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Speaker 1: This is Bloomberg Surveillance. SuRie orientation of the Chinese economy

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Speaker 1: is one thing that's maybe helping demand growth globally. Most

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Speaker 1: of what constitutes eminent advisors work the bread and butter

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Speaker 1: is actually selling companies. It's not buying companies. No matter

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Speaker 1: what the FED puts into action, it doesn't always accomplish

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Speaker 1: its goals, so its actions should be looked at with

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Speaker 1: something the grain of salt. Bloomberg Surveillance your link to

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Speaker 1: the world of economics, finance, and investment on Bloomberg Radio.

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Speaker 1: Good morning everyone. Michael McKee and Tom came to be

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Speaker 1: direct extra data checks today. A continuation of X number

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Speaker 1: of days of sporting markets futures negative ten right now

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Speaker 1: out to wheatness for the morning. I don't want to

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Speaker 1: make too much of equity futures negative thirteen down futures negative,

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Speaker 1: but that vectors in the wrong direction, and that follows

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Speaker 1: up with the bond yields moving ever lower. We had

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Speaker 1: a look calmness really over the last not hour, but

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Speaker 1: almost hour and a half, and we gotta watch it

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Speaker 1: very carefully. That may be fading a way as we

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Speaker 1: go into the eight o'clock hour. We welcome all of

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Speaker 1: you coast to coast, across Canada and of course around

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Speaker 1: the world as well. What do you see. We want

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Speaker 1: to wish a happy birthday to Prince Philip. Yes, with

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Speaker 1: a with a celebration if that can be the right word.

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Speaker 1: At St. Paul's Cathedrals, he is the Queen's consort. I'm

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Speaker 1: not sure how that goes out of business card, but

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Speaker 1: well I can't. I don't know if there's a royal

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Speaker 1: business card. Bloomberg Surveillance this morning speaking of royalty, brought

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Speaker 1: you by cone Resnick look Ahead, Gain Insight, imagine more,

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Speaker 1: get forward thinking advice that can help turn business possibilities

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Speaker 1: into business opportunities. Find out more at cone Resnick dot com. Oh,

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Speaker 1: and are easy and I c k cone Resn dot com.

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Speaker 1: Oil is a little fragile, but I would say Mike

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Speaker 1: remove so one thing. It doesn't mean to be everything. Yeah,

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Speaker 1: someone to speak to about this has years and years

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Speaker 1: of expertise in hydrocarvers. Paul Sank joins us with Wolf

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Speaker 1: Research right now. Paul, I guess the number one question

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Speaker 1: is if we're in, as John Sylvia mentioned, a growth trap,

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Speaker 1: how does that play in the oil with a tumult

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Speaker 1: in other markets, will it carry over into your world? Yeah?

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Speaker 1: I mean, you know, the most important thing is demand

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Speaker 1: for oil, and if the economy is starts to struggle,

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Speaker 1: if anything goes wrong in the wider world, uh, seeds

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Speaker 1: streets to demand and then that hasn't direct impact. The

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Speaker 1: other thing is you're aware is that the dollar, the

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Speaker 1: world's oil traders in dollars denominated in dollars, So whatever

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Speaker 1: the dollars is related to other currencies tends to feed

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Speaker 1: through pretty much directly um to the oil price, although

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Speaker 1: it has to be said recently the dollar oil link

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Speaker 1: has broken down a little bit over the past few weeks.

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Speaker 1: This weekend, where are we in terms of supply dynamics.

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Speaker 1: Canada's coming back. So I think the big shot this

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Speaker 1: year was the wildfires in Canada. Are we lost over

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Speaker 1: a million barrels a day of oil? If you think

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Speaker 1: the global demand growth this year will be about a

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Speaker 1: million and a half barrels a day, you get a

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Speaker 1: sense for what a big deal that was. Nigeria has

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Speaker 1: been the other big issue. They're basically they pay the

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Speaker 1: rebels not to destroy the infrastructure, and they stopped paying,

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Speaker 1: so the rebels, the government ran out of money and

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Speaker 1: stopped paying. Now we think the government's going to negotiate

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Speaker 1: because it has to. But that's another significant issue. And

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Speaker 1: the other big one, as you know, is is the

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Speaker 1: kind of ongoing tragedy in Venezuela, UM, Libya. There's a

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Speaker 1: good list. Yeah, it sounds like you're reciting our list

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Speaker 1: of bond market worries. Uh uh. If some of those

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Speaker 1: things turn around, UM, and Venezuela is probably not likely

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Speaker 1: to change anytime soon, but UM Canada comes back, you know,

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Speaker 1: are we at risk of a price shock to the markets,

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Speaker 1: a supply shock that would in effect prices in a

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Speaker 1: rapid manner. M M. I don't think so. I mean,

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Speaker 1: we don't see the market as tightening rapidly at any

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Speaker 1: time just because the infantry levels are so high. UM.

