WEBVTT - Surveillance: Certain Recession with Laidler 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.200 --> 0:00:12.720 with the Jonathan Ferrill and Lisa A. Brownowitz Jailey, we 0:00:12.840 --> 0:00:16.760 bring you insight from the best an economics, finance, investment 0:00:17.079 --> 0:00:22.400 and international relations. Fine Bloomberg Surveillance and Apple podcast SoundCloud, 0:00:22.800 --> 0:00:26.240 Bloomberg dot Com, and of course on the Bloomberg Terminal. 0:00:29.640 --> 0:00:31.920 Let's get to the market conversation with Ben Laidler, global 0:00:31.920 --> 0:00:35.360 market strategist at r O. Ben, in your work, we 0:00:35.440 --> 0:00:38.479 see some hope this bond route maybe easing. This is 0:00:38.520 --> 0:00:41.599 a key ingredient for any equity recovery. Before we get 0:00:41.640 --> 0:00:43.559 to talking about whether this is positive or not for 0:00:43.680 --> 0:00:45.600 risk assets, can you tell me why you think bond 0:00:45.680 --> 0:00:50.199 yields may well be peaking this time. I think it's 0:00:50.200 --> 0:00:53.440 difficult to see real yields just continuing to head the 0:00:53.479 --> 0:00:56.880 moon at a time when all your inflation lead indicators 0:00:57.000 --> 0:01:03.040 are rolling over, where recession risks are spiking. I think 0:01:03.200 --> 0:01:07.039 the disconnectus is in there, and I think given where 0:01:07.360 --> 0:01:10.120 real and nominal yields got to, and on the flip side, 0:01:10.160 --> 0:01:12.880 given where valuations and sentiment have got to, I think 0:01:12.880 --> 0:01:15.840 that risk rewards set up is very, very interesting but 0:01:16.280 --> 0:01:19.399 given that if the third is going to retrace some 0:01:19.520 --> 0:01:22.600 of its pretty harkish statements, what does that mean in 0:01:22.680 --> 0:01:24.640 terms of earnings. We've heard this from Mike Wilson, We've 0:01:24.640 --> 0:01:27.600 heard this from Muhammadalarian that be careful what you wish for, 0:01:27.720 --> 0:01:30.720 because if the Fed does retrace, that means that things 0:01:30.720 --> 0:01:32.520 are really bad and we have no prey set in. 0:01:34.680 --> 0:01:36.520 I think this is too earlier comment. This feels a 0:01:36.560 --> 0:01:38.240 little bit like Graham Pop day right. I think the 0:01:38.240 --> 0:01:40.760 setup is very similar to where we were before the 0:01:40.800 --> 0:01:43.480 big sort of June rally. I think the market is 0:01:43.480 --> 0:01:45.640 sniffing out. It's sort of top of the Fed cycle. 0:01:46.000 --> 0:01:49.360 I think bond yields have overshot and are now coming down. 0:01:49.960 --> 0:01:52.000 And I think to your point on earnings, we're going 0:01:52.000 --> 0:01:55.720 into third quarter earning season. Wait yet again, expectations are 0:01:55.920 --> 0:01:58.880 very very negative, and I think this is an attractive 0:01:58.880 --> 0:02:00.720 set up. I think I think we're just gonna leap 0:02:00.760 --> 0:02:03.080 over this sort of low bar and breathe a little 0:02:03.080 --> 0:02:05.160 bit of a side relief. Then I want to go 0:02:05.240 --> 0:02:08.280 to your huge track record and three cycles of getting 0:02:08.320 --> 0:02:10.359 the market rate, and I want to go to Lisa's 0:02:10.400 --> 0:02:14.440 gloom yesterday. I want to go to nodes of revenue guesses. 0:02:14.440 --> 0:02:16.560 What it comes in the down to is with the 0:02:16.600 --> 0:02:19.720 slowing economy, everybody's going to try to guess revenues at 0:02:19.720 --> 0:02:22.960 the top line, given are the economic mumbo John, what 0:02:23.040 --> 0:02:27.680 are the nodes of revenue guests? Is gonna do? I 0:02:27.680 --> 0:02:29.720 think this is all sort of fair versus reality. I 0:02:29.760 --> 0:02:33.519 think markets, I mean, we're down, earnings expectations have actually 0:02:33.520 --> 0:02:36.640 fallen quite a lot, I would argue, um, and not 0:02:36.760 --> 0:02:39.480 all recessions are created equal. I mean, granted, we're almost 0:02:39.480 --> 0:02:41.919 certainly going into a recession, at least outside of Asia. 0:02:42.639 --> 0:02:44.520 But this is not two thousand seven, This is