Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferroh. Along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business App. Andrew Honhorst of City
Speaker 2: pushing his Federate cut forecast to September from July, writing,
Speaker 2: we continue to expect the FED to cut policy rates
Speaker 2: more aggressively than what the market is pricing. Andrew joined
Speaker 2: us now for more, Andrew kamnik Ronick, and let's start
Speaker 2: with the timing. So you push back from June to
Speaker 2: July and now from July to September. What's not going
Speaker 2: your way?
Speaker 3: The labor market data is what just hasn't given the
Speaker 3: FED that clear say that they need to be cutting.
Speaker 3: And I think that's what's difficult here, is that we
Speaker 3: see the signs in various data that they will be
Speaker 3: cutting eventually.
Speaker 4: But when that time is.
Speaker 3: They're actually going to make that first cut, they're going
Speaker 3: to have to see the unemployment rate and move higher.
Speaker 3: It rounded to four point two percent. That's going to
Speaker 3: be enough to keep them on hold.
Speaker 2: So you've lost confidence on the timing, but maintained confidence
Speaker 2: on the degree to which we will get a response
Speaker 2: from them, which will be much more aggressive than the
Speaker 2: market is priced for.
Speaker 5: Why are you maintaining that confidence.
Speaker 4: I think it's not.
Speaker 3: That hard to get there if you look at things
Speaker 3: like the FED Beage Book. Now I know that the
Speaker 3: FED is looking at the hard data. They're going to
Speaker 3: wait until they see that in the hard data. If
Speaker 3: you read the FED page book, it said the economy
Speaker 3: is contracting and employment was unchanged over the intermeeting time period, So.
Speaker 4: We're not hiring people.
Speaker 3: We have an economy that maybe contracting, according to the
Speaker 3: page book at least slowing down significantly, housing sector that's
Speaker 3: in contraction. So I think that there's a lot of
Speaker 3: signs out there that we will see weaker data.
Speaker 4: You have to actually see that in the data, though,
Speaker 4: before the Fed's going to move.
Speaker 6: It feels like test It is so difficult to get
Speaker 6: your head around yesterday the data came out, or on
Speaker 6: Friday the yes, it feels like yesterday, how the DAYA
Speaker 6: came out and it was better than expected. Yay, people
Speaker 6: are looking at this. Not a bad number in this,
Speaker 6: people take more time to look at it. Lots of
Speaker 6: bad numbers in this, in particular the two month revision
Speaker 6: downward of ninety five thousand and the idea that the
Speaker 6: household survey lost over six hundred thousand jobs. There is
Speaker 6: this feeling that the economy, that the labor market is contracting.
Speaker 6: As you said, at what point do you think that
Speaker 6: it's going to be evident enough in the data. Do
Speaker 6: you feel like that's coming soon or do you feel
Speaker 6: like that's been what's been delayed.
Speaker 3: I think that is what's been delayed. I think it
Speaker 3: is coming in the next few months. We know that
Speaker 3: this has been a very uncomfortable labor market where we've
Speaker 3: had a low hiring rate. We're starting to see in
Speaker 3: the weekly data, and that's what I would be watching here,
Speaker 3: continuing jobless claims. These continuing jobless claims are starting to rise,
Speaker 3: So we don't have a big increase.
Speaker 4: In initial jobless claims.
Speaker 3: People are being laid off from their jobs, but when
Speaker 3: people are out of work, they're finding it hard to
Speaker 3: get back into work. That's why the continuing claims are rising.
Speaker 3: That should mean the unemployment rate rises. We saw something
Speaker 3: very similar last summer, and if you remember September, we
Speaker 3: got that fifty basis point cut. So I think we're
Speaker 3: kind of in a similar dynamic to what we saw
Speaker 3: last year, probably a couple months before you get the
Speaker 3: Fed moved.
Speaker 6: It also raises a question of which rate is more
Speaker 6: important to watch. We're talking about the FED funds rate,
Speaker 6: the one rate that the Fed has control over. At
Speaker 6: the same time that there were all question marks over
Speaker 6: ten year, over thirty year treasuries, the auctions that are
Speaker 6: coming up in the remainder of the week on Wednesday
Speaker 6: and Thursday. How much do you think that weaker growth
Speaker 6: infers lower rates substantially on the longer end, which is
Speaker 6: sort of key to stimulating the economy in any kind
Speaker 6: of real way in a downturn.
