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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. So here's the lass

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Speaker 2: this morning. A key week ahead for the Federal Reserve.

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Speaker 2: President Trump said to announce his pick for the Central

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Speaker 2: Bank's next chair as policymakers gear up for the first

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Speaker 2: rate decision of twenty twenty six. Michael dadav Roth Capital, writing,

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Speaker 2: the incoming chair of the FED will then inherit an

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Speaker 2: increasingly divided and defiant FORMC Michael joins us Now from

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Speaker 2: one Mike, welcome to the show. It's going to see it.

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Speaker 2: Let's talk about why you believe this Fed will be

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Speaker 2: such an unruly Federal Reserve For the next vent chair,

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Speaker 2: does the market price the volatility within the Federal Reserve,

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Speaker 2: or does the market price the outcome of that volatility,

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Speaker 2: which means it's difficult to reduce interest rights.

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Speaker 3: Yeah. I mean, look, the market still gives the Fed

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Speaker 3: a lot of credibility and is not looking for a

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Speaker 3: huge political disruption. So you know, I think we're playing

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Speaker 3: with fire here going down this path with a lot

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Speaker 3: of political pressure on the Federal Reserve. So we'll see

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Speaker 3: what happens. I mean, at least there's some pushback. Senator

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Speaker 3: Tillis is basically defended Poul saying forget any new appointees

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Speaker 3: to the FOMC until this is resolved. And you know,

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Speaker 3: you have a divided FED and this is a Federal

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Speaker 3: Reserve that makes decisions based on a consensus. So you

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Speaker 3: don't just pick one member to lead the FED and

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Speaker 3: then assume that rates are going to go to one

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Speaker 3: because you know, you assume that's a good idea. So,

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Speaker 3: you know, we'll see how all of this plays out.

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Speaker 3: But I think the administration's really overplay their hand here.

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Speaker 4: I'm glad you mentioned Centator Tom Tillis. He spoke with

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Speaker 4: Jonathan Lisa myself in Davos, and he talked about the

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Speaker 4: fact that he is not going to let a candidate

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Speaker 4: go through until this is resolved in terms of the

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Speaker 4: DOJ probe on j Powell or the more than three

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Speaker 4: hundred and forty days he has left until his retirement.

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Speaker 4: Do you think the market is pricing in the fact

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Speaker 4: that we can have J. Powell be the FED chair

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Speaker 4: for I don't know, another three hundred days.

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Speaker 3: Well, I mean, look, his board seat doesn't expire until

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Speaker 3: twenty twenty eight, So if FED Chair Paul is really

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Speaker 3: worried about political influence on the FED, he could stay

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Speaker 3: on as a voter and deny the administration that board seat.

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Speaker 3: So you know, they would have to use the expiring

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Speaker 3: term of Governor Marin for the next FED chair. And then,

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Speaker 3: as I said in the quote, you've got a pretty

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Speaker 3: divided and defiant FMC. So that's just kind of a mess.

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Speaker 3: But it also prevents, you know, dramatic political manipulation of

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Speaker 3: the FED and pushing the FED down path where it's

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Speaker 3: doing things it shouldn't be doing. You know, running it

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Speaker 3: hot might sound very good in the short term, but

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Speaker 3: let's not forget how the tenure went from fifty basis

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Speaker 3: points to five percent. It had occurred on the back

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Speaker 3: of an inflationary policy here by the Federal Reserve. So

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Speaker 3: I don't think we want to repeat that exercise much.

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Speaker 2: You believe there is upsound inflation risk this year and

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Speaker 2: what's the source of that?

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Speaker 5: No, not really.

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Speaker 3: I mean I think that the fall ped Powell Fed

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Speaker 3: has done a phenomenal job here in terms of the

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Speaker 3: previous tightening and then easing by just about the right amount.

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Speaker 3: The nomenal economy has been super steady, inflation expectations are anchored,

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Speaker 3: so I think that they've presided over just almost a

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Speaker 3: perfect immaculate disinflation and I think that continues this year.

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Speaker 3: But we're playing with fire in terms of what the

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Speaker 3: administration is doing, and they should really reverse course, in

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Speaker 3: my opinion.