not 0:02:45.639 --> 0:02:48.400 This is I think in a much more plain vanilla 0:02:49.080 --> 0:02:52.120 central bank driven recession. And I think that is given 0:02:52.120 --> 0:02:55.359 where we are, I think that's actually pretty investable. That's 0:02:55.360 --> 0:02:58.799 a two percentage point GDP pea trough four. That's the 0:02:58.840 --> 0:03:01.200 kind of earnings expect pations where I think you're at 0:03:01.280 --> 0:03:06.280 least halfway there. Again, I think where markets and sentiments 0:03:06.280 --> 0:03:08.680 of valuations are at this point, I think the bigger 0:03:08.760 --> 0:03:12.200 risk is being out not sorry, has been out not 0:03:12.360 --> 0:03:15.079 in Okay, So given all of that, just quickly here, 0:03:15.520 --> 0:03:18.400 how much are you buying with your conviction. I mean 0:03:18.400 --> 0:03:22.720 it basically, are you loading up the truck. I think 0:03:22.720 --> 0:03:24.600 we're building a bottom, right. I think this is a 0:03:24.639 --> 0:03:27.079 U shaped recovery, not a V. I think the fair 0:03:27.160 --> 0:03:29.640 has told us quite clearly that you know, they're going 0:03:29.720 --> 0:03:32.120 to stay the course until something breaks. What hey, stuff, 0:03:32.200 --> 0:03:35.280 Maybe study be starting to break. We don't need the 0:03:35.320 --> 0:03:36.960 top of the FED cycle. We just need a little 0:03:36.960 --> 0:03:39.840 bit of visibility that it may be coming in the 0:03:39.880 --> 0:03:41.520 next sort of four or five months, and the fens 0:03:41.600 --> 0:03:43.800 just not going to keep hiking here. I think all 0:03:43.840 --> 0:03:47.480 the lead indicators are telling that. So I'm comfortable enough 0:03:47.520 --> 0:03:50.240 saying we're building a bottom. So I'm fully invested. I'm 0:03:50.360 --> 0:03:53.160 certainly tilted a bit more to The defensive risk is 0:03:53.200 --> 0:03:55.800 still pretty high, but I'm absolutely nibbling at that sort 0:03:55.800 --> 0:03:58.040 of quology risk that's sort of big tech, you know, 0:03:58.080 --> 0:04:00.400 discounted small caps. I mean, the more this goes on, 0:04:00.520 --> 0:04:03.680 the closer we get to inflation definitively coming down. Um, 0:04:03.920 --> 0:04:05.720 I think you want to be raising the wrist budget 0:04:05.720 --> 0:04:13.480 into that. Ben Nagler, thank you, sir. Thank Jordan Rochester 0:04:13.520 --> 0:04:16.920 would probably get army Birmingham, Birmingham. I did, okay at 0:04:16.960 --> 0:04:19.440 Jordan's at hometown. Boy, if you work from Birmingham, Yeah, 0:04:19.520 --> 0:04:23.200 Jordan Rochester joins us Nouf from Birmingham right now, Effect 0:04:23.240 --> 0:04:26.560 strategy Nomura Jordan. I want to go to the news 0:04:26.640 --> 0:04:29.919 of the day, which is the Bank of Australia blink. 0:04:30.000 --> 0:04:32.799 There's no question about that. Maybe it's a new trend, 0:04:32.839 --> 0:04:37.120 maybe it's not. If the banks start blinking like they did. 0:04:37.240 --> 0:04:40.760 And I think Kimberra is that Canberra? Canberra and Canberra? 0:04:41.240 --> 0:04:43.640 What does that mean for foreign exchange? What does that 0:04:43.720 --> 0:04:48.080 mean for your call on the dollar? I think that's everything, Tom. 0:04:48.320 --> 0:04:50.400 Are we going to have more central blanks blink? When 0:04:50.440 --> 0:04:52.640 it comes to the r b A, it stands out 0:04:52.640 --> 0:04:54.839 as one of the central banks with a mortgage market 0:04:54.880 --> 0:04:58.600 where most mortgages are variable, they're floating, so they do 0:04:58.680 --> 0:05:01.920 react to what's happening in rates markets today in those 0:05:01.920 --> 0:05:06.360 housing markets for everybody, not just the marginal house purchaser. 0:05:06.760 --> 0:05:09.400 Where in the US with ten year thirty year fixes, 0:05:09.760 --> 0:05:12.200 in the UK with two and five, in Europe with 0:05:12.279 --> 0:05:14.800 ten year fixes, the impact of these rate hikes come 0:05:14.880 --> 0:05:17.239 through with a different lag. In the UK it's faster. 