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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. 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 the view on
Wall Street this morning. Keith Lenard of truest Rant in the following, the bull market still deserves the benefit of the doubt that we expect shoppy rangebound trading to persist given the geopolitical bankdrop. Keith joins us now for more. Keith, welcome to the program. Let's just get to that calm in this secuity market. Compared to the tention elsewhere, what's anchoring the bullish view?
Yeah, well for us, Good morning to yours. It's one of those years, Jonathan, and I'm glad I didn't have the headlines ahead of time writing the outlook because as you mentioned, we've had this kind of ongoing what I call the carousel of concerns. Is one concern come or receives, another one comes up, and obviously I ran as.
Front and center.
I think to your question, like, why is the market somewhere stable?
Is you know, think about the.
Last five years, everything the market has gone through, whether it's you know, COVID, supply chain disruptions, the fastest rate increased by the FED since the eighties, the highest inflation since the seventies, and despite all that, the market is still close to all time highs. And I think the north star of this full market has been earnings. Earnings
at this point are still trending higher. And I think to my overall point, I think investors are giving this full market the benefit of the doubt because we've seen so many corrections, and the wrong thing to do historically during these big events at the time was ultimate to sell. So I think that's why the market is being somewhat come I'd actually like to see a little bit more patent to set up a better buying opportunity relative to where we are right now.
Steve Path the federated to Hermes yesterday came on and said that when oil prices get on average above ninety dollars a barrel, that would change his constructive view because would start to do damage to the underlying economy.
Do you have a.
Thesis like that where suddenly you start to get more concerned about the cycle of the economy right now?
Yeah, I don't know that there's an exact number, per se, but you know, we do follow a way of the evidence approach.
Part of that is on the economy.
So if our economic group in general starts to shave back our forecast, that would be a concern. You know, we look at relative prices, we look at the credit markets, and I think those earning trends and earnings momentum in general, all things that we're watching closely to say, hey, should we be adjusting our overall position right now? We still
maintaining a modest overweight to equities. But we also wrote a note earlier this week, you know, suggesting that this is not the time we haven't had enough of a correction relative to the risk to say this is a you know, some type of buying opportunity. And you know what's also notable is look at the indexes relative you know, as Jonathan alluded to, like the Act, we our global equities are still up about a percent, the S and P's down one percent, the US dollars up one percent.
So if you didn't have the headlines, you thought you would think this.
Is kind of a normal, kind of uneventful year.
Right now, I'm just struck by the fact that people have been conditioned to buy the dip and they have a conditioned year after year after year, partly because there is a policy response that can be delivered. Right twenty twenty we got what we got from the FED as well as the bazooka from the federal government. Twenty twenty two, there was a sense that also there was going to be some response and there was more momentum in the economy. Is there that same policy lever this time around.
Yeah, it's an open question.
You know, a lot of debate right now is you know, it looks like the administration may be looking for an offern but it may not be fully up to them, because I obviously the Iranians have a lot to do with this as well. But I do think big picture that you know, there is a focus from the administration and then also China you know, there's a lot of China's imports go through the Strait as well, so you know, it may not just be US, it may be China
as well. So I think ultimately there is likely some type of off ramp, and that doesn't mean that some of the volatility and intentions go away. But listen, the administration is focused we all know as the midterm elections. I do think there's going to be some things they can do, but obviously it's different than the terrorists where they can basically just step away themselves as other partners that they have to rely on.
But Keith, how do you parse through what the administration is saying? Yesterday the President told Axios there's practically nothing left to target and Iran, and then last night at a speech he said, we don't want to leave early, right, So the president is opening the door for a prolonged conflict to what they before they would decide that it is mission complete.
Yeah, Well, the one thing I would you be thinking about. I mean, obviously, as you look at even consumer confidence serves over time and inflation expectations, they correlate very highly with gas prices. So I just think, again, no one knows exactly how long, what the pain threshold is. But ultimately, you know, high gas prices isn't going to be helpful going into a midterm election. So I think that's going
to be front end center. And I mean the open question that no one can really say is does that mean the threshold is you know, two weeks, you know, two months?
It's hard to say.
But I think ultimately, just like there was a focus last year about hey, if a ten year treasury starts going about four fifty four seventy five, there's really a more increased focus and even more headlines that are dropping from the administration, I.
Think well likely would see that as well.
Again, if oil stayed elevated at these levels and we started this continue to see some of the polling data deteriorate.
Keith, help me understand this one. We've had a major move and crude by more than thirty percent so far this month alone, and of repricing further out the curve as well, and yet Keith and G Equities a runbinded a more than one percent and she stucks on the s and P five hundred have barely moved off the back of this story.