Speaker 3: Yeah, So that's a new challenge for the FED that
Speaker 3: sometimes when we're getting weaker data. Now we're seeing the
Speaker 3: equity market sell off, and usually you would think that
Speaker 3: would mean the treasury market would rally and yields would
Speaker 3: move lower. But we've had this phenomenon where sometimes the
Speaker 3: treasure market sells off and we actually get higher yields,
Speaker 3: and that's an issue for the Fed because we can
Speaker 3: have lower growth now and higher yields in the long end.
Speaker 3: I mentioned the housing market mortgage rates that have stayed higher.
Speaker 4: You really need to see.
Speaker 3: Those mortgage rates come down, I think, to get the
Speaker 3: housing market expanding again. It is contracting now, and what
Speaker 3: can do that now is the FED cutting rates. So
Speaker 3: it's just another reason that the Fed, I think, is
Speaker 3: going to have to cut. They're not going to look
Speaker 3: at that tenure yield and say we're reacting directly to
Speaker 3: the tenure yield, but indirectly they're going.
Speaker 4: To see it in the data, and that's going to
Speaker 4: leave them.
Speaker 2: Just about on Lisa's questioning, though, they did cut one
Speaker 2: hundred basis points and the long guns sound off. So basically,
Speaker 2: they cut interest rates and mortgage rates went up. And
Speaker 2: as a belief that when they did cut, they weren't
Speaker 2: committed to anchoring inflation expectations, So no surprise this time
Speaker 2: around what they are saying the core of the Federal Reserve.
Speaker 2: Every single speech the chairman over and over again committed
Speaker 2: to anchoring inflation expectations, which rates the question about you,
Speaker 2: Rolti McCall. Can they move fast and decisively to respond
Speaker 2: to a downturn in the economy and at the same
Speaker 2: time cover themselves about anchoring inflation expectations.
Speaker 3: Yeah, it is a big challenge here, and it really
Speaker 3: depends on the measure of inflation expectations that you look
Speaker 3: at how worried you are about those da anchoring. If
Speaker 3: you look at University Michigan survey, for instance, we've had
Speaker 3: a big move higher in the inflation expectations, other surveys
Speaker 3: not so much. I think what they need to do
Speaker 3: is really focus on the fundamentals here, and this focus
Speaker 3: on inflation, I think is fighting.
Speaker 4: The battle of two or three years ago.
Speaker 3: That was a time when the Fed thought that inflation
Speaker 3: was going to be transitory. It turned out to be persistent.
Speaker 3: We have now house prices that are moving down. This
Speaker 3: is not an economy that is just too full of
Speaker 3: demand with supply constraints and you get really high inflation.
Speaker 4: That's what happened a couple of years ago.
Speaker 3: I think this is an economy where we actually have
Speaker 3: demand that's cooling. That means we're not going to get
Speaker 3: a lot of inflationary pressure. That means they can look
Speaker 3: through if we have a one time price level increasing.
Speaker 2: Governor wall is making a similar argument. It's a convincing one.
Speaker 2: How lonely is kelvinor Walla on the FMC, I.
Speaker 3: Think pretty lonely. Look right now, I'd like to give
Speaker 3: him some company. I agree with the point that he's making,
Speaker 3: But again, I think that's why you have to see
Speaker 3: this so clearly in the activity data, which kind of
Speaker 3: means that the Fed is going to wait longer than
Speaker 3: they usually would before they cut because they want this
Speaker 3: really clear signal from the labor market, because they're worried
Speaker 3: about inflation.
Speaker 2: They've talked about September. John Williams and the New York
Speaker 2: Fed has talked about September. I wonder if September is
Speaker 2: still too soon.
Speaker 6: Well, it depends on the data and whether you get
Speaker 6: some sort of reflection there. I mean, Peter Sheer of
Speaker 6: Academy Securities is making the argument that if they really
Speaker 6: wanted to cut, they could have even looked at the
Speaker 6: non farm payrolls report that we got on Friday and
Speaker 6: made an argument to cut right now. To Andrew's point,
Speaker 6: there is a fear that the runaway inflation that they
Speaker 6: failed to stave off immediately is going to be something
Speaker 6: that's repeated, and they don't want to do that. So
Speaker 6: they're going to have to lean into inflation. And Wednesday
Speaker 6: CPI print's going to be really important on that front.
