Bloomberg Audio Studios, Podcasts, radio News.

Bloomberg Audio Studios, Podcasts, radio News.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. Mohammad Allan of Queen's College, Cambridge, Mohammid, Good mornagor it's going to see you.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. Mohammad Allan of Queen's College, Cambridge, Mohammid, Good mornagor it's going to see you.

Good morning, John, Thanks for saying all.

Good morning, John, Thanks for saying all.

Just a bunch of happy talk, all these good things, good vibes about the US economy.

Just a bunch of happy talk, all these good things, good vibes about the US economy.

It's happy talk, justified on where we've been, but it is dangerous looking forward.

It's happy talk, justified on where we've been, but it is dangerous looking forward.

Jamie Diamond sounded like you earlier this week speaking to Francine lacro I'm not sure if you've seen the conversation.

Jamie Diamond sounded like you earlier this week speaking to Francine lacro I'm not sure if you've seen the conversation.

I'll bring you one of the quotes.

I'll bring you one of the quotes.

There's a lot of inflationary forces in front of us, he said, but it gave us a list of reasons, a list of reasons that you've given us before, the green, economic remilitarization, infrastructure spending, trade disputes, large fiscal deficits. What exactly is this FED a reserve fighting?

There's a lot of inflationary forces in front of us, he said, but it gave us a list of reasons, a list of reasons that you've given us before, the green, economic remilitarization, infrastructure spending, trade disputes, large fiscal deficits. What exactly is this FED a reserve fighting?

So first of all, Jamie and I have been on the same wavelength for a while, so thank you for saying that. Look, this is a reactive feed. This is a data dependent FED. So when Jamie and others list the things look going forward that are inflation in nature, that's not something that the FED talks about. The FED talks about the latest set of data and that we're going to continue having a reactive FED. Because this is a FED that loss self confidence back in twenty twenty one when they try to be strategic and got the call horribly wrong. So what is the safest thing to do is to become data dependent and that's where.

So first of all, Jamie and I have been on the same wavelength for a while, so thank you for saying that. Look, this is a reactive feed. This is a data dependent FED. So when Jamie and others list the things look going forward that are inflation in nature, that's not something that the FED talks about. The FED talks about the latest set of data and that we're going to continue having a reactive FED. Because this is a FED that loss self confidence back in twenty twenty one when they try to be strategic and got the call horribly wrong. So what is the safest thing to do is to become data dependent and that's where.

The FED is So no strategic chutcare, which is what you've talked about repeatedly, and hypersensitive from data point to data point. Ultimately, what does that mean for financial markets? Lots of volatility, bit trending higher.

The FED is So no strategic chutcare, which is what you've talked about repeatedly, and hypersensitive from data point to data point. Ultimately, what does that mean for financial markets? Lots of volatility, bit trending higher.

Yes, as long as these the whiff I want to stress it's a whiff of stagflation doesn't turn into something stronger.

Yes, as long as these the whiff I want to stress it's a whiff of stagflation doesn't turn into something stronger.

Snackflactory winds, I think is what you've called them.

Snackflactory winds, I think is what you've called them.

Correct, correct, And that's what you have to keep an eye on, is that we don't want that to become something much stronger.

Correct, correct, And that's what you have to keep an eye on, is that we don't want that to become something much stronger.

When you say the FED is data dependent, how dangerous is that when you have revisions like we had this week with the PPI report.

When you say the FED is data dependent, how dangerous is that when you have revisions like we had this week with the PPI report.

No, it's very dangerous. It's dangerous first because the data is very noisy, both in terms of month to month, but also in terms of revisions. Is also dangerous because the data's backward looking and the tools act with a lag. So this is not where you want to be. And that articles was another one yesterday where that they're trying to encourage the FED to be more self confident and look forward and be less data dependent.

No, it's very dangerous. It's dangerous first because the data is very noisy, both in terms of month to month, but also in terms of revisions. Is also dangerous because the data's backward looking and the tools act with a lag. So this is not where you want to be. And that articles was another one yesterday where that they're trying to encourage the FED to be more self confident and look forward and be less data dependent.

When you talk about potentially stagflationary winds.

When you talk about potentially stagflationary winds.

I recently caught up with the former World Bank head David Malpass.

I recently caught up with the former World Bank head David Malpass.

He's been talking about this for a while.

He's been talking about this for a while.

Where exactly would you see that showing up if we were to see stagflation?

Where exactly would you see that showing up if we were to see stagflation?

Where exactly would you be looking so?

Where exactly would you be looking so?

And may you talked about it earlier? Listen to the corporate calls that telling you that certain segments of the consumer base are already having problems. Listen to the previous interview, which was a very bullish interview about the economy, but there was an admission right there that if anything happens to the labor market, we have no buffers, we have no spare tires, that balance sheets have really deteriorated. John mentioned what happened in the interview where it's every segment of the population that's now running much higher balances. So we no longer have pandemic savings. We have higher balances on credit cards, we have higher interest rates, so we totally dependent on wage income. And if anything happens to the labor market, which I hope it doesn't, but if anything happens, then we are going to slow down really quickly.