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Speaker 1: Is the is the potential for a downside shock to

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Speaker 1: oil UM if demand fails? Yeah, I mean if we

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Speaker 1: have a major you know, I mean the most dramatic

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Speaker 1: instance obviously this is nine eleven. I mean nine eleven,

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Speaker 1: you lost two percents of world or demand in two hours.

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Speaker 1: That's what happens if you ground every plane in the

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Speaker 1: u US, and of course the global financial crisis would

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Speaker 1: be another dramatic example of how things can change very

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Speaker 1: quickly on the demand side. The supply side really doesn't

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Speaker 1: have the capacity to force the price down rapidly. You know,

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Speaker 1: it will happen over time, but I don't see a

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Speaker 1: downside shot here. Actually, I think that we're just going

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Speaker 1: to our general views that the price is going to

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Speaker 1: be under um in a in a range basically, let's

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Speaker 1: say at the moment, around fifty bucks. You know, I

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Speaker 1: mean that feels like where we where we sit for summer. Yeah,

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Speaker 1: at that price, what does it mean for oil companies?

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Speaker 1: Does it incent anybody? Does it just keep them sort

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Speaker 1: of treading water? What does it mean? Yeah, you're implying

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Speaker 1: an excellent point, which is everyone's questioning the price that

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Speaker 1: whips us unconventional players put riggs back to work. And

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Speaker 1: the answer, of course that the beauty of the old

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Speaker 1: price is it's so liquid and tends to find almost levels.

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Speaker 1: And of course the price at which you trigger riggs

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Speaker 1: going back to work is above fifty, so we're right

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Speaker 1: at the level where they would consider adding riggs. And

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Speaker 1: in fact, the rig count has kind of stabilized now. Um,

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Speaker 1: so it's he's fascinating. If we were to go to

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Speaker 1: fifty five or sixty, that would definitely start to resume growth,

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Speaker 1: a growth trajectory in the US. The issue, though, and

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Speaker 1: again this is why we think we stay around fifty,

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Speaker 1: is there also keen to hedge forward to protect their

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Speaker 1: balance sheets, and that that has made the curve for

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Speaker 1: all the future strip is very, very flat. One thing

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Speaker 1: we're looking for is are we going to break out

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Speaker 1: into backwardation? When you flip, that's the signal that the markets.

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Speaker 1: What does that mean? That was that was our jargon

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Speaker 1: moment for Friday. What do you mean by well, you

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Speaker 1: can trade You trade all on the IMAX futures, so

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Speaker 1: you can you can trade the price in the future.

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Speaker 1: If the price today current prices below the future price,

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Speaker 1: you're in cantanga, which means the obviously that you're implying

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Speaker 1: the price and the future will be higher. And then

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Speaker 1: backwardation is the opposite of the current price is higher

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Speaker 1: than the future price. In the hundred dollar period from fourteen,

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Speaker 1: we were in backwardations, so the price was implicitly going

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Speaker 1: to fall in the future, and then we flipped at

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Speaker 1: the end of fourteen into cantanga. The opposite, and now

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Speaker 1: we've flattened to just literally flat. So the future of

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Speaker 1: the price for delivery today is in the process of

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Speaker 1: delivery in fifty my jump in here, let me do

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Speaker 1: Oh God, please pull, I thought you were dying. Sorry, continue, please, No,

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Speaker 1: I'm just gonna say that when when the when the

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Speaker 1: market changes structure, when it goes from contanger to backwidation,

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Speaker 1: vice versa, it's a strong signal that that fundamentals have

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Speaker 1: changed and we haven't quite made it brilliantly, really nice,

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Speaker 1: brilliantly explained. Let me do a data check here and Mike,

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Speaker 1: because we do have markets moving new loads on futures

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Speaker 1: negative thirteen down, futures negative one hundred, saw negative one

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Speaker 1: oh two moments ago. The tenure yield is right on

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Speaker 1: day lows four digits one point six five two four.

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Speaker 1: Trying to find a new low yield. We're not there yet,

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Speaker 1: we may get it momentarily. The ten uere in Germany

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Speaker 1: to three digits point zero to eight, again, very near

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Speaker 1: record lows there. Swiss twenty year bounces. Uh this morning

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Speaker 1: and uh Japanese yen Mike one O six eighty five

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Speaker 1: weaker Japanese yen this morning, we were talking Paul about

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Speaker 1: um the you know how we've seen these correlations come

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Speaker 1: and go in the various markets, and I'm wondering where

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Speaker 1: we are with the dollar and oil um at this point.