Speaker 2: Things are super finely balanced. If NFP was bat on Friday,
Speaker 2: because the best of the week's thanks, it wasn't great
Speaker 2: at all, Right, NFP was bat on Friday, would be
Speaker 2: having a very different conversation this Monday morning.
Speaker 6: Yeah, and probably President Trump would have more company with
Speaker 6: his one percentage point rate cut, not give fuel to
Speaker 6: otherwise pretty solid economy.
Speaker 2: Andrew, it's going to see you. Thanks for the update,
Speaker 2: Andrew holmeholst there of City. Let's turned back to what
Speaker 2: top story for Wall Street? President Trump saying he expects
Speaker 2: talks between the US and China to go very well
Speaker 2: after his phone call with China sheet just last week.
Speaker 2: Elizabeth Economy of the Hoover Institution joined US Now for more. Elizabeth,
Speaker 2: welcome back to this program. It's always good to hear
Speaker 2: your thoughts on a very sensitive issue. There's a phrase
Speaker 2: that you've used, strategic decoupling. Can we begin with that phrase?
Speaker 2: What does that phrase mean to you? And ultimately, with
Speaker 2: that in mind, what's the purpose of these talks in London.
Speaker 7: So I think strategic decoupling basically refers to the fact
Speaker 7: that both countries have identified the other as their most
Speaker 7: significant long term strategic challenge, and each sees it as
Speaker 7: in its interest to begin to reduce its dependency on
Speaker 7: the other in terms of trade and investment. And this
Speaker 7: is a process that's been underway, certainly from the Chinese
Speaker 7: perspective for a number of years. We've seen with their
Speaker 7: Made in China twenty twenty five program right the effort
Speaker 7: to reduce dependency across ten critical cutting edge areas of
Speaker 7: technology to ensure that Chinese companies dominate not only domestically,
Speaker 7: but also become global champions.
Speaker 8: And I think, beginning with the Biden.
Speaker 7: Administration, the post COVID period sense of the United States
Speaker 7: is too reliant on China for a number of products
Speaker 7: of goods that we need for our human security.
Speaker 8: That was the personal protective equipment, but also.
Speaker 7: As we see today, things like rare earth elements and
Speaker 7: so I think that's the broader sort of strategic context
Speaker 7: for what we see taking place in terms of what
Speaker 7: that means today in terms of these discussions. I think
Speaker 7: the reason that we see the two sides coming together
Speaker 7: at this moment, in the sort of middle or early
Speaker 7: stages of the ninety day pause on the tariffs, is
Speaker 7: that we've seen from the Chinese perspective, the United States
Speaker 7: put export controls on the Quahwei assand chips on computer
Speaker 7: design software, and of course this big move on the
Speaker 7: visa revocations for Chinese students. So they view the United
Speaker 7: States as having not upheld the spirit of the initial
Speaker 7: trade discussions that were held last month. From the US perspective,
Speaker 7: of course, what we're concerned about in the moment is
Speaker 7: the toughening export licenses on rare earth elements that Chinese.
Speaker 7: It was our understanding that the Chinese would lift these
Speaker 7: licensing restrictions after the first set of negotiations. That didn't happen,
Speaker 7: and so that's why both sides are now at the table.
Speaker 2: This certainly feels a lot more complicated than it did
Speaker 2: in the president's first term. In the president's first term,
Speaker 2: a lot of these issues could just be addressed with
Speaker 2: purchase agreements. We've heard them talk about those purchase agreements,
Speaker 2: but I just wandered this time in your mind whether
Speaker 2: you believe these can be addressed, can be pushed to
Speaker 2: one side with just a simple purchase agreement and the
Speaker 2: narrowing of the trade balance, or at least the commitment
Speaker 2: to do that.
Speaker 7: Well, we saw in terms of the President's first deal
Speaker 7: with the UK that you know, in large part, that's
Speaker 7: what it amounted to. I think for China, of course,
Speaker 7: there are other issues tied to economic and national security
Speaker 7: that will continue to be irritance in the relationship. But
Speaker 7: I believe that for the president, for President Trump, that
Speaker 7: significant new purchases by the Chinese would at least go
Speaker 7: some way to addressing his concerns around the bilateral trade deficit,
Speaker 7: which is of course, you know, at least initially what
Speaker 7: impelled a lot of well impelled this global sort of
Speaker 7: set of terrorists.
