WEBVTT - Daybreak Weekend: Inflation Data Preview; Earnings Continue 0:00:00.200 --> 0:00:07.320 Bloomberg Audio Studios, Podcasts, radio News. 0:00:09.800 --> 0:00:12.319 This is Bloomberg day Break Weekend, our global look at 0:00:12.320 --> 0:00:14.800 the top stories the coming week from our Daybreak anchors 0:00:14.800 --> 0:00:17.480 all around the world, and straight ahead on the program, 0:00:17.760 --> 0:00:21.959 what's expected to be the latest confirmation of easing inflation, 0:00:22.160 --> 0:00:24.960 what it means for the Fed and for investors, Plus 0:00:25.079 --> 0:00:26.840 earnings from Coca Cola this week. 0:00:26.960 --> 0:00:28.520 I'm Tom Busby in New York. 0:00:28.760 --> 0:00:31.000 I'm Stephen, Carol and Lundon for We're looking ahead to 0:00:31.040 --> 0:00:34.960 the major international gathering of defense officials at the Munich 0:00:35.000 --> 0:00:36.080 Security Conference. 0:00:36.320 --> 0:00:38.800 I'm Brian Curtis in Hong Kong. We look ahead to 0:00:38.920 --> 0:00:41.640 a lot of economic data coming in Japan and what 0:00:41.680 --> 0:00:43.360 it means for the boj. 0:00:45.280 --> 0:00:49.360 That's all straight ahead on Bloomberg Daybreak Weekend, The business 0:00:49.400 --> 0:00:53.360 news you need to wrap up your week. Available on Apple, Spotify, 0:00:53.520 --> 0:00:56.840 the Bloomberg Business Appen everywhere you get your podcasts. 0:01:01.280 --> 0:01:02.880 Well, good day to you. I'm Tom Busby. 0:01:02.960 --> 0:01:07.760 We begin today's program with expectations that inflation continues to ease. 0:01:07.920 --> 0:01:11.080 That's ahead of the Consumer Price INDEXPERT January coming out 0:01:11.120 --> 0:01:15.360 this Tuesday, just ahead of Valentine's Day, and to talk. 0:01:15.240 --> 0:01:17.520 About whether Wall Street is gonna love what it hears. 0:01:17.560 --> 0:01:21.839 We welcome Bloomberg's International Economic and policy correspondent Michael McKee. 0:01:22.440 --> 0:01:24.440 Michael, what do we expect. 0:01:24.440 --> 0:01:29.480 Hearts and flowers for Valentine's Day? CBI is expected to 0:01:29.520 --> 0:01:33.880 continue the trend that we have seen of gradually slowing 0:01:34.319 --> 0:01:38.120 inflation rates. The month of a month number expected to 0:01:38.120 --> 0:01:42.119 go down from three tenths in December, which had been 0:01:42.160 --> 0:01:45.320 revised now down to two tenths and then stay at 0:01:45.360 --> 0:01:48.840 two tenths for the month of January, and that'll push 0:01:48.920 --> 0:01:51.520 the year over year number down to two point nine 0:01:51.560 --> 0:01:54.040 percent from three point four percent. Of course, that's the 0:01:54.520 --> 0:01:58.560 headline because that's pushed around by energy and food. Of 0:01:58.600 --> 0:02:00.720 course that we like to look at the core, and 0:02:00.800 --> 0:02:04.320 the core is expected to be up three tenths, which 0:02:04.360 --> 0:02:08.000 is basically where we were last month, but because the 0:02:08.080 --> 0:02:11.720 base effects higher inflation in January last year, the corps 0:02:11.720 --> 0:02:14.040 will fall to three point seven percent from three point 0:02:14.120 --> 0:02:18.079 nine percent. Now, those are forecasts, but economists have generally 0:02:18.120 --> 0:02:21.239 been pretty accurate in forecasting the CPI. 0:02:22.200 --> 0:02:25.080 Now let's go back to core consumer prices, because we 0:02:25.120 --> 0:02:28.360 got a reading last week or confirmation last week three 0:02:28.440 --> 0:02:31.040 point three percent in Q four of last year. That's 0:02:31.120 --> 0:02:34.440 year over year, and that matches an earlier reading. Good 0:02:34.480 --> 0:02:36.400 news though for the Fed, right, I mean, this is 0:02:36.400 --> 0:02:37.520 what they were hoping to see. 0:02:37.720 --> 0:02:39.400 It's what they were hoping to see, because it's not 0:02:39.440 --> 0:02:44.200 what they saw in twenty twenty two. The BLS every 0:02:44.280 --> 0:02:50.280 year readjusts its seasonal adjustment factors and revises them, and 0:02:50.440 --> 0:02:53.160 last year when they did that, it pushed inflation at 0:02:53.200 --> 