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Speaker 1: A dollar seems to be strengthening a little this morning,

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Speaker 1: but it wasn't moving much even though there's been this

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Speaker 1: big move into treasuries over the last weeks. What about

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Speaker 1: on the oil side, Well, I mean, you know, the

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Speaker 1: trend is your friend until it ends, and we've we've

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Speaker 1: had a point nine correlation of oil prices in the

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Speaker 1: dollar over let's say the past two or three years,

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Speaker 1: and in the past two or three, maybe four or

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Speaker 1: five weeks, has broken down completely. I think that's because

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Speaker 1: of the outages. So there's been some very strong fundamental

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Speaker 1: shifts in dollar dynamics, and there's been some very strong

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Speaker 1: fundamental shifts in oil dynamics. That a relatively short term

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Speaker 1: because we are expecting the Canadian production arts just to resume.

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Speaker 1: But I think essentially what we've had is a significant breakdown.

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Speaker 1: What the big question is is the petro dollar going

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Speaker 1: to break down? So in the future, will let's say,

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Speaker 1: China pay a NEU one, or most importantly with the

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Speaker 1: Saudias devalue the real and that would be a very

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Speaker 1: big deal obviously to break that. I was talking to

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Speaker 1: the global head of trading oil trading and a major

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Speaker 1: oil company this week and he doesn't think it will

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Speaker 1: happen to because the dusty is enormous, the demonstrated commodity

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Speaker 1: in the world. It's not really in anyone's interests to

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Speaker 1: break the link. It's just, of course, so much disruption,

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Speaker 1: and China's attempt to launch a benchmark on Shanghai, a

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Speaker 1: crewde benchmark of their own, I understand, hasn't done well.

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Speaker 1: So you know, that's one of the big questions. But well,

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Speaker 1: there's wisdom there. Paul sank he's going to come back

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Speaker 1: with us on oil. Mike, I would suggest it's been

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Speaker 1: forty two times in counting that you and I have

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Speaker 1: heard about the end of the dollar is a reserve currency.

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Speaker 1: I think it's been forty two. Yeah, that we've we've

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Speaker 1: heard that, so I can understand the skepticism about moving

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Speaker 1: off a dollar based petroleum market. The yield one point

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Speaker 1: six five to four low yields for the session on

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Speaker 1: the US tenure. Hanging out and check in with Bob

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Speaker 1: Moon and get the latest world of national headlines. Good morning.

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Speaker 1: From thousands of miles away, they have gathered to bid

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Speaker 1: a final farewell to Muhammad Ali in his hometown of Louisville, Kentucky.

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Speaker 1: Ali's body will ride in a miles long procession from

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Speaker 1: his boyhood home along the boulevard that bears his name

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Speaker 1: to a memorial service in the city's biggest arena. The

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Speaker 1: White House has decided it's time to turn up the

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Speaker 1: heat on resurgent Taliban fighters. Senior US and defense officials

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Speaker 1: say plans have been approved to expand the military's authority

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Speaker 1: to conduct air strikes against the Taliban when needed to

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Speaker 1: better assist Afghan forces. Elizabeth Warren and Hillary Clinton are

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Speaker 1: meeting privately this morning, according to a knowledgeable Democratic strategist,

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Speaker 1: to sit down his fueling speculation about Warren's prospects as

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Speaker 1: a potential vice presidential pick. Global News twenty four hours

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Speaker 1: a day, powered by our twenty four hundred journalists and

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Speaker 1: more than a hundred fifty news bureaus around the world.

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Speaker 1: I'm Bob, Moon, Mike and Tom, thanks so much. Futuresaive

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Speaker 1: futures negative nine that yield again one point six German

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Speaker 1: tenure point zero to eight percent. Michael McKee and Tom

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Speaker 1: Key with Paul, Thank you, wolf An Oil and yeah,

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Speaker 1: Bloomberg surveillance coming up. We are watching bond yields fall

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Speaker 1: fall fall. Kathy Jones of Schwab, Chief Fixed Income Strategists,

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Speaker 1: What happens next? Where do you put your catch global

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Speaker 1: business news twenty four hours a day. If Bloomberg dot

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Speaker 1: Com the radio plus mobile lap and on your radio.

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Speaker 1: This is a Bloomberg Business Flash and I'm Karen Moscow.

