Speaker 1: This is Bloomberg Surveillance. Oil market benefits from thousands, maybe
Speaker 1: not a billion, people investing in oil who are not
Speaker 1: involved in the industry. There are more fault lines in
Speaker 1: the Middle East than there aren't any other geologic formation.
Speaker 1: And but not, I mean these are political fault lines.
Speaker 1: World growth has been too slow for too long, and
Speaker 1: there's more trouble lying ahead. Time to do something about
Speaker 1: it with other policies than monetary policies. Bloomberg Surveillance your
Speaker 1: link to the world of economics, finance, and investment on
Speaker 1: Bloomberg Radio. Good morning, Michael McKee along with Tom Keene.
Speaker 1: It is seven am on All Street, seven am in Buffalo.
Speaker 1: At all points between the two primary election day in
Speaker 1: New York. We will look at the state of the
Speaker 1: presidential campaign today. Yeah, we have to. Unfortunately investors so
Speaker 1: far today ignoring it insteady he is oil on their minds,
Speaker 1: never mind the failure of those Doha talks. Prices higher
Speaker 1: today West Texas Intermediate at forty five of one point
Speaker 1: four percent. Brent crude sixty seven is one point eight
Speaker 1: percent higher, and that rise in oil prices has touched
Speaker 1: off a global rally. Now Tokyo was up almost four percent,
Speaker 1: but of course some of that expectations for increased fiscal
Speaker 1: spending after the earthquake. There the end, he is weaker
Speaker 1: today one oh nine thirty five, but there is optimism
Speaker 1: in Europe and the US as well. The stock six
Speaker 1: hundred in Europe is up four points one point three percent,
Speaker 1: the docks in Germany two hundred and thirty points higher
Speaker 1: two point three percent. The Euro at the moment is
Speaker 1: trading weaker one thirteen thirty two. In the U S
Speaker 1: SMP features are up ten points about half a percent.
Speaker 1: Dal Evening features up fifty four three tenths and Nattack
Speaker 1: evening features thirty two points higher seven tenths of eight percent.
Speaker 1: In the bond market, ten your NOE yield is going
Speaker 1: for one point seven nine percent one point to five
Speaker 1: for your five year and the two year note yield
Speaker 1: at a seventy six basis points. The dollar indexes at
Speaker 1: ninety four point three to touch weaker today. We are
Speaker 1: also seeing a rally in emerging markets. Today. The m
Speaker 1: s c I Emerging Markets Index is up eight tenths
Speaker 1: of eight per cent. An Abdas is head of Emerging
Speaker 1: Markets Macro at Investco. Today, oil is driving the markets.
Speaker 1: But I'm coming out of the I m F meetings
Speaker 1: in Washington last weekend, the message was clear, central banks
Speaker 1: are driving what is happening. Are we at a point
Speaker 1: where emerging markets have their policies in the right place
Speaker 1: to deal with more or less stimulus in the US
Speaker 1: and around the world. Well, I think most emerging markets
Speaker 1: UM and and even developed markets would benefit from from
Speaker 1: stimulus and reflation. And I think that's part of what's
Speaker 1: a major part of what's driving this risk on rally UM.
Speaker 1: And I think on oil itself, UM, the Doha talks
Speaker 1: might have been a disappointment, but the real issue is
Speaker 1: that China is reflating through credit growth and the set
Speaker 1: has become a bit more dubbish and has served to
Speaker 1: weaken the dollar a bit. And that of course is
Speaker 1: supportive for most emerging markets, starting with China. UM. And
Speaker 1: that flows through to commodity prices, particularly oil. And here
Speaker 1: we are in a rally. Well how much how important
Speaker 1: is a week or dollar to emerging markets? I think
Speaker 1: it's UM. I think it's extremely important UM. You know,
Speaker 1: for for two reasons. Most of the major emerging market
Speaker 1: countries are um our producers of commodities, including oil. There
Speaker 1: are a few such as China and India, which are
Speaker 1: major net importers of commodities and oil, but by and
Speaker 1: large UM the market is a receiver of dollarized commodity
Speaker 1: export prices, and many have dollarized liabilities. So when the
Speaker 1: dollar strengthens, global financial conditions tighten, commodity prices tend to
Speaker 1: go down, and credit spreads and baring costs tend to
Speaker 1: go up, which is not good for the majority of
Speaker 1: the e M countries. I think in this stance UM,
Speaker 1: even the commodity prices are going up a bit. The
Speaker 1: bigger picture is that financial conditions are loosening book inside
Speaker 1: the United States and outside the United States UM, and
Speaker 1: we're starting to see some accumulating evidence of financial conditions
Speaker 1: loosening within e M countries as well, most importantly China.