0:02:55.800 the end of twenty twenty two up and made it 0:02:55.880 --> 0:02:58.320 look like a lot of progress that had been made 0:02:59.080 --> 0:03:01.760 was wiped out. So there was some focus on the 0:03:01.840 --> 0:03:05.080 revisions this year, worried that we might see something similar, 0:03:05.120 --> 0:03:07.840 but we did not. There was virtually no change in 0:03:07.880 --> 0:03:10.960 the seeds of adjustment factors, so we end up with, 0:03:11.080 --> 0:03:14.160 as you say, three point three percent as the three 0:03:14.200 --> 0:03:16.880 month annualized number for the end of the year and 0:03:17.120 --> 0:03:20.840 no change there. So in that case, we saw a 0:03:20.880 --> 0:03:24.760 positive market reaction because no news was good news. 0:03:25.120 --> 0:03:28.480 Yeah, we've seen a number of all time highs for 0:03:28.520 --> 0:03:31.480 the S and P five hundred, the Dow, not so 0:03:31.560 --> 0:03:35.320 much the Nasdaq yet, but things are definitely looking ahead. 0:03:36.120 --> 0:03:38.240 And for the Fed, I mean, all signs point to 0:03:38.640 --> 0:03:42.240 the kiwi they've been doing the raid hike schemes. We've 0:03:42.240 --> 0:03:47.880 avoided a recession, Inflation slowly but surely declining, the labor market, robust, 0:03:47.960 --> 0:03:51.160 consumer confidence is up. There are challenges, though. 0:03:51.320 --> 0:03:53.160 There are challenges. I don't know if you can say 0:03:53.200 --> 0:03:56.880 the words soft landing on a public you could say 0:03:56.920 --> 0:04:00.520 it here, stay here, but FED won't say it. But 0:04:01.080 --> 0:04:03.600 it appears we've basically gotten there. What they need to 0:04:03.640 --> 0:04:07.560 see now is not dramatic improvements in inflation, but just 0:04:07.720 --> 0:04:12.360 regular improvements similar to what we're forecast to see this month, 0:04:13.520 --> 0:04:19.159 with a broad number of categories disinflating, rising at a 0:04:19.200 --> 0:04:21.680 slower pace. If we get that for a couple of months, 0:04:21.720 --> 0:04:24.960 they indicate they'll start thinking about cutting rates now. 0:04:25.320 --> 0:04:28.440 Prices outside of core. We know energy, we know food, 0:04:28.560 --> 0:04:33.080 but one thing in core that has been stubbornly higher 0:04:33.200 --> 0:04:36.040 is housing. Yeah, the recovery we were all hoping for 0:04:36.080 --> 0:04:38.480 has been so uneven. Every month we seem to get 0:04:38.480 --> 0:04:41.799 good news, bad news, you know, troubled news about prices. 0:04:42.600 --> 0:04:43.320 How is that effect? 0:04:43.720 --> 0:04:46.159 It's just been stubbornly high. And that's not what the 0:04:46.200 --> 0:04:49.719 FED or economists expected. Because we did see a decline 0:04:50.200 --> 0:04:53.280 for a while in home prices and rents, part of 0:04:53.320 --> 0:04:57.600 it is methodological because of the way the BLS attempts 0:04:57.640 --> 0:05:01.960 to measure home price, because a lot goes into the 0:05:02.000 --> 0:05:06.159 price of your home. It's not just the monthly mortgage payment, 0:05:06.160 --> 0:05:09.520 but the monthly mortgage payment adjusted by the interest you 0:05:09.600 --> 0:05:12.520 have to pay and that sort of thing. So they 0:05:12.560 --> 0:05:15.400 look at rents and ask people what would your house 0:05:15.440 --> 0:05:20.120 rent for? And obviously if you don't sell your house 0:05:20.200 --> 0:05:22.600 regularly or rent your house regularly, you don't have a 0:05:22.640 --> 0:05:25.120 good answer for that. So it takes a while for 0:05:25.320 --> 0:05:28.279 a decline in rent prices to sort of make its 0:05:28.320 --> 0:05:33.720 way into the CPI. Now, the BLS has started experimenting 0:05:33.760 --> 0:05:38.080 with a new privately produced sort of data point on 0:05:38.560 --> 0:05:44.120 rent that measures current rent costs as new apartments and 0:05:44.160 --> 0:05:47.920 new homes are rented, and they're folding that data in. 0:05:48.040 --> 0:05:50.680 So there's some hope that we may see a more 0:05:50.760 --> 0:05:54.719 rapid decline in housing prices to match what we had 0:05:54.760 --> 0:05:57.760 been experiencing. Of course, with nobody buying houses, there's been 0:05:57.760 --> 0:06:00.640 a shortage of inventory and prices have started go back up. 0:06:00.680 --> 0:06:01.000 Again. 