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Speaker 1: Future is moving lower this morning. Let's go to the

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Speaker 1: first Word breaking news desk for today's morning call, and

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Speaker 1: here's Bill Maloney. Good morning, Bill, Good morning Karen. That's

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Speaker 1: right us. You just remain under pressure amid global stock weakness.

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Speaker 1: The Japanese ten yeel fell to a record minus point

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Speaker 1: one five percent. Doubt you just currently lowered by ninety

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Speaker 1: four point says to the futures dropped twelve and NAZAC

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Speaker 1: futures declined by thirty. The US ten ureeel falls to

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Speaker 1: one point six five per vent. Made up markets are

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Speaker 1: also lower. Germany, Spain at Italy each drop at least

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Speaker 1: two percent, and the Bank of Russia cut its key

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Speaker 1: rate for the first time since July. On theose economic

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Speaker 1: front at ten o'clock Michigan Sentiment Estimate ninety four and

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Speaker 1: at two pm monthly budget statement. After develos night, Apply

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Speaker 1: Materials announced a two billion dollar buyback h and up

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Speaker 1: block you for revenue Beat, boosted it's dividend by ten

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Speaker 1: percent and matches firm cut ERPs and revenue views. Finally,

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Speaker 1: Samuel Wallstreet upgrades and downgrades. Dining G cut to neutral

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Speaker 1: versus by over at City Group, Joy Global upgrade It's

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Speaker 1: outperform at fbr, Abay cut to market perform at BMO,

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Speaker 1: and Cliff's Natural raised to outperform at mcquarie. Live from

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Speaker 1: the first breaking News descon Boomloney Karen, thanks a bilty

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Speaker 1: here live breaking news over your Bloomberg type squawk a

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Speaker 1: goo on your terminal. That's squ a w k go

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Speaker 1: and that's a Bloomberg business flash. Tom and Mike Karen,

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Speaker 1: thanks so much. Bloomberg Surveillance is Friday Morning, brought you

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Speaker 1: and follow and investco us on Twitter. Michael McKee and

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Speaker 1: Tom Keane were doing extra data checks as we need

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Speaker 1: to a little better constructive tone of the tape in

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Speaker 1: the last hour, except ec when he futures negative thirteen

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Speaker 1: down futures negative ninety seven. Paul Sank you with us

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Speaker 1: with Wolf Research on the oil and guests Paul, what's

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Speaker 1: the geo political risk in oil right now? It used

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Speaker 1: to be thirteen or seventy seventeen dollars of barrel at

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Speaker 1: Deutsche Bank. You'd come up with these kinds of statistics.

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Speaker 1: Does that still matter? Is there is there a price

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Speaker 1: of geo politics and oil? How much spectacity there is

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Speaker 1: and how much the market is pricing risk in infantry.

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Speaker 1: So there's two types of imagery. One is simply the

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Speaker 1: overhang of stuffy can't sell, which forces the price down.

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Speaker 1: The other is the holding that you do before a hurricane,

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Speaker 1: the invantory that you build when you think it's all

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Speaker 1: going to go horribly wrong, so you buy more milk

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Speaker 1: even though you've got milk and even though the price

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Speaker 1: is high. And the flip occurs when specupacity gets very love.

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Speaker 1: Speculpacity is getting love. There's probably some specupacity and Saudi

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Speaker 1: but we don't really and and New a E but

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Speaker 1: we don't really consider the Nigeria and the Venezuelan to

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Speaker 1: be um, you know, the stuff that we can rely on. Obviously,

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Speaker 1: I don't think there's a huge price in I mean

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Speaker 1: we talked about we talked about the future strip being

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Speaker 1: very flat. The thing to remember about the future strip

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Speaker 1: as it's priced nominally, so it's dollars of today, and

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Speaker 1: there may be not a risk price, but additionally a

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Speaker 1: deflation price or a stronger dollar price in that flat. Overall,

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Speaker 1: we would argue probably that there isn't sufficient risk in

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Speaker 1: the in the price if you think demands is going

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Speaker 1: to be okay. But of course if demand starts falling,

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Speaker 1: effectively start adding specupacity. So maybe that although the market

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Speaker 1: obviously realizes the gigantic g political risks in the world

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Speaker 1: right now, that it's more concerned about the economic outlook.

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Speaker 1: And from listening to you guys, frankly, I think that's

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Speaker 1: the case. We're concerned about it. Uh, everyone is, and

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Speaker 1: you know my line is, is just a mostated bullmarket

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Speaker 1: in history, right. We all think it's going to end

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Speaker 1: horribly somehow, and you know, as a result, people are

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Speaker 1: not pricing in much of our old prices in the future.