Speaker 1: I think that financial loosening is what we've been seeing
Speaker 1: UM feed trough in the last couple of months. Dr
Speaker 1: Dawst helped me with the stability of debt within the
Speaker 1: emerging market. You uniquely qualified with this your workout of Princeton,
Speaker 1: and let's see, I was really taken by the Malaysia
Speaker 1: Abu Dhabi articles of the last twelve hours, and they
Speaker 1: understand it's a spat and it's about Malaysia struggling with debt.
Speaker 1: Is that systemic or is that just about Kuala lumpur Um.
Speaker 1: I think it's it's a very widespread problem. And I
Speaker 1: think that is the longer term challenge. And I think
Speaker 1: you know, these these reprieves that we're getting are very
Speaker 1: good so far as they go, but I think they
Speaker 1: really underlike the important underlying question is who is going
Speaker 1: to be able to bring themselves into emerging markets as
Speaker 1: to adjust and deal with the debt problem or just
Speaker 1: go back to business as usual. Okay, that's fine, except
Speaker 1: you and I have a collective history of remembering not
Speaker 1: but the years before that where there was this thing
Speaker 1: and that thing I mentioned earlier, the Tequila crisis, the
Speaker 1: Pastel crisis. I mean, are we getting in that position
Speaker 1: again of little surprises like Malaysia UM. I think we're
Speaker 1: we're getting into something UM that is a little bit different,
Speaker 1: which is that there's a serious domestic debt burden problem. UM.
Speaker 1: Back in the Tequila crisis, TOM and other such crises,
Speaker 1: including including UM in Asia and Russia, most of the
Speaker 1: debt was external this time. There's a lot of external
Speaker 1: debt for sure, but there's much more of a domestic
Speaker 1: debt problem. And so for us, this know, the problem
Speaker 1: is that this represents a threat to UM, to potential growth.
Speaker 1: And I think you know what we what we'll see
Speaker 1: coming out of this cycle is a much longer workout
Speaker 1: process of this excessive debt and a much slower growth
Speaker 1: cycle in emerging market countries. Of course, you know that's
Speaker 1: bad news so far as it goes. It doesn't mean
Speaker 1: that you can't be um UH in a position to
Speaker 1: make money as some of these these changes work through
Speaker 1: in the e M space. And of course the world
Speaker 1: we live in developed and emerging UM is comprised of
Speaker 1: really high debt burdens. And and so we've seen that
Speaker 1: since the global financial crisis in the West as well UM,
Speaker 1: as we have since the Japanese crisis, that this overhang
Speaker 1: of debt, it's a problem of low growth and low flation.
Speaker 1: And I think that's where we are headed in emerging
Speaker 1: markets as well. It gets us back to the dollar.
Speaker 1: How much of the debt is dollar denominating UM? Well,
Speaker 1: you know, indirectly, UM, there's there's a good deal of
Speaker 1: dollar exposure UM there. Some of it is UM is
Speaker 1: explicit UM through actual hard currency corporate debt in China
Speaker 1: and other countries. Some of it is UM implicit if
Speaker 1: you if you like, because you know, you have a
Speaker 1: lot of carry trades UM that had been put on
Speaker 1: that are still in the process of being unwound in
Speaker 1: various places or maybe put back on UH in these
Speaker 1: risk risk on episodes UM. And of course a big
Speaker 1: part of that is dollar funded. Although with negative interest
Speaker 1: rates in Europe and in Japan, you know, the dollar
Speaker 1: is not the only funding game in town anymore, m
Speaker 1: as as people all know. So there is a good
Speaker 1: deal of dollar exposure UM still there. And I think
Speaker 1: that you know, that's a raised very important point that
Speaker 1: if you have significant upside surprises, sustained upside surprises in
Speaker 1: the US, it's going to be more difficult for the
Speaker 1: said to remain davish UM. So I think you know,
Speaker 1: there are there are medium term challenges to this UM,
Speaker 1: this risk on environment, but for the short term it
Speaker 1: looks pretty good. Where where are you on a dollar
Speaker 1: basis on investing in equities and emerging markets? To me,
Speaker 1: it's a there's like three emerging markets, how many are there. Sorry,
Speaker 1: there's three emerging markets and there's just there's there's an
Speaker 1: OPEC commodities emerging market, there's non OPEC non commodities emerging markets,
Speaker 1: and then maybe there's the emerging markets of Eastern Europe
Speaker 1: as well. I mean to me, there's a set of
Speaker 1: separate sets of countries, and we don't know what to
Speaker 1: do with all the news flow and distortions from central banks.
