Global Growth Outlook Post-CPI

Published May 16, 2024, 2:38 PM

Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene and Paul SweeneyMay 16th, 2024
Featuring:

  • Constance Hunter, Senior Advisor at MacroPolicy Perspectives, on her case for continued growth and the timing of rate cuts
  • Paul Sankey, Lead Analyst at Sankey Research, on the OPEC+ June 1st meeting and the outlook for energy
  • Lakshman Achuthan, co-founder at ECRI, on a global growth upturn, but why it's a double-edged sword
  • Bloomberg's Lisa Mateo with her Newspaper Headlines


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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App. Joining us now, Constance Hunter. We're thrilled that she could join this morning. A constant thank you. What changed yesterday? Just as simple you're writing a single paragraph today to your clients.

What changed confirmation that inflation is still on its downward trajectory. That confidence was shaken about inflation when you got that data for the first three months of the year yesterday. It confirmed finally, oh, we are is starting to soften. Rent prices are starting to soften. It was a print that showed we are moving in the right direction and we are going to get rate cuts.

This year. You and Julia Cornello fight like cats and dogs at micro policy perspectives. But what's the distinction of your debate when you and doctor cornetto speak.

So what we're debating is which comes first?

Right?

Does inflation allow the Fed to cut rates because they see that trajectory to two percent clearly and they cut in time? Or are they behind the curve? Are we seeing softening in the labor market that ends up overtaking the story whereby they end up being behind the curve and that has really significant impact for whether that rate cut continues to fuelable market or not. Whether we see with on the underlying economy the shape of the curve, two very different outcomes if they're before or behind the curve.

Well, as an article in the Jersey Real Estate I understand there's dynamics with mortgages, but the prices are up like double digits.

Yeah, I mean we're the slowdown stuff's moving in Jersey. That's for short.

What if you think whatever comes on the market constances. There's a lot of academics and market practitioners at that time, and I talked to that say the Fed's already behind Then if you look at the real time data inflation is already done. They should be cutting. Now what do you say to those folks.

I think they have a very good point. They have a very good point.

The problem is, I mean, I was at forecasters club yesterday and you were a.

Club for forecasters. Yes, what do you guys?

Once again?

And Wong is the representatives.

And keep it up constance.

In any case, we you would be surprised how many people thought that the Fed a need to cut. That the economy is strong, and it is this K shaped economy again, which makes it very hard to interpret. Right, If you're in the top part of the K, you think, Wow, everything's great, but my stocks.

Are up, I'm getting interest on my savings and.

With no risk, the economy is doing really well, my house prices up. But if you're in that bottom part of the K, you're like, wow, my insurance, my car insurance just went up and I still need my car to drive to work, and I don't have the bandwidth to figure out how to push back on this or shop for a different insurance carrier that's going to give me the same coverage at a better rate. Right, You're really under pressure if you're at the bottom half of that K. That's what we saw in the New York Fed data that came out with regard to creeping up with delinquencies on credit cards, creeping up with delinquencies on auto loans. Mortgages are still low. That's obviously a very good thing.

But so we got Walmart today put out some numbers which were a little bit better and expected, particularly on the top line. I always look at Walmart, it just says the neophyte is like a pretty good read on the consumer, but the consumer really is challenged, and it's that K shaped recovery here.

What happened? There's nothing really the Fed can do there can it?

There is nothing the Fed can do there.

I mean, well, I shouldn't say, but I shouldn't say that lower lower rate. So we have an inverted yield curve, which is obviously very problematic for banks, right, and banks that's why we see such high spreads over ten years on mortgages. Banks aren't is willing to lend, and so if we had a positive sloping yell curve, ergo the front part of the curve was lower, right, we would see more willingness to lend. We'd see easier monetary conditions from Main Street. What we see is easy monetary kitchen editions for Wall Street.

They're two different things.

Sinson say, Ergo is still she started working with Julia Canado. It's changed everything. It okay, Atlanta. GDP now is four point two percent real GDP, which we know is a fiction and through the quarter will come down. It came down to three point eight. Where's that statistic can a migrate down to? Is if we staggered at June thirtieth.

