WEBVTT - Surveillance: New Covid Variant With Pekosz 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.160 dot Com, and of course, on the Bloomberg Terminal. Let's 0:00:29.160 --> 0:00:31.680 get right to a Dr Andrew Pekosh has been joining 0:00:31.760 --> 0:00:34.360 us for years. It feels like actually it may just 0:00:34.479 --> 0:00:37.280 be almost years as we deal with this pandemic for 0:00:37.400 --> 0:00:41.280 a second year, his professor and viroologists at Johns Hopkins University, 0:00:41.320 --> 0:00:43.600 Bloomberg School of Public Health. We are so lucky to 0:00:43.600 --> 0:00:46.640 have you here, Dr Pakosh, on the morning where everyone 0:00:46.800 --> 0:00:50.440 is all concerned about the virus once again. What's your 0:00:50.520 --> 0:00:55.000 view into how serious this particular variant is. Well, let 0:00:55.000 --> 0:00:57.640 me first start by saying all the credit goes to 0:00:57.720 --> 0:01:01.240 South African scientists and scientists across Europe for not only 0:01:01.280 --> 0:01:04.480 detecting this, but using social media in a good way 0:01:04.520 --> 0:01:07.440 to spread all the information that they have about this. 0:01:07.520 --> 0:01:10.480 We criticize social media a lot about misinformation. This is 0:01:10.480 --> 0:01:13.480 an example of how good it can be when it 0:01:13.480 --> 0:01:17.600 comes to spreading the right information. We know that just 0:01:17.680 --> 0:01:21.160 before Thanksgiving it became obvious that there was in South 0:01:21.200 --> 0:01:24.600 Africa a new variant that had an abnormally high number 0:01:24.640 --> 0:01:28.319 of mutations across its gene but in particular in the 0:01:28.360 --> 0:01:31.959 spike protein, which is the target for the vaccines that 0:01:32.000 --> 0:01:35.520 are being distributed globally. Now, Um, what happened recently is 0:01:35.560 --> 0:01:38.160 that the South African public health officials realized that one 0:01:38.200 --> 0:01:41.560 of their PCR tests could actually serve as a surrogate 0:01:41.600 --> 0:01:44.319 for this variant. And if you use that data, it 0:01:44.400 --> 0:01:47.840 seems like this five to nine variant is increasing at 0:01:47.840 --> 0:01:52.160 an incredibly fast pace across areas of South Africa and 0:01:52.240 --> 0:01:55.360 multiple provinces of South Africa. So that was the real 0:01:55.400 --> 0:01:59.040 significant piece that caused us to get on everybody's radar screen. 0:01:59.240 --> 0:02:01.200 Do we even send of how much it evades the 0:02:01.280 --> 0:02:06.280 natural immunity conferred by prior infection or by some vaccine, 0:02:07.440 --> 0:02:10.120 just theoretically from looking at the sequence and you could 0:02:10.120 --> 0:02:13.560 probably see it right behind me on my desktop here. Um, 0:02:13.600 --> 0:02:16.560 it has a number of mutations which have been predicted 0:02:16.600 --> 0:02:20.239 to evade antibody responses. Now it has a few that 0:02:20.320 --> 0:02:22.960 are conserved, so this won't be a case of something 0:02:23.000 --> 0:02:26.880 that's completely able to evade the vaccine induced immunity, but 0:02:26.960 --> 0:02:29.240 it has more than other variants that we've seen so far, 0:02:29.320 --> 0:02:32.680 which again on paper, is what is concerning to us 0:02:34.200 --> 0:02:36.000 and the good morning to you. We're just getting some 0:02:36.040 --> 0:02:38.519 lines coming through from from beyond Seck, who of course 0:02:38.560 --> 0:02:41.040 have been working with fins around that vaccine much used 0:02:41.200 --> 0:02:44.600 around the world. They're just giving us some time scales 0:02:44.760 --> 0:02:46.359 around what they're going to do next, and I think 0:02:46.360 --> 0:02:49.040 this is interesting. They expect data from lab tests on 0:02:49.160 --> 0:02:52.400 the new varias in two weeks that it depending on 0:02:52.440 --> 0:02:56.160 that lab data may require vaccine adjustments. That gives us 0:02:56.200 --> 0:02:58.840 a sense that will we will know then in the 0:02:58.880 --> 0:03:01.959 next couple of weeks or into the time just how 0:03:02.040 --> 0:03:04.840 well in a lab environment the Fiser vaccine will stand 0:03:04.880 --> 0:03:10.160 up to this. Then the real world will be another thing. Absolutely, 0:03:10.160 --> 0:03:12.760 And that sounds like about the right timeline. As I 0:03:12.800 --> 0:03:15.200 just mentioned the sequences on my desk right now, emails 0:03:15.200 --> 0:03:17.360 have gone out to try to get my laboratory group 0:03:17.360 --> 0:03:20.080 together to try to prepare to do some of these tests. 