to need to come down, That means the and

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Speaker 1: that means a slower lead time on development. I think

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Speaker 1: the Saudis themselves are cognizant of this, and this is

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Speaker 1: part of the reason why you see them making noises

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Speaker 1: at the recent OPEC meeting that they're not looking to

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Speaker 1: flood the market, that they're not looking to drive the

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Speaker 1: price down. They do understand that they need to be

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Speaker 1: a return to investment. I mean, we've cut a staggering

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Speaker 1: amount of capital out of this industry. And this was

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Speaker 1: an industry that wasn't really happy with its returns on

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Speaker 1: capital in at a hundred dollars. So there's a lot

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Speaker 1: of restructuring to come. When you talk about not much

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Speaker 1: exploration done, is there still a lot of undrilled fields

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Speaker 1: out there, especially deep water that would be the first

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Speaker 1: thing people go back to. You know, I think deep

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Speaker 1: water is uh, you know, is pretty far out on

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Speaker 1: the cost curve. Um initially will probably see the recovery

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Speaker 1: in the areas like the shale areas. I mean one

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Speaker 1: of the attractions of shale is that, you know, it's

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Speaker 1: kind of like a manufacturing process. Who know the resource

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Speaker 1: and know the area, and you can add supply relatively quickly.

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Speaker 1: You can scale up and scale down your investments relatively quickly.

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Speaker 1: And that's the kind of picture place we're moving towards.

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Speaker 1: Stuff like oil fans and deep water requires a lot

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Speaker 1: more conviction on the scale of the resource and what

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Speaker 1: have you. Um. But you know, again, everybody who said

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Speaker 1: there was we were running out of oil, remember peak oil? Um?

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Speaker 1: You know there, you know, the shale, the shale revolution

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Speaker 1: completely blindside them. And so I think it would be

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Speaker 1: fool hardy to UH to just assume there's nothing left

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Speaker 1: after this. Do you have the same enthusiasm for net gas?

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Speaker 1: I mean, I believe it hasn't bounced like oil, am.

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Speaker 1: I mean that gas is in a is in a

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Speaker 1: tricky freaky position globally. Really, there's there's oversupply in our

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Speaker 1: nat gas team UH sees pretty weak pricing on LG

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Speaker 1: for the next few years going forward, and that is

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Speaker 1: really going to be a drag ultimately in the US

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Speaker 1: with the coal plant retirements UH and and and the liquids.

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Speaker 1: You know, becoming more attractive. Um, you know you are

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Speaker 1: going to see some upside on US prices, but again

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Speaker 1: you know they're not. There's not really if you if

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Speaker 1: you have the price to get coal out of the

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Speaker 1: generation stack, you've got to be pretty cheap. Thank you.

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Speaker 1: This has been a great brief Robert Campbell with energy

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Speaker 1: aspects really helping with wisdom. Uh. This morning, Mike, I'm

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Speaker 1: checking here. The tenure yield did not get to a

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Speaker 1: one sixty nine handle. It got to one point seven

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Speaker 1: zero zero five. Yields are a little bit higher across

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Speaker 1: the board here in the last two hours. But you

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Speaker 1: look at where we were, Mike going, we walked in

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Speaker 1: the door. You offer the surveillance Sikorski. Uh, this morning, Um,

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Speaker 1: German yields are a little bit higher off of where

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Speaker 1: they were at five and six am. But it's remarkable

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Speaker 1: to look at the screen. I mean, it's just the

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Speaker 1: compression of yields. And I honestly, Mike, don't think we

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Speaker 1: got a straight answer today as to why well it

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Speaker 1: does does seemed to be as Ira Jersey was saying,

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Speaker 1: it's the money flowing into the perceived safe markets with

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Speaker 1: a little bit um they're in the US case with

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Speaker 1: a little bit higher yield. Germany doesn't have any yield.

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Speaker 1: A couple of things to talk about. I want to

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Speaker 1: congratulate you, Mike unseen la note of the North Carolina vote,

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Speaker 1: which I thought was really interested. We've been watching that

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Speaker 1: one for a while. UM. There were a couple of

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Speaker 1: other races in North Carolina that were interesting in terms

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Speaker 1: of how how Republicans would do what wing of the

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Speaker 1: party I would do well. And then California. UM, the

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Speaker 1: state changed its method of electing UH senators and in

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Speaker 1: the primary it's the top two regardless of party, who

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Speaker 1: will face off in the general election. They're both Democrats.

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Speaker 1: Another thing worth watching our European banks. I'm not expert

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Speaker 1: enough to know the story, but Mike, I would note

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Speaker 1: that UNI credit has rolled over in his testing UH

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Speaker 1: a one shot low of five or six days ago.

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Speaker 1: It was a quick blip down and blip back, but

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Speaker 1: it has been saggy, to say the least. That's another

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Speaker 1: thing that I would watch. What else are you watching?

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Speaker 1: I like your Joels analysis. That was great. Well, we'll

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Speaker 1: watch that today and see if the quits rate continues

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Speaker 1: to show that people are willing to take a risk.

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Speaker 1: I'm sorry it's not ton A m this morning. And

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Speaker 1: then we'll continue to see the It will be be

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Speaker 1: interesting to see when we get to next week to

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Speaker 1: house to housing. Rachel just don't go up, so mortgage

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Speaker 1: rates continue to keep people interested in buying, we hope. Well,

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Speaker 1: it's been the compression that we have seen the last

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Speaker 1: few days, folks. You see it in the yields coming

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Speaker 1: in and certainly some of the GDP data. Another thing,

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Speaker 1: it's it's it's it's removed. But another thing would be

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Speaker 1: South Africa which reported very difficult uh G d P numbers.

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Speaker 1: Our team Arabill, Gomette and Ambatha reporting out of South

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Speaker 1: Africa on the contraction down one that was way away

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Speaker 1: from the survey. I mean, uh, certainly that was a

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Speaker 1: disappointed number. Fitch had to come out. They affirm the

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Speaker 1: nation's credit rating a triple B minus. Some of the

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Speaker 1: little things we're looking at, it was that sort of day,

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Speaker 1: a little nuances, little things oil. It's not a little thing,

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Speaker 1: as you heard from Robert Campbell fifty two forty four

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Speaker 1: and Brent up a dollar West Texas fifty one four

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Speaker 1: eighty eight cents gold puts on this Mike I just

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Speaker 1: noticed cold put on nineteen dollars twelve six. Maybe it's

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Speaker 1: the Dennis Gartman. Can we blame there? It is some

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Speaker 1: of the little things we're looking at. Of course, the

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Speaker 1: big elephant in the room is a Fete meeting June fifteenth.

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Speaker 1: Mike and I are really looking forward to that coverage.

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Speaker 1: And then we go on to Brexit June, and then

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Speaker 1: we come back Hill, Janney Yellen and Humphrey Hawkins. What

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Speaker 1: a month all in June. She's she's Humphrey Hawkins in

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Speaker 1: June because I unders leaving early this year to go campaign.

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Speaker 1: They are going to go camp. Well, thank you for

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Speaker 1: particularly Megan Murphy and all of our Washington team for

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Speaker 1: political coverage. Don't forget Halperin and Haileman, with all due respect.

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Speaker 1: Tonight five pm. Bloomberg Surveillance