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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. So here's the lass
this morning. A key week ahead for the Federal Reserve. President Trump said to announce his pick for the Central Bank's next chair as policymakers gear up for the first rate decision of twenty twenty six. Michael dadav Roth Capital, writing, the incoming chair of the FED will then inherit an increasingly divided and defiant FORMC Michael joins us Now from one Mike, welcome to the show. It's going to see it.
Let's talk about why you believe this Fed will be such an unruly Federal Reserve For the next vent chair, does the market price the volatility within the Federal Reserve, or does the market price the outcome of that volatility, which means it's difficult to reduce interest rights.
Yeah. I mean, look, the market still gives the Fed a lot of credibility and is not looking for a huge political disruption. So you know, I think we're playing with fire here going down this path with a lot of political pressure on the Federal Reserve. So we'll see what happens. I mean, at least there's some pushback. Senator Tillis is basically defended Poul saying forget any new appointees to the FOMC until this is resolved. And you know, you have a divided FED and this is a Federal
Reserve that makes decisions based on a consensus. So you don't just pick one member to lead the FED and then assume that rates are going to go to one because you know, you assume that's a good idea. So, you know, we'll see how all of this plays out. But I think the administration's really overplay their hand here.
I'm glad you mentioned Centator Tom Tillis. He spoke with Jonathan Lisa myself in Davos, and he talked about the fact that he is not going to let a candidate go through until this is resolved in terms of the DOJ probe on j Powell or the more than three hundred and forty days he has left until his retirement. Do you think the market is pricing in the fact that we can have J. Powell be the FED chair for I don't know, another three hundred days.
Well, I mean, look, his board seat doesn't expire until twenty twenty eight, So if FED Chair Paul is really worried about political influence on the FED, he could stay on as a voter and deny the administration that board seat. So you know, they would have to use the expiring term of Governor Marin for the next FED chair. And then, as I said in the quote, you've got a pretty divided and defiant FMC. So that's just kind of a mess.
But it also prevents, you know, dramatic political manipulation of the FED and pushing the FED down path where it's doing things it shouldn't be doing. You know, running it hot might sound very good in the short term, but let's not forget how the tenure went from fifty basis points to five percent. It had occurred on the back of an inflationary policy here by the Federal Reserve. So I don't think we want to repeat that exercise much.
You believe there is upsound inflation risk this year and what's the source of that?
No, not really.
I mean I think that the fall ped Powell Fed has done a phenomenal job here in terms of the previous tightening and then easing by just about the right amount. The nomenal economy has been super steady, inflation expectations are anchored, so I think that they've presided over just almost a perfect immaculate disinflation and I think that continues this year. But we're playing with fire in terms of what the administration is doing, and they should really reverse course, in my opinion.
Stay with us. MULPLEINPEG surveillance coming up off to this, Let's turn to the airlines, the storm leading to the most flying cancelation since the COVID nineteen pandemic. Sami saith of Rama James joins us now for more. Savvey. Welcome to the program. As you look across the airlines, the airports across this country in the last twenty four as who was hot as hit?
Hey, good morning, you know it's fairly broad based.
Obviously to begin with, you saw American getting hit just given what happened in Dallas, but all the airlines are having significant cancelations.
What I would kind of remind is the nice.
Thing of a winter storm, as much as there could be something nice about it, is that you do see it coming, unlike summer storms. And so I would chalk up a lot of Sunday's cancelations, which are significant for airlines, making sure that the aircraft and crew are in place so that once the storm passes they can get back to flying relatively quickly. And now there are high level of cancelations today, but nowhere near as many as there
were on Sunday. So you know, as long as folks can kind of get out of the houses and get to the airports, we expect, you know, the operations to start resuming, because airlines had some early warning and rebele to prepare ahead of time.
Well thirty six hundred in counting for today, savvy when it comes to the cancelation. So when do you think we truly will be back to quote unquote normal.
Yeah, you know what we're seeing today is it a little bit similar to what you saw on Saturday, so elevated.
We'll see.
It really depends on, you know, how the kind of the winter progresses and getting crews to the airports. But I suspect by midweek we'll be back to normal, if not already by tomorrow.
Savvy. I don't want to make this worse for the airlines, but it potentially it could be a perfect storm this weekend. What happens if the US government does shut down, we'll have to see.
You saw what happened last time.
What I would say from the lessons learned last time is that demand didn't have an impact.
The impact really.
Came once you got to the end and the FAA kind of required cancelations. I think that's when you really started to see demand being impacted, and.
Maybe even a little bit before that.
Once the shutdown was about a month in, I think you started to see.
A little bit of impact.
But at least early days, there isn't much of an impact. You do have TSA agents and FA workers, you know, really showing up even though you know they might miss a.
Check in a week or two. So hopefully we don't get a shutdown. Hopefully it doesn't.
If we do get one, it doesn't last as long as it did last time and doesn't come to the brickmanship that it came to last time.
Let's finish on an airline that's really shown up, not in the last twenty four hours, but in the last twelve months. This from the Wall Street Journal Airline of the Year Southwest Sathie, What is Southwest doing right?
Yeah?
I mean I think they learned their lesson after the winter storm of in December twenty twenty four and really or twenty three and really kind of improved and invested in the operation. They probably also benefit a little bit from being in the right geographies, but more so it is what Southwest has done to really focus on managing the operation. And I would kind of point out that they did this, you know, had this performance at a time that the airline was going through a significant change
in their product, offering and strategy. So definitely a commendable result there.