Speaker 1: What is what is investors recommendation on what to do
Speaker 1: within emerging markets? UM? Well, like I say, are you know,
Speaker 1: our our current view is UM is relatively optimistic about
Speaker 1: the about the immediate future and the next few months.
Speaker 1: There are still important risks out there that may become systematic,
Speaker 1: you know, like Brexit and so forth, and we can
Speaker 1: talk about those if you want, UM. But in an
Speaker 1: environment like I say, where UM all the largest economies
Speaker 1: in the world, developed and emerging are UM, most of
Speaker 1: them are reflating and trying to boost domestic demand UM.
Speaker 1: That is an environment in which you know, most people
Speaker 1: will want to be UM, will want emerging markets, exposure
Speaker 1: to currencies that are going to benefit from that reflation,
Speaker 1: UM to yield curves that are that are relatively steep
Speaker 1: that are going to tend to flatten because inflation is
Speaker 1: low and capital flows are returning. UM. And indeed equity
Speaker 1: markets as well. UM. You know, whether whether their commodity importers,
Speaker 1: commodity exporters, or more exposed to the Eurozone than everything else. Um.
Speaker 1: The reality is that this reflation um is in is
Speaker 1: in Europe because the e c B is UM is stimulating.
Speaker 1: Bank of Japan needs to stimulate. The FED is on hold,
Speaker 1: albeit perhaps with a moderately tightening bias, but perhaps heading
Speaker 1: towards more devilshness. And China, of course is reflating. India
Speaker 1: is easing, Indonesia is easing. UM. You know, people hope
Speaker 1: for Brazil and Russia to ease. There are a few
Speaker 1: places South Africa has some challenges that may need the Titan,
Speaker 1: but by and large we're in a stimulative environment again
Speaker 1: for the for the next couple of months with us
Speaker 1: with Investco, and we'll come back and speak to him
Speaker 1: in a moment. Futures up ten DOWT futures up sixty
Speaker 1: tenure yield one point seven percent across the board, risk
Speaker 1: on the VIX closing at thirteen point zero nine and
Speaker 1: it is a good negative point to six points. That's
Speaker 1: something that's uh, that's I believe you'd call that a
Speaker 1: bull market with a doubt closing eighteen thousand four, You've
Speaker 1: got to believe in the futures where they are that
Speaker 1: will open with a twelve handle on a VIX seven
Speaker 1: ten on Wall Street. This hour of Surveillance brought to
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Speaker 1: Plains dot Com. Here's Michael bar at News headlines, Mike Tom,
Speaker 1: thank you very much. Democrat Murnie Sanders is still holding
Speaker 1: out hope for a close vote in the New York
Speaker 1: presidential primary today, despite Hillary Clinton's lead in the polls.
Speaker 1: Clinton's campaign says the delegate race is about over. Republican
Speaker 1: Donald Trump is signing the ninety five available delegates as
Speaker 1: he tries to clinch his party's nomination and avoid a
Speaker 1: contested convention. Afghan authorities say at least twenty eight people
Speaker 1: are dead and more than three hundred wounded during a
Speaker 1: car bombing and assault by militants on the Key government
Speaker 1: security agency and Cobble, but Taliban has claimed responsibility. Add
Speaker 1: Pearl Jam to the list of musicians canceling concerts in
Speaker 1: North Carolina. It's over the state's new law and LGBT rights.
