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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,

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Speaker 1: and of course, on the Bloomberg Terminal. Now we go

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Speaker 1: to Nashville Savvy Suit with US Airlines Managing Director Raymond James.

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Speaker 1: You're writing for Tuesday, Savvy. What are you going to

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Speaker 1: write about Tuesday? About this airline chaos? Thanks for having me.

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Speaker 1: You know, what I would say is from a castolation rate,

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Speaker 1: we operationally airlines are having a heart of time, but

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Speaker 1: they have proactively taken down schedules. So what we've been

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Speaker 1: writing has been consistent I think for the last several weeks,

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Speaker 1: and it will be consistent on Tuesday, which is that

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Speaker 1: operationally airlines would love to fly more. There's definitely more

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Speaker 1: demand than there are flights today, even with maybe some

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Speaker 1: consumers choosing to drive, but it's just still too much

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Speaker 1: demand for the amount of supply airlines can put out there.

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Speaker 1: But they have taken it back because they want to

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Speaker 1: maintain decent operations. And if you look at cancelation rates,

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Speaker 1: we're probably trending only one point higher, one percentage point

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Speaker 1: higher than than it was pre pandemic. So they're doing

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Speaker 1: enough ahead of time to try and offset some of

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Speaker 1: the pain that comes with that. The you know, the

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Speaker 1: current operational environment, so that you're speaking to something that

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Speaker 1: I don't think it's talked about enough, the difficulty of

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Speaker 1: ramping up capacity in this industry, even if you want

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Speaker 1: to the amount of regulation that requires a certain amount

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Speaker 1: of trading. How long it takes to one board people

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Speaker 1: to get them to operate in the airports? Can you

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Speaker 1: run through that force savvage? Just how difficult it is

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Speaker 1: to build out capacity and build out and an employee,

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Speaker 1: a force, a labor force for some of these companies.

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Speaker 1: It's just tremendously difficult, isn't it. It is? And and

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Speaker 1: the last year you saw, you know, across the ecosystem

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Speaker 1: airlines having problems, um, you know, not just airlines, their

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Speaker 1: partners and airports as well. I think this year a

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Speaker 1: lot of that is under control. They've learned less than

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Speaker 1: they've they've hired ahead of time. But the biggest bottle

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Speaker 1: neck is on the pilot side. We've had a lot

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Speaker 1: of pilot retirements during the pandemic when you didn't know

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Speaker 1: if demand was going to come back, and now that

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Speaker 1: demand has come back really strong, you're trying to hire

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Speaker 1: and put pilots in the cockpit as quickly as possible.

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Speaker 1: But it is a longer time horizon, and and so

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Speaker 1: that that is like the key bottle neck here. It's

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Speaker 1: not necessarily pilot supply yet though that is a concern

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Speaker 1: longer term, But right now it is about class sizes

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Speaker 1: that are three to four times bigger than they used

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Speaker 1: to be pre pandemic, and trying to get those pilots

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Speaker 1: through and into the cockpit in time for to fly

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Speaker 1: the capacity so you've got thirty seconds on the clock.

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Speaker 1: Clearly they are reluctant to build out capacity, not just

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Speaker 1: unable to build that capacity. There is a worry now

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Speaker 1: about whether this so called revenge spend on travel persist

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Speaker 1: through the rest of this year. What's baked into your

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Speaker 1: numbers on that one. We're assuming a slowdown. But the

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Speaker 1: key here is because the capacity is so much below demand,

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Speaker 1: even if demand comes down, maybe that just give you

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Speaker 1: some some relief there, so yields might be lower affairs

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Speaker 1: might come down, but but generally we think, you know,

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Speaker 1: it's it's still a strong environment for airlines, even with

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Speaker 1: some called back here in in demand into the fall

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Speaker 1: and maybe into next year. Savvy, awesome as always, Sammy

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Speaker 1: Sitha of Raymond James on the travel industry. Jordan Ryanchester

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Speaker 1: with us right now, strategist right now, and he is

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Speaker 1: going to brief us, and this is the conversation of

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Speaker 1: the day. I want to go to magnitude Jordan's and

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Speaker 1: John mentioned your one eighteen week pounds sterling call, but

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Speaker 1: as Q three a quarter of magnitude for the major

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Speaker 1: foreign exchange pairs. I think so, Tom, I mean risk