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Speaker 2: Stay with us. MULPLEINPEG surveillance coming up off to this,

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Speaker 2: Let's turn to the airlines, the storm leading to the

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Speaker 2: most flying cancelation since the COVID nineteen pandemic. Sami saith

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Speaker 2: of Rama James joins us now for more. Savvey. Welcome

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Speaker 2: to the program. As you look across the airlines, the

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Speaker 2: airports across this country in the last twenty four as

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Speaker 2: who was hot as hit?

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Speaker 5: Hey, good morning, you know it's fairly broad based.

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Speaker 6: Obviously to begin with, you saw American getting hit just

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Speaker 6: given what happened in Dallas, but all the airlines are

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Speaker 6: having significant cancelations.

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Speaker 5: What I would kind of remind is the nice.

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Speaker 6: Thing of a winter storm, as much as there could

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Speaker 6: be something nice about it, is that you do see

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Speaker 6: it coming, unlike summer storms. And so I would chalk

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Speaker 6: up a lot of Sunday's cancelations, which are significant for airlines,

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Speaker 6: making sure that the aircraft and crew are in place

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Speaker 6: so that once the storm passes they can get back

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Speaker 6: to flying relatively quickly. And now there are high level

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Speaker 6: of cancelations today, but nowhere near as many as there

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Speaker 6: were on Sunday. So you know, as long as folks

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Speaker 6: can kind of get out of the houses and get

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Speaker 6: to the airports, we expect, you know, the operations to

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Speaker 6: start resuming, because airlines had some early warning and rebele

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Speaker 6: to prepare ahead of time.

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Speaker 4: Well thirty six hundred in counting for today, savvy when

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Speaker 4: it comes to the cancelation. So when do you think

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Speaker 4: we truly will be back to quote unquote normal.

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Speaker 6: Yeah, you know what we're seeing today is it a

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Speaker 6: little bit similar to what you saw on Saturday, so elevated.

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Speaker 5: We'll see.

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Speaker 6: It really depends on, you know, how the kind of

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Speaker 6: the winter progresses and getting crews to the airports. But

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Speaker 6: I suspect by midweek we'll be back to normal, if

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Speaker 6: not already by tomorrow.

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Speaker 4: Savvy. I don't want to make this worse for the airlines,

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Speaker 4: but it potentially it could be a perfect storm this weekend.

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Speaker 4: What happens if the US government does shut down, we'll

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Speaker 4: have to see.

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Speaker 5: You saw what happened last time.

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Speaker 6: What I would say from the lessons learned last time

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Speaker 6: is that demand didn't have an impact.

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Speaker 5: The impact really.

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Speaker 6: Came once you got to the end and the FAA

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Speaker 6: kind of required cancelations. I think that's when you really

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Speaker 6: started to see demand being impacted, and.

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Speaker 5: Maybe even a little bit before that.

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Speaker 6: Once the shutdown was about a month in, I think

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Speaker 6: you started to see.

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Speaker 5: A little bit of impact.

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Speaker 6: But at least early days, there isn't much of an impact.

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Speaker 6: You do have TSA agents and FA workers, you know,

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Speaker 6: really showing up even though you know they might miss a.

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Speaker 5: Check in a week or two. So hopefully we don't

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Speaker 5: get a shutdown. Hopefully it doesn't.

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Speaker 6: If we do get one, it doesn't last as long

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Speaker 6: as it did last time and doesn't come to the

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Speaker 6: brickmanship that it came to last time.

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Speaker 2: Let's finish on an airline that's really shown up, not

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Speaker 2: in the last twenty four hours, but in the last

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Speaker 2: twelve months. This from the Wall Street Journal Airline of

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Speaker 2: the Year Southwest Sathie, What is Southwest doing right?

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Speaker 1: Yeah?

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Speaker 6: I mean I think they learned their lesson after the

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Speaker 6: winter storm of in December twenty twenty four and really

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Speaker 6: or twenty three and really kind of improved and invested

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Speaker 6: in the operation. They probably also benefit a little bit

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Speaker 6: from being in the right geographies, but more so it

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Speaker 6: is what Southwest has done to really focus on managing

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Speaker 6: the operation. And I would kind of point out that

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Speaker 6: they did this, you know, had this performance at a

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Speaker 6: time that the airline was going through a significant change

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Speaker 6: in their product, offering and strategy. So definitely a commendable

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Speaker 6: result there.