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Speaker 1: four hundred journalists. I'm Michael Barr to Michael, thanks so much.
Speaker 1: Features up chan Features up six just a terrific screen
Speaker 1: as well. Coming up. Arnabdas on the Central Banker to
Speaker 1: the World, Janet Yellen Arnabdas Invesco on'm je markets stay
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Speaker 1: t f U S stock index futures are higher with
Speaker 1: oil and metals indicating the SNP five hundred will extend
Speaker 1: gains after reaching its highest level since December. We checked
Speaker 1: the markets every fifteen minutes throughout the trading day on
Speaker 1: Bloomberg SNP even a future is up eight and a
Speaker 1: half points, and now even a few tears up fifty
Speaker 1: nasdac even the futures up thirty The decks in Germany's
Speaker 1: up two point three percent ten, Your treasury down three
Speaker 1: thirty seconds. The yield one point seven eight percent yield
Speaker 1: on a two year point seven five percent. Now I'm
Speaker 1: ex screwed. Oil up one point six per cent or
Speaker 1: sixty three cents to forty dollars forty one cents of
Speaker 1: barrel and called Mike schooldre is up seven tenths per
Speaker 1: cent or eight dollars fifty cents to twelve forty three
Speaker 1: sixty announced the euro at dollar thirteen thirty one, the
Speaker 1: yen one oh nine point four five, and it is
Speaker 1: a bity busy morning for earnings. Johnson and Johnson reported
Speaker 1: earning set beat analysts estimates, and so did United Health.
Speaker 1: That's a Bloomberg business flash. Tom and Mike Jurna, thanks
Speaker 1: so much. Are not dust with this head of emerging
Speaker 1: markets macro for fixed income with investco are not we're
Speaker 1: real rates. I mean I I it's surreal. Now there's
Speaker 1: one massive, great distortion. Are there negative rates in the
Speaker 1: emerging markets? I've never asked a question. UM, Well, yeah,
Speaker 1: that's an excellent question. UM. Indeed, there are negative real
Speaker 1: rates in in various places, and in some places you
Speaker 1: have extraordinarily high real rates UM. And that's part of
Speaker 1: the argument for the attraction in domestic yield curves. UM.
Speaker 1: So for example, in UM in Brazil you have UM
Speaker 1: real interest rates and normal interest rates that are quite high. UM.
Speaker 1: Of course, there are serious fiscal and political challenges there UM,
Speaker 1: and there's a very deep multi year recession underway. But
Speaker 1: the hope, of course in that particular country is that
Speaker 1: there's about to be a turnaround. UM. If if indeed
Speaker 1: the impeachment process goes forward, will still be challenging. UM.
Speaker 1: There are other places where, particularly in Emerging Asia UM,
Speaker 1: where real rates are are negative. Policy rates are negative
Speaker 1: in real terms, UH, and parts of the yield are negative. Real.
Speaker 1: Explain that decision. Explain If China has a high real
Speaker 1: rate and somewhere else in Emerging Asia doesn't, what does invest,
Speaker 1: go do which do you buy? UM? Well, you know
Speaker 1: the Chinese UM domestic market is only partly accessible and
Speaker 1: from the process of being opened up, so you know,
Speaker 1: we we will have some exposures there and UM it's
Speaker 1: you know, taking a step back from particular countries. It's
Speaker 1: UM partly about the real rate for that country. It's
Speaker 1: also partly about what we expect to happen to the currency,
Speaker 1: and partly about what um the kind of general global
Speaker 1: funding environment and the benchmarks. Right, so you have a
Speaker 1: world where you have negative not just negative real but
Speaker 1: negative nominal policy rates and negative yield uh in much
Speaker 1: of the European bond market and in the Japanese bond market,
Speaker 1: and you have very low real and nominal yields in
Speaker 1: the developed world. And so of course a big part
Speaker 1: of the attraction of emerging markets at various times has
Speaker 1: been the higher growth and the higher inflation um in
Speaker 1: in many countries, not all Right now, China is a
Speaker 1: very special and very interesting case, of course, because they've
Speaker 1: been having partial deflation for some time. Producer prices have
Speaker 1: and growing in negative terms, although consumer prices have been
Speaker 1: growing very slowly. Right, So now the reflation strategy holds
Speaker 1: out the hope, at least for the short term, that
Speaker 1: through faster credit growth and faster investment UM as well
Speaker 1: as continued growth and consumption, that the economy will grow
Speaker 1: more quickly UM than had been feared, and that will
Speaker 1: raise the inflation rate in China through credit reflation, and
Speaker 1: that will spread around the rest of the world. And
Speaker 1: indeed that is starting to take place. And we have
Speaker 1: longer term concerns about that policy strategy, but the reality
Speaker 1: is that in a world in which we have been
Speaker 1: fearing many of many people fearing a deflationary devaluation shock
Speaker 1: from China, that seems off the table for the time being.