Yeah, we're looking at something around a two point two two point four percent most like.

We call that.

Okay, that's oh, it's I mean, that's that's if you think potential GDP is one point eight or two, that's a little better than okay, right, if you compound it two tenths of a percent, better than better than trend for you know, months on end or quarters on end, that is a go.

All the gains with the stimulus and the financialization of our system, are all the gains going to the halves.

I don't know that that's the case.

I think a lot of what we're seeing with the Inflation Reduction Act, the Chips Act, the infrastructure is jobs to middle income people, we're seeing. We're seeing good jobs going out into the economy that are that are important. So I wouldn't say it's all going to the halves.

How about on that labor market still below four percent unemployment rate, I mean, I don't is a labor market is strongest seems on that headline kind of number.

So this is where we again have some concerns. So we do webscraping of earnings calls, and we monitor for intention to hire and intention to fire. And so what we're seeing is less labor hoarding. Right, Firms don't feel the need to labor hoard anymore.

They've deployed.

I never heard of before the last few years.

But by the way, well it wasn't a thing before the last few years. It was it was because of the pandemic where where companies couldn't get workers. That once things softened up a little, they're like, well, I don't want to lose it's hard to hire, it's expensive, it's time consuming. Right, Better to reduce people's hours and keep them on the payroll for when you're going to need them later than to.

Go ahead and fire them.

So that's we had labor hoarding as a reaction to the pandemic.

Constot but that's ending.

Yep, Constans, thank you, Constance Hunter. With US macro policy perspective is we're going to do something now focus on oil, which we really know usually we're talking copper now, coppers, coppers of oil. Paul Sankee joins now just absolutely definitive in this linkage of oil economics into actually oil stocks. We'll try to cover all this yere right now, Paul, just to get to the OPEC meeting? Are you going to attend? You sometimes you do?

You know this time it might go virtual actually, Tom so okay, and I wasn't prepared to commit to going even though it's the European Cup final soccer that night, June the first, it's also a Saturday.

Okay, it's complex. What's the power of opek now, you know all of us have a stereotype of two oil crises in the seventies or this or that or the other. What's the power of opek right now?

Well, we wrote a new theory about this which most people intuitively know, which is what really matters is not the call on OPEK, which is how people have calculated the oil market balance for years. We don't think that matters anymore as much at all as you're implying. We look the call on us unconventional because that's really the truly marginal short cycle oil. Now, of course, on top of that, you have the Saudi's willingness. We should say, everybody kind of has the ability to shut off production, but Saudi is willing to shut off production in order to.

Balance the market.

And OPEK is really a construct for the Saudis to feel better about having to carry the market, you know, So what they're trying to do is corral everyone else, even though in some cases, and the obvious example is Russia, you know, what they say is more or less meaningless is that you know, I won't go further than that, but you know, it's not reliable what they say essentially, which must be very frustrating to the Saudis, But essentially it is a Saudi construct in order for them to feel better about holding production off the market.

Paul, what is driving the oil price these days? Is it supply? Is a demand?

Does one end of that equation kind of have a little bit more sway these days?

Well, Tom and I have been talking for twenty years. In fact, I'm surprised he didn't do his usual thing of hammering me for a terrible call that me and Adam Siminski.

Made about Russia. Think it was the year like two thousand.

It was so bad that car was so bad aged. You know, I'm sorry bresnev aged when you made that car.

Continue to Conductor, saying, now, I think the big thing which is really remarkable to me in the context of that history, is that we're at all time high oil market demand.

You know, so demand is an all time high.

And if you'd asked me, do I think oil demand will be at one hundred and two million barrels a day?

You know, one point what is it?