And may you talked about it earlier? Listen to the corporate calls that telling you that certain segments of the consumer base are already having problems. Listen to the previous interview, which was a very bullish interview about the economy, but there was an admission right there that if anything happens to the labor market, we have no buffers, we have no spare tires, that balance sheets have really deteriorated. John mentioned what happened in the interview where it's every segment of the population that's now running much higher balances. So we no longer have pandemic savings. We have higher balances on credit cards, we have higher interest rates, so we totally dependent on wage income. And if anything happens to the labor market, which I hope it doesn't, but if anything happens, then we are going to slow down really quickly.

But Muhammed, this is the thing I mean you've hit the nail on the head, is that the data is uneven. We're seeing a divergence between different types of consumers, except perhaps when it comes to some of the.

But Muhammed, this is the thing I mean you've hit the nail on the head, is that the data is uneven. We're seeing a divergence between different types of consumers, except perhaps when it comes to some of the.

Credit card data.

Credit card data.

The data was built a long time ago when we didn't have that type of divergence. It was trying to capture an American economy that was a monolith do we have the right tools to even evaluate the American economy at this point.

The data was built a long time ago when we didn't have that type of divergence. It was trying to capture an American economy that was a monolith do we have the right tools to even evaluate the American economy at this point.

So, Danny, that's a really important point. And also it explains and Marie's point as to why the person in the street doesn't feel as good as the macrodata suggests. Look, during the pandemic, we had this wonderful moment where we realized that our existing databases were too partial, and we moved quickly to high frequency data, and suddenly we were living in this world where we were as economists, we were much more focused on let's get the best data, let's get high frequency data. When we got out of the pandemic, we went back to the old world, and we don't use the high frequency data enough. Now our efforts being made at the NBR and elsewhere to try and incorporate that high frequency data. The big problem that we don't talk about is that the providers of those high frequency data, who used to provide it free, are now charging money. So when you charge money, guess what happens. The access to that data goes down. So this is an issue that's being discussed in the economic profession.

So, Danny, that's a really important point. And also it explains and Marie's point as to why the person in the street doesn't feel as good as the macrodata suggests. Look, during the pandemic, we had this wonderful moment where we realized that our existing databases were too partial, and we moved quickly to high frequency data, and suddenly we were living in this world where we were as economists, we were much more focused on let's get the best data, let's get high frequency data. When we got out of the pandemic, we went back to the old world, and we don't use the high frequency data enough. Now our efforts being made at the NBR and elsewhere to try and incorporate that high frequency data. The big problem that we don't talk about is that the providers of those high frequency data, who used to provide it free, are now charging money. So when you charge money, guess what happens. The access to that data goes down. So this is an issue that's being discussed in the economic profession.

Do you see mistakes being made this time around being the reverse of the mistakes mate. Last time around, coming out of the Great Financial Crisis, we were all waiting for the economy to go back to what it used to look like, and it never did. And it took a while for everyone to start agreeing with Larry Summers, and they eventually did. And coming out of the pandemic, cultually we're waiting for the economy to go back to what it used to look like, and maybe it never will. And we heard this from Bridgewater this week at the Qatar Economic forumpowered by Bloomberg. When Bridgewater is near Bardea said, don't use the playbook for the last ten to fifteen years for the next ten to fifteen years. So let's maybe park next month's data, next quarter's data. What are you looking at right now for the next decade or so, what do you expecting?

Do you see mistakes being made this time around being the reverse of the mistakes mate. Last time around, coming out of the Great Financial Crisis, we were all waiting for the economy to go back to what it used to look like, and it never did. And it took a while for everyone to start agreeing with Larry Summers, and they eventually did. And coming out of the pandemic, cultually we're waiting for the economy to go back to what it used to look like, and maybe it never will. And we heard this from Bridgewater this week at the Qatar Economic forumpowered by Bloomberg. When Bridgewater is near Bardea said, don't use the playbook for the last ten to fifteen years for the next ten to fifteen years. So let's maybe park next month's data, next quarter's data. What are you looking at right now for the next decade or so, what do you expecting?

So first of all, I think the big mistake coming out of global financial crisis was to assume the shock was cyclical if you like, like a V and not too realized it was secular, thus Pinkle's new normal, which came early on in two thousand and nine. I think the big issue right now is that we as a profession and we as a market are too influenced by what happened after the global financial crisis. We believe, somehow still in the back of our mind that law interest rates, very low interest rates are the norm, not the exception. We believe that inflation is not an issue. So look what has happened to the Fed. The Fed pivoted on the basis of data. It was the opposite of the pivot they did in December when they pivoted on basis. Now they have to do a U turn. As they're doing the U turn and say higher for longer, the market is going the other way. So you saw what happened to the two years, So what happened to.