Speaker 1: So it's a better world. Mike McKie. Another shout out
Speaker 1: James Sweeney, a credit swee, was way out front on
Speaker 1: this this tone said by Dr Dass, Well, we're not
Speaker 1: going to see negative rates in Argentina. However, the fact
Speaker 1: that there are going to be rates at all, it
Speaker 1: is interesting news. The country coming back to the global
Speaker 1: credit markets after fifteen years. How is this going to
Speaker 1: be our job? Had three phones to um. Yeah, I
Speaker 1: think Argentina, um, you know, is a very interesting, um,
Speaker 1: very particular case, right, I mean, I think the great
Speaker 1: news is that Argentina is coming back into the world
Speaker 1: economy from um, you know, from isolation and from the cold.
Speaker 1: Whereas you say, you couldn't really tell what interest rates
Speaker 1: were because you couldn't really tell what inflation was, and
Speaker 1: if anyone tried to tell under the previous regime what
Speaker 1: the inflation rate actually was as opposed to what the
Speaker 1: government was saying that the inflation rate was, they would
Speaker 1: be stifled or even jail right. So we have UM
Speaker 1: a very significant change in Argentina underway, being managed by
Speaker 1: a president you can sort of understand where he's coming
Speaker 1: from and what he says, and by an economic team
Speaker 1: UM that is that is excellent. I know and have
Speaker 1: worked with several of those people UM for years in
Speaker 1: the past and have a great deal of confidence in
Speaker 1: their ability to diagnose the problem and also to implement
Speaker 1: a sensible solution. And it's quite impressive how rapidly that
Speaker 1: the new government has moved to normalize a lot of
Speaker 1: the distortions that the previous government had created. And so
Speaker 1: they've unified multiple exchange rate regime, they're dismantling the capital
Speaker 1: controls UM, they're starting to UM you know, bring bring
Speaker 1: energy prices into line with with with the cost of
Speaker 1: producing energy. So Argentina is a place where, unfortunately people
Speaker 1: are going to have to suffer much higher energy prices
Speaker 1: in a world where energy prices have collapsed. But the
Speaker 1: argent Huntin people clearly understand that the regime that they
Speaker 1: were operating under for the last several years was you know,
Speaker 1: just just completely unsustainable because it had a lot of
Speaker 1: prices and therefore you had shortages of lots of items
Speaker 1: and and of energy. So Argentina is starting to normalize
Speaker 1: and and the market is responding to that, and that's
Speaker 1: why that debut bond has gone so well. Right, thank
Speaker 1: you so much, Arndt was Investco greatly appreciate it. And
Speaker 1: emerging Marcus Michael from where you said is Janet Yell
Speaker 1: and central banker to the emerging markets. It's an interesting idea.
Speaker 1: There's such a separateness between our vector of raids and
Speaker 1: everybody else's. Yeah, well, I mean he's uh, she is
Speaker 1: rather um the person who's going to influence the dollar,
Speaker 1: and the dollar is going to influence the cost of borrowing,
Speaker 1: costs of repayment for emerging markets, which just as is
Speaker 1: a big deal and when you agree with me that
Speaker 1: that was the heart and soul of Rogoff and Reynard's
Speaker 1: book is the idea of summing domestics and exterior debt
Speaker 1: as well to so many days countries um. The market
Speaker 1: went up yesterday, the market is up this morning. Bloomberg surveillance.
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