0:06:01.480 --> 0:06:03.120 In that case, if ed wants it to take a 0:06:03.160 --> 0:06:03.840 long time to. 0:06:03.800 --> 0:06:06.600 Get in and if it's not going to happen it's February. 0:06:06.680 --> 0:06:08.479 I mean, the heart of the season is coming up. 0:06:08.560 --> 0:06:12.760 Yeah, you want to see it now, because pretty soon 0:06:12.800 --> 0:06:14.880 we're going to be having a lot of people rushing 0:06:14.960 --> 0:06:18.320 out there. And I saw some analysis recently that said 0:06:18.320 --> 0:06:20.200 it's going to be a seller's market. They're going to 0:06:20.240 --> 0:06:23.440 be able to set higher prices because a lot of 0:06:23.440 --> 0:06:26.040 people want to move but haven't been able to afford it. 0:06:26.120 --> 0:06:29.560 If interest rates start coming down, then mortgage rates will 0:06:29.560 --> 0:06:33.000 come down and you will see a much busier housing market. 0:06:33.560 --> 0:06:36.680 Now, the FED meets again March nineteenth, twentieth. It's about 0:06:36.680 --> 0:06:40.320 five weeks away. Between that time. We get CPI PPI 0:06:40.400 --> 0:06:42.920 this week we also get another one for February. If 0:06:42.960 --> 0:06:45.560 the Fed were to meet right now, what do you 0:06:45.600 --> 0:06:46.440 think they would say? 0:06:46.720 --> 0:06:50.520 They would say, we haven't seen enough data, which is 0:06:50.560 --> 0:06:52.479 going to be their standard answer for a little while. 0:06:52.640 --> 0:06:55.640 They'll get one more CPI and one more of course, 0:06:55.680 --> 0:06:58.240 they look at the PCE index and they'll get one 0:06:58.320 --> 0:07:01.200 more of those before the March meeting, but they'd like 0:07:01.240 --> 0:07:03.000 to have two or three months worth. If they wait 0:07:03.040 --> 0:07:05.400 till May, they'll have three months worth of those numbers, 0:07:05.760 --> 0:07:08.720 and that in theory, if we continue to see this 0:07:08.800 --> 0:07:12.720 kind of improvement will get them to where they want 0:07:12.720 --> 0:07:15.080 to be and they can start talking about maybe we 0:07:15.600 --> 0:07:16.160 cut rates. 0:07:16.440 --> 0:07:19.480 So a long road to go before that March meeting. Well, 0:07:19.480 --> 0:07:23.800 our thanks to Bloomberg's International Economic and Policy correspondent Michael McKee. 0:07:23.920 --> 0:07:24.800 All Right, Wall. 0:07:24.560 --> 0:07:29.200 Street's earning cavalcade continues in the week ahead, including reports 0:07:29.200 --> 0:07:31.800 from Dow component Coca Cola, one of the best known 0:07:31.840 --> 0:07:34.760 brands anywhere, and with a lot more on what to expect, 0:07:35.000 --> 0:07:38.880 we welcome Bloomberg Intelligence Senior industry analyst Ken Shay, who 0:07:38.920 --> 0:07:43.480 covers consumer products including beverages, tobacco, and cannabis. Now, Ken, 0:07:44.120 --> 0:07:46.680 what do you expect to see in Coke's fourth quarter 0:07:46.760 --> 0:07:48.320 results this coming Tuesday? 0:07:49.080 --> 0:07:52.400 So Coca Cola on Tuesday is expected to put up 0:07:52.400 --> 0:07:55.560 pretty good numbers. You know, one of the key metrics 0:07:55.560 --> 0:07:58.800 that I look for is organic revenue growth because that's 0:07:58.800 --> 0:08:03.600 the underlying you know, top line, excluding acquisitions things like that. 0:08:04.760 --> 0:08:07.600 We're expecting a high single digit eight to nine percent 0:08:07.680 --> 0:08:10.800 kind of growth and that's pretty strong. Now, it's a 0:08:10.840 --> 0:08:14.600 little bit lower than the fifteen percent growth last year, 0:08:15.200 --> 0:08:18.440 so it's a tough comparison, but that's a pretty good 0:08:18.520 --> 0:08:20.920 number and We think they're going to achieve that to 0:08:21.040 --> 0:08:25.400 a combination of higher volume of some positive effects from 0:08:25.480 --> 0:08:29.360 channel mix to the on premise you know, stadiums, restaurants. 