0:03:20.320 --> 0:03:22.560 I'm actually here in the office today doing some of 0:03:22.560 --> 0:03:26.040 these antibody tests against other variants that we have in 0:03:26.040 --> 0:03:28.760 the laboratory, So that sounds like the right time frame. 0:03:28.800 --> 0:03:31.320 I think in terms of the general public, what this 0:03:31.520 --> 0:03:33.560 serves as an example of is now is the time 0:03:33.600 --> 0:03:36.320 to actually go out and do something proactive. If you 0:03:36.360 --> 0:03:38.600 haven't gotten your booster, go get your booster. If you 0:03:38.640 --> 0:03:41.560 haven't gotten your vaccine, go get your vaccine. Because by 0:03:41.560 --> 0:03:45.160 the time this variant becomes a global threat, if it does, 0:03:45.760 --> 0:03:47.720 um now is the time to act to try to 0:03:47.800 --> 0:03:50.640 do something to help curve the impact of this variant. 0:03:50.640 --> 0:03:53.080 So it just serves as a reminder we have tools, 0:03:53.080 --> 0:03:56.080 we have to use them affect efficiently, and if you 0:03:56.120 --> 0:03:57.960 haven't been vaccinated, now's the time to get it. If 0:03:57.960 --> 0:03:59.520 you haven't got your booster, and now's the time to 0:03:59.560 --> 0:04:02.400 get it to really give you the best tools to 0:04:02.440 --> 0:04:05.280 fight off this variant. And I think, what do you 0:04:05.360 --> 0:04:07.080 take away as a sort of big learning from the 0:04:07.120 --> 0:04:12.640 way that this this variant has emerged and maybe out 0:04:12.680 --> 0:04:14.480 there in various parts of the world. We know it's 0:04:14.520 --> 0:04:16.960 in Southern Africa, of course, we know it's in Hong Kong, 0:04:16.960 --> 0:04:18.279 and we know it's in Israel, and you know it 0:04:18.279 --> 0:04:20.719 could be elsewhere as well. We don't know yet. The 0:04:20.760 --> 0:04:22.279 UK has said it's not here in the UK, but 0:04:22.320 --> 0:04:24.320 we'll wait to hear from lots of places. What do 0:04:24.360 --> 0:04:26.200 you take away, is this all about making sure that 0:04:26.240 --> 0:04:29.640 we get better distribution of vaccines globally, because that sounds 0:04:29.720 --> 0:04:31.840 an appealing argument to make, and you can definitely see 0:04:31.839 --> 0:04:34.800 the humanitarian reasons behind that. But in South Africa, our 0:04:34.920 --> 0:04:37.920 reporting suggests that they don't have full vaccination, but it's 0:04:37.920 --> 0:04:39.760 not to do with a lack of vaccine. It's a 0:04:39.839 --> 0:04:42.080 lack of the right information getting to the right people 0:04:42.120 --> 0:04:46.080 to persuade them to go get the vaccine. Absolutely, he 0:04:46.160 --> 0:04:48.919 had some important points there. I think first it starts 0:04:48.960 --> 0:04:53.800 with testing. Good testing, couple with sequencing allows for the 0:04:53.839 --> 0:04:57.800 detection these variants early, and that helps us prepare for 0:04:57.839 --> 0:05:01.760 these variants. And then to it informs the current public 0:05:01.800 --> 0:05:05.400 health interventions. As I mentioned, getting yourself vaccinated is the 0:05:05.440 --> 0:05:07.680 first thing that you can do right now. It may 0:05:07.680 --> 0:05:10.360 be that we need to reformulative vaccine if this virus 0:05:10.400 --> 0:05:12.760 does become dominant in the world. That can be done. 0:05:13.120 --> 0:05:15.440 We have anti virals on our way that can be 0:05:15.520 --> 0:05:18.560 utilized effectively. But we have to think about these things 0:05:18.560 --> 0:05:23.000 as layered approaches to protect us from COVID nineteen. None 0:05:23.000 --> 0:05:27.080 of them are