Speaker 8: So I think that.
Speaker 7: They could make some progress if they were to announce,
Speaker 7: you know, big new purchases, but I think you're right
Speaker 7: that it wouldn't solve what's really at the heart of
Speaker 7: the challenge here.
Speaker 6: And Elizabeth, there's been this discussion around how much incentive
Speaker 6: China really has to make some sort of agreement to
Speaker 6: come to some sort of resolution or have some sort
Speaker 6: of purchase arrangement with the United States, given the fact
Speaker 6: that our president's usin paying seems to be doubling down
Speaker 6: in a pretty significant way and willing for the economy
Speaker 6: to slow as long as there are certain strategic goals
Speaker 6: that are achieved over not necessarily the next.
Speaker 4: Year or two, but ten years.
Speaker 6: How much do you feel like the leverage has shifted,
Speaker 6: that the desires have shifted here.
Speaker 8: Yeah, I think it's a really important point.
Speaker 7: I think the United States miscalculated at the outset when
Speaker 7: it believed that we had so much more economic leverage
Speaker 7: over China, because, as Secretary Bessett said, you know, we
Speaker 7: import five times as much from China as China imports
Speaker 7: from the United States.
Speaker 8: But that ignored I think two things.
Speaker 7: Number one, that China has spent the past eight years
Speaker 7: reducing its economic its trade dependence on the United States.
Speaker 7: You know, since pre COVID levels, the US sorry, the
Speaker 7: share of exports global exports from China to United States
Speaker 7: has reduced from nineteen percent to fourteen percent. And so
Speaker 7: I think That's one important element of it. The second is,
Speaker 7: as you suggest, you know in your discussion earlier, China
Speaker 7: has been routing exports to the United States through third countries, right,
Speaker 7: So it's still seeing, you know, an ability a path
Speaker 7: through to maintain.
Speaker 8: Its exports to the United States.
Speaker 7: And it ignored the fact that we have a greater
Speaker 7: soul source dependency on goods from China than China does
Speaker 7: from US. What that means is that for roughly thirty
Speaker 7: percent of the goods that we import from China, we
Speaker 7: have a seventy percent dependency or more on China. China
Speaker 7: doesn't face that same soul source dependency on a wide
Speaker 7: array of US goods. So I think we miscalculated the outset.
Speaker 7: China has been thinking strategically about how to reduce its
Speaker 7: dependence on the US market, you know, for you know,
Speaker 7: five to eight years really since the first Trump administration,
Speaker 7: and so I think that the leverage has shifted over
Speaker 7: the past five to seven years.
Speaker 5: So that's said Elizabeth.
Speaker 6: Overnight we saw data that showed deflation for a fourth
Speaker 6: straight month in China. You have a price war with
Speaker 6: the d that has gotten the attention of authorities in
Speaker 6: China worried about cannibalization from their own market and this
Speaker 6: idea that there's going to be a race to the
Speaker 6: bottom when it comes to electric vehicles and really sort
Speaker 6: of undermining the perceived quality internationally. How much structurally, though,
Speaker 6: do they have a challenge that forces them to the
Speaker 6: table to ultimately come to some sort of even stopgap
Speaker 6: measure that could last a couple of years with the US.
Speaker 7: I mean, I think China has been facing these challenges
Speaker 7: the ones that you just suggested for a couple of
Speaker 7: years now. This deflation issue is not actually new. The
Speaker 7: sort of incredible competition in many industries just within China
Speaker 7: again is not new. It's part of the process that
Speaker 7: they undergo every time they have this over investment in
Speaker 7: certain industries. We saw it in solar panels and wind turbines,
Speaker 7: now we're seeing in evs.
Speaker 8: We could see it in batteries moving forward.
Speaker 7: I think that's why we see the exports right and
Speaker 7: what China's doing now with the EV is looking not
Speaker 7: just to the United States or to Europe, but they're
Speaker 7: looking to Africa, to Southeast Asia, to Latin America. They
Speaker 7: can export you know, very cheap cars there. They're looking
Speaker 7: to build manufacturing capacity in those countries.
Speaker 8: So China's looking.
Speaker 7: Globally, not simply at the wealthiest market for their goods.