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Speaker 1: appatite is on the proverble barbecue that yet kinniku as

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Speaker 1: we say in Japan, or look when it comes to

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Speaker 1: what's going to happen in the next few months, next

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Speaker 1: months of Key one for Europe, we've got the potential

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Speaker 1: for north Stream one to have it's all of its

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Speaker 1: gas supplies cut off. Of those gas flows are already

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Speaker 1: cut off, so we're actually just talking about the last

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Speaker 1: so it's not even that big of a deal. Now

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Speaker 1: we've already had the big move lower in the gas

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Speaker 1: flows that means Germany could consider rationing its uh gas

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Speaker 1: supplies to industry. So that's going to affect Europe in

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Speaker 1: a big way. That's why recession fears are really picking up,

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Speaker 1: not just in the US, but in Europe as well.

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Speaker 1: Tom And for the UK, it stands out as the

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Speaker 1: main country in Europe that hasn't done enough to subsidize

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Speaker 1: the consumer, but also it raised taxes and then third

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Speaker 1: of all, it has a central bank that is unlike

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Speaker 1: the ECB and unlike the FED, it's not really being

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Speaker 1: accused of being behind the curve because it's been raising

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Speaker 1: rates for longer since December of last year. So that's

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Speaker 1: why already seeing the Bank of England toying with the

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Speaker 1: idea of well maybe we don't need to be too

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Speaker 1: hawkish because there is a growth impact as a consumer

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Speaker 1: confidence crisis building up. And that's why we think cable

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Speaker 1: will go towards one eighteen. And I think early August

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Speaker 1: when the Bank of England disappoints us Mr I think

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Speaker 1: they'll point rate high instead of fifty. Mr Crodo was

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Speaker 1: not unfrancat Laquise market moving panel this week in CenTra

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Speaker 1: extrapolate Sterling weakness or the magnitude of the move we're

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Speaker 1: gonna see in Japanese yenn. So the Japanese yen has

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Speaker 1: been really difficult for everyone. There's two or three things

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Speaker 1: going on. First of all, when U s yields go higher,

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Speaker 1: that that Japanese yen tends to weaken. Second of all,

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Speaker 1: when oil prices go up, the Japanese yen tends to weaken. Well,

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Speaker 1: now we're having US shields go lower. Now we're having

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Speaker 1: a risk off at the same time that usually leads

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Speaker 1: to Japanese gene strength, and we're having oil prices softened too.

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Speaker 1: So I'm surprised Dolly and is being so calm on

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Speaker 1: a day like this with the you're seeing fixed income.

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Speaker 1: But at the same time, there is a global story

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Speaker 1: about energy prices in the winter coming up, where ellen

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Speaker 1: g is could be in big demands and that's going

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Speaker 1: to really weigh on Japan's trade balance. So short term

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Speaker 1: energy prices might be weak, It depends where you're looking.

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Speaker 1: Because in Europe, gas prices are not weak, they're really accelerating.

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Speaker 1: So I think that's pushing up LERG prices and that's

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Speaker 1: making it quite difficult for the end to rally in

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Speaker 1: the environment that we're in even though we're having this

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Speaker 1: huge fixed income rally today. Jordan, what a tough spot

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Speaker 1: for the CCP, for president, the guard for euro dollar.

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Speaker 1: It just feels lose lose at the moment. Jordan's if

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Speaker 1: they hike, it's a euro weakness story for many people,

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Speaker 1: they anticipated recession. If they don't hike, it's for all

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Speaker 1: the wrong reasons. It's south Euro Jordan. Is it a

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Speaker 1: loser lose situation? Can you envision a situation where this

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Speaker 1: euro does get a bit, this euro does rally. There

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Speaker 1: is a way, There is a way. I mean, we

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Speaker 1: we're looking for parity, so I don't think that is

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Speaker 1: going to rally. The view from US is euros to sell.