0:05:17.279 --> 0:05:19.400 In the US it's much slower, and of course the 0:05:19.440 --> 0:05:22.640 marginal buyers sets the price. So in even even in 0:05:22.640 --> 0:05:24.600 the US, your your last guest was talking about the 0:05:24.600 --> 0:05:27.360 slowdown house prices. But I think when it comes to 0:05:27.560 --> 0:05:30.440 the FED, when it comes to other central banks, they're 0:05:30.480 --> 0:05:34.080 still gonna be looking at inflation nowhere near their targets. 0:05:34.120 --> 0:05:36.160 But what's going on right now in markets is people 0:05:36.160 --> 0:05:38.840 are asking the question, oh, are we gonna listen to 0:05:39.040 --> 0:05:41.919 what the Bank of England experienced last week? Will the FED? 0:05:41.920 --> 0:05:45.080 Will the ECB think twice about what they're doing, just 0:05:45.160 --> 0:05:47.520 in case we have a financial contagent risk that's building 0:05:47.600 --> 0:05:49.919 up with rates moving as quickly as they are. So 0:05:49.960 --> 0:05:52.000 I think right now it's all about mood music rather 0:05:52.040 --> 0:05:54.720 than actual action from anyone like the FED or the 0:05:54.720 --> 0:05:57.360 e c B. I think central banks will still be hawkish, 0:05:57.480 --> 0:06:00.320 Inflation will still be stronger than they want, But right 0:06:00.320 --> 0:06:02.479 now we're in that sort of quiet space where we're 0:06:02.480 --> 0:06:04.720 all thinking, is the UK and as the r B 0:06:04.880 --> 0:06:07.080 A are they both Canary in the coal mine sort 0:06:07.080 --> 0:06:10.680 of situation? Jordan, I sentially skeptical. So you've fade in 0:06:10.680 --> 0:06:14.320 this move. It's not what you're recommended to clients. I think. 0:06:14.360 --> 0:06:16.920 I mean you mentioned temper set move and rule one 0:06:17.000 --> 0:06:19.719 oh one, and I kind of broke that is, don't 0:06:19.839 --> 0:06:22.359 chase flash crashes. And basically that's what we had in 0:06:22.440 --> 0:06:26.080 Sterling after the mini budget. Huge moves, five percent moves lower. 0:06:26.680 --> 0:06:29.920 Typically when you have that, everybody gets very convinced it's 0:06:29.960 --> 0:06:33.320 the right trade, becomes very consensus, and then policy makers 0:06:33.400 --> 0:06:35.839 react and then you have mean reversion on that reaction, 0:06:35.880 --> 0:06:38.359 and that's what's happened. But in the u K's case, 0:06:38.800 --> 0:06:42.039 the reaction has been really timid. So just reducing the 0:06:42.080 --> 0:06:45.880 top rate tax from the forty five pence tax cost nothing. Really, 0:06:45.920 --> 0:06:48.599 it's two billion pounds. We're talking a hundred billion for 0:06:48.760 --> 0:06:51.760 their energy package overall over its lifetime, so there's two 0:06:51.800 --> 0:06:56.040 billions of rounding error for the for fiscal sustainability. So 0:06:56.200 --> 0:06:58.039 for me, this is all about mood music the UK 0:06:58.240 --> 0:07:00.120 showing that perhaps they're not gonna be a z les 0:07:00.200 --> 0:07:02.719 when it comes to fiscal policy making. But if you 0:07:02.760 --> 0:07:05.719 take the facts as they are, everything's the same apart 0:07:05.720 --> 0:07:08.520 from that two billion pounds spending. So I am skeptical, John, 0:07:08.720 --> 0:07:11.280 and I also think core inflation in the US will 0:07:11.280 --> 0:07:13.800 remain stickier than what all of our leading indicators for 0:07:13.840 --> 0:07:18.080 headline inflation signals. Because commodity prices are soft, everyone says 0:07:18.080 --> 0:07:20.800 peek inflation. I agree with that, but core inflation will 0:07:20.840 --> 0:07:23.680 be stronger than you think because look at job openings 0:07:23.680 --> 0:07:26.320 in the US, they're just ridiculously high and they're not 0:07:26.360 --> 0:07:29.160 falling enough to say that we're having a weaker labor market. 