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Speaker 1: Maybe that's what it is. What about all back? There

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Speaker 1: was a flurry of interest in the possible deal at

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Speaker 1: the meeting in June, you know, meet again until November.

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Speaker 1: But are they ever gonna reach any kind of agreement

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Speaker 1: to cut back on production order even pretend they are well?

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Speaker 1: The biggest that, you know, I've had five huge shifts

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Speaker 1: in my twenty five year career, and this latest mortality

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Speaker 1: is unquestionably one of the biggest. The shift, as you know,

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Speaker 1: is the emergence of a Deputy Crown Prince who's a

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Speaker 1: thirty year old. He suddenly started setting oil policy very

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Speaker 1: negatively in terms of agreements in Doha earlier this year,

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Speaker 1: and then the new oil minister energy minister in fact,

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Speaker 1: was the Saudi Energy Minister. It was really conciliatory at

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Speaker 1: the latest though PAC meeting, but you can't get around

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Speaker 1: the fact that they still have a huge Saudi has

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Speaker 1: a huge issue with Iran and it's unlikely to do anything.

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Speaker 1: I think really what the new energy Minister and Saudie

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Speaker 1: was saying is we're not going to add a whole

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Speaker 1: lot more oil, which was a major concern for the market.

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Speaker 1: But also we're not going to do any deals with Iran,

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Speaker 1: so that the net results of the latest though PAC

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Speaker 1: meeting I think was somewhat more bullish than we had anticipated,

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Speaker 1: simply because the Saudis we had worried, would actually add

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Speaker 1: a whole lot more oil into the market. It doesn't

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Speaker 1: seem like they'll do that. Is they pack dead pretty much? Yeah,

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Speaker 1: I mean, it's not not not relevant any longer. And

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Speaker 1: as you know, the reality is that the marginal barrel

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Speaker 1: that the guy who makes the marginal decision about how

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Speaker 1: much were left of all is going to be is

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Speaker 1: now in Midland, Texas. So what does that do to

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Speaker 1: non Saudi members of pack the like Nigeria. It's not

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Speaker 1: good because basically another issue, it's I've got contexts of

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Speaker 1: the State Department who told me the US no longer

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Speaker 1: really has to get involved in Venezuela and Nigeria or

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Speaker 1: Iraq or Syria. That is visible. I mean, I don't

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Speaker 1: think people fully appreciate this, but we're just not engaged,

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Speaker 1: and as a result, obviously they're just not I mean,

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Speaker 1: as you can see in Venezuela, these places just melt down,

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Speaker 1: So you know, it's tough. It's called the cuts of oil.

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Speaker 1: Discovering on and then emerging market is not good because

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Speaker 1: it totally distorts your economy and corrupts your economy, and

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Speaker 1: it's going to be a tough rise in some of

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Speaker 1: these countries. I really believe. So well. Thank you so much,

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Speaker 1: extremely valuable, Paul. Thank you with Wolf Research this morning.

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Speaker 1: I didn't get to Nigeria. They're like, but that is

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Speaker 1: something this week to see. Earlier in the week, the

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Speaker 1: challenges in Southern Nigera. The drum beat of concern about

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Speaker 1: the bond market continues to heat up. Yesterday, of course,

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Speaker 1: we have Bill Gross with his supernova comment today Francisco

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Speaker 1: Garzarelli over at gold uh suggesting that there is a

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Speaker 1: good chance for a possibly rapid jump in yields in

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Speaker 1: the second half of the year. People are not paying

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Speaker 1: attention to tail risk, is his warning. So um uh,

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Speaker 1: it's something we gotta everybody's gonna keep an eye on here,

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Speaker 1: and people, the pros are getting very nervous about what

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Speaker 1: they're seeing. Yeah they are, and you see it on

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Speaker 1: the tape. And again we'll do multiple data checks today

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Speaker 1: all and again I can't convey enough. How if I

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Speaker 1: turn away from the screen and look at the beverage

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Speaker 1: of my choice here this morning, and I look back,

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Speaker 1: something changed. US tenure does better in the last couple

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Speaker 1: of minutes, higher yield off of the low for the day.

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Speaker 1: But with that said, German tenure goes down to three

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Speaker 1: digits point zero to nine. So it is very clothing you.

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Speaker 1: It's just just just will it get there before Friday

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Speaker 1: is over? Yeah, it's it keeps us entertained. Futures negative down,

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Speaker 1: future's negative hundred. This is Bloomberg surveillance coming up. With

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