0:08:29.400 --> 0:08:31.920 People are on the go again and some carry over 0:08:32.040 --> 0:08:37.199 higher pricing from last year, and so that's the kind 0:08:37.240 --> 0:08:41.200 of growth that's very positive. However, there's we also expect 0:08:41.200 --> 0:08:44.800 some negative currency, most notably Argentine peso, you know, a 0:08:44.800 --> 0:08:47.200 few other things. Dollar has been strong. So a net 0:08:47.240 --> 0:08:49.080 of all that will look like a mid single digit 0:08:49.240 --> 0:08:52.240 kind of growth in net revenue, which is pretty strong. 0:08:52.720 --> 0:08:55.160 Oh, that's strong, and you wrote in a report that 0:08:55.640 --> 0:08:58.360 if there's an earning speed, this would be the seventeenth 0:08:58.440 --> 0:09:01.000 straight one. What does that tell you about Coca Cola? 0:09:01.640 --> 0:09:05.760 That's right, Well, the resilience of the product, coach ability 0:09:05.840 --> 0:09:10.000 to manage operations across you know, geographics that spans up 0:09:10.000 --> 0:09:13.079 two hundred countries around the world, you know, that kind 0:09:13.080 --> 0:09:16.040 of revenue growth. We think that the company is also 0:09:16.840 --> 0:09:21.880 enjoying some falling input costs, and so we think with 0:09:22.000 --> 0:09:25.319 some margin improvement they can get about ten percent of 0:09:25.400 --> 0:09:28.600 growth in earnings. And you know, without without that currency 0:09:28.600 --> 0:09:30.520 weighing on them, they could probably have mid team kind 0:09:30.520 --> 0:09:32.640 of growth. I think they're going to cite that as well. 0:09:32.880 --> 0:09:35.160 And as you say, you know, coca has an ability 0:09:35.240 --> 0:09:37.880 to exceed expectations, and the Coke comes through, it will 0:09:37.880 --> 0:09:41.600 be the seventeenth straight And not only do they have 0:09:41.640 --> 0:09:45.120 a string of beats, but the average beat over that 0:09:45.200 --> 0:09:50.120 span is about eight percent, so significant beats also. But 0:09:50.160 --> 0:09:53.199 I think things to look for in this particular quarter, 0:09:53.640 --> 0:09:57.679 A lot of investors have cited their concerns about you know, 0:09:57.760 --> 0:10:00.240 what can the impact be on the so called weight 0:10:00.280 --> 0:10:03.280 loss drugs? The GLP one drugs could just have an 0:10:03.320 --> 0:10:06.440 impact on the company's ability to continue to grow if 0:10:06.480 --> 0:10:11.520 consumers want to shy away from sugary drinks. Another area 0:10:11.520 --> 0:10:14.760 of concern is the spike in orange juice prices worldwide. 0:10:15.000 --> 0:10:18.079 We're up about forty percent over last year, and even 0:10:18.120 --> 0:10:21.200 though minute may it's simply account for only about ten 0:10:21.240 --> 0:10:25.520 percent of cokes overall sales. Nevertheless, a cost increase that high, 0:10:25.800 --> 0:10:29.120 one has to wonder what its strategy is to grow 0:10:29.160 --> 0:10:30.240 that orange juice business. 0:10:30.640 --> 0:10:33.280 Would that be the only category that that you see 0:10:33.320 --> 0:10:35.200 as a real challenge for Coke right now? 0:10:35.840 --> 0:10:39.160 A lot of categories, well, coffee is a competitive one, 0:10:39.200 --> 0:10:43.520 particularly because that's not only a finished product, but also 0:10:43.679 --> 0:10:46.800 a retail instead of retail operations a cost of coffee. 0:10:46.800 --> 0:10:50.600 Coca Cola has costs had come down. Now coffee prices 0:10:50.640 --> 0:10:53.960 are starting to move higher again. I would say it's problematic, 0:10:54.040 --> 0:10:57.920 but it's a more volatile business than a typical Coca 0:10:57.960 --> 0:11:01.800 Cola business, which is basically selling constant and traits to its, 0:11:01.880 --> 0:11:06.360 you know, bottling partners where you have consistently high margins 0:11:06.520 --> 0:11:09.280 and a steady demand, So that one's going to be 0:11:09.360 --> 0:11:13.400 worth taking an eye on. Also, I've also got interesting 0:11:13.480 --> 0:11:15.679 about some of the innovation Coca is up to. You know, 0:11:15.760 --> 0:11:19.480 I'm starting to branch out with some alcoholic beverage partners. 