0:07:29.320 --> 0:07:31.559 So this all feeds into the FED not being happy 0:07:31.560 --> 0:07:34.680 where things are, and this this softness in US yields, 0:07:34.800 --> 0:07:36.960 I don't think it will last. So Jordan, we were 0:07:37.000 --> 0:07:40.400 talking to Tom Sasuras of Strategus, a bird company, earlier, 0:07:40.400 --> 0:07:43.600 and he was talking about how the price action that 0:07:43.600 --> 0:07:46.280 you've seen in ten year treasuries and two year treasuries 0:07:46.560 --> 0:07:50.360 indicates stability, indicates price discovery in a way that we 0:07:50.400 --> 0:07:53.080 have not seen in years. Is the same true for 0:07:53.120 --> 0:07:57.320 your FX market? With the pound rallying ten off of 0:07:57.320 --> 0:08:01.720 an incredible swoon. I think most of that is poor 0:08:01.760 --> 0:08:06.200 liquidity positioning in sterling being very one way. And then 0:08:06.200 --> 0:08:08.400 we had the rebalancing of the month then and we 0:08:09.040 --> 0:08:11.880 gotta remember as well, this pension situation meant that the 0:08:11.880 --> 0:08:14.480 amount of flows going through in the UK were huge, 0:08:14.880 --> 0:08:16.320 So it's kind of hard to say that is this 0:08:16.400 --> 0:08:19.120 a fundamental price discovery that's going on. Or is this 0:08:19.280 --> 0:08:22.280 just everybody being one way and pensions being bailed out 0:08:22.280 --> 0:08:24.520 by the bank against que program which comes to an 0:08:24.600 --> 0:08:26.040 end in less than two weeks, So we have to 0:08:26.040 --> 0:08:28.640 watch out for that cliff edge. What happens to the 0:08:28.720 --> 0:08:31.320 UK rates market one that's once a QUB program comes 0:08:31.320 --> 0:08:35.040 to an end. I think price discovery is still in effect. 0:08:35.080 --> 0:08:37.360 The US has everything the world needs. It has oil, 0:08:37.480 --> 0:08:40.880 it has energy exports. The Europeans don't have either of 0:08:40.880 --> 0:08:44.000 those things. And a key difference when they imported that 0:08:44.120 --> 0:08:47.640 natural gas from Russia, it was priced in euros. Not anymore, 0:08:47.640 --> 0:08:50.280 it's in llergy, it's in dollars. So there's a fundamental 0:08:50.520 --> 0:08:53.079 terms of trade shift that points to euro being at 0:08:53.120 --> 0:08:55.400 ninety cents by the end of this year. During let 0:08:55.440 --> 0:08:57.319 me make clearer, and I'm not trying to sell the 0:08:57.400 --> 0:09:00.600 mirror on this, but when the l d I scandal 0:09:00.720 --> 0:09:03.840 was breaking, I used a Numurror research report from two 0:09:03.880 --> 0:09:09.200 thousand eighteen Jordan. It was scary accurate about what the 0:09:09.320 --> 0:09:12.920 mess would be in the British pension market. Jordan. Where's 0:09:12.920 --> 0:09:15.760 the trade opportunity right now? I mean, where where's the 0:09:15.800 --> 0:09:20.800 big figure opportunity right now, everything considered, I think where 0:09:20.800 --> 0:09:23.240 we are today, I think we've got this dollar softness 0:09:23.240 --> 0:09:26.439 facts to lower US yields. It's backed up by mood music, 0:09:26.920 --> 0:09:29.400 the I s M being weaker, potential for China having 0:09:29.480 --> 0:09:32.439 this marathon and masks being taken off of that marathon, 0:09:32.600 --> 0:09:35.120 all kind of mood music stuff, not fundamental game changes. 0:09:35.440 --> 0:09:38.160 We've got NFP coming up on Friday. I suspect we'll 0:09:38.160 --> 0:09:41.040 have a strong average earlier earnings number. I think the 0:09:41.120 --> 0:09:43.520 job's data will will still hold up the growth on 0:09:43.559 --> 0:09:46.400 that side, So I think folks will be surprised again 0:09:46.760 --> 0:09:49.240 by US jobs not slowing down as they expect from 0:09:49.240 --> 0:09:51.240 all the growth signals we have. And then we've got 0:09:51.360 --> 0:09:54.480 CPI the week after, so I think really the trade 0:09:54.559 --> 0:09:57.560 is to fade this dollar weakness. It looks like everything 0:09:57.559 --> 0:09:59.719 we saw in May what looks at what we saw 0:09:59.760 --> 0:10:02.000 in guests. We had these kind of big draw downs 0:10:02.000 --> 0:10:04.480 and the long dollar trade, but the trend is still there. 0:10:04.520 --> 0:10:08.160 So you wrote to ninety cable to parity and below, Jordan, 0:10:08.240 --> 0:10:11.200 can you just congratulate Tom for saying Birmingham and not 0:10:11.280 --> 0:10:13.960 Birmingham working. I'm working. We've been working on this Jordan. 