So first of all, I think the big mistake coming out of global financial crisis was to assume the shock was cyclical if you like, like a V and not too realized it was secular, thus Pinkle's new normal, which came early on in two thousand and nine. I think the big issue right now is that we as a profession and we as a market are too influenced by what happened after the global financial crisis. We believe, somehow still in the back of our mind that law interest rates, very low interest rates are the norm, not the exception. We believe that inflation is not an issue. So look what has happened to the Fed. The Fed pivoted on the basis of data. It was the opposite of the pivot they did in December when they pivoted on basis. Now they have to do a U turn. As they're doing the U turn and say higher for longer, the market is going the other way. So you saw what happened to the two years, So what happened to.

The ten year?

The ten year?

And then there are two really problematic issues that we don't talk enough. How sensitive are the stubborn components of inflation to interest rates? They're not very sensitive. That's problem number one. Problem in number two, what indications are we getting off The economy is slowly weakening. So it weighses the issue that once again the Fed is going to have to pivot, this time not on the basis of the inflation numbers, but on the basis of the real economy numbers. It will pivot yet again. And then there's the big issue that I know no one wants to discuss, and I insist stand that fully is the inflation target the right target. We all talk about wanting to go back to two percent. Every single quote you had this morning, YEP, assumes that two percent is the right inflation target. Two percent total arbitrary. But I understand why no one wants to talk about this. But we should all realize that if we are pursuing the wrong inflation target, the risk of a mistake, and that mistake would mean sacrificing growth unnecessarily. The risk of that mistake is high, especially when the low income people are most at risk.

And then there are two really problematic issues that we don't talk enough. How sensitive are the stubborn components of inflation to interest rates? They're not very sensitive. That's problem number one. Problem in number two, what indications are we getting off The economy is slowly weakening. So it weighses the issue that once again the Fed is going to have to pivot, this time not on the basis of the inflation numbers, but on the basis of the real economy numbers. It will pivot yet again. And then there's the big issue that I know no one wants to discuss, and I insist stand that fully is the inflation target the right target. We all talk about wanting to go back to two percent. Every single quote you had this morning, YEP, assumes that two percent is the right inflation target. Two percent total arbitrary. But I understand why no one wants to talk about this. But we should all realize that if we are pursuing the wrong inflation target, the risk of a mistake, and that mistake would mean sacrificing growth unnecessarily. The risk of that mistake is high, especially when the low income people are most at risk.

I know how much criticism you get every time you bring this up, because you've been bringing it up with me for the best part of twelve months, maybe longer. Now. If we go back to the Jackson Hole speech from chairm and Powell in August of twenty two, when he talked about pain being required to get inflation under control, then the experience of the last twelve months where we all got seduced by this idea that maybe we don't need pain whatsoever to get inflation back under control. Are you saying that the pain that's required to go from three to two just is not worth a squeeze.

I know how much criticism you get every time you bring this up, because you've been bringing it up with me for the best part of twelve months, maybe longer. Now. If we go back to the Jackson Hole speech from chairm and Powell in August of twenty two, when he talked about pain being required to get inflation under control, then the experience of the last twelve months where we all got seduced by this idea that maybe we don't need pain whatsoever to get inflation back under control. Are you saying that the pain that's required to go from three to two just is not worth a squeeze.

Correct.

Correct.

I'm saying that if you were to establishing an inflation target today based on the secular issues, and let's talk about it, the domestic paradigm is changing. We're no longer in this Washington consensus of deregulation, liberalization, fiscal prudence. We are in a world of industrial policy, government intervention, and fiscal irresponsibility. Let's talk about the international We're no longer talking about ever closer globalization, We're talking about fragmentation. Then look at the transitions we have. We have major transitions going on, not just generative AI, life sciences and sustainable energy. You have things happening in healthcare. You have things happening in defense, you have things happening in food security. If you put all that together, it is a different inflation environment. It's a world that's subject to higher inflation. And we've come from a world that was subject to lower inflation.

I'm saying that if you were to establishing an inflation target today based on the secular issues, and let's talk about it, the domestic paradigm is changing. We're no longer in this Washington consensus of deregulation, liberalization, fiscal prudence. We are in a world of industrial policy, government intervention, and fiscal irresponsibility. Let's talk about the international We're no longer talking about ever closer globalization, We're talking about fragmentation. Then look at the transitions we have. We have major transitions going on, not just generative AI, life sciences and sustainable energy. You have things happening in healthcare. You have things happening in defense, you have things happening in food security. If you put all that together, it is a different inflation environment. It's a world that's subject to higher inflation. And we've come from a world that was subject to lower inflation.