Speaker 7: And I think this is part of a long term
Speaker 7: strategic plan, and I think they're trying to bet that,
Speaker 7: you know, they can endure this short term pain for
Speaker 7: a kind of longer period of you know, strategic and
Speaker 7: economic gain. That being said, they have tried to do
Speaker 7: and take a number of actions over the past year
Speaker 7: to boost consumer confidence. They've had these massive goods trade
Speaker 7: in programs. They've done things in the real estate market
Speaker 7: to encourage people to start buying property again. But overall
Speaker 7: they're not willing to take the steps that are actually necessary,
Speaker 7: which is to move investment right away from you know,
Speaker 7: investment in technology, investment military, into education and health and
Speaker 7: into the pension system, so that people and consumers feel
Speaker 7: confident that they can spend because their other basic needs
Speaker 7: are being taken care of.
Speaker 2: Elizabeth, you are one of the best, and it's going
Speaker 2: to get some time with there this morning. We appreciate it, Elizabeth.
Speaker 2: Economy there of the Hoover Institution, Francisco Blancher playing for
Speaker 2: American Right. In the following the oil market is poised
Speaker 2: to remain oversupplied, and we believe Brent crude may average
Speaker 2: sixty two a barrel for the balance of the year.
Speaker 2: Macro tensions also mean that oil prices could temporarily sink
Speaker 2: to fifty dollars a barrel. Francisco joined us now for more. Francisco,
Speaker 2: good morning, good to see you, Good morning.
Speaker 5: Thanks.
Speaker 2: Start with OPA plus because I think that's been the
Speaker 2: main event for the crude market over the last several months.
Speaker 2: What's policy now and what's the strategy behind it?
Speaker 9: So you could you could make a case that ol
Speaker 9: Perks is trying three things or once right, it's trying
Speaker 9: to increase market share.
Speaker 5: I think it's more of a saliy thing.
Speaker 9: You could argue there's a discipline element to what SUD
Speaker 9: is doing because it's really driven by solid avia.
Speaker 5: And the third bit of it.
Speaker 9: Is well why now, Clearly lower oil prices can help
Speaker 9: upset some of the upset pressure of inflation on USTARTUS.
Speaker 9: So let's say it's a Trump administration pressure to get
Speaker 9: those barrels in. So I think maybe the three of
Speaker 9: them are objectives. But what's important about the strategy is
Speaker 9: that we believe this is not a price warter is
Speaker 9: going to be short and steep. Rather, it's going to
Speaker 9: be a price worter is going to be long and shallow,
Speaker 9: And it's going to be long and shallow for a
Speaker 9: couple different reasons. First, because in twenty twenty four, Saudi
Speaker 9: became a net borrower for a first time, whereas the
Speaker 9: shale patch is actually in pretty rule health from a
Speaker 9: debt perspective, they don't really issue that much that anymore,
Speaker 9: and they can flex their muscle up and down depending
Speaker 9: on where prices are.
Speaker 5: The show pats themselves have.
Speaker 9: Their own issues, right because the higher tariffs are also
Speaker 9: bringing up costs. Remember oil is steel on the ground,
Speaker 9: and steel is fifty more expensive than it was than
Speaker 9: the beginning of the year, So some margins are coming
Speaker 9: in lower oil prices, higher steel costs. We're seeing a
Speaker 9: big drop in the recount and that's exactly what saud
Speaker 9: He's trying to do. They have the lowest market share
Speaker 9: they've had in a very long time, not just against
Speaker 9: non Opic but also even within Opeic Soviet's lost market share.
Speaker 9: They've done this price support already by themselves, were not
Speaker 9: for three plus years, right, having this huge shell response,
Speaker 9: they're done with that they need to get it hasn't
Speaker 9: really worked. Eighty five ninety or oil six million barrels
Speaker 9: a day of exports not working. I mean, you want
Speaker 9: to get maybe lower prices with just more barrels.
Speaker 2: Can we sell on that price for just a little
Speaker 2: bit longer? And they tried this about ten years ago.
Speaker 2: I forget whether it's November fourteen or November fifteenth. You
Speaker 2: remember the text seen fourteen, Okay, Revember twenty fourteen, it's
Speaker 2: there in the memory somewhere. What's different what they did
Speaker 2: then compared to what they're doing now.
Speaker 9: Well, back then, what they were doing, it was a
Speaker 9: much deeper price war, but it ended up lasting organ
Speaker 9: they hoped.