effective, but combined approaches allow us to 0:05:27.160 --> 0:05:30.599 minimize the severity of this disease. And again, this variant 0:05:30.640 --> 0:05:33.280 is going to be another test if it doesn't work globally, 0:05:33.600 --> 0:05:35.400 of how well we can do the things that we've 0:05:35.400 --> 0:05:40.200 already learned can turn the tied on COVID nineteen cases. Well, 0:05:40.320 --> 0:05:42.760 Dr peck gosh. Less than twenty four hours ago before 0:05:42.920 --> 0:05:45.360 this news rocked the world, families were getting together all 0:05:45.400 --> 0:05:48.120 across the US for Thanksgiving dinner. Do you worry about 0:05:48.640 --> 0:05:54.200 a holiday surge akin to last year? Well, across the US, Actually, 0:05:54.480 --> 0:05:57.200 we're starting to see signals of a surge even before 0:05:57.560 --> 0:06:00.320 people traveled for Thanksgiving, and that's even be four. We 0:06:00.360 --> 0:06:03.080 have to worry about this five to nine variant. So 0:06:03.480 --> 0:06:05.720 the data from the U S alone is telling us 0:06:05.760 --> 0:06:08.479 that case numbers are going up, that going up in 0:06:08.720 --> 0:06:12.880 regionally very distinct manners. But in some places they are 0:06:13.400 --> 0:06:16.400 causing um significance train in our public health, on our 0:06:16.440 --> 0:06:22.000 hospital infrastructure already. So even without this variant being a 0:06:22.000 --> 0:06:26.120 concern for us, the US cases, we're not doing enough 0:06:26.160 --> 0:06:29.800 to really limit these cases. And I am concerned that 0:06:29.800 --> 0:06:31.960 we're going to see another surge of in this case 0:06:32.000 --> 0:06:35.200 delta here in the US after the Thanksgiving holidays. All right, 0:06:35.279 --> 0:06:38.080 Andrew Packash of Johns Hopkins, thank you so much for 0:06:38.200 --> 0:06:40.520 being with us, especially with the idea that you have 0:06:40.640 --> 0:06:43.280 rushed to the office to start doing some of these 0:06:43.360 --> 0:06:46.440 lab tests yourself in order to get ahead of this 0:06:46.520 --> 0:06:55.839 emergent virus. How much do travel curbs really change the 0:06:55.920 --> 0:06:59.400 backdrop the supply demand dynamic on ritacent founder and director 0:06:59.760 --> 0:07:02.400 of Research and Energy Aspects joining us now, I'm rida, 0:07:02.440 --> 0:07:04.920 Happy Thanksgiving. Thank you for being with us. What's your 0:07:04.920 --> 0:07:07.280 sense of how much of a game change the potential 0:07:07.520 --> 0:07:12.600 entrant of the South African variant could be? Well? Happy 0:07:12.600 --> 0:07:14.880 Thanksgiving to all of you. Um look, I think this 0:07:15.000 --> 0:07:17.960 is a huge overreaction in terms of the market. The 0:07:18.040 --> 0:07:22.040 market is fearing the worst the calculations we've done so far. 0:07:22.200 --> 0:07:24.720 With all the borders closed globally, we are talking about 0:07:24.840 --> 0:07:28.600 just fifteen one five thousand barrels per day of lost 0:07:28.680 --> 0:07:32.120 jet fueld demand. Um sure Europe could potentially kind of 0:07:32.160 --> 0:07:35.040 come up with a bigger kind of blanket ban uh 0:07:35.200 --> 0:07:37.760 for travel to South Africa. Even then, you are talking 0:07:37.800 --> 0:07:41.240 about a few like ten twenty thod barrels per day 0:07:41.280 --> 0:07:44.200 of jet fueld demand. The big roots the trans Atlantic 0:07:44.240 --> 0:07:47.080 that remains open, that's kind of the biggest driver for 0:07:47.200 --> 0:07:50.520 a lot of that jet travel, and Asia still reopening, 0:07:51.000 --> 0:07:54.560 um hasn't really kind of we haven't seen that startups, 0:07:54.600 --> 0:07:57.080 say between long haul flights between Asia and the pasts 0:07:57.120 --> 0:07:59.960 of the world, so that's not going to get severe 0:08:00.040 --> 0:08:02.200 affected to begin with. But look, this is the market 0:08:02.440 --> 0:08:05.360 pricing in the worst possible scenarios. Where should oil be 0:08:05.680 --> 0:08:08.040 if this is a blip, if this is something that 0:08:08.200 --> 0:08:14.400 is grasp a ball and conquered, conquerable. Excuse me, yeah, 0:08:14.400 --> 0:08:16.240 I mean, of course there are lots of fis. But 0:08:16.360 --> 0:08:19.040 like you said, if if it turns out that the 0:08:19.120 --> 0:08:22.600 vaccines are perfectly effective against this new variant, prices should 0:08:22.600 --> 0:08:25.280 be about eighty dollars um. You know, the SPR really 0:08:25.280 --> 0:08:27.680 showed us. We've we've had sixty five million barrels of 0:08:27.720 --> 0:08:31.600 global SPR release outside of China and prices rarely two dollars. 