But if the world still has that recency bias in their mind that we're going to go back to two percent, their entire industries that are extending and pretending and hoping we're getting back there, think of the private capital world, for example. So if you have financial markets that have engineered themselves to be used to a low inflation world, they've been used to rates getting somewhere to two percent, what happens?

But if the world still has that recency bias in their mind that we're going to go back to two percent, their entire industries that are extending and pretending and hoping we're getting back there, think of the private capital world, for example. So if you have financial markets that have engineered themselves to be used to a low inflation world, they've been used to rates getting somewhere to two percent, what happens?

What happens if we don't get there?

What happens if we don't get there?

You're absolutely right. And yesterday, the whole news yesterday was about commercial real estate whether pot slowed. Right, we have recognized and more importantly, investors have recognized that there's evaluation issue ahead, and that's that's that's also an issue, is you have slower moving segments that we finance in a very discrete fashion that we're going to have to deal with.

You're absolutely right. And yesterday, the whole news yesterday was about commercial real estate whether pot slowed. Right, we have recognized and more importantly, investors have recognized that there's evaluation issue ahead, and that's that's that's also an issue, is you have slower moving segments that we finance in a very discrete fashion that we're going to have to deal with.

Absolutely right, Stocks on pause, with markets at a crossroad, Kenny Kaminsky of Out for Simplex right, in this the market seems to be polarized between two views, bullish view on equities and growth versus worry are the sticky inflation and higher for longer As a result, trend signals with long equities, with short fixed income, long dollar, and long commodities. Katie joins us. Now for more, Katie, let's just sort of break it down into its individual paths and start with the bond market. Last time we spoke, you said there were more reasons to be sure. What's happened in between conversations.

Absolutely right, Stocks on pause, with markets at a crossroad, Kenny Kaminsky of Out for Simplex right, in this the market seems to be polarized between two views, bullish view on equities and growth versus worry are the sticky inflation and higher for longer As a result, trend signals with long equities, with short fixed income, long dollar, and long commodities. Katie joins us. Now for more, Katie, let's just sort of break it down into its individual paths and start with the bond market. Last time we spoke, you said there were more reasons to be sure. What's happened in between conversations.

Well, I mean, we've really seen a pullback this month based on inflation coming not as hot as people might have been worried about, and so I think we're getting closer to a point where we might actually see cuts this year, and we know the Fed wants to cut.

Well, I mean, we've really seen a pullback this month based on inflation coming not as hot as people might have been worried about, and so I think we're getting closer to a point where we might actually see cuts this year, and we know the Fed wants to cut.

I think this trend it's been very confusing.

I think this trend it's been very confusing.

Look at bonds, they're trading a lot more like equities fall as high and on the year, bonds are down. So I think the really big question is going to be who wins. Is it the inflation narrative staying longer, or is it that equities are right that we can sort of smooth in too rate cuts this year. So far, signals are still short and fixed income because look at the long term trend, it's still there despite the recent pullback.

Look at bonds, they're trading a lot more like equities fall as high and on the year, bonds are down. So I think the really big question is going to be who wins. Is it the inflation narrative staying longer, or is it that equities are right that we can sort of smooth in too rate cuts this year. So far, signals are still short and fixed income because look at the long term trend, it's still there despite the recent pullback.

So if you can help us go through what your positioned for right now bottons versus commodities, and let's throw foreign exchange in there too.

So if you can help us go through what your positioned for right now bottons versus commodities, and let's throw foreign exchange in there too.

So I'd say, right now, what you see is that the.

So I'd say, right now, what you see is that the.

Short bond signals really tell you higher for longer.

Short bond signals really tell you higher for longer.

You're also seeing.

You're also seeing.

In the commodity markets, and I think that's the thing that we're watching the most massive moves and commodities this year. Commodity indices are up over ten percent. Take a at the preciss metals. Copper in particular has been up tremendously lately. So these are signs that are not talking about the consumer, but really talking about prices of raw goods. And I think you're still seeing that mixed picture where cross asset themes suggest higher for longer and concern that it's going to take longer to get over the inflation issue and get inflation down than people would like. It's very fascinating as well that the ECB might cut first. In some sense, that'll be a good proof point to see what happens when someone actually starts win a large economy like the starts cutting.

In the commodity markets, and I think that's the thing that we're watching the most massive moves and commodities this year. Commodity indices are up over ten percent. Take a at the preciss metals. Copper in particular has been up tremendously lately. So these are signs that are not talking about the consumer, but really talking about prices of raw goods. And I think you're still seeing that mixed picture where cross asset themes suggest higher for longer and concern that it's going to take longer to get over the inflation issue and get inflation down than people would like. It's very fascinating as well that the ECB might cut first. In some sense, that'll be a good proof point to see what happens when someone actually starts win a large economy like the starts cutting.