0:11:20.120 --> 0:11:22.000 Jack and Coke is now a product you can buy 0:11:22.080 --> 0:11:27.320 off the shelf, Absolute and Sprites another one, and so 0:11:27.360 --> 0:11:30.520 they have a lot of you know, coals in the fire, 0:11:30.600 --> 0:11:32.640 so to speak, in terms of what they're doing with 0:11:32.640 --> 0:11:36.200 alcoholic beverage partners. At this point, it's still a small business, 0:11:36.480 --> 0:11:37.840 but it's worth keeping an eye on. 0:11:38.240 --> 0:11:41.240 And they've got a new coke product coming out just 0:11:41.280 --> 0:11:43.640 the nineteenth of this month. What do you know about that? 0:11:44.200 --> 0:11:47.199 Well, I haven't tried it yet. It sounds interesting mostly 0:11:47.280 --> 0:11:50.560 it's like a Coke raspberry with some spicy flavors. I'll 0:11:50.559 --> 0:11:52.240 have to try that when I get a chance, because 0:11:52.280 --> 0:11:53.160 I do it with sweet tooth. 0:11:53.600 --> 0:11:56.000 Yeah, Coca Cola Spiced is the name of it. I 0:11:56.040 --> 0:11:58.720 think despite the name, it's not spicy, but it is 0:11:58.760 --> 0:12:01.400 different and unused. Well, I think is they're going to 0:12:01.480 --> 0:12:04.199 make this a permanent part of their lineup right away. 0:12:04.960 --> 0:12:08.120 Well, you know, it speaks the Cochs' willingness to innovate 0:12:08.360 --> 0:12:13.839 market and be relevant to younger generations. You know, Coke 0:12:13.920 --> 0:12:17.839 has been around for so long. I think the demographics 0:12:17.880 --> 0:12:21.720 may have skewed towards older I would say old, but 0:12:21.800 --> 0:12:27.800 older adult young the young, middle aged adults. I think 0:12:28.120 --> 0:12:32.680 this is an effort their creations line to tap into 0:12:32.880 --> 0:12:37.040 younger generation consumers and hopefully they can hang on for 0:12:37.120 --> 0:12:39.280 their lifestyle, their lifespan. 0:12:39.679 --> 0:12:40.840 Well, it's a lot to look forward. 0:12:40.840 --> 0:12:43.079 I'm looking forward to trying it and our thanks now 0:12:43.120 --> 0:12:47.280 to Bloomberg Intelligence Senior industry analyst Ken Shay coming up 0:12:47.320 --> 0:12:49.880 on Bloomberg Day Break weekend conflicts in the Middle East 0:12:49.880 --> 0:12:53.600 and in Ukraine raising concerns about security all around the globe, 0:12:53.920 --> 0:12:56.800 and had a special conference taking place this week in Germany. 0:12:57.000 --> 0:13:11.040 I'm Tom Busby and this is Bloomberg. This is Bloomberg 0:13:11.080 --> 0:13:13.360 day Break weekend, our global look ahead at the top 0:13:13.400 --> 0:13:16.320 stories for investors in the coming week. I'm Tom Busby 0:13:16.320 --> 0:13:19.280 in New York. Up later in the program, a big 0:13:19.360 --> 0:13:23.240 change expected from the Bank of Japan. But first, geopolitical 0:13:23.280 --> 0:13:26.400 tensions are a risk that's been featured in companies earnings 0:13:26.400 --> 0:13:29.600 reports this season. With ongoing conflicts in the Middle East, 0:13:29.679 --> 0:13:33.079 Ukraine and elsewhere. Security issues will be at the heart 0:13:33.240 --> 0:13:35.960 of the gathering of world leaders for the Munich Security 0:13:35.960 --> 0:13:39.040 Conference in the coming days. For more, let's go to 0:13:39.080 --> 0:13:42.040 London and bring in Bloomberg day Break anchor Stephen Carroll. 0:13:42.240 --> 0:13:42.560 Tom. 0:13:42.720 --> 0:13:44.800 The disruption to shipping through the Red Sea and the 0:13:44.840 --> 0:13:47.960 implications for inflation have been a topic of discussion for 0:13:48.120 --> 0:13:52.120 many companies during this earning season. The CEO of Danish 0:13:52.200 --> 0:13:55.600 shipping Giant Mask telling Bloomberg they haven't seen a peak 0:13:55.679 --> 0:13:57.719 in the threat level in the Red Sea and they 0:13:57.720 --> 0:14:01.120 see disruption potentially lasting for up to two year. Now, 0:14:01.120 --> 0:14:03.160 that's just one issue that's going to be discussed at 0:14:03.160 --> 0:14:06.280 the Munich Security Conference in the coming days. It's an 0:14:06.280 --> 0:14:09.320 event that's been dubbed by some as the Davos of 