One thy two hundred barrels a second in twenty twenty four, I would have thought you were crazy, But here we are. And that's so the demand side is truly remarkable. Now, of course, it's all about what happens at the margin, and demand is clearly weakening. So demand is good, but not not growing strongly at a record high. What's additionally absolutely remarkable. And twenty years ago we would never have guessed this was that you'd too much supply, and so as you know, there's two arguably four million barrels a day of spec capacity and OPEK, and of course we have the US as the dominant energy producer in the world, and you know, people still don't understand what an enormous deal that has been for everything that happens in the world, geopolitics, the dollar, you name it. The US performance here in order gas has been truly stunning. And the good news is that the companies have really improved themselves. They really are strong. I don't think i've seen Exon in better shape in that twenty year period.

They really are doing a remarkable job and they're not allowed. You know, a company like Karnco Chevron really good stuff.

So in that context, Paul, how does the US and as big producers you were just mentioning in the US, what's the interplay between them and OPEK in terms of shaping global oil supply.

Well, you know, it's been controversial because obviously you saw that the FTC wouldn't allow Scott Sheffield the board of Excellon because of concerns about that, and I think frankly they were simply naive the major US CEOs at times. They didn't you know, we had covered refining for twenty years and I would host refining managements, they wouldn't be in the same room as each other because they didn't want to be accused of anything by inappropriate in terms of managing the market. But of course the EMP guys had never had any market power up to the unconventional revolution, and when we got to too much supply, they began to talk a lot too opek and that at a headline level it was actually quite innocent. But at a headline level, at an FTC level, it looks pretty bad. To be honest with you, it just doesn't look good. And so there, you know, there has been some worries about that. But broadly speaking, the key issue is the behavior of the marginal US producer who is showing capital discipline, and so US production growth has slowed and may even go into decline depending on where the oil price is. And we think that's because Saudi can't cut any more. Essentially, we think that demand weakness will ultimately cause you know, prices that force US produced to produce less.

And that's to me is the dynamic or hence our called CUSP.

The call on US unconventional is actually the important measure here, not the call.

On open is big oil in America off your Exxon comments in the moonshot from the pandemic in sank I'm looking at Chevron right now. I got the same attribute pretty much. But is it a new big oil where you're looking at double digit returns versus single digit mediocrity.

Yeah, No, that's exactly right, Tom.

They're in the double digits and we always thought they could get there with capital discipline. Of course, you need oil above seventy. We're at eighty, so this is a good environment. The other thing that we're highlighting is that actually, believe it or not, there's lower oil volatility. I know it doesn't sound like it, but actually oil if volatility is falling, and that's very good for the multiples of these stocks, because you know, get very obviously get very nervous about a highly volatile commodity and whether or not.

To buy the equities.

What you'll notice is that we've held what we thought would be the range, which is essentially seventy WTI seventy five Brandt to eighty five WI ninety Brent.

And we've held that range quite well.

Very hopeful that we will continue to hold it, but of course that's dependent on this OPEC meeting that we started with because we do need TAUDI to keep holding at least a million barrels a day off the market in order to keep it balanced. In the past, as you know, COVID particularly, we saw a market share or amongst opek and that could be you know, that could be majorly volatile for all, which would be volatile to the downside if we get into that. But nobody's expecting that right now. The consensuses that will get a rollover in June first, and they may just do the meeting virtually in order to achieve that. They often do it if they want to avoid the press, and I think that's what will happen.

If it doesn't, I don't think they can come more.

The problem with the opening is there's only really downside here.

Paul Xoi Paul Sweeney xoi off the pandemic gloom up three hundred percent per year. That's a sanky move.

That was the same movie.

Hey, Paul, if I'm a big global oil energy company, am I still out there looking for oil out in the ocean and or out in the middle of nowhere?

Am I just going to go buy a company.

You're looking because we you know incredibly.

This is the other thing about the supply side is it's not just about unlocking the Permian. What we've seen here, as you know, is Guyana has been a remarkable discovery and we didn't think, you know, the peak oil argument of the two thousands that Tom and I used to talk about has really just become completely discredited. And Guyana's huge. But then if you look at Namibia, Namibia looks bigger. And if you look at a company like Portugal's Galp or Totar or Shell, they're all they're finding another Guyana might even be bigger than Guyana offshare and Namibia. So there's definitely the resurgence of off short activity because the Permian is getting more marginal in terms of its economics. You've drilled the good stuff and you're having to work through the benches over the next ten to fifteen years.