Let's go there, then, Katie, what are you looking for? What are the risks and potential takeaways from the reaction to the bond market to the ECB that you can apply to the US.

Let's go there, then, Katie, what are you looking for? What are the risks and potential takeaways from the reaction to the bond market to the ECB that you can apply to the US.

Well, if you look at inflation data, it looks steadier in the Eurozone, and the Eurozone has definitely seen more restrictive effects of policy, and thus they're Like your previous guest said, more positioned to kind of have to deal with that issue. The US is more confusing because the data is just.

Well, if you look at inflation data, it looks steadier in the Eurozone, and the Eurozone has definitely seen more restrictive effects of policy, and thus they're Like your previous guest said, more positioned to kind of have to deal with that issue. The US is more confusing because the data is just.

Much more mixed.

Much more mixed.

So it'll be interesting to see how the market actually reacts. And if indeed we do see a pop up in inflation, which is sort of your upside risk in the Eurozone, then it's really going to get interesting this summer. So there's really a lot of things that can cause markets to be very trendy but also very volatile as we try and navigate this pivot.

So it'll be interesting to see how the market actually reacts. And if indeed we do see a pop up in inflation, which is sort of your upside risk in the Eurozone, then it's really going to get interesting this summer. So there's really a lot of things that can cause markets to be very trendy but also very volatile as we try and navigate this pivot.

And that's exactly what we've had, Katie. We've had huge amounts of volatility. You and the team have done the research that bond volatility is something like fifty percent above its pre tw twenty two level. That's great for you in the team at Alpha Simplex, who can trade in and out of bonds. What about the rest of investors, Katie, that view bonds as something that you buy and you hold. How does it change things when you see this market that's known for being stayed, being more volatile, in some cases more than equities and more than FX.

And that's exactly what we've had, Katie. We've had huge amounts of volatility. You and the team have done the research that bond volatility is something like fifty percent above its pre tw twenty two level. That's great for you in the team at Alpha Simplex, who can trade in and out of bonds. What about the rest of investors, Katie, that view bonds as something that you buy and you hold. How does it change things when you see this market that's known for being stayed, being more volatile, in some cases more than equities and more than FX.

This is a very good point, and I think it's the biggest and most important thing for investors to take home when you're thinking about bonds as a risk off asset, as a risk free, safe haven asset. That is not the case an environment when inflation comes into play. In fact, bond stock correlation has been positive for quite some time, and bond volatility is higher. Like I said, bonds trade a little bit more like equities. This means that investors need to look around and find things that actually like inflation and like this type of environment, that actually complement their portfolios, because you just don't have that flight to safety in the traditional sense. When we think about stocks going down, we think about bonds being there as are ballast, and in fact, when we're dealing with inflation, that ballast is just not as good.

This is a very good point, and I think it's the biggest and most important thing for investors to take home when you're thinking about bonds as a risk off asset, as a risk free, safe haven asset. That is not the case an environment when inflation comes into play. In fact, bond stock correlation has been positive for quite some time, and bond volatility is higher. Like I said, bonds trade a little bit more like equities. This means that investors need to look around and find things that actually like inflation and like this type of environment, that actually complement their portfolios, because you just don't have that flight to safety in the traditional sense. When we think about stocks going down, we think about bonds being there as are ballast, and in fact, when we're dealing with inflation, that ballast is just not as good.

So are there strategies ben Katie that going forward should cease to exist that investors shouldn't be looking into anymore. I'm thinking of the risk parody, the sixty forties. We've talked about the death of them for a long time. It hasn't happened.

So are there strategies ben Katie that going forward should cease to exist that investors shouldn't be looking into anymore. I'm thinking of the risk parody, the sixty forties. We've talked about the death of them for a long time. It hasn't happened.

Is this it?

Is this it?

No?

No?

I would say they still are there as an important tool in your portfolio, but you just your portfolio isn't complete. You need to start thinking about what assets will benefit from changes in inflation. Things like commodity exposure, things like assets that have real estate, for example. So really sort of diversifying your portfolio to be aware of the potential vulnerabilities of fixed cash flows in an inflation environment.

I would say they still are there as an important tool in your portfolio, but you just your portfolio isn't complete. You need to start thinking about what assets will benefit from changes in inflation. Things like commodity exposure, things like assets that have real estate, for example. So really sort of diversifying your portfolio to be aware of the potential vulnerabilities of fixed cash flows in an inflation environment.

Hey, Katie, I think you said it at the start of the conversation. The risk mitigation characteristics required depends on what you think the dominant risk actually is and when it goes through your quote again, the market seems to be a rise between two views, a bullish few on equities and growth versus over sticky inflation and high for longer. What are the two ballats you need in the portfolio to account for some of the risks out there, given how polarized they are at the moment.

