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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.
Here's of you on Wall Street this morning, Marvin Low of State Street writing equities remain relatively well supported and while credit remains a concern that has not shown capitulation around the private credit meltdown. Marvin joins us. Now, Marvin, we were just hearing from Jumana about how tons it is in the region. Before that, we were talking about
the seeming calm, if anything, optimism in markets. How do you square that day of the potential stakes that are heading into that eight pm deadline that seemed to be brushed off by markets.
Yeah, I mean, you know, the certainly is a fundamental aspect of holding on to if you will somewhat positive bias on the risk side of things. It's not as if all of your risk assets have ignored everything, but certainly the amount of downside has probably been less than anyone would have expected. So there is a degree of
looking past this. The timing of it is questionable, but from an earning's perspective, as we kind of go into earning season, I was just looking at where estimates were before we started the conflict versus where we are now, and they're actually up. So from a fundamental perspective, you
still have ultimately that support. It's a few of the asset classes, the dollar, the fixed income markets, which are really kind of showing the potential that not only that this is longer term, but that things might be different once everything settles down.
Mervin, if I'm not mistaken, the reason that earning's estimates have been rising just in recent weeks is because of energy stocks, because of the oil majors and what's happening with the conflict. So what does it take to maybe look past some of that and for equity markets to start to price in longer term pain and more sustained energy prices that the likes of which we're starting to see get priced in to your point to rate markets and oil.
Yeah, I mean, I you know, for you know, unfortunately, I think that at least when it comes to a lot of the more global equity markets, if you will, the more international smp A focused type of companies, it's going to take a broad slow down. And that isn't necessarily making its way into the commentary at this point. Certainly, recessionary risk taflation is something that shows up occasionally within the numbers, but it's not prevalent in a broad slowing
of global growth. And I think that that's what it would take to really knock it, knock.
It off, if we do get some flowing but not broaden off to knock everything off. Marvin, do you expect the S and P to coalesce around the typical market leadership that we've seen in other similar periods, that is big tech?
Yeah, and you know, outside of energy, when we talk about big tech, they were the second best performing sector industry group, you know, since the beginning of the conflict. But also on this on this upward bias, So yes, there is that coalescing around it, and based on the data that we see within our flows of institutional investors, there is a reordering going back into maybe some of the more beat up tech sectors, particularly as of Lates and Marvin.
This comes on the equity side, but also on the dead side. And we saw yesterday this Microsoft tied data center deal, a bond offering investment grade get sold and actually attracting an incredible volume of bids to try to get in on this. Capital markets seems wide open to a lot of projects that people seemed concerned about just a couple of months ago. How do you again square that with apparent risk aversion in other pockets of the market.
Yeah, I mean, so, you know, this credit story is evolving. You know, nobody on television knows the credit world as well as U Lisa. So it's really a function of whether or not the liquidity exists out there, and certainly for these large names, that liquidity is out there. There have been days that you know, I really didn't think we were going to see in the credit market where it closed for a few days, it really looks shaky, and then once it opened, we had, you know, nearly
one hundred billion dollars in deals being sold. That shows that there's a lot of liquidity. On the other side of that, certainly is the private credit discussion, which is still somewhat fragile, but at this point there are large institutional investors that are in that space getting compensated for
the risk. And we're still, if you will, debating whether or not this is a liquidity issue, particularly around maybe some of these less liquid products that is the flagship in the private credit world versus a credit issue, and so paik and it kind of keeps us guessing because of that.
The common thought on Wall Street are certainly among private credit executives when they talk in public or frankly, even in private, is it probably will be okay on a
fundamental level. Is not as long as there isn't some sort of economic downturn, as long as there isn't really a test of the credit cycle, which hasn't been had frankly going back almost twenty years, right, How concerned are you that this kind of stacflationary hit to the economy could expedite that kind of credit cycle that really hasn't come to fruition since two thousand and eight.
I mean, I'm concerned about it. I wouldn't say that I'm one of those that is comparing it back to the GFC, if you will, I think dynamics are very, very significantly different and really kind of that broad liquidity that seems to be prevalent both in the equity and the fixed income markets is one that will you know, for utter for work keep valuations potentially not adjusting as quickly as maybe they should.