0:08:31.760 --> 0:08:35.520 Compared that to when we had Libyan outage sixty million 0:08:35.520 --> 0:08:38.240 barrels of SPR, when prices went down ten dollars. It 0:08:38.320 --> 0:08:40.960 tells you how strong the market is right now, how 0:08:41.080 --> 0:08:44.120 low stocks are. We've got the Open Plus meeting coming up. 0:08:44.480 --> 0:08:48.440 If this, if these concerns around demand persist um, it 0:08:48.600 --> 0:08:51.480 is likely that the group is going to consider pausing 0:08:51.520 --> 0:08:54.920 output increases anyway, so that roots of floor under prices. 0:08:54.960 --> 0:08:58.480 But fundamentally we should be above eighty dollars unless demand 0:08:58.520 --> 0:09:02.040 really takes a hit. So does this So so amry 0:09:02.080 --> 0:09:04.160 to just expanding on that. This is the market moves 0:09:04.160 --> 0:09:07.840 we're seeing here, and the risks to oil demand demonstrated 0:09:07.880 --> 0:09:11.320 by the by the threat at least of this virus variants. 0:09:11.360 --> 0:09:14.560 That plays into the opaque argument that there are risks 0:09:14.600 --> 0:09:20.520 of oversupply for parts of twenty two. Does it absolutely? 0:09:20.520 --> 0:09:23.040 And this is why your PEG plus have been cautious. 0:09:23.080 --> 0:09:26.120 This is why your PEC plus have been very clearly 0:09:26.480 --> 0:09:30.760 only increasing production by four hundred thousand barrels for their quarters, 0:09:30.760 --> 0:09:33.240 by four hundred thousand barrels per day, even though the 0:09:33.240 --> 0:09:35.760 White House and other consumers have been calling for a 0:09:35.800 --> 0:09:38.960 bigger increase in production. They've been talking about the winter, 0:09:39.000 --> 0:09:43.240 they've been talking about look there could be potential mobility restrictions, 0:09:43.720 --> 0:09:47.240 and their own numbers show really big stock bills. Now, 0:09:47.280 --> 0:09:50.480 of course, you've had the SPR release which balloons their 0:09:50.559 --> 0:09:54.440 Q one stock bills further to about three three million barrels. 0:09:54.440 --> 0:09:56.720 But now these are way higher than our numbers. But 0:09:56.920 --> 0:09:58.880 this is why all PEG plus have been cautious, and 0:09:58.880 --> 0:10:03.760 I think today's move justifies their actions so far and 0:10:03.840 --> 0:10:07.240 does call into question why the White House and other 0:10:07.280 --> 0:10:11.600 consumers released spr going into a season which is bound 0:10:11.679 --> 0:10:15.480 to have uncertainties around demand as we're thinking about things 0:10:15.480 --> 0:10:17.240 that could influence demand. I just want to draw your 0:10:17.280 --> 0:10:19.160 attention tow lines from at the e c B S 0:10:19.200 --> 0:10:22.360 Louis de Gwyndall saying deceleration sorry, saying that euros On 0:10:22.440 --> 0:10:24.760 economy has lost some dynamism in the fourth quarter and 0:10:24.840 --> 0:10:29.319 the deceleration is due to supply bottlenecks and energy costs. 0:10:29.360 --> 0:10:32.520 Is there any sense, then, emory to that there's demand 0:10:32.559 --> 0:10:35.320 destruction has been taking place at these levels above eighty 0:10:35.360 --> 0:10:39.920 dollars of arrel so I would say, particularly for Europe, 0:10:39.960 --> 0:10:42.760 it's been higher gas prices more than oil prices that 0:10:42.800 --> 0:10:45.760 have had a big impact on industry. You have seen 0:10:45.800 --> 0:10:48.439 industrial demand being cut back, so I think that's where 0:10:48.720 --> 0:10:52.800 some of the comments are coming from. For sure, Look, 0:10:53.040 --> 0:10:55.560 the biggest risk to next year is going to be 0:10:55.600 --> 0:10:59.240 around the supply chain issues and high energy prices. In 0:10:59.360 --> 0:11:02.400 terms of the downside risk, we still think in terms 0:11:02.480 --> 0:11:07.199 of GDP growth or economic growth slowing down. That's more story. 