Hey, Katie, I think you said it at the start of the conversation. The risk mitigation characteristics required depends on what you think the dominant risk actually is and when it goes through your quote again, the market seems to be a rise between two views, a bullish few on equities and growth versus over sticky inflation and high for longer. What are the two ballats you need in the portfolio to account for some of the risks out there, given how polarized they are at the moment.

This is a good point because usually we just worry about recession.

This is a good point because usually we just worry about recession.

We worry about equities going down.

We worry about equities going down.

Right now, we have to worry about the impact of inflation. And that's precisely the risk that you saw manifest itself in April.

Right now, we have to worry about the impact of inflation. And that's precisely the risk that you saw manifest itself in April.

I know we've already forgotten about it after last.

I know we've already forgotten about it after last.

Week's this week's big rally, but the truth is, the key risks that we're facing is more that inflation is really causing stress in our system and thus a risk for investors is very different from a pre COVID type of risk, where we're thinking about how inflation will affect all of the assets that we hold and will cause divergence across both monetary policy and also across regions geographically.

Week's this week's big rally, but the truth is, the key risks that we're facing is more that inflation is really causing stress in our system and thus a risk for investors is very different from a pre COVID type of risk, where we're thinking about how inflation will affect all of the assets that we hold and will cause divergence across both monetary policy and also across regions geographically.

And this takes us to the commodity market, which you've already referenced. It's a broad place, a broad space, Katie. What would you pick out in a commodity market now? Is it bise, metsos, precious metsos, fossil fuels, Where do you want to bathe?

And this takes us to the commodity market, which you've already referenced. It's a broad place, a broad space, Katie. What would you pick out in a commodity market now? Is it bise, metsos, precious metsos, fossil fuels, Where do you want to bathe?

So so far are the things that have really been working this year.

So so far are the things that have really been working this year.

I mean, take a look at copper, cocoa, some of these big commodities that have moved. I highlighted that the index is up over eleven percent.

I mean, take a look at copper, cocoa, some of these big commodities that have moved. I highlighted that the index is up over eleven percent.

But you're also.

But you're also.

Seeing, I think the most interesting trend to start watching. The one sector that has been disinflationary this year to date has been agriculturals. And you've actually seen things like corn, wheat, soy, many of the agricultural products actually starting to pivot for the first time just as we're talking about cuts. So that to me is very interesting. Watch energy, it's continued to move up as well. So all of these things are definitely putting a headwind against this inflation narrative, and they're going to make this more tricky this.

Seeing, I think the most interesting trend to start watching. The one sector that has been disinflationary this year to date has been agriculturals. And you've actually seen things like corn, wheat, soy, many of the agricultural products actually starting to pivot for the first time just as we're talking about cuts. So that to me is very interesting. Watch energy, it's continued to move up as well. So all of these things are definitely putting a headwind against this inflation narrative, and they're going to make this more tricky this.

Summer, Katie. One metal you didn't mention is gold continues to rise.

Summer, Katie. One metal you didn't mention is gold continues to rise.

But there's a lot of different reasons why some strategists say it will continue on this trajectory.

But there's a lot of different reasons why some strategists say it will continue on this trajectory.

What do you make of gold descent?

What do you make of gold descent?

So gold is often seen as a great safe haven investment for inflation, and so what was interesting to me is just to watch the tremendous acceleration in gold around the time where people started to get reconcerned about.

So gold is often seen as a great safe haven investment for inflation, and so what was interesting to me is just to watch the tremendous acceleration in gold around the time where people started to get reconcerned about.

Inflation, particularly April. But what's even more interesting is that it's continued into May.

Inflation, particularly April. But what's even more interesting is that it's continued into May.

So it seems in some sense that people are thinking about gold as their safe haven asset instead of bonds, given the volatility and the risk off properties dissipating in those assets. So I think gold is something to watch as a barometer of how people feel about the realities of inflation.

So it seems in some sense that people are thinking about gold as their safe haven asset instead of bonds, given the volatility and the risk off properties dissipating in those assets. So I think gold is something to watch as a barometer of how people feel about the realities of inflation.

Katy.

Katy.

Thank you, Kitty Convinsky that of aphasimplex, FED officials maintaining the Central Bank should hold rights higher for longer while the ACP gives up to begin counting next month. Jill MOWAKAVACSA Group saying this, we are con about the risk of an intellectual contagion from the debates in the US. The is asymmetric across the Atlantic. Reading Europe with American lenses could lead to costly policy mistakes. She'll joined us now for more wonderful perspectives.

Thank you, Kitty Convinsky that of aphasimplex, FED officials maintaining the Central Bank should hold rights higher for longer while the ACP gives up to begin counting next month. Jill MOWAKAVACSA Group saying this, we are con about the risk of an intellectual contagion from the debates in the US. The is asymmetric across the Atlantic. Reading Europe with American lenses could lead to costly policy mistakes. She'll joined us now for more wonderful perspectives.