0:14:09.400 --> 0:14:13.400 Defense and brings together officials and political leaders in the 0:14:13.520 --> 0:14:17.680 southern German city. The conversations this year more challenging than ever. 0:14:17.880 --> 0:14:21.360 Russia's invasion of Ukraine is close to entering its third year, 0:14:21.680 --> 0:14:24.160 and the Israel Hamas War that began more than four 0:14:24.200 --> 0:14:27.080 months ago has led to violence in several other parts 0:14:27.080 --> 0:14:30.640 of the Middle East. Ukraine's president, Vladimir Zelenski is expected 0:14:30.680 --> 0:14:34.360 to attend the conference, but Russian and Iranian officials haven't 0:14:34.400 --> 0:14:38.880 been invited. Geopolitical tensions from these conflicts are a major 0:14:39.120 --> 0:14:41.960 risk for markets, and we've been discussing that with some 0:14:42.040 --> 0:14:44.880 of our guests on Bloomberg Radio in recent days. Here 0:14:44.920 --> 0:14:49.000 are the thoughts of Wayley Global, Chief investment strategist at Blackrock. 0:14:49.360 --> 0:14:53.520 Yeah, so it's really quite incredible how fled geopolitical risk 0:14:53.600 --> 0:14:58.320 premier currently is as been priced by markets. We do 0:14:58.400 --> 0:15:02.440 think that there is room for that to be priced 0:15:02.720 --> 0:15:05.800 even more just given the fact that we're in a 0:15:06.200 --> 0:15:10.880 different geopolitical regime compared to before. Right, so this instinct 0:15:11.040 --> 0:15:15.360 to just automatically buy the deep across the board indiscriminately 0:15:15.520 --> 0:15:18.200 whenever something goes wrong on the geopolitical round. It works 0:15:18.400 --> 0:15:20.880 until it doesn't work. So we do think that it 0:15:21.040 --> 0:15:25.120 is very important to be selective in terms of positioning 0:15:25.120 --> 0:15:28.760 for geopolitical events, looking at, for example, where oil is 0:15:28.800 --> 0:15:32.720 trading specifically, also energy sector. We talked about earnings maybe 0:15:33.520 --> 0:15:35.800 not doing as well as some of the other sectors, 0:15:35.800 --> 0:15:38.280 but we like energy as a sector also as a 0:15:38.360 --> 0:15:44.680 geopolitical hatch, especially given how little it's responded to geopolitical 0:15:44.680 --> 0:15:45.640 events so far. 0:15:47.160 --> 0:15:50.880 That's black Rocks Wayley talking about how traders are positioning 0:15:51.000 --> 0:15:53.840 around geopolitical risks. Now, we also talked about this with 0:15:53.880 --> 0:15:58.160 Skyla Montgomery Coning. She's director of macro Strategy at TS Lombard, 0:15:58.440 --> 0:16:01.520 and she spoke about the economic risks of ongoing unrest. 0:16:02.960 --> 0:16:06.440 Markets really struggle to price geo political risk because the 0:16:06.520 --> 0:16:09.040 issue is it's an extreme event that's unlikely. And so 0:16:09.080 --> 0:16:11.720 in twenty twenty we had the extreme unlikely event and 0:16:11.760 --> 0:16:14.800 we had energy prices skyrocket and that had a big 0:16:14.840 --> 0:16:18.800 impact on inflation. But it's unlikely to repeat itself, and 0:16:18.800 --> 0:16:21.560 so because it's very hard to price that risk, markets 0:16:21.600 --> 0:16:24.640 just kind of ignore it. For policymakers, I think it's 0:16:24.680 --> 0:16:27.920 background noise. The disruptions we're having right now, we don't 0:16:27.960 --> 0:16:30.480 think will feed in significantly to inflation. I think the 0:16:30.600 --> 0:16:34.200 US in particular understands is a difference between supply side 0:16:34.240 --> 0:16:38.120 inflation and demand driven inflation, so we don't think it 0:16:38.160 --> 0:16:40.400 has a large impact on the inflation or it'll cause 0:16:40.400 --> 0:16:43.040 a reacceleration. I think I'm a bit more worried in 0:16:43.160 --> 0:16:46.560 Eurerope because they've traditionally looked at supply side inflation shocks 0:16:47.200 --> 0:16:49.240 not so much as a growth negative, but as an 0:16:49.280 --> 0:16:53.480 inflation positive. And for them, they're also looking at January HICP, 0:16:53.600 --> 0:16:56.920 which has the potential to upside surprise on seasonality effects, 0:16:56.920 --> 0:16:58.440 and they may use it as a reason to be 0:16:58.440 --> 0:17:00.960 more hawkish than they really should be given the growth 0:17:01.000 --> 0:17:01.480 back DRAP. 0:17:02.480 --> 0:17:05.359 That's Skyla Montgomery coning from TS Lombard there speaking to 0:17:05.840 --> 0:17:08.879 us on Bloomberg Radio. So that's the markets and the 0:17:08.920 --> 0:17:12.120 economic point of view on these security issues. How will 0:17:12.160 --> 0:17:17.520 government officials be addressing these problems at the Munich Security Conference. 