0:11:07.280 --> 0:11:09.439 But you can't ignore the fact that those are your 0:11:09.520 --> 0:11:13.720 kind of real bottlenecks going on right now. But regardless, 0:11:13.720 --> 0:11:16.120 there's so much bent up demand across the world. In 0:11:16.160 --> 0:11:18.680 Asia is just opening up, so there is a lot 0:11:18.720 --> 0:11:21.560 more upside to demand. As long as, again, this variant 0:11:21.600 --> 0:11:25.000 doesn't prove to be completely it just proves to be 0:11:25.040 --> 0:11:27.840 the fact that you can't use the existing vaccines against it, 0:11:27.880 --> 0:11:30.440 then that's a different story. But otherwise demand still has 0:11:30.480 --> 0:11:33.160 more upside. And Marina, something that's got lost amid all 0:11:33.200 --> 0:11:35.960 the talk of this variant and that spr released that 0:11:36.040 --> 0:11:38.600 was coordinated by many countries is the fact that they're 0:11:38.600 --> 0:11:41.720 still talking about an Iranian nuclear deal and actually Iran 0:11:41.840 --> 0:11:44.199 is attending a meeting in Vienna on Monday to talk 0:11:44.240 --> 0:11:46.040 about it. And we understand from a phone call they 0:11:46.040 --> 0:11:48.000 had with the EU earlier today that they say a 0:11:48.040 --> 0:11:51.600 quicker turn is possible if sanctions are lifted. If that happens, 0:11:51.640 --> 0:11:53.920 what is the impact of that arounding crewed coming back 0:11:53.960 --> 0:11:59.040 onto the market. Look, you if if it's a big 0:11:59.080 --> 0:12:01.439 if I'll come into that second, you're going to get 0:12:01.440 --> 0:12:04.040 a big pull back rightly. It's it could be ten 0:12:04.080 --> 0:12:08.120 even fifteen dollars lower. But I will really stress this, 0:12:08.240 --> 0:12:11.679 Iran has been dragging its feet for a very long time. 0:12:12.120 --> 0:12:13.839 This is no longer just about the j C p 0:12:13.960 --> 0:12:16.600 o A. We absolutely don't think you're going to get 0:12:16.640 --> 0:12:19.240 a quick resolution. It's going to probably drag on for months, 0:12:19.240 --> 0:12:22.480 and we don't think Iranian barrels come back to September 0:12:22.520 --> 0:12:26.720 two with with the whole process of sanctions lifting and um. 0:12:26.800 --> 0:12:28.040 And the reason I said it's going to be a 0:12:28.080 --> 0:12:30.720 big drop like ten fifteen dollars potentially is because Iran 0:12:30.800 --> 0:12:34.000 has about sixty seventy million barrels of oil just sitting 0:12:34.040 --> 0:12:36.440 there in tankers, and you know that can come out 0:12:36.480 --> 0:12:38.640 to the market very quickly. So I can see crude 0:12:38.679 --> 0:12:40.480 in the sixties. But of course they no PEC plus 0:12:40.520 --> 0:12:43.760 will act as well I would expect them to. But 0:12:43.760 --> 0:12:46.520 but equally, you know this isn't an Irun that's ready 0:12:46.559 --> 0:12:48.840 to do a deal overnight. Yes, there will be a 0:12:48.880 --> 0:12:51.600 lot of headlines going into r and around this, but 0:12:51.960 --> 0:12:55.280 the demands that they have are very, very difficult for 0:12:55.360 --> 0:12:58.000 Europe or particularly the US to meet. Yeah, I read 0:12:58.080 --> 0:13:00.400 that's funny that you said that, because my next question 0:13:00.440 --> 0:13:02.480 was going to be, doesn't even matter if OPEC plus 0:13:02.480 --> 0:13:04.760 can just come in and counteract That is that just 0:13:04.840 --> 0:13:07.120 going to be permanently true in the oil market, that 0:13:07.200 --> 0:13:09.880 the only actual factor that matters is the policy of 0:13:09.880 --> 0:13:14.640 OPEC plus. Well, the irony that it's great you're asking 0:13:14.679 --> 0:13:17.440 you the question because you know so many people analysts 0:13:17.480 --> 0:13:19.559 have kind of ruled or they've just