Do you see that as a.

Do you see that as a.

Very real and evident risk right now? In Europe?

Very real and evident risk right now? In Europe?

As usual?

As usual?

The US market is is the dominant market of the world, and there might be a sense in Europe that diverging too much from what the Fed is is about to do or about not to do, would actually trigger a further weakening of our currency, which in turn would trigger more imported in inflation and would make our own progress towards our inflation target harder to hit. So there is this contagent channel which which is pretty traditional in policy making in Europe. But what I would venture is that first of all, the inflation story in Europe clearer than in the US. It's heading down, I think, in a more obvious manner than the US. And second, when we still have issues with our inflationary process in Europe, it does not it doesn't have anything to do with important inflation. It's usually about domestic forces, services inflation in particular. So even if we had a further degociation of the euro in case of a growing divergence with the FED, I don't think it would massively change the picture for our inflation forecast.

The US market is is the dominant market of the world, and there might be a sense in Europe that diverging too much from what the Fed is is about to do or about not to do, would actually trigger a further weakening of our currency, which in turn would trigger more imported in inflation and would make our own progress towards our inflation target harder to hit. So there is this contagent channel which which is pretty traditional in policy making in Europe. But what I would venture is that first of all, the inflation story in Europe clearer than in the US. It's heading down, I think, in a more obvious manner than the US. And second, when we still have issues with our inflationary process in Europe, it does not it doesn't have anything to do with important inflation. It's usually about domestic forces, services inflation in particular. So even if we had a further degociation of the euro in case of a growing divergence with the FED, I don't think it would massively change the picture for our inflation forecast.

So you think they should emphasize the importance of the effects channel. Is that right?

So you think they should emphasize the importance of the effects channel. Is that right?

Yes?

Yes?

And that was something that was very obvious in the latest minutes of the the cd Governing Council that clearly spent quite a bit of time talking about inflation in the US, talking about what it meant for the FED uh And and again it's obvious the FED is the biggest, the most important central bank of the world. You could not completely ignore it. But our inflation story on this point is it's very different.

And that was something that was very obvious in the latest minutes of the the cd Governing Council that clearly spent quite a bit of time talking about inflation in the US, talking about what it meant for the FED uh And and again it's obvious the FED is the biggest, the most important central bank of the world. You could not completely ignore it. But our inflation story on this point is it's very different.

Danny mentioned what we heard from is about Schnabel in the Japanese newspaper Nike saying, based on current data, a rakecom in July does not seem warranted. You know, based on what you just said, what's your reaction to that communication from a key executive board member.

Danny mentioned what we heard from is about Schnabel in the Japanese newspaper Nike saying, based on current data, a rakecom in July does not seem warranted. You know, based on what you just said, what's your reaction to that communication from a key executive board member.

I think you know, it's interesting on the positive side, if you want to, we're in the on the dubbish site it's usually my tribe, it's starts. They're already talking about the next cut. The June cut seems to be completely in the back, which in a way you could find reassuring coming from someone like slish Level, who can be a hawk. But you can see how the conversation is already focusing on, well, we have to be very careful, we have to be very very patient, very slow in our in our own process, and the risk there is that you end up proving actually under shooting your own inflation, your own inflation target. And it's not a theoretical issue. The Central Bank of Sweden has just had to to cut trades without waiting the CD or without waiting for the fair and when you look at their own inflection forecast are already they already have inflation below two percent in the latest forecast we've had from the Bank of England, same thing for twenty twenty six. They're clearly concerned that inflecation could fall below two percent. So I understand we need to be prudent. And as far as I know, no one is calling for a weight cut in July. Ascertainly, I'm not calling for a weight cut in July. In September would be fine after up to June, but it's a sign of the ongoing tension within the Governing Council. The debate has shifted from should we cut or no, that's fine to how quickly? And the fivenessionable is already warning against a July cut. I think you know betrays this and reflects this. This this internal tension at the Governing Council.

I think you know, it's interesting on the positive side, if you want to, we're in the on the dubbish site it's usually my tribe, it's starts. They're already talking about the next cut. The June cut seems to be completely in the back, which in a way you could find reassuring coming from someone like slish Level, who can be a hawk. But you can see how the conversation is already focusing on, well, we have to be very careful, we have to be very very patient, very slow in our in our own process, and the risk there is that you end up proving actually under shooting your own inflation, your own inflation target. And it's not a theoretical issue. The Central Bank of Sweden has just had to to cut trades without waiting the CD or without waiting for the fair and when you look at their own inflection forecast are already they already have inflation below two percent in the latest forecast we've had from the Bank of England, same thing for twenty twenty six. They're clearly concerned that inflecation could fall below two percent. So I understand we need to be prudent. And as far as I know, no one is calling for a weight cut in July. Ascertainly, I'm not calling for a weight cut in July. In September would be fine after up to June, but it's a sign of the ongoing tension within the Governing Council. The debate has shifted from should we cut or no, that's fine to how quickly? And the fivenessionable is already warning against a July cut. I think you know betrays this and reflects this. This this internal tension at the Governing Council.