Speaker 5: And part of it is.
Speaker 9: That back then, again, the shale patch was very levered,
Speaker 9: so they had a lot of cash in the bank
Speaker 9: when they started the price war, and it was just
Speaker 9: at the beginning of shale, right. So we still have
Speaker 9: grown rammatically in the last ten years. I mean, the
Speaker 9: US has pretty much added fifty percent plus of the
Speaker 9: incremental oiling as in the world for the last fifteen years, right,
Speaker 9: So I think we are getting towards the end of
Speaker 9: the shale cycle and Tier one acreage is becoming more exhausted,
Speaker 9: and companies are pushing to Tier two acreage, which is
Speaker 9: more expensive.
Speaker 5: And I have this additional costs.
Speaker 9: So I think it's a different moment in time, and
Speaker 9: you know, to be honest, I mean I think, like
Speaker 9: I said, so this supported prices for a long time,
Speaker 9: and they've realized that just keeping them so high only
Speaker 9: means loosing markets shared in the long run. So that's
Speaker 9: what's different. But also their own position is different. They
Speaker 9: want to build out the kingdom and that's very important.
Speaker 6: You talk about the War of Attrition and this idea
Speaker 6: that it's a long drawn out period of time where
Speaker 6: potentially you could see the sixty dollars a barrel at
Speaker 6: sixty dollars a barrel, could you see the shale patch
Speaker 6: become a lot more productive where you see rigs that
Speaker 6: are permanently taken offline, and it really becomes that much
Speaker 6: less profitable because ultimately it is much more expensive to
Speaker 6: drill there than say over in Saudi Arabia.
Speaker 9: I think that's exactly what's going on, right. I mean,
Speaker 9: I think we're going to see slow in production here
Speaker 9: for oil, and in some ways alreally happening.
Speaker 5: If you look at if you look at the rig.
Speaker 9: Count, if you look at marginal coastal production, many companies
Speaker 9: are facing oil in the fifties in maybe as high
Speaker 9: as sixty dollars a barrel, and therefore this price range
Speaker 9: doesn't make things particularly appealing. Now, having settled that these
Speaker 9: companies are cash can they're paying out huge dividends to
Speaker 9: shareholders in a world where interest rates are also high,
Speaker 9: which is a very big difference.
Speaker 5: Back then we had zero rates.
Speaker 9: Today we have five percent rates, and shales not a
Speaker 9: cheap operation when money is not free.
Speaker 6: Yeah, and I'm looking right now. And in twenty twenty three,
Speaker 6: the US oil and gas industry contributed by eight percent
Speaker 6: to the US GDP, So this isn't exactly a small
Speaker 6: part of the overall economy.
Speaker 4: In the United States. I am wondering on a broader scale.
Speaker 6: We haven't even talked about supply on the demand side,
Speaker 6: and whether demand is going to materially drop off to
Speaker 6: sort of add some of these price declines based on
Speaker 6: what we've seen in the price of oil, how much
Speaker 6: is tied to the idea that demand is just declining,
Speaker 6: especially as trade really falls off.
Speaker 9: So demand held up pretty well in the first quarter
Speaker 9: we had readily cold weather. And also remember at first
Speaker 9: quarter there was a lot of pentap consumption because people
Speaker 9: were trying to rush in the imports. Right, So we
Speaker 9: had actually a pickup in global trade in the first quarter.
Speaker 9: We've had a slow down, of course in the last
Speaker 9: couple months. We'll see what the negoiations between the US
Speaker 9: and China, another members and other countries end up looking like.
Speaker 9: But I do think that you know, you raise a
Speaker 9: great point sixty or oil is also going to help
Speaker 9: demand in the medium term, right, I mean, it just
Speaker 9: makes evs less attractive. It makes a lot of energy
Speaker 9: sources less attractive. Remember, oil is the best energy source
Speaker 9: we got for a lot of reasons, right in terms
Speaker 9: of in terms of its energy density, it's flexibility, it's
Speaker 9: how it is a transported story, and oil is cheap
Speaker 9: sixty doors a barrel, I mean, stem bucks and an mbtu.