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Speaker 1: But there is a way, which is we find some

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Speaker 1: reason collectively as a market to say global growth expectations

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Speaker 1: are going to turn around, they're going to improve. When

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Speaker 1: that happens, Euro goes higher always pretty much. Euro is

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Speaker 1: a pro cyclical currency. So what could lead to that

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Speaker 1: risk on? But it could be a ceasefire in Ukraine

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Speaker 1: and Russia. We could see energy prices soften as supply

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Speaker 1: hopes would improve. The other one is China. We have

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Speaker 1: either a large fiscal announcement in China as they coming

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Speaker 1: are coming out of COVID lockdowns, they might want to

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Speaker 1: do that, or they might relax their zero COVID policy,

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Speaker 1: allowing more free trade of people, of commodities and so

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Speaker 1: forth in the supply chain. So that could be another

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Speaker 1: way of doing it. Always see the FED turned dobbsh

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Speaker 1: and say, actually, we're not going to raise rates as

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Speaker 1: much as you think. While we're seeing today a massive

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Speaker 1: repricing of the US curve, but again Eurro dollar is

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Speaker 1: not heading higher. So I think we're in a different

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Speaker 1: framework where we shouldn't be using yields to say where

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Speaker 1: your dollar is going to go. We should just be

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Speaker 1: using growth expectations. Once again, so FX has many different frameworks.

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Speaker 1: The key part is knowing WICH is the right one

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Speaker 1: to use today, and I think it's that growth framework

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Speaker 1: that is the dominant factor for the time being. So

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Speaker 1: joldan with that in mind, how relevant is ECB policy

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Speaker 1: to what happens with the Euro? It's definitely relevant. Um

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Speaker 1: So for example, we've had some hawks for the Lithuanian

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Speaker 1: Council member was saying we could do more than twenty

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Speaker 1: five basis points. In July I think that's very unlikely.

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Speaker 1: But if they were to do that, you would get

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Speaker 1: a short term boost to euro. But we've had buns

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Speaker 1: go from zero percent in March two. I know where

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Speaker 1: they've moved today, but we went up to one stay

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Speaker 1: close to Yeah, the euro fell during that period in

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Speaker 1: those three months, so we went from one twelve to

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Speaker 1: one oh four. So higher euro yield, it's not leading

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Speaker 1: to a stronger currency. So it is a bit of

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Speaker 1: a lose lose for the e c B. They're trying

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Speaker 1: to stop the currency weakening, but at the same time,

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Speaker 1: fundamentally their terms of traders collapsing, so there's a huge

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Speaker 1: macro driver pushing the euro lower, and the ECB would

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Speaker 1: have to do a lot more to improve things, but

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Speaker 1: that would just equal recession during The Little Red Book

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Speaker 1: is not Mao's Book of China. It is Stanley Fisher's

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Speaker 1: book From Through the Crisis I m f. Lessons from

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Speaker 1: a time of crisis. Everybody in the middle of the

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Speaker 1: first decade of the century had to read this. In

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Speaker 1: the game, Fisher would say, watch em now, that's away

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Speaker 1: from your remnute and the muror I get, but I'm

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Speaker 1: sorry Tai Bat unraveling, Indonesia ready to go through fifteen

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Speaker 1: thousand Filipino with Marcos looking at sixty, what is the

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Speaker 1: symbolism to the developed institutions that e M is unraveling

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Speaker 1: before our eyes agreed, we've got basically short em positions

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Speaker 1: were pushing along that dollar Philippines for example, as a team,

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Speaker 1: it's could be really difficult for em to rally in

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Speaker 1: this environment with higher US yields pushing up the cost

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Speaker 1: of funding for everybody out everywhere. The hope was that

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Speaker 1: tourism flows could support some countries such as Thailand, and

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Speaker 1: that might still be the case, but we could have

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Speaker 1: COVID waves offset that. But in general, if you have

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Speaker 1: peripheral yields in Europe, if you have US credit widening

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Speaker 1: like we are, essentially systemical stress in the credit market

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Speaker 1: is building up. That is just not an environment where

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Speaker 1: emerging markets, especially those with trade deficits current account deficits,

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Speaker 1: do well. That's just not going to happen. So for

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Speaker 1: the time being, it's quite from a structural perspective, Given

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Speaker 1: our long dollar view that we have in this quarter,

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Speaker 1: I expect emerging markets to perform US seventy five for

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Speaker 1: the FED this July is that we're looking for. That's

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Speaker 1: that's right. So our team are us second. Ye team

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Speaker 1: has really hit the nail on the head they have

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Speaker 1: with their FED calls. I think they're going to be

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Speaker 1: right for next year as well. So we have seventy

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Speaker 1: five coming up for the next meeting. But let's talk

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Speaker 1: about what we published over the past two weeks. They're

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Speaker 1: calling for a recession next year. They're calling for a