Stay with us Mulblindex Savana's coming up off to this, General Robert.
Walsh of Academy Securities writing, infrastructure is only a legal target if it directly supports military operations. Dual use systems like energy, ports, oil are where things get legally and politically risky. General Walsh joins US. Now, General, thank you so much for being with us, and we'll get to the legality of certain types of strikes in a moment. I just want to start with how likely do you see escalation as the outcome of tonight.
I think the path we're on, Lisa, good morning, thanks for having me today, is we're on that escalation. We're probably seeing some of those strikes start to happen today. You've had some of your reports that the IDEAF and started that. I think this is just kind of a test of wills here now to see where today goes.
And I think Trump President Trump was very clear yesterday that if Iran does not come to the negotiating table to negotiate, you know, fairly and honestly, then they're going to continue to escalate this and the escalation will continue until Iran really decides that they want to negotiate in good faith and start to give into some of the things that the Trump administration is looking for.
And one of the things, you know, the Trump administration is now looking for general is to have the Straight of Horror moose open. You do believe that Iran will open or ease the Straight, but you say, only when it extracts enough value. What does that scenario look like?
I think that value they're looking for is one of the things they're saying is they want control the Straits when this is over, and I don't think that's anything anybody in the Gulf region or the US side wants it all. They also would like the US and Israel to stop all, you know, military actions. One of their earlier things was they would like the US to leave the Middle East. So I think, you know, and another big one that is on the table by Irn. They'd
like to continue enrichment. So controlling the straits into the future and continuing to be able to enrichment is one of those things that's just off the table for the US as to how far we've been, and I think this escalation will continue. There's a point in time here that the US makes the decision that we continue to escalate and eventually you just go for ending this thing, and you just go after taking down their military capabilities
just as far as you can take it. Some of these infrastructure targets we talk about that would be dual use type targets. The US has to be careful on that. But you start to really just take down their military capabilities to go back into production and be able to build these capabilities up again. I think that becomes a real challenge for them when you start to take down some of these infrastructure capabilities. And I think Tyler also
mentioned China. I think China's a key thing going into this is when this is all over, I think President Trump needs to look President g in the eye and go which side are you really on when it comes to the global community you're supporting? You know, President Putin in the Ukraine war, and here you are so supporting the Iranians with missiles and technology. Are you going to continue that or are you going to be more on the side of the world community.
I suppose though, if President Trump does want to end it, and he does so with more military force, General, do you expect that they need to also be able to regain or get control of the Strait of Horror Moves and allow for free passage And how difficult would that be of an operation?
Yeah, I think that's very clear that the path that the US is on as they start to continue to take down the Iranian military capabilities in conjunction with the Israeli Defense Force, they continue to take it down, they've put this bubble really over the entire country. Now they really have to focus on another phase and just really focus on the Straits of Horn Moves to be able
to make that more safe for commercial navigation. It obviously would get to the point where the US Navy could come into the Gulf they get escort commercial tankers through there, and that's a another phase that we could be going into, and I certainly think it's doable with the capabilities that the US military has, and that would be another phase. As we move forward, the US is not going to allow Iran to continue to have this leverage over the
Straits are On. This will take longer than the original planet thought because the enemy has a vote. The enemy has voted to use the Straits are On Hormuz as leverage, and now that they're using it, the US is going to have to move to a phase where they make that much more safe, where they can bring into commercial shipping. And again I'll say that they can do that.
We just have a bet a minute left, just getting some headlines reporting from Axio saying that the US conducted strikes on military targets on Carg Island. Based on your understanding of the region, how important is carg Island, what kind of targets could be in their sights?
I think the big thing is this is really kind of the key thing for the Iranian government but also for the IRGC, which gets fifty percent of its funding
from the oil that goes through Carg Island. So this is a lifeline to the regime, and if the US starts to hit these military targets, it's a signal today that we're serious about going after infrastructure that is important to the regime, and the more and more we see with this regime, the let more that we're seeing that they're isolating the current political leadership, President Posesskian, and they're taking more and more control and becoming more and more hardline.