0:10:15.880 --> 0:10:17.840 Next is the Bromi access. So if you can say 0:10:18.080 --> 0:10:21.280 the right mates, I want to go up to the 0:10:21.760 --> 0:10:24.800 and Harborne and have a truthful, full English, full English 0:10:24.880 --> 0:10:28.680 up there's different. That was an authentic Bromi accent from Jordan, 0:10:28.760 --> 0:10:42.600 Rochester with you, Mura Jordan, thank you. Right now she 0:10:42.679 --> 0:10:45.360 has one of the greatest parchment streams in the United 0:10:45.440 --> 0:10:48.080 Kingdom from Edinburgh to London School of Economics with real 0:10:48.120 --> 0:10:52.680 expertise on China. The chief Economists Lombard Free Obamas joins 0:10:52.720 --> 0:10:54.720 us right now for you just to start. Are we 0:10:54.760 --> 0:10:58.679 in global recession? I think we're heading that way. I 0:10:58.679 --> 0:11:01.160 didn't think we're quite there in the US. China is 0:11:01.200 --> 0:11:04.800 probably coming out of its recession, but still very weak 0:11:04.840 --> 0:11:07.880 and not coming not really going to get its reopening 0:11:07.880 --> 0:11:11.920 boost until h one of next year. The real problem 0:11:12.040 --> 0:11:14.200 is is Europe, and I think this is this is 0:11:14.360 --> 0:11:17.640 um what's what's moving markets at the moment as well, 0:11:17.679 --> 0:11:20.560 that there's something much wider going on here than just 0:11:20.720 --> 0:11:23.360 the kind of the if I can use the term 0:11:23.480 --> 0:11:27.120 slightly cat candid delivery of the of the of the 0:11:27.160 --> 0:11:31.400 fiscal policy response in the UK. I look three at 0:11:31.440 --> 0:11:35.839 the news flow and clearly Australia blinking is important. What 0:11:35.920 --> 0:11:40.439 are the ramifications for other central banks, including ECB, that 0:11:40.720 --> 0:11:45.319 rb A just decides enough. Yeah. I think what's happening 0:11:45.360 --> 0:11:48.599 here is that there's there's a global shift towards a 0:11:48.679 --> 0:11:51.560 higher returns environment, but you can't get there all in 0:11:51.640 --> 0:11:54.880 one go um that the real economy just can't can't 0:11:54.880 --> 0:11:57.120 handle it. And there are these sort of powder keggs 0:11:57.200 --> 0:12:00.760 of um financial accelerators that have been left behind by 0:12:00.800 --> 0:12:03.960 the period of low yields in the twenty tens. So 0:12:04.080 --> 0:12:07.359 trying to get from the twenty tens level of yields 0:12:07.400 --> 0:12:10.520 to a pre global financial crisis level of yield which 0:12:10.600 --> 0:12:12.640 is where we think we ultimately will be ending up 0:12:12.640 --> 0:12:16.000 over the twenties, trying to do that in one mini cycle, 0:12:16.040 --> 0:12:18.640 which is the COVID cycle, is is just too much 0:12:18.679 --> 0:12:21.480 for the real economy and for and for financial markets. 0:12:21.760 --> 0:12:23.840 So I think what we start to see now is 0:12:23.920 --> 0:12:27.160 that QUEI comes back in in a very different guise 0:12:27.200 --> 0:12:29.120 from how it did in the twenty tens. It's much 0:12:29.120 --> 0:12:31.800 more of the sort of the badget response to try 0:12:31.880 --> 0:12:35.960 to provide liquidity um where necessary in order to prevent 0:12:36.040 --> 0:12:38.880 yields from rising. More rapidly rather than to try to 0:12:38.960 --> 0:12:41.800 keep yields from from shifting lower. And I think the 0:12:41.880 --> 0:12:45.360 underlying forces here are much much wider than than the 0:12:45.440 --> 0:12:49.720 kind of the narrative, at least around the UK UM suggests. 