Speaker 9: Just frankly, think about it, with all the inflation we've
Speaker 9: had for the last ten years, right, So I think
Speaker 9: I think I also will encourage consumption. And ultimately, what
Speaker 9: I think Sally's trying to say, well, we don't want
Speaker 9: to run around with so much spare capacity because it's
Speaker 9: expensive to maintain. And we're also changing the way will
Speaker 9: consume energy domestically, which means our demand locally will go
Speaker 9: down because now we're going to use a lot more
Speaker 9: renewals domestically. So all of that you put it together
Speaker 9: and you say, well, we have to get going, and
Speaker 9: this spur capacity into the market, and that's I think
Speaker 9: that's really the plan. So you get more consumption, you
Speaker 9: get your release, your spare capacity, and maybe oil just
Speaker 9: doesn't do a lot in the.
Speaker 2: Next year, let's finish on something that's gone more expensive.
Speaker 2: Got thirty three twenty my more than twenty six percent
Speaker 2: now for the what's the cove from even the tain.
Speaker 9: So we think it's been a bit of a double
Speaker 9: top in the first half of the year. So we
Speaker 9: think maybe second half we need to see a real
Speaker 9: shock for prices to break away from where we are,
Speaker 9: and we have a four thousand dollars target, which we
Speaker 9: think maybe a twenty twenty six story. But if you
Speaker 9: look at the action in the precious metals, it's really
Speaker 9: coming from other areas. It's coming from platinum, which is
Speaker 9: really where things are starting to move in a bay way.
Speaker 9: We've seen twelve hundred hit this morning, and potentially we're
Speaker 9: going to go higher in platinum. We think platinum will
Speaker 9: trade well ahead of palladium, which is also being dragged along,
Speaker 9: and even silver. Silver is now thirty six and change
Speaker 9: and you know, heading up to forty we believe, right,
Speaker 9: So gold's had a good run. Now we're getting the
Speaker 9: rest of the Prencips medals, and then based on wild
Speaker 9: geo politics and maybe the US budget deference in situation worseness,
Speaker 9: then we'll have an order leg up. But I think
Speaker 9: second half of a year might not be as great.
Speaker 5: As the first of losing for gold.
Speaker 2: Francisco, I appreciate the update. Thank you, sir, Francisco Blanche
Speaker 2: There of Bank of American. Let's focus on this story.
Speaker 2: Claudia Sam of New Century Advisors right in the following
Speaker 2: is early signs emerged. The tariff will drive up prices.
Speaker 2: The FED faces a crucial question. Will tariff induced inflation
Speaker 2: be short lived or will it persist? Claudia Joints is
Speaker 2: now for more. Claudia, welcome back. As always, we can
Speaker 2: spend some time with you talking about the US economy.
Speaker 2: Right now, let's get to that first line, that first
Speaker 2: piece of that sentence as early signs emerged the tariffs
Speaker 2: will drive up prices. What are you focused on right now?
Speaker 2: Where you see that at the moment?
Speaker 1: Right Well, the first place we're going to be looking
Speaker 1: for and we ought to see is more of it
Speaker 1: this week is in the goods prices, and that is
Speaker 1: both on consumer facing prices, and we're also looking in
Speaker 1: the producer prices. I mean, we're we're terrifying intermediate goods
Speaker 1: as well, and that that will eventually have some impact
Speaker 1: on consumer prices. So it's you know, it's looking at
Speaker 1: the data and again, as we said before, the magnitudes
Speaker 1: will matter and how long we see this, you know,
Speaker 1: upseeck in prices.
Speaker 2: So Claudia, that gets to the next question, show a
Speaker 2: lift or will it persist? How instructive is the labor market?
Speaker 2: With that in mind, let me start to think about that.
Speaker 2: How much of a guide can we take from where
Speaker 2: the labor market is count Like?
Speaker 8: Right, well, you know, the labor market is important. It
Speaker 8: is holding up.
Speaker 1: We saw modest signs of cooling, but not a dramatic,
Speaker 1: you know, weakening. When you talk to business as one
Speaker 1: of their first priorities when they think about pricing is
Speaker 1: consumer demands. I mean, it is the case the labor
Speaker 1: market holds up, it may be an opportunity for businesses
Speaker 1: to pass more of these hair costs onto consumers in
Speaker 1: terms of prices. I mean, right now we have a
Speaker 1: cost shock for businesses, and it is an empirical question
Speaker 1: as to where it's going to end up. Is it
Speaker 1: going to end up with consumers saying higher prices? You're
Speaker 1: workers with paychecks, it can be less profits. And we're
Speaker 1: just we are a fond edge of seeing how businesses
Speaker 1: are dealing with that really difficult question.