So an attack on carg Island would send a clear signal to the IRGC that President Trump is serious, the Israelis are serious about not allowing them to continue to control oil, get money, and continue to grow on their military capabilities.
Stay with US multil index Savidance coming up off to this.
Or Hey Leon of risetead Energy writing, this is no longer just a supply story. It's a broader macro story impacting growth, inflation and policy. Jorge joins us, Now, what do you make right now of the forward looking curve in crude the points to de escalation that the market is taking a signal from.
Aliza, thank you for the invitation. Indeed, this is I think that right now the market is trying to understand what is likely to happen. Are we going going to see escalation or de escalation in the coming hours. On the one hand, we have a deadline, that is, clocks are ticking. On the other hand, we have the news that there was an attack on card Island, so still
very much unknown. But at the same time, I think that we should brace ourselves for possibility that this becomes becomes a longer conflict, that this, you know, the traffic through the straight of Moves remains close for an extended period of time. So I think that that's what is trying to the market is trying to figure out that this at this at this moment, and.
A lot of people are turning to scenario analysis simply because we don't have a lot of facts. One question has been what point is this a growth shock and at what point is this an inflationary shock? What are the thresholds you have on oil prices where it's one or the other.
Sure, So the moment, let's let's think about scenarios. Evoid price averages one hundred and ten dollars per barrel this year, global growth will be will be trimmed down around one percentage point, so from around right now with three percent before the crisis to two percent now. At the same time, one hundred and ten dollars per barrel means that global inflation will pick up rapidly, and then you have the
secondary effect. So if the central banks around the world are going to start increasing interest rates, then that complicates even more than macroeconomic outland. Let's not forget that the ECB here in Europe and the FED in the US have the next meeting on April thirty, and there is a lot of possibilities at this moment if the war continues, that we are going to see actually increase is in interest rates. As I said on April the thirties.
Well hey somehow pointed to Penco being among them. The opposite side of that which Lisa was also getting at, that it would result in a hit to growth. Why would the next move be a hike and not a cut if you do see lower growth as a result of higher energy prices, that's a.
That's a that's a great question. This is normally part of the of the of the book of central banks, right fighting against inflation. That is the key for any micro economic director, for any any director of a central bank. Inflation is the key, you know, enemy of macroeconomic growth in the medium and long term. So and that is part of the mandate of central banks. So I would I would assume that that same manual is going to
continue in this this this time around. That is what central banks have been doing when there is a supply show which increases oil prices. Killing the inflation is fundamental for a more optimistic macroeconomic output. Not in the very short term, I agree with you, but if we're thinking about how we exed this conflict, then increasing interest rates killing inflation is probably one of the most sensible things to do.
I just keep thinking about what we heard from the IA, who called this year's disruption the worst ever for the global economy, equivalent to the two major crises of the nineteen seventies and of oil crisis in twenty twenty two. When it comes to natural gas, are you looking at a similar environment a disruption the worst ever for energy markets?
Yes, and no. There are some elements that point towards this is much more serious than let's say, the two oil crisis of the nineteen seventies. And there are all other elements that say no, they're probably a little bit less less serious. Let's focus on the ones that show that this is slightly less serious. First of all, the world depends less on oil right now right than we did in nineteen seventy. Now we have nuclear we have renewable. So the oil intensity of the global economy is lower,
significantly lower now than in nineteen seventy. But then you have the other argument that back then in nineteen seventy, there was not a lot of gas demand, right and right now you have a double crisis, which is oil and gas. So those are the two elements that we could probably think think about, you know, when comparing to the to the you know, to the previous energy crisis.
But I agree with you whether it's you know, a bit more serious or less less serious than the previous crisis, sort of it's sort of slightly relevant.
Right now.
What we need to focus is on how long this is going to last for to make sure that we have you know, the correct variedyt at the end of the of the crisis. The duration is the key variable here. Is this going to end up being an extended, a prolonged crisis or this is going to be a short lived crisis.
This is the Bloomberg Surveillance 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.