said OPEC plus 0:13:19.559 --> 0:13:22.760 don't matter anymore, and um, they've kind of ruled out 0:13:22.760 --> 0:13:25.800 their importance in the market. But I think you're exactly 0:13:25.920 --> 0:13:30.079 right OPEC plus and particularly the alliance between South Arabian Russia. Uh, 0:13:30.200 --> 0:13:34.080 it's it's shown how they have stabilized the market, and 0:13:34.120 --> 0:13:36.600 I think that alliance is going to continue. Of course, 0:13:36.600 --> 0:13:38.520 the current deal only goes on till the end of 0:13:38.840 --> 0:13:41.920 the next year, but there will be cooperation and some 0:13:42.000 --> 0:13:46.000 form of market management, depending of course, on the situation. 0:13:46.160 --> 0:13:49.199 I think the market continues to tighten from here into 0:13:49.240 --> 0:13:52.800 twenty three. They will continue to bring back production and 0:13:52.880 --> 0:13:54.440 the market is going to need it. We just don't 0:13:54.480 --> 0:13:58.200 have production anywhere else. But there will be cooperation between 0:13:58.200 --> 0:14:01.640 this these countries for the foreseeable future. Yes, we're speaking 0:14:01.679 --> 0:14:04.520 with the rediscent of energy aspects. You said at the 0:14:04.559 --> 0:14:06.800 outside of the conversation that you think that this is 0:14:06.840 --> 0:14:10.440 a huge overreaction to what we heard out of South Africa. 0:14:10.880 --> 0:14:14.160 How much of a buying opportunity is this, especially considering 0:14:14.200 --> 0:14:17.160 the fact that people do shift their minds are knee 0:14:17.200 --> 0:14:20.880 jerk reactions and policymakers in Europe, in the United States, 0:14:20.880 --> 0:14:25.720 in Asia want to see the price go lower. Yeah, 0:14:25.720 --> 0:14:27.680 I mean this is this is great, right. I think 0:14:27.800 --> 0:14:30.240 from the policy maker's point of view, this is this 0:14:30.280 --> 0:14:32.840 is what they'd hoped for after the spr but they 0:14:32.880 --> 0:14:35.800 got it because of the variant, so ultimately they still 0:14:35.800 --> 0:14:38.520 got what they wanted. But I think the very fact 0:14:38.600 --> 0:14:42.160 that is Thanksgiving and liquidity is law is exacerbating the 0:14:42.200 --> 0:14:45.800 price move. I think in a normal trading environment we 0:14:45.840 --> 0:14:48.080 probably wouldn't have gone down as much because there would 0:14:48.080 --> 0:14:51.200 be some buias here. Right now, it's the fear that's 0:14:51.280 --> 0:14:54.120 driving prices, and I wouldn't necessarily get in the way, right, 0:14:54.120 --> 0:14:57.360 It's like catching a falling knife. Um. But I think 0:14:57.440 --> 0:14:59.920 once we get a bit more clarity around this, variant 0:15:00.240 --> 0:15:02.920 and it's not just mere speculation. I think that's when 0:15:02.960 --> 0:15:05.640 it becomes a buying opportunity, But that could very well 0:15:05.720 --> 0:15:08.360 be that that's early next week or maybe even mid 0:15:08.440 --> 0:15:11.440 next week, because you do need that clarity first. Emucent 0:15:11.680 --> 0:15:20.320 of energy aspects, thank you so much. Yea. So, how 0:15:20.400 --> 0:15:22.160 much of what we're seeing right now is true risk 0:15:22.200 --> 0:15:25.480 off and is a reassessment of the global growth picture? 0:15:25.480 --> 0:15:28.760 And how much is thin liquidity with everybody still in 0:15:28.960 --> 0:15:32.320 their Thanksgiving commas. David Riley joining US blue Way Asset Management, 0:15:32.520 --> 0:15:35.200 chief investment strategist. I do wonder, David, what you make 0:15:35.400 --> 0:15:38.360 of today's move. Well, I think the move is reflecting 0:15:38.520 --> 0:15:41.960 the we viewed the pandemic, The market viewed the pandemic 0:15:42.680 --> 0:15:46.760 and COVID essentially in the rearview mirror, and I think 0:15:46.880 --> 0:15:51.160 what you know, this unwelcome news has done. It's kind 0:15:51.160 --> 0:15:54.800 of challenged that assumption. I mean, the assumption was that 0:15:55.000 --> 0:15:58.720 we'd go from a pandemic to endemic where we kind 0:15:58.720 --> 0:16:01.040 of learned to