0:12:49.800 --> 0:12:52.240 What's what's happening here is that there's been a redirection 0:12:52.280 --> 0:12:55.199 of funds in favor of of the energy firms, in 0:12:55.520 --> 0:12:59.240 favor of of of Russia really and UM and the 0:12:59.559 --> 0:13:02.160 non for so all fuel firms. And what that does 0:13:02.240 --> 0:13:05.720 is you're you're handing funds to companies and countries that 0:13:05.960 --> 0:13:08.199 are much more likely to want to invest them than 0:13:08.240 --> 0:13:11.120 they were in the in the recipients of those funds 0:13:11.120 --> 0:13:14.000 in the in the twenty tens well from in that process, 0:13:14.040 --> 0:13:16.880 you're dragging yields higher. There's a lot there, And I 0:13:16.920 --> 0:13:18.520 want to just hone in on one thing that you said, 0:13:18.840 --> 0:13:21.559 the quantitative easing this time around is going to look 0:13:21.640 --> 0:13:23.840 very different. Does that mean that you think the quantitative 0:13:23.880 --> 0:13:26.720 tightening is over and they were entering a new quantitative 0:13:26.720 --> 0:13:29.640 easing cycle of trying to reduce the pace of bound 0:13:29.760 --> 0:13:33.520 ye yield increases. I think in as far as the 0:13:33.640 --> 0:13:36.040 UK goes, yes, I would say that the quant stative 0:13:36.120 --> 0:13:38.680 easing is is sort of dead before it gets off 0:13:38.679 --> 0:13:43.240 the off the ground. And yeah, the the quantitative tightening, 0:13:43.240 --> 0:13:46.200 thank you m the quantitative tightening just doesn't doesn't really 0:13:46.200 --> 0:13:47.960 get off the ground. That you get this kind of 0:13:48.080 --> 0:13:51.000 QUEI that is is not the same flavor as the 0:13:51.120 --> 0:13:54.160 as the twenty tens, and it's there to prevent yields 0:13:54.160 --> 0:13:57.679 from rising too too rapidly um and that that is 0:13:57.760 --> 0:14:00.240 is probably the case for for Europe as well. Where 0:14:00.240 --> 0:14:03.360 where if anything, more worried than we are about about 0:14:03.440 --> 0:14:06.720 the UK, with Germany already having suggested that they're going 0:14:06.720 --> 0:14:09.360 to go alone on the on the fiscal front um, 0:14:09.400 --> 0:14:12.880 where does that leave countries like like Italy um, where 0:14:12.880 --> 0:14:15.200 we'd be much more worried about those kind of structural 0:14:15.240 --> 0:14:18.760 issues starting to to re arise in the euro Area. Therefore, 0:14:18.800 --> 0:14:21.000 you get the move back to to the t p I, 0:14:21.120 --> 0:14:24.200 which can very easily translate into something similar to to 0:14:24.320 --> 0:14:26.840 what the Bank of England is doing with regards to 0:14:26.880 --> 0:14:30.080 its kind of short term new flavor q e UM. 0:14:30.120 --> 0:14:33.120 So it's a very different flavor of monetary policy since 0:14:33.480 --> 0:14:36.120 since the since the twenty tents. How much is this 0:14:36.200 --> 0:14:38.720 a European story and how much is this a global story. 0:14:38.760 --> 0:14:41.720 I mean Tom was talking about the RBA blinking raising 0:14:41.720 --> 0:14:43.880 just twenty five basis points rather than a bigger rate 0:14:43.960 --> 0:14:46.960 hike that was expected overnight. How much is this the 0:14:47.080 --> 0:14:52.359 example rather than a story of specific nations facing specific 0:14:52.440 --> 0:14:56.600 inflationary pressures. I think there are now so many different 0:14:56.640 --> 0:14:59.560 idiosyncratic problems that are arising at the same time that 0:14:59.600 --> 0:15:02.120 we can say that something systemic is actually going on. 0:15:02.640 --> 0:15:07.160 The European trouble. Europe is definitely at the center of this. 0:15:07.520 --> 0:15:11.000 I would definitely point out problems in China that can arise, 0:15:11.040 --> 0:15:14.000 perhaps not till after the reopening, so therefore into the 0:15:14.040 --> 0:15:16.920 second half of of of next year, but I would 0:15:16.920 --> 0:15:19.720 definitely point that out as a structural turning points for 0:15:19.720 --> 0:15:22.600 for China as well. And I think because of of 0:15:22.640 --> 0:15:25.360 this kind of updraw in in yields that the fiscal 0:15:25.400 --> 0:15:29.240 authorities are very much are very much leaning against. You've 0:15:29.280 --> 0:15:32.160 got this battle for for funds. That really speaks to 0:15:32.240 --> 0:15:35.040 the longer term secular trends that have just been sort 0:15:35.040 --> 0:15:39.280 of fast forwarded by this energy energy shock, that deterioration 0:15:39.400 --> 0:15:42.760 of of the geopolitical environment and the natural environment. These 0:15:42.800 --> 0:15:45.480 are all factors that are kind of nasty cost push 0:15:45.520 --> 0:15:49.040 