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Speaker 1: recession this year in Q four that's a lot earlier

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Speaker 1: than other South Side banks. That's Robert Denton h sand

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Speaker 1: pushing those views. When it comes to next year, we

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Speaker 1: are pushing also FED hikes to finish and in still

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Speaker 1: second quarters. Let's say we get to May, we get

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Speaker 1: to tomeerate around three and a half percent, and then

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Speaker 1: the FED starts to cut rates from September onwards five

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Speaker 1: basis points meeting, and I think that's what the market

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Speaker 1: is doing. It's moving towards the view from our US

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Speaker 1: team to that. Jordan who leads that team, would just

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Speaker 1: give him a shout out because they've been great. I did,

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Speaker 1: Robert dent Ichi, those guys have really pushed the view

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Speaker 1: very well. Awesome Jordan, Thank you, buddy. As always Jordan

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Speaker 1: Rochester of Nomura looking ahead to the dead head. Let's

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Speaker 1: get straight into it with Michael Rourke, the chief market

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Speaker 1: strategistic Jones Trading. Mike, let's start hear your words. I'm

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Speaker 1: getting worried about energy and materials. Talk to me about energy. Yeah. Well,

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Speaker 1: I've been big on the value tree and obviously the

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Speaker 1: key performance there are financials, banks, energy, UM and of

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Speaker 1: course we've had a great running energy the energy policy

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Speaker 1: in this country. Not investing the speace has worked the

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Speaker 1: advantage of the stocks or investors, and of course oil

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Speaker 1: prices have shot up with the war in Ukraine. But

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Speaker 1: now we're starting to see this economy slow and UH,

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Speaker 1: it's it's just we're getting clear signs of slowing and

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Speaker 1: again the downside volatility that could become, you know, tied

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Speaker 1: to UH energy names. If we see a real slow

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Speaker 1: down or recession, UH is gonna be troublesome. Michael, Can

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Speaker 1: you buy quality here if you have a one year

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Speaker 1: three year perspective with the way some of these stocks

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Speaker 1: have been hammered, They've got some revenue stability, they've got

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Speaker 1: persistent free cash flows, you know the names. Can you

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Speaker 1: begin to acquire those shares or do you really have

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Speaker 1: to be as gloomy as Lisa? Uh, you know you

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Speaker 1: heard me say. I think when the two thousand and

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Speaker 1: two thousand two episode of Everything is repricing, I think

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Speaker 1: Micron is a good example of where we are in

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Speaker 1: this market. Microns training five or six times earnings obviously

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Speaker 1: a pretty awful guidance provided last night, but the shares

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Speaker 1: are probably down i'd say one and a half two

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Speaker 1: dollars um, so they're digesting pretty bad guidance pretty well.

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Speaker 1: So I would be looking for that, you know, the

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Speaker 1: value value buffer in there where valuations have corrected significantly,

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Speaker 1: and those are the type of things I'll be looking for.

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Speaker 1: I still think a lot of the quality still have

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Speaker 1: lofty p s in this market. I think that's one

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Speaker 1: of the bigger problems out there, Mike. There's a distinction

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Speaker 1: between long term faith that the U. S economy can recover,

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Speaker 1: which I think a lot of people share that there

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Speaker 1: will be an entry point at some point, and this

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Speaker 1: belief that there will be near term pain. When is

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Speaker 1: that pivot point? What are you looking for? So that's

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Speaker 1: that's a great question, because I think you guys touched

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Speaker 1: on the issues as you were talking on the intro,

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Speaker 1: I mean the next six weeks. In my opinion, it's

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Speaker 1: gonna because the news headline battle is gonna between earnings

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Speaker 1: and inflation, and I think we're gonna see the inflation

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Speaker 1: data all you know, it's gonna pivot in the right

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Speaker 1: direction here. I think the rest of the year we're

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Speaker 1: gonna see decelerating inflation growth, although it's still gonna be high,

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Speaker 1: but it's gonna be heading in the right direction. But

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Speaker 1: then the earnings data is where the problem is going

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Speaker 1: to be. Like you guys mentioned r CH earlier, you

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Speaker 1: mentioned m you from last night. Those are just a

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Speaker 1: couple of companies on off boarders that we're seeing. Earning

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Speaker 1: season kicks off in two weeks, and I think that's

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Speaker 1: gonna see a rough summer because we haven't seen An's