live with co of it. The macro 0:16:01.400 --> 0:16:05.280 and market impact is pretty limited and diminishing over time, 0:16:05.520 --> 0:16:08.920 and something we get this news, which maybe it's a 0:16:09.040 --> 0:16:15.600 much more infectious varying maybe heaven forbid, Um it is uh, 0:16:15.800 --> 0:16:18.680 you know, less effectively dealt with in terms of vaccines, 0:16:18.720 --> 0:16:21.200 and that would you know that clearly increases the kind 0:16:21.200 --> 0:16:24.680 of left tail risk of a much bigger sort of 0:16:25.080 --> 0:16:28.680 impact on global growth and macro. But the reality is 0:16:28.680 --> 0:16:30.480 is that we actually don't know. And I think the market, 0:16:30.760 --> 0:16:35.040 because of the low liquidity and we're coming into year end, um, 0:16:35.080 --> 0:16:38.480 it's kind of you know, reacting as if, um, you 0:16:38.520 --> 0:16:41.800 know this, this is an arguably greater risk and we 0:16:41.960 --> 0:16:43.960 can really kind of price at this point in time 0:16:44.000 --> 0:16:48.000 because we simply don't know. David, the movement bonds really 0:16:48.040 --> 0:16:51.120 gets my attention. Bonds should not be this volatile, especially 0:16:51.160 --> 0:16:54.200 with the Fed still putting their thumb on the scales here. 0:16:54.240 --> 0:16:57.160 But we see actually the implied volatility and treasury yield 0:16:57.200 --> 0:16:59.800 surging to the most it's March, and that was of 0:17:00.080 --> 0:17:01.800 us when everything was falling out of bed. We have 0:17:01.880 --> 0:17:05.119 seen the idea of a complete retracement of rate hikes 0:17:05.200 --> 0:17:10.160 next year. Does this make sense to you? Well, I mean, 0:17:10.200 --> 0:17:12.320 I think the reality is is that we've seen a 0:17:12.320 --> 0:17:15.320 lot of volatility now for some time, particularly in short 0:17:15.400 --> 0:17:18.879 term interest rate UH markets and and that's because we 0:17:18.920 --> 0:17:21.719 are an inflection point in terms of global monetary policy 0:17:21.720 --> 0:17:23.880 and most importantly in terms of the FED. I mean 0:17:24.000 --> 0:17:26.720 it's you know, you write, Lisa, the moves today are 0:17:26.920 --> 0:17:31.679 very large, and yesterday the market was effectively pricing I 0:17:31.720 --> 0:17:34.480 think something like a sixty chance that the FED was 0:17:34.520 --> 0:17:37.679 going to announce an acceleration of its tapering of on 0:17:37.840 --> 0:17:42.160 purchases at the meeting in December and then actually start 0:17:42.240 --> 0:17:45.640 hiking rates quite you know, probably in in in mayo 0:17:45.800 --> 0:17:49.560 June with free rate hikes in the course of two 0:17:49.680 --> 0:17:52.879 the you know, today's action is kind of taking at 0:17:52.960 --> 0:17:55.119 least one of those hikes out. And I think this 0:17:55.160 --> 0:17:56.840 is one of the dilemmas that now that the FED 0:17:57.000 --> 0:18:00.280 is facing, because it's allowed itself to get behind the 0:18:00.320 --> 0:18:03.000 inflation curve, is caught between a rock and a hard place. 0:18:03.400 --> 0:18:06.359 You know, it needs to start tightening policy given where 0:18:06.640 --> 0:18:10.680 inflation is and and those inflation pressures that are boardening now. 0:18:10.840 --> 0:18:13.199 And I think actually bred the speaking the outlem, the 0:18:13.200 --> 0:18:17.320 global the U S economy is pretty pretty strong. But now, 0:18:17.520 --> 0:18:21.720 you know, has this added potential uncertainty as to what's 0:18:21.760 --> 0:18:25.199 going to happen with the COVID and the pandemic and 0:18:25.200 --> 0:18:29.359 one of the global implications of that as well. And 0:18:29.400 --> 0:18:31.359 let me ask you about an extended excension of that 0:18:31.400 --> 0:18:33.920 topic then, David, and that is the banking sector. We're seeing. 