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Speaker 2: The performance gap in the stock market between the Southwestern

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Speaker 2: American airlines couldn't be wider. I mean, Southwest was out

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Speaker 2: by more than twenty percent last year and American Airlines

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Speaker 2: was down by more than ten savvy what is American

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Speaker 2: Allies getting wrong? And incidentally by the way they are

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Speaker 2: joined last in this survey, this Wall Street Journal Airline

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Speaker 2: Award of the last Year or so, they came joint last.

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Speaker 2: What does American Airlines doing wrong?

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Speaker 6: I mean, I think American also had the unfortunate incidents

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Speaker 6: that hampered them early on last year, so that I

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Speaker 6: had a hit on American. But I think you are

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Speaker 6: seeing them making some changes this year. You've you know,

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Speaker 6: they announced it in December about kind of adding a

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Speaker 6: little bit more you know, schedule cushions so that they

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Speaker 6: can make connections.

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Speaker 5: They are trying to do that.

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Speaker 6: But yes, definitely on the operation side, both kind of

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Speaker 6: internally what they could control and then externally what they

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Speaker 6: couldn't control really hurt them last year in terms of

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Speaker 6: kind of stock performance.

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Speaker 5: I think again Southwest has.

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Speaker 6: Come up with a very credible plan on turning around

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Speaker 6: their earnings and you're starting to get early signs that

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Speaker 6: maybe they can execute to that. Still a lot of

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Speaker 6: you know, skepticism in the market, but I think American

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Speaker 6: really needs to come up to come up and show

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Speaker 6: that they can do something.

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Speaker 5: Similar this year as well.

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Speaker 6: There are kind of early signs that they're trying to

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Speaker 6: do that, but they really have to kind of put

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Speaker 6: up the numbers.

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Speaker 1: They've really got to step up.

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Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.

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Speaker 2: Let's sends to commodities, gold smashing past five k for

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Speaker 2: the first time ever as traiders pile into the debasement trade.

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Speaker 2: Amy Gowett, Lead Medals Commodity Strategistic moregan standing, writing, we

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Speaker 2: don't think prices of peat with geopolitical risk positive signals

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Speaker 2: from Central Banks and ETF bang we highlight our ball

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Speaker 2: case fifty seven hundred for the second half. Amy joins

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Speaker 2: us now for more. Amy, good morning. Just to clarify

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Speaker 2: us that the second half of this week or the

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Speaker 2: second half of this.

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Speaker 1: Year, it's the second half of this year.

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Speaker 2: Amy, let's get into that call. We have moved so

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Speaker 2: so quickly on the precious metal. Have we've got a

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Speaker 2: new driver here given developments over the last week.

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Speaker 1: Yeah. Look, I think there's multiple drivers working together, So

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Speaker 1: of course we should mention geopolitical risk and all of

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Speaker 1: the uncertainty that we have at the moment. I think

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Speaker 1: that is driving investors towards precious metals in particular, and

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Speaker 1: especially given prices that they're performing so well. I think

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Speaker 1: that is providing additional price momentum. We've also got a

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Speaker 1: bit of dollar weakness few days, and that is always

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Speaker 1: a tailwind for commodities, making them cheaper for non dollar holders.

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Speaker 1: And then I think, while we're still in this, when

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Speaker 1: will the FED cut rather than if the Fed will cut?

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Speaker 1: That's also a broader tailwind. But the key thing I

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Speaker 1: think also has changed that's worth flagging is around central

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Speaker 1: bank behavior. So we always thought of central banks thinking

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Speaker 1: about gold as a percentage share of their reserves, and

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Speaker 1: of course that means as gold prices rise, you would

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Speaker 1: think that they would slow the pace of buying because

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Speaker 1: the price is kind of doing the work for them.

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Speaker 1: But we had something really interesting from Central Bank of

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Speaker 1: Poland about a week ago saying they're now targeting seven

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Speaker 1: hundred tons of gold to an absolute tannage amount of gold,

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Speaker 1: which would imply about one hundred and fifty tons of buying.

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Speaker 1: So for context, Poland was the largest buyer already last year,

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Speaker 1: this would be about another fifty percent buying on top.