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Speaker 1: really reset their forecast yet. Everyone's been hoping for the

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Speaker 1: back half of the year. That's not going to materialize,

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Speaker 1: and now we have to see a real adjustment of

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Speaker 1: car over the summer. And Mike write a catch up

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Speaker 1: and looking ahead to nice with you and the wiri's

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Speaker 1: around the energy story after a rip was saying for

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Speaker 1: the front half of this year, Mike, I broke that

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Speaker 1: of John's tried and Michael, thank you. Terry hyneswears a

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Speaker 1: bag suit. He joins us now founder of Pengia Policy. Terry,

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Speaker 1: I want to talk about something that's not in the zeitgeist,

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Speaker 1: but I think it's really important. Going to November eighth

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Speaker 1: of this year, everybody's talking about Rhinos Republicans in name only.

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Speaker 1: I want you to frame the Dino Democrats in name

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Speaker 1: oh only. Is the President of the United States a Dino? Um,

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Speaker 1: good morning. You'd think so, but by his past track record.

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Speaker 1: But uh, I think what he's busily trying to do

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Speaker 1: is tack to the left and understand where, uh, where

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Speaker 1: the majority of his party is and and seek to

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Speaker 1: represent that. Uh, you know, not for him the old

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Speaker 1: Gilbert and Sullivan line that he led his regiment from behind.

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Speaker 1: But yeah, clearly. I mean I wasn't surprised by this

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Speaker 1: because you can see where the elector where the Democratic

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Speaker 1: Party was going even before. But he has sought to,

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Speaker 1: uh to essentially do everything you can to try to

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Speaker 1: keep his party together, but by and large go to

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Speaker 1: where the energy and the money is in the party,

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Speaker 1: where the money is. Stop, Terry, it's where the money

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Speaker 1: has helped me here after ov Wade in the uproar

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Speaker 1: of June, where suburban and particularly suburban women are as

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Speaker 1: they parce out rhinos dinos and the far right and

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Speaker 1: the far left. I think it's much more of an

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Speaker 1: anti incumbent election, and I think it's much more of

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Speaker 1: an economy election. Uh. The you know, the the stat

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Speaker 1: coming from Washington that I think is not much followed

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Speaker 1: on Wall Street, but it's followed greatly here is real

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Speaker 1: per capita disposable income which has declined twenty since March

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Speaker 1: of Uh. You know that's that's yet another bad sign

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Speaker 1: for Democrats. Uh. I think what you have here is

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Speaker 1: you're gonna have a majority Republican Congress in three I

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Speaker 1: set the odds today that at largely because the Senate

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Speaker 1: is outcomes are much less known. But you're still not

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Speaker 1: gonna have any sort of a one party monolithic majority.

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Speaker 1: Uh that clears the decks and sets a definite direction

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Speaker 1: no matter what it is. UH. Compromise and UH and

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Speaker 1: kind of working together in the center is still going

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Speaker 1: to be where the action is. Think about the gun

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Speaker 1: debate is a and gun law. As a recent example

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Speaker 1: of this, Terry what does it say about this Congress

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Speaker 1: given the bifurcated nature, given the contention that we see

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Speaker 1: only heating up over social issues and also some of

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Speaker 1: the castigations around inflation, the Congress might not get done

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Speaker 1: this bipartisan agreement on how to boost chip production domestically.

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Speaker 1: I'm sorry to say that. You know, generationally the Congress

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Speaker 1: has become much more performative than legislative. And uh, what

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Speaker 1: it what it says to me and has said for

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Speaker 1: a long time, is that uh, something that is viewed

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Speaker 1: and talked about as an existential threat China. Uh. You know,

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Speaker 1: you can see in the behavior of members in both parties, uh,

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Speaker 1: that they must not consider it to be quite the

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Speaker 1: existential threat, because a year plus after this legislation was introduced,

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Speaker 1: they still don't have it done. Now. I think there's

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Speaker 1: a high likelihood that the legislation gets done today. I

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Speaker 1: put that at eight percent. But it doesn't say anything

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Speaker 1: good about American foreign policy or resolve to confront China economically.

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Speaker 1: That it's taken more than a year to get to

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Speaker 1: the point where we're not quite done yet. Tricky stuff,

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Speaker 1: Terry big challenge, Terry Hinch, that of Panche a policy.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

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