0:18:33.960 --> 0:18:35.960 That's one of the big sectors that's being hit really 0:18:36.000 --> 0:18:38.160 hard here in Europe, and it looks as if US 0:18:38.200 --> 0:18:40.560 banks will also be will also be hit by the 0:18:40.600 --> 0:18:42.840 same thing. And this is to do with that. If 0:18:42.880 --> 0:18:44.560 there's going to be a flatter yield curve and that 0:18:44.600 --> 0:18:46.399 takes us back some months, then in terms of our 0:18:46.440 --> 0:18:48.879 thinking on rate hikes and and that leaves banks in 0:18:48.880 --> 0:18:51.119 a in a stickier situation. Does that make sense to you? 0:18:51.200 --> 0:18:52.960 Do you see some of the selling in in that 0:18:53.040 --> 0:18:57.040 sector as being overdone because there's also concern around what 0:18:57.280 --> 0:19:01.320 for what further variants could do to it. Coconomies in Europe, 0:19:01.320 --> 0:19:03.399 I suppose, But is it really about the Yielker that's 0:19:03.440 --> 0:19:06.680 what's weighing on banks? Well, I think it's a combination 0:19:06.720 --> 0:19:09.960 of the term and I think, you know, if if 0:19:10.040 --> 0:19:15.240 you have concerns around UM a COVID coming back to 0:19:15.320 --> 0:19:17.960 the forefront, if you if you like, rather than being 0:19:18.040 --> 0:19:22.480 in the background UM, then you know, banks are you know, 0:19:22.560 --> 0:19:25.120 a cyclical asset and they're going to get take a hit, 0:19:25.280 --> 0:19:28.200 just as we're seeing some of you know, oil going 0:19:28.400 --> 0:19:32.280 going much lower, um you know, more other sort of 0:19:32.320 --> 0:19:36.240 cyclical assets moving lower. This move to sort of safe havens, 0:19:36.280 --> 0:19:38.200 you know, the preference for sort of you know, stay 0:19:38.280 --> 0:19:41.480 at home stocks, you know, versus the sort of reopening 0:19:42.160 --> 0:19:45.640 um trade. So I think it's kind of consistent with 0:19:45.720 --> 0:19:49.760 what else we're seeing happen in the market. But actually 0:19:50.359 --> 0:19:52.480 I do think it is we've done in the sense 0:19:52.520 --> 0:19:54.760 that you know, we've gone for a very severe stress 0:19:54.800 --> 0:19:58.199 test with the financial sector and with banks in particular, 0:19:58.320 --> 0:20:00.560 as a result of the you know, worse of the 0:20:00.560 --> 0:20:03.240 pandemic in the course or you know earlier this year 0:20:03.280 --> 0:20:06.680 and last year, and they've actually come out actually and 0:20:06.800 --> 0:20:10.560 the guy actually you know, stronger capital buffers, stronger liquidity buffers. 0:20:10.560 --> 0:20:12.720 So this is where I think, as as investors you 0:20:12.760 --> 0:20:15.520 need to you know, stay calm. I wouldn't be doing 0:20:15.560 --> 0:20:18.479 too much in these kind of markets with this kind 0:20:18.520 --> 0:20:21.680 of bit offer spreads. But where you have call convictions, 0:20:21.680 --> 0:20:24.840 and I do actually have a core conviction around banks 0:20:24.920 --> 0:20:27.439 up there, then actually if we see much more of 0:20:27.720 --> 0:20:29.880 a sell off, then I think that's an opportunity if 0:20:29.880 --> 0:20:32.439 you've got some dry powder to actually add to your 0:20:32.480 --> 0:20:35.639 risk position. David, you said investors need to stay calm, 0:20:35.680 --> 0:20:37.280 and a lot of times to stay calm, you need 0:20:37.320 --> 0:20:39.720 to know that you're at least somewhat protected. What do 0:20:39.800 --> 0:20:42.080 you tell investors serves as the best hedge in this 0:20:42.160 --> 0:20:46.720 kind of environment. Well, I think it's it's it's difficult 0:20:46.760 --> 0:20:52.440 to hedge your portfolio against um, you know, a tail risk, 0:20:52.560 --> 0:20:56.000 which would be a very bad um uh, you know, 0:20:56.160 --> 0:20:59.119 very bad outcome. So you know what you have to do. 0:20:59.200 --> 0:21:02.160 I think with the portfolio is that you say, look, 0:21:02.320 --> 0:21:05.520 you know, I'm sticking with my core convictions. If I 0:21:05.560 --> 0:21:09.200 think there's opportunities and the market has over shot, then 0:21:09.200 --> 0:21:11.919 I looked to add to that, but also be disciplined 0:21:12.000 --> 0:21:14.440 in where you have kind of you know, low conviction 0:21:14.520 --> 0:21:18.159 trades that within your portfolio you take the opportunity to 0:21:18.200 --> 0:21:21.280