Speaker 6: And Claudia, there's this lack of clarity around exactly whether
Speaker 6: this is a transitory I hate to use that word,
Speaker 6: or short lived inflationary move, or whether it has longer legs.
Speaker 6: There's also a lack of clarity around the labor market.
Speaker 6: On Friday, we got the jobs report that the headline
Speaker 6: number seem to suggest was still really robust and better
Speaker 6: than expected and upside surprise if you look onto the hood, though,
Speaker 6: there are a number of analysts for raising questions, especially
Speaker 6: with the downward revisions and some of the other modeling
Speaker 6: that points to maybe a weaker outlook.
Speaker 8: Where do you.
Speaker 6: Land on that on this dual side of the mandate,
Speaker 6: when you take a look at the labor side of
Speaker 6: the equation, we.
Speaker 1: Have an economy that's still largely at full employment, so
Speaker 1: a four point two percent on employment rate. We have
Speaker 1: payroll gains, while not stellar, are still solid. It's, you know,
Speaker 1: the question is there are real signs of slowing, and
Speaker 1: we are seeing some modest slowing. It's you know, it's
Speaker 1: not happening rapidly, and that's important. But but the labor market,
Speaker 1: especially in terms of the FED thinking they're close to
Speaker 1: their mandate. I mean, there is a reason why they
Speaker 1: are getting such focus to thinking through what's going to
Speaker 1: happen with inflation over the coming months because largely they're
Speaker 1: in a good place.
Speaker 8: On the labor market side.
Speaker 1: So yet it's and I think it is important to
Speaker 1: understand that while the labor market hasn't resilient and things
Speaker 1: they're looking like mod is flowing, we don't have the
Speaker 1: same strength that we did, say two years ago. We
Speaker 1: have much narrower job gains, Like we're down to a
Speaker 1: few large sectors that are really pulling above their weight
Speaker 1: in terms of job gains. We have an unusually low
Speaker 1: hiring rate, like, we're not set up to really be
Speaker 1: hit hard in terms of the labor market. But for
Speaker 1: right now, things are looking really pretty good.
Speaker 6: Claudia, it sounds like you disagree with Andrew Hollenhorst, who
Speaker 6: came on and said that the FED is fighting the
Speaker 6: wrong battle and that inflation is in a very different
Speaker 6: spot than it was last year or even three years ago,
Speaker 6: when there was a lot more heat in the economy.
Speaker 6: He thinks that there isn't as much of a risk
Speaker 6: on the inflation side and that there is a more
Speaker 6: significant risk on the employment side. I'm just wondering, if
Speaker 6: let's say this Fed to reserve took Donald Trumpetus word
Speaker 6: cut by a percentage point, would that lead to significant
Speaker 6: unwoiring of inflation expectations and the potential for long term
Speaker 6: yields to rise really considerably.
Speaker 1: Well, the FED listening to the President doing what he
Speaker 1: says probably won't do good things for yields in general,
Speaker 1: but just thinking about that, like, could the FED be
Speaker 1: cutting right now? So there is an argument to make,
Speaker 1: but remember the context is so important. Inflation has been
Speaker 1: above the FEDS two percent target for four years, right,
Speaker 1: and even a modest increase in inflation at this point
Speaker 1: is to move us.
Speaker 4: Further from that.
Speaker 1: So I think there are good reasons, and we really
Speaker 1: did get burned by the persistence of the shops. Even
Speaker 1: at this time we have smaller shots inflation, and I
Speaker 1: think that is likely to write call here. The persistence
Speaker 1: of it could does risk embedding that we just aren't
Speaker 1: a two percent inflation economist, and the FED does not
Speaker 1: want that to happen. So I think at this point
Speaker 1: they can bounce these risks and waiting and seeing the
Speaker 1: you know, the surgeon inflation comes back down, which I
Speaker 1: think is you know, the textbook case. I think that's
Speaker 1: the most likely case, but the set is going to
Speaker 1: want to see it in the data, and I think
Speaker 1: that is appropriate at this point.
Speaker 2: We get another rate on Wednesday, again on Thursday, Claudia.
Speaker 2: I appreciate you for you. As always, Claudia, sound there
Speaker 2: of New Century Advisors. This is the Bloomberg Sevenans podcast,
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