for inflation factors that that speak to um the need 0:15:49.120 --> 0:15:51.880 for higher returns, and that the likelihood of higher returns 0:15:51.880 --> 0:15:54.080 in the in the twenties, and we're just seeing the 0:15:54.080 --> 0:15:56.840 fast forwarding of that in the in the short term. 0:15:57.120 --> 0:16:00.120 But I think it does lead to to capitulation on 0:16:00.320 --> 0:16:03.080 central banks, first in the form of pushing back against 0:16:03.120 --> 0:16:05.920 the financial accelerators, as we've seen in the in the 0:16:06.000 --> 0:16:09.160 UK and the pension funds fiasco. But then in the 0:16:09.160 --> 0:16:13.000 case of Europe, as a result of the slowdown in 0:16:13.000 --> 0:16:17.360 in growth. Yes, governments are are supporting their economies through 0:16:17.360 --> 0:16:20.160 fiscal spending, but that the cost of doing that, there's 0:16:20.160 --> 0:16:21.880 no free lunch. The cost of doing that is that 0:16:21.960 --> 0:16:24.680 yields are much higher, so you're getting the spending on energy, 0:16:24.680 --> 0:16:28.000 but it's happening at a higher higher yield. And therefore 0:16:28.040 --> 0:16:30.400 the property market in the UK and and the and 0:16:30.480 --> 0:16:34.240 yields more broadly are starting to tighten financial conditions and 0:16:34.480 --> 0:16:37.440 tamp down on growth in in that map and that fashion, 0:16:37.720 --> 0:16:42.360 so central banks turned from worrying about inflation UM in 0:16:42.360 --> 0:16:46.280 Europe to worrying about to worrying about the financial accelerators, 0:16:46.320 --> 0:16:49.120 and then growth UM and and therefore you get the 0:16:49.120 --> 0:16:51.720 capitulation in that sense. I think in the US we 0:16:51.760 --> 0:16:54.720 are in a very different position here because inflation is 0:16:54.760 --> 0:16:58.000 more embedded UM, and therefore the policy response has to 0:16:58.040 --> 0:17:01.240 be still focused on inflation. Is the heritage of TS. 0:17:01.360 --> 0:17:06.000 Lombard Freyer. I mean, model out how they get to 0:17:06.080 --> 0:17:10.240 two Given that a huge body of people say that's 0:17:10.240 --> 0:17:13.840 an impossible event, do you just assume they get to 0:17:13.880 --> 0:17:18.840 five percent or four percent and then recalibrate. I think 0:17:19.440 --> 0:17:22.440 that's probably where we're getting too further down the line 0:17:22.480 --> 0:17:29.040 that they will eventually explicitly or implicitly revert inflation. Inflation 0:17:29.119 --> 0:17:32.640 targets higher um, just because there are so many secular 0:17:32.680 --> 0:17:35.359 forces that are pointing in favor of higher inflation, and 0:17:35.400 --> 0:17:37.600 not all of them being kind of cost push inflation. 0:17:37.640 --> 0:17:41.480 There's also this change in the relationship in global labor 0:17:41.520 --> 0:17:45.560 markets and credit as well that that suggests that China 0:17:45.680 --> 0:17:48.639 is no longer a cap on on wage growth in 0:17:48.920 --> 0:17:52.280 developed markets. Therefore, you have faster wage growth, you also 0:17:52.320 --> 0:17:55.000 have faster faster credit growth than Both of those things 0:17:55.000 --> 0:17:58.640 are inflationary. So leaning against that means it's you're kind 0:17:58.640 --> 0:18:03.160 of accepting this politically unacceptable idea of a much higher 0:18:03.240 --> 0:18:06.640 unemployment rate in order to get inflation back down again. UM. 0:18:06.680 --> 0:18:08.640 But I think in the shorter term with the FED 0:18:08.680 --> 0:18:10.520 that the point that I would get across is that 0:18:10.840 --> 0:18:14.560 there's there's too much reliance on on leading indicators that 0:18:14.720 --> 0:18:17.560 are simply monitoring what the costs are doing, and that 0:18:17.680 --> 0:18:21.760 the demand supply imbalance in in UM in in the US, 0:18:21.800 --> 0:18:24.199 both in terms of the goods market still both in 0:18:24.280 --> 0:18:27.160 terms of the labor market UM is still great enough 0:18:27.200 --> 0:18:29.960 that you've got this underlying heat in the in demand 0:18:30.040 --> 0:18:33.520 in the in the