Paul, I got too many more questions. Let's do this again soon, Paul sank you of course, legendary on oil. Look for him for the OPEC meeting. Was it June first?

June first and first, Yeah, we.

Got lots of anchathon with us with that Creed. This is the most important interview of the day. To rationalize a bull market, I'm sorry Atrathon is more important than a diamond. Good morning Joe and the team over at JP Moworgan Loatchman here with a really quick thing on our economic cycles. Do the economic cycles, Loatchmen, that you look at do they justify a third leg of a bull market?

Short term?

Sure? And so let's cyclical is looking at a couple of quarters. It's not looking out forever. Structurally, plenty of things to think about and to give you pause in the way things are going. But cyclically, I think we don't want to miss the forest for the trees. We were in the boonies, right, We had a really bad global industrial downturn, a pandemic and all that. But even after that, it still kept going. It was hitting Europe, it was hitting China. Remember the beginning of twenty three, everybody thought China was going to come out the global industrial left term was going to be here, YadA, YadA, YadA.

Never happened.

Now at the end of twenty twenty three, our global industrial stuff, really the forward looking stuff, started lifting nicely. And that's a nice backdrop for Europe. It's a nice backdrop for China. It's a nice backdrop for goods demand. And I hear all of the happy talk around inflation. Okay, the rent stuff is not right, the insurance stuff is not right.

It's going to come down.

Everybody assumes, presumes that goods inflation is no problem. And what we're seeing is if global industrial growth is turning up, and it is, that puts a bid on good.

Paul, the chart here. We can't show it on radio. It doesn't We can show it on YouTube, but it doesn't work on radio. A lotman has a chart of the five year ahead GDP forecast. Yeah, and the only thing moving up is India in the United States, Paul. Everything else is stable, Japan's resilient. That but it's it's this US exceptionalism.

That's where I wanted to go.

Paul.

He's breaking a rule coming in here with highlighted research notes. Can you can you explain to him.

The lines of moving Paul, put that up in front of the camera for YouTube.

We don't allow this, Okay, pink highlighters work. The banned continued.

So about that US exceptionalism, how unusual is that for the US economy to generally be doing well three four percent whatever? It is versus your particularly Germany boy, and then and then China.

How is that unusual to have that decoupling, if you will, Well, certainly the last couple decades it is. This is the breakdown in China is off the charts, and you can see that with the pink highlights. Germany doesn't look good.

It's the sick man of Europe again.

US is up?

In India is up? Now, US is up.

I think part of it we have to look at the excess spending. I mean, that's a lot of money we pushed out over the last couple of years, and that may be influencing some things. And certainly India, you know the story. They've got some population growth and they have an opportunity to do investment for other productivity enhancing things, and so that's helping India. Everybody else is kind of in trouble on population growth and the productivity growth is you know, a big question mark, it's not a given.

What do you tell your clients these days about China?

I hear everything from uninvestable, which is kind of where I am to.

You can't ignore it. You got to be there. How do you guys think about it?

Well, structurally, you've got a problem. Ideologically, I'm not so sure right there. You know, you don't want someone making an edict and taking your money away. So those are real, big risk factors. Cyclically green light. Since the end of last year, cyclically it's been a green light. You have this global industrial growth upturn. About twenty percent of the Chinese economy gears off of exports, which are gearing right.

Those are gearing now.

Right now with US worldwide across this nation. Atathon Economic Economic psycho Research Institute EKREA, I got to brain freeze there, folks. It's been ring. We haven't seen the sun for four days.

Give me a break.

Coming up next, James Diamond after a latchman Atathon with Francy Laqua in Paris. I was showing a chair up today at work, the famed Ibbotson chart of Yale University, which, as Gartman would say, is from the lower left to the upper right. It is the exceptionalism of American capitalism, aren't. Goes back to Jeffreymore in the founding of ECKRE, how do you treat the immovable force which is stocks up?

Look, there is an upward trend which is undeniable in the US economy over decades like that, and there's no great reason for that to change.