0:17:17.560 --> 0:17:21.400 I've been discussing this with our EU politics reporter Ellen Milligan, 0:17:21.560 --> 0:17:24.200 and I started by asking her who's attending the event 0:17:24.400 --> 0:17:26.919 and what we should expect them to be focusing on. 0:17:27.520 --> 0:17:30.920 Well, this conference will be centered on maintaining both financial 0:17:31.080 --> 0:17:34.440 and military support for Ukraine. Often you get, as you said, 0:17:34.520 --> 0:17:38.560 world leaders attending foreign and defense secretaries, but also tons 0:17:38.600 --> 0:17:42.240 of defense officials, the real experts on both Ukraine, the 0:17:42.280 --> 0:17:45.359 Middle East, the Red Sea. They're likely to discuss the 0:17:45.400 --> 0:17:48.720 difficulties for Ukraine as this war drags on, in particular 0:17:49.080 --> 0:17:53.440 the industrial production challenges. Ukraine's grappling right now with depleting 0:17:53.480 --> 0:17:57.679 ammunition stocks. So we may hear more about joint procurement 0:17:57.720 --> 0:18:01.959 of military equipment between countries. There may well be some 0:18:02.000 --> 0:18:07.560 deals announced as well as perhaps more bilateral security commitments 0:18:07.560 --> 0:18:10.520 that each ally is designing for Ukraine. The UK has 0:18:10.560 --> 0:18:13.640 already announced theirs earlier this year. We might get more 0:18:13.680 --> 0:18:16.439 countries announce their security commitments to the Ukraine. 0:18:16.480 --> 0:18:20.399 Also, it'd be interesting to watch the discussions from an 0:18:20.400 --> 0:18:23.320 EU point of view, Ellen, because after we've had Hungary's 0:18:23.359 --> 0:18:27.959 wavering over the euaid package, how much support is there 0:18:28.119 --> 0:18:31.120 in Europe for Ukraine Now? Of course, we're still waiting 0:18:31.119 --> 0:18:34.000 for Hungary to approve Sweden as a new NATO member 0:18:34.000 --> 0:18:34.400 as well. 0:18:35.160 --> 0:18:37.800 Well. That moment last week when the EU agreed on 0:18:37.840 --> 0:18:41.280 its fifty billion package for Ukraine was a big sigh 0:18:41.280 --> 0:18:43.919 of relief, both in Europe but also in the US 0:18:43.920 --> 0:18:47.320 and around the world. The main focus now actually is 0:18:47.359 --> 0:18:50.240 on US Congress and whether they will pass that sixty 0:18:50.280 --> 0:18:54.400 billion in age there. This week, actually, US National Security 0:18:54.440 --> 0:19:00.359 Advisor Jake Sullivan came to Brussels and discussed at NATOGE. 0:19:00.400 --> 0:19:04.480 He said he was confident the Biden administration would get 0:19:04.520 --> 0:19:08.000 it passed, but at just hour's latest Senate Republicans blocked 0:19:08.400 --> 0:19:12.560 a package tied to that funding, and Polish Premier Donald 0:19:12.640 --> 0:19:15.280 Tusk has tweeted that they should be ashamed of themselves. 0:19:15.320 --> 0:19:18.440 So you're seeing those tensions emerged now that the EU's 0:19:18.520 --> 0:19:22.800 passed their package between the US and saying kind of 0:19:22.880 --> 0:19:25.800 you know, we've got our package pass now it's time 0:19:25.840 --> 0:19:29.720 for you to And as I said, Ukraine is facing 0:19:29.760 --> 0:19:34.080 some serious ammunition shortages which Russia is going to try 0:19:34.080 --> 0:19:37.480 and take advantage on. So it's a really critical point 0:19:37.520 --> 0:19:38.640 for that aid to come through. 