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Speaker 1: So if central banks are just thinking about having gold

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Speaker 1: regardless of the price, then that could also keep that

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Speaker 1: kind of structural buying at a higher level than we

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Speaker 1: were previously expecting amy.

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Speaker 4: I understand countries like Russia and China their face sanctioned threats,

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Speaker 4: wanting to make sure that they have this historical level

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Speaker 4: of gold bying. Why a central bank like Poland.

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Speaker 1: I think it's part of sort of where do you

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Speaker 1: put your reserves? And we've seen you've got the dollar

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Speaker 1: sort of seeing a slightly declining share across the world,

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Speaker 1: but it's not really clear what the other currencies are

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Speaker 1: that can really compete against the dollars. So I think

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Speaker 1: when it comes to central banks looking at their options,

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Speaker 1: gold is there. It's sort of something that should hold

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Speaker 1: its value over time, which I guess for a central bank,

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Speaker 1: their key role is to sort of protect the value

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Speaker 1: of their reserves. So if you are worried about currencies

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Speaker 1: in general losing value, gold is your sort of your

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Speaker 1: natural hedge there. And then I think Poland did site

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Speaker 1: specifically all of this geopolitical uncertainty as well, but we'd

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Speaker 1: also highlight say we saw Brazil, for example, coming in

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Speaker 1: in September for the first time in about four years,

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Speaker 1: so it's pretty wide spread. Now this buying.

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Speaker 4: There seems to be so many reasons why gold is

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Speaker 4: just smashing it This morning, can you give us what

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Speaker 4: you think potentially is the number one driver?

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Speaker 1: Yeah, Look, I think the price momentum is very important here,

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Speaker 1: and I think given all of this geopolitical uncertainty, I

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Speaker 1: say probably that is the number one driver in terms

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Speaker 1: of the last week of price action. But I do

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Speaker 1: think all of these other factors have set the scene

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Speaker 1: for us to be here well.

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Speaker 2: And we speaking of momentum, let's talk about a different

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Speaker 2: precious metal. Let's talk about silver. Got a five percent

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Speaker 2: move on my screen on the Bloomberg terminal so far

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Speaker 2: this morning. Can you just give us an idea of

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Speaker 2: how big that market is and how easy it is

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Speaker 2: to push around on any given day.

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Speaker 5: Yeah.

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Speaker 1: So silver is much much smaller than gold in terms

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Speaker 1: of its kind of global traded volume, in terms of

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Speaker 1: the market size on the screen and what you can

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Speaker 1: move financially, it is a bigger market in terms of

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Speaker 1: absolute tonnished just because it's a lower value in terms

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Speaker 1: of sort of annual production. But I think for what

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Speaker 1: we're seeing on silver is slightly different to gold in

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Speaker 1: that it's partly an industrial metal and partly a precious metal,

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Speaker 1: and so you do have real users who need to

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Speaker 1: buy silver arguably nobody needs to buy gold on any

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Speaker 1: given day, but if you have a factory that is

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Speaker 1: dependent on silver to make solar panels or electronics, so

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Speaker 1: there's a buyer out there that physically needs this metal.

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Speaker 1: And so that has been a big driver over the

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Speaker 1: last four or five years, pushing that silver market tighter

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Speaker 1: and tighter into deficits. And then you've also got this

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Speaker 1: precious metals angle of safe haven buying, and we're seeing

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Speaker 1: that really accelerated last year and continues to this year.

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Speaker 1: So when these two come together, when money flows into

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Speaker 1: a silver ETF, they need to find some physical metal

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Speaker 1: to underpin that, but that's largely been eaten up already

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Speaker 1: by all of this industrial demand we've had, so that

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Speaker 1: metal is just not there, and we're seeing this particularly

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Speaker 1: in China at the moment. So China is trading at

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Speaker 1: about a fifteen percent premium even to what we're seeing

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Speaker 1: in London and in New York. And that's physical demand

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Speaker 1: where that the metal is just not available. If we

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Speaker 1: go to London vaults, that there is silver in there,

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Speaker 1: but it's all kind of owned by these ETFs. It's

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Speaker 1: not really freely available to the market. And I think

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Speaker 1: that's why we're getting this squeeze.

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