On top of.

That, you have cycles, and right now we were to the upside, we can easily flip and go to the downside in a couple of quarters. This is a very tactical framework that we're using, and we're overlaying that on the structural Say when at your back that you're describing on this closed cycle, that Paul's question, like, how's the US bucking the trend up when everybody else is going down?

You know?

Part of it?

Sure, the innovation? Do you say it's stimulus? The share of debt like the room. Look, we haven't there's you know, it's a tired phrase. You know, off the charts. We haven't seen this before. But the amount of deck growth is significant, and it's different if you look at how the US reacted to the pandemic and post pandemic era, right it was different from Europe and from China. China they did their big investing after the.

Just because of time here we're waiting for mister Diamond. I want to tie Latchman Antathonos families identified with New York City into James Diamond who's bank is identified with New York City? Do you believe an American exceptionalists? Of course, that's a theme that.

Of course right now, Oh no, no, I have no doubt about that that that hasn't waivered at all. But it doesn't mean I'm not concerned about deck growth. It doesn't mean I'm questioning, like, how real is some of the some of the growth in light of the approaching eight trillion dollars of excess spending. Maybe you could argue the policy is that we should be investing in this and that, and that's fine, but let's recognize that.

And so we just had that last year.

Is this tug of wark between a big cyclical push downside to the downside and an offset from these non cyclical items. And we've got some demographic stuff where jobs and health employment has been extremely strong, right, that's growing at four percent, that kept us out of recession.

We're putting make Does the latchman have makeup on? I don't think just makeup on. Francine's got out the lorel she's putting girlen or something on. Jamie Diamondo. They're setting up the makeup and they're in Paris. Here. I want to say this is the excellence of what we're doing at Bloomberg. We had David Solomon and Brian moynihan with Jonathan Ferrell here the other day is France does what is it? Paul like a capitalism week before the Olympics.

I think it's people are I will, I mean, Eckery's thinking of setting up a Paris office sixth Aaron d Smart across the river?

What do you think? Oh, I don't know.

Let's expand let's go across the river.

Yeah, you know, I just think it's booming. I've got some offspring over there, and I'm very proud of them there. I'm sorry. France is like a different environment right now. Yeah, and right now.

Look, structurally there's a lot of issues that remain and I don't want to underplay those. But cyclically, you've got a global industrial upturn, so you have some demanded and I think that's maybe the surprise with goods inflation down the line.

What does your weekly indicators say about the real yield.

To the upside, it's still a little to it's still a real yield.

Signals of normal market.

Well, look you can't I mean, you'd like to have your cake and eat it too. But it doesn't always work out that way. If you have growth going up, it's not always that inflation just goes to the downside and you have this immaculate disinflation. It doesn't work that way. So I would say the I think we're banking on the global industrial upturn and we're concerned about the knock on effects for prices, and so that runs into the central bank narratives, which is, hey, we're cutting thank you so much.

This teo.

Now with our Bloomberg newspaper report, the newspapers are so strong, I got them front loaded into tomorrow.

What do we got, Lisa, Well, you guys touched upon this. I want to dig a little bit deeper. This is the Bloomberg story.

Paramount Holding talks with Amazon about an expanded partnership. So it's a lot to keep up with Paramount now it is, But now they're saying that these talks it could amount to nothing, but it could include bundled sales of channels advertising to I didn't realize that Paramount Plus already one of the more popular choices on Amazon's channel stores. So if you look on their channel store, they let customers subscribe to those things like Stars Max, Discovery Plus, but Paramount Plus is on there. Paramount also a large supplier of TV programs to Amazon's Prime.

Video streaming service.

So the relationship is there. It's just about where they're going to take it. I guess from here is that basically.

I think that's it. I think that's it. That everybody's talking to everybody. Paramount also had some discussions with Comcasts about it streaming joint venture. So it's put it under the context of everybody's talking to everybody because you're trying to figure out how do I get profitability higher in my streaming business, how do I reduce churn?

Maybe I need to bundle them with it about.