The performance gap in the stock market between the Southwestern American airlines couldn't be wider. I mean, Southwest was out by more than twenty percent last year and American Airlines was down by more than ten savvy what is American Allies getting wrong? And incidentally by the way they are joined last in this survey, this Wall Street Journal Airline Award of the last Year or so, they came joint last. What does American Airlines doing wrong?
I mean, I think American also had the unfortunate incidents that hampered them early on last year, so that I had a hit on American. But I think you are seeing them making some changes this year. You've you know, they announced it in December about kind of adding a little bit more you know, schedule cushions so that they can make connections.
They are trying to do that.
But yes, definitely on the operation side, both kind of internally what they could control and then externally what they couldn't control really hurt them last year in terms of kind of stock performance.
I think again Southwest has.
Come up with a very credible plan on turning around their earnings and you're starting to get early signs that maybe they can execute to that. Still a lot of you know, skepticism in the market, but I think American really needs to come up to come up and show that they can do something.
Similar this year as well.
There are kind of early signs that they're trying to do that, but they really have to kind of put up the numbers.
They've really got to step up.
Stay with us. More Bloomberg surveillance coming up after this. Let's sends to commodities, gold smashing past five k for the first time ever as traiders pile into the debasement trade. Amy Gowett, Lead Medals Commodity Strategistic moregan standing, writing, we don't think prices of peat with geopolitical risk positive signals from Central Banks and ETF bang we highlight our ball case fifty seven hundred for the second half. Amy joins
us now for more. Amy, good morning. Just to clarify us that the second half of this week or the second half of this.
Year, it's the second half of this year.
Amy, let's get into that call. We have moved so so quickly on the precious metal. Have we've got a new driver here given developments over the last week.
Yeah. Look, I think there's multiple drivers working together, So of course we should mention geopolitical risk and all of the uncertainty that we have at the moment. I think that is driving investors towards precious metals in particular, and especially given prices that they're performing so well. I think that is providing additional price momentum. We've also got a bit of dollar weakness few days, and that is always a tailwind for commodities, making them cheaper for non dollar holders.
And then I think, while we're still in this, when will the FED cut rather than if the Fed will cut? That's also a broader tailwind. But the key thing I think also has changed that's worth flagging is around central bank behavior. So we always thought of central banks thinking about gold as a percentage share of their reserves, and of course that means as gold prices rise, you would think that they would slow the pace of buying because the price is kind of doing the work for them.
But we had something really interesting from Central Bank of Poland about a week ago saying they're now targeting seven hundred tons of gold to an absolute tannage amount of gold, which would imply about one hundred and fifty tons of buying. So for context, Poland was the largest buyer already last year, this would be about another fifty percent buying on top.
So if central banks are just thinking about having gold regardless of the price, then that could also keep that kind of structural buying at a higher level than we were previously expecting amy.
I understand countries like Russia and China their face sanctioned threats, wanting to make sure that they have this historical level of gold bying. Why a central bank like Poland.
I think it's part of sort of where do you put your reserves? And we've seen you've got the dollar sort of seeing a slightly declining share across the world, but it's not really clear what the other currencies are that can really compete against the dollars. So I think when it comes to central banks looking at their options, gold is there. It's sort of something that should hold its value over time, which I guess for a central bank, their key role is to sort of protect the value
of their reserves. So if you are worried about currencies in general losing value, gold is your sort of your natural hedge there. And then I think Poland did site specifically all of this geopolitical uncertainty as well, but we'd also highlight say we saw Brazil, for example, coming in in September for the first time in about four years, so it's pretty wide spread. Now this buying.
There seems to be so many reasons why gold is just smashing it This morning, can you give us what you think potentially is the number one driver?
Yeah, Look, I think the price momentum is very important here, and I think given all of this geopolitical uncertainty, I say probably that is the number one driver in terms of the last week of price action. But I do think all of these other factors have set the scene for us to be here well.
And we speaking of momentum, let's talk about a different precious metal. Let's talk about silver. Got a five percent move on my screen on the Bloomberg terminal so far this morning. Can you just give us an idea of how big that market is and how easy it is to push around on any given day.
Yeah.
So silver is much much smaller than gold in terms of its kind of global traded volume, in terms of the market size on the screen and what you can move financially, it is a bigger market in terms of absolute tonnished just because it's a lower value in terms
of sort of annual production. But I think for what we're seeing on silver is slightly different to gold in that it's partly an industrial metal and partly a precious metal, and so you do have real users who need to buy silver arguably nobody needs to buy gold on any given day, but if you have a factory that is dependent on silver to make solar panels or electronics, so there's a buyer out there that physically needs this metal.
And so that has been a big driver over the last four or five years, pushing that silver market tighter and tighter into deficits. And then you've also got this precious metals angle of safe haven buying, and we're seeing that really accelerated last year and continues to this year.
So when these two come together, when money flows into a silver ETF, they need to find some physical metal to underpin that, but that's largely been eaten up already by all of this industrial demand we've had, so that metal is just not there, and we're seeing this particularly in China at the moment. So China is trading at about a fifteen percent premium even to what we're seeing in London and in New York. And that's physical demand
where that the metal is just not available. If we go to London vaults, that there is silver in there, but it's all kind of owned by these ETFs. It's not really freely available to the market. And I think that's why we're getting this squeeze.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angio politics. 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.