0:19:39.600 --> 0:19:41.200 Of course, the Middle East is going to be a 0:19:41.280 --> 0:19:44.280 huge topic of discussion there as well. The latest proposals 0:19:44.280 --> 0:19:47.840 for a cease far deal reportedly being rejected by Benjaminetta 0:19:47.840 --> 0:19:51.159 and yah who how will countries who are going to 0:19:51.200 --> 0:19:54.520 be represented at the conference be talking about their approach 0:19:54.560 --> 0:19:57.280 to achieving peace in the region. And I suppose more broadly, 0:19:57.320 --> 0:20:00.600 how has the Israel hamas wore affected security ties? 0:20:01.440 --> 0:20:04.680 Yeah, I mean the EU continues to struggle to come 0:20:04.720 --> 0:20:07.640 to a unified stance on how to approach the situation 0:20:07.720 --> 0:20:10.959 in the Middle East. Some countries of reticent pressure Israel 0:20:11.280 --> 0:20:13.960 over its bombing of Gaza. They don't want to restrict 0:20:13.960 --> 0:20:17.280 what Israel views as a self defense of the following 0:20:17.320 --> 0:20:22.960 the harmass tax in October. Some are more keen to 0:20:23.000 --> 0:20:26.520 push them and pressure them to impose a ceasefire, for example. 0:20:26.600 --> 0:20:30.720 But I think there are some emerging conversations that will 0:20:30.760 --> 0:20:33.840 be a topic at Munich. So for example, recognizing a 0:20:33.880 --> 0:20:36.840 Palestinian state. I thought it was interesting that Foreign Secretary 0:20:37.720 --> 0:20:40.240 David Cameron in the UK said this week that it's 0:20:40.280 --> 0:20:43.600 something he'd like to explore. Countries like Ireland to Spain 0:20:43.760 --> 0:20:47.040 are also considering that. And there's also discussion of the 0:20:47.119 --> 0:20:51.280 sanctions against violent Israeli settlers, something the US has announced 0:20:51.280 --> 0:20:54.119 this week and many EU member states want to introduce also. 0:20:54.240 --> 0:20:57.640 So those are the points of discussion. I think we'll 0:20:57.680 --> 0:20:58.639 see next week. 0:20:59.640 --> 0:21:01.840 Those are also of course going to be focused more 0:21:01.880 --> 0:21:05.040 broadly from that too on the relationship between the United 0:21:05.080 --> 0:21:08.440 States and Europe on security issues. We know they haven't 0:21:08.480 --> 0:21:11.879 always seen io I, particularly when it's come to spending commitments. 0:21:12.240 --> 0:21:16.000 Where are we now in that balance of relationships, given 0:21:16.359 --> 0:21:19.040 the pressures that we have from both the conflicts in 0:21:19.160 --> 0:21:20.400 Ukraine and in the Middle East. 0:21:20.920 --> 0:21:23.919 We've had some quite strong language coming out of Charles 0:21:23.960 --> 0:21:27.879 Michelle Underline in the EU, as I said, Donald Tusk 0:21:27.960 --> 0:21:31.719 in Poland, kind of ramping up pressure on the US 0:21:31.760 --> 0:21:34.080 to pass this a package. So I think you're going 0:21:34.119 --> 0:21:38.359 to see more of that language, more lobbying from the EU, 0:21:38.520 --> 0:21:42.880 the UK, other allies at the Munich Security Conference. There's 0:21:42.920 --> 0:21:46.600 also been some concern in Europe about recent US strikes 0:21:46.640 --> 0:21:50.840 on Iranian backed groups in the Red Sea. There's worry 0:21:50.840 --> 0:21:53.280 it could provoke an escalation of the conflict. So I 0:21:53.280 --> 0:21:56.399 think we'll hear more about the differences in approach between 0:21:56.440 --> 0:21:59.600 the EU, who wants to take a more defensive mission 0:21:59.600 --> 0:22:02.919 to the Red See than an offensive one, and the 0:22:02.960 --> 0:22:06.000 different approaches to the who season dealing with that conflict 0:22:06.000 --> 0:22:08.000 in the Red Sea. So those are the areas of 0:22:08.000 --> 0:22:10.800 contention between the EU and the US. But I also 0:22:10.840 --> 0:22:14.280 think that they're incredibly keen to stress how united they are, 0:22:15.560 --> 0:22:19.720 and I think they'll be more kind of joint press conferences. 0:22:19.760 --> 0:22:22.680 For example. We saw that with Sullivan and Stoltenberg in 0:22:22.760 --> 0:22:26.120 Brussels this week, and I think they'll want to put 0:22:26.160 --> 0:22:28.320 on a unified position as well. 0:22:29.280 --> 0:22:32.400 It is, of course, Allen two, a year of big elections, 0:22:32.800 --> 0:22:35.639