Thirteen suits, I mean, netflixes x number of streaming people, and Paramount's like.

Okay, Paramoun's good, they're getting there. And you know, again, Nielsen just came out with some data earlier in the week to coincide with the upfronts and just showed that the share of streaming and we saw that Disney was number one, YouTube number two. Correct, But you know, the next four or five are all credible, They're all right there and they're all growing.

So but I kind of.

Like the bundle idea, though, I mean it saves in the long run because then it's a better price for more than job.

I mean, I look at home, Brian Robert father did this streamen.

We don't have Max Ken saying why don't we have paramount plus? I's like, you want to watch hundred one Dalmatian? So what do we got next? You can't win.

This is from the Wall Street Journal. So more workers getting to the office earlier to press the boss. They're starting at five am, five am for.

Shock, what time shot like two or three before four o'clock?

No, four o'clock. I'm here, but don't have two thirty. So but here's the thing for regular folks who don't have to work a morning show. Okay, they're shooting off email before the sun comes up.

Right.

There was a study that actually showed twenty one percent users logging on between five am and nine am this year, So that's up from nineteen percent twenty twenty one. Some more people logging on before. But they say they impress the boss. Right, They say they get a leg up on colleagues before that nine am meeting because they have more done, they have less distractions, so they get more done early.

And Paul, you'll appreciate this. I remember when I first dreamed Bloomberg, the demand for a five am five am train from the north was so great they had to put on other new trains because everybody started. And I had the clearest memory of going, wait, the day starts at seven thirty, and then all of a sudden, I'm in the office watching the sunrise at six am, and everything listen to the good point here this everything shifted to the morning, including you know the act we do.

A it's a global business.

You got to deal with Europe, you got to have to deal with But the question now, for okay, you're starting your work day at five am.

Is it from home or is it from the and I get from home.

I saw a Bank of America yesterday was out with some research that showed occupancy of offices seems to have plateawed here at around fifty percent. They're not calling it. VIA's calling it that's kind of the new normal.

Excuse me, if you start at five am, when does.

The day, Well, you can get your afternoons early, that's what they're saying. So for example, like me, I'm in early, I get to go home and watch my kids' games, you know, for sports, or get to you know, do other things, and then I have to.

Life.

That's congestion pricing. That's what we're talking about. New York Times another law. So this is from a group New Yorkers against Congestion Pricing. Tax I think John Tucker might be behind no but their loss. And they're arguing that the tolling program could shift traffic and pollution to poor minority neighborhoods things like Lower East Side, East Harlem, in the South Bronx, because people are going to start going the toll free around taking the FDR drive to avoid that. They're also saying small businesses are going to be affected because they're going to have less customers, higher costs for deliveries. It's going to cost them to This is what this group is saying. Like proof, they are saying that the Congestion Pricing did not find the proof before doing this, So they're saying that they didn't do these certain studies that they should have done to prove that this is going to be tough.

I'm going to stay out of it. I'm not informed. I can't make it informed comments Tucker, but I don't think anybody knows. I think it's a hell of it.

You can look to London, I guess, and probably learnt.

That's really happening.

Yeah, but I'm not sure.

The next one, last one, beer sellers using this loophole. Okay, cannabis drinks market. So beers are being infused with cannabis and this is a.

New thing yet because there's this loophole.

So let me explain this quickly. Okay.

So they were inadvertently legalized as part of a twenty eighteen farm bill.

You're saying, what am I talking about?

Okay, So it allowed hemp to be grown to manufacture things like clothing. But drink makers they use the loophole to distill hemp into this concentrate, like think of turning grapes into wine. So that's what they're doing. So alcohol is distributor is they're lobbying to keep that loophole open because they want to keep doing this because they're saying alcohol sales are down, so they're helping that this might help boost sales.

Weed infused beer THHC.

Yes, it's like a third ten zero.

Point three wise you're doing this.

No, it's there's a company cycling frog you know, like all these smaller on smaller distributors.

Lisa mud say, thank you so much. The newspaper's already got one on the hopper for tomorrow as well. This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.

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