economy UM. And therefore, while the 0:18:33.600 --> 0:18:36.119 rest of the world has good prospects for a slow 0:18:36.200 --> 0:18:38.879 down in inflation, I'm still worried that you get upside 0:18:38.920 --> 0:18:43.080 surprises in inflation in the US because margins have that 0:18:43.200 --> 0:18:46.000 have greater room to expand on the back of demand 0:18:46.080 --> 0:18:49.320 still remaining relatively strong. So we're very much looking out 0:18:49.359 --> 0:18:51.880 for that US recession coming through because that's the kind 0:18:51.880 --> 0:18:54.160 of the key the key turning point for the FED. 0:18:54.200 --> 0:18:56.679 But it doesn't seem like we're quite there yet. Frans, 0:18:56.680 --> 0:18:58.679 thank you for being with us this morning. Frank Bemish 0:18:58.680 --> 0:19:06.560 of Tis Lampard, just Britiant. It is October which means 0:19:06.600 --> 0:19:09.440 we must speak with Paul Sky, founder and lead analyst 0:19:09.520 --> 0:19:12.959 at Sanky Research, who was ignoring his conversation. Paul Sankey 0:19:13.080 --> 0:19:15.840 is decades of experience in oil and knows in October 0:19:15.880 --> 0:19:19.480 there is Vienna and there's also Park Lane, a string 0:19:19.480 --> 0:19:21.760 of hotels in London where the elite meet degreed in 0:19:21.800 --> 0:19:25.520 the oil community, as they do beginning today. It is 0:19:25.560 --> 0:19:28.520 the well the energy executive of the years from Cutter 0:19:28.640 --> 0:19:31.679 will pass on that, but far more CEOs together and 0:19:31.760 --> 0:19:35.600 the rest Paul is a consensus opinion that oil will 0:19:35.680 --> 0:19:39.560 rise back into the hundreds. Yeah, I think so. I 0:19:39.560 --> 0:19:41.560 mean that the first consensus is that will get a 0:19:41.600 --> 0:19:44.120 million barrel to day cut from Okay tomorrow and what 0:19:44.160 --> 0:19:46.240 people here are saying will be a brief meeting. I 0:19:46.359 --> 0:19:49.760 was told that the decisions already taken. I was actually 0:19:49.760 --> 0:19:52.439 hoping that they would take some time and argue a 0:19:52.480 --> 0:19:54.040 bit so I'd get a chance to get out to 0:19:54.080 --> 0:19:56.240 Dianna towards the end of the week. But evidently the 0:19:56.320 --> 0:19:59.320 decision will come tomorrow. That should be I think a 0:19:59.359 --> 0:20:01.919 million barrel. They cut a bit about half of that 0:20:02.000 --> 0:20:05.280 probably time actually delivered, but it's still enough to tighten 0:20:05.359 --> 0:20:10.040 what's effectively a market imbalance in Q four, so any 0:20:10.080 --> 0:20:12.960 cut will effectively served to raise prices the elite meat 0:20:12.960 --> 0:20:16.320 degree at the Intercontinental Hotel or at the Dorchester where 0:20:16.440 --> 0:20:19.919 umbrellas in their drink. But is it just about Saudi Arabia, 0:20:19.960 --> 0:20:23.680 Arabia and Russia. Well, I have to say I've got 0:20:23.640 --> 0:20:26.280 to wear black tie tonight for the for the award dinner. 0:20:26.440 --> 0:20:29.920 To my media help with the boats, eie there, that's yeah. 0:20:30.080 --> 0:20:31.800 I mean we had we had the CEO of Around 0:20:31.800 --> 0:20:36.240 Cooke talking very eloquently, Japeman Burden of Shell also very eloquent. 0:20:36.680 --> 0:20:40.800 We had protesters outside the Intercontinental yelling in my ear 0:20:40.840 --> 0:20:43.240 as I walked in. But the problem is the protesters 0:20:43.240 --> 0:20:46.720 don't really have a coherent solution. In fact, nobody does, 0:20:46.800 --> 0:20:49.359 and that's that's one of the issues. A couple of 0:20:49.400 --> 0:20:53.080 interesting points from Shell. For instance, he said that this 0:20:53.160 --> 0:20:57.399 quarter alone, China is adding more cold production than the 0:20:57.840 --> 0:21:01.520 entirety of Shell's energy product, and so essentially, in one quarter, 0:21:01.640 --> 0:21:06.119 China grows coal by the entire size of Shell. And 0:21:06.720 --> 0:21:09.680 again talking about the CEO of Aronco again talking about 0:21:09.760 --> 0:21:13.479 lack of spec capacity and how demand is remaining strong. 0:21:13.640 --> 0:21:16.199