Gee, what I what I can understand is what's even the point then of cutting in June? What difference does it make if you cut in June and then you pause for a while.

Gee, what I what I can understand is what's even the point then of cutting in June? What difference does it make if you cut in June and then you pause for a while.

Let's say you go in September.

Let's say you go in September.

We're talking about twenty five basis points here, we're talking about only a few months apart.

We're talking about twenty five basis points here, we're talking about only a few months apart.

Why is this such a vigorous debate?

Why is this such a vigorous debate?

It's I think it's it's a vigorous debate because the inflection point in your stance is always the most important one. Because obviously the CB has been hiking for a while, as continued hiking later than the FED that it stopped three months before before the ECB. So there's a lot of symbolic and policy focus around the infection point when do you start cutting? Because everyone knows that once you started cutting. Well, it's usually the beginning of a trajectory, and it can may come in July, it may come in September. It doesn't really matter. You are on the downward trend. So the biggest fight, if you want, was on should we cut it all. That's now completely in the bag. Now we're talking about the trajectory and that. I think it's actually less problematic if the CB waits for two or three months after having provide this first cut, because the entire market will know. Okay, you know, it may take a bit of time, but the direction of trouble is super clere.

It's I think it's it's a vigorous debate because the inflection point in your stance is always the most important one. Because obviously the CB has been hiking for a while, as continued hiking later than the FED that it stopped three months before before the ECB. So there's a lot of symbolic and policy focus around the infection point when do you start cutting? Because everyone knows that once you started cutting. Well, it's usually the beginning of a trajectory, and it can may come in July, it may come in September. It doesn't really matter. You are on the downward trend. So the biggest fight, if you want, was on should we cut it all. That's now completely in the bag. Now we're talking about the trajectory and that. I think it's actually less problematic if the CB waits for two or three months after having provide this first cut, because the entire market will know. Okay, you know, it may take a bit of time, but the direction of trouble is super clere.

I get that, But I mean, is it the same this time around? I mean, this isn't a classic cutting cycle as most of us know it. This isn't a recession that the ECB needs to get somewhere in a hurry, as you say, They can take their time.

I get that, But I mean, is it the same this time around? I mean, this isn't a classic cutting cycle as most of us know it. This isn't a recession that the ECB needs to get somewhere in a hurry, as you say, They can take their time.

This is more of a mid cycle tweak.

This is more of a mid cycle tweak.

So can we really look at it the same way that this is as big of an inflection point as it usually is when an ECB, when a central bank starts to cut.

So can we really look at it the same way that this is as big of an inflection point as it usually is when an ECB, when a central bank starts to cut.

I think it's still it really still matters because you precisely because we've got this issue of potential divergence with the FED. There is in the market a very strongly held belief that usually it's the FED which sets the tone. So I think that from a symbolic and more than a symbolic from a policy point of view, that the ECB would in June take the risk of diverging for the FED, making its this for itself without necessarily waiting for what happens across the Atlantic. I think it's a very very strong signal that indeed, monetary policy in Europe is decided based on the inflationary process. In Europe we cannot entirely ignore whatever comes from the action rate channel, whilst ninety percent of our decision making should be based on domestic and domestic development. So I agree with you there is a recession we need to deal with at this moment, but I think the CP needs to send this very clear message to the rest of the world really and to public opinion in Europe. We make our decisions based on what is good for Europe, and the fact that the FED is facing currently difficulties with a less clear disinflationary process should not stop THECP from making the right decisions.

I think it's still it really still matters because you precisely because we've got this issue of potential divergence with the FED. There is in the market a very strongly held belief that usually it's the FED which sets the tone. So I think that from a symbolic and more than a symbolic from a policy point of view, that the ECB would in June take the risk of diverging for the FED, making its this for itself without necessarily waiting for what happens across the Atlantic. I think it's a very very strong signal that indeed, monetary policy in Europe is decided based on the inflationary process. In Europe we cannot entirely ignore whatever comes from the action rate channel, whilst ninety percent of our decision making should be based on domestic and domestic development. So I agree with you there is a recession we need to deal with at this moment, but I think the CP needs to send this very clear message to the rest of the world really and to public opinion in Europe. We make our decisions based on what is good for Europe, and the fact that the FED is facing currently difficulties with a less clear disinflationary process should not stop THECP from making the right decisions.

Jill Enjoy talking about this as always, sir, it's tuite to catch up. Joe Marrick. There of access. This is the Bloomberg Survenance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.

Jill Enjoy talking about this as always, sir, it's tuite to catch up. Joe Marrick. There of access. This is the Bloomberg Survenance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.