What gives Yeah, Well, for one thing, that.
Energy stocks had a big had a big rise going into this, So I think that's one thing. I think overall, the energy market is still relatively constructive. And there's also you know, some of the cost structure within the energy complex will also go high, So there's some offices I think all of me though, you know, the energy sector on pullbacks is actually relatively attractive after not doing anything
for several years. But again cutting into this whole you know, this whole tension, we saw the energy sector being among the top sectors for the.
Year, and same with gold.
Gold went into this being up about forty percent, you know, year to date. So I think that's just kind of the reason why we haven't seen more of these moves in both energy and gold prices per se.
Stay with US Multilemberg surveillance coming up after this. Brent creag right now ninety six, Brent briefly toping one hundred after more tank is were attanked in the Persian Gulf. The IEA the war is causing the biggest ever disruption to the market as it gives up for its largest emergency release ever cohidly out of rightst energy rights, and the key variable is the duration of the war. If it lasts two months, price it could pick at one fifteen. If it goes on for four months, they could reach
one thirty five. Koha joins us now for more. Oh, hey, we almost hit once Wednesday on Sunday evening a rope pad self.
Now, I think so.
I think it really depends on the on the duration, and at least I correctly mentioned the idea of sporting vessels. I think right now we don't see any progress there. So at the end of the day, this really comes down to mass. The straight over moves around ten million barrels per day that we think are going to be closed because of the of the of the.
Of the situation.
Sbr's four hundred million barrels that is not going to upset any any upside press pressure that we're seeing right now.
And interestingly, when.
The announcement of the four hundred million barrels was done, prices barely reacted because I think that the market already assumed that something going to happen. But last time that we saw spr's being released was in March twenty twenty two in the middle of the Russia Ukraine War. And back then when the announcement was made. Prices failed by five dollars per viral right now they didn't. And this really shows how important, how critical the situation is at the moment.
Oh, hey, we've seying production bank cup, You've seeing certain shot sains taking place in certain places. Restarting from there isn't necessarily painless, And I wonder from your perspective, what kind of damage we're already doing to supply chains.
That's the key supply chain. I mean, you really hit the supply chain. And more importantly, from the geology point of view, the moment that you shut in production, you are changing the pressure of the reservoir and that could potentially damage your reservoir forever. So we think that coming back to to you know, normal production states, state production is not a matter of days, is essentially a matter of weeks, if not months.
So yes, the straight Orf almost could be reopened tomorrow.
It will take a few weeks to clear up all the logistic backlock. But then you also have the problem of rumping up production again. In some countries, especially Iraq, might have severe problems doing that.
In response to higher.
Oil prices, You've seen a lot of flights that have neither canceled, the prices of the tickets go up substantially. You've seen mandates to use either car pooling or bike to work in certain places, particularly in Southeast Asia. How much demand destruction have you already started to see a merge?
Excellent point.
I think that the man destruction is one of the important leavers that how the market is going to react. We've seen during March to start the conflict, around one point four million barrels per day of the man destruction.
That is quite quite significant.
One point four million barrels per day initially aviation and now gradually that impact is going to be translated into transport fuels and heating oil. And if the conflict lasts for longer, then we are probably going to see a refueling of inflation, which could change the attitude of central banks around the world. To give you a data point, before the war, we thought that oil demand was going
to grow by one million barrels per day. Even the war extends for around four months, let's say oil demand growth is cut down to just four hundred thousand barrels per day.
So that's really showing you.
How important the demand destruction could be in the coming days and weeks.
One of the other leavers Orge is more production from other areas that aren't as affected, like Russia. Do you have a sense of how much more Russia is earning as a result of higher energy prices, in the fact that it's actually increasing production to help meet the needs of its allies like China.
Sure, we've seen the waivers that India received to continue inputting Russian could. Before the sanctions, Russia was exported around one point six million barrels per day to India. Then last numbers before the war was around eight hundred thousand barrels per day, so quite a significant decrease, and.
With the waivers, think that there's a little bit of.
An upside potential around one point two medium barrels per day. But importantly, there's a lot of Russian oil right now in offshore storage. So the fact that India is going to be able to increase its purchases of Russian could does not directly mean that Russia could start bumping up more. I think what it means is that the offshore storage will be gradually clear up and going forward, we think that the upside potential for Russia is actually quite limited.
No more than two hundred three hundred thousand barrals per day. Apart from that, you don't really have much reaction in the very short term. Yes, shale can react, but that is something towards the end of the year and again very limited.
I don't think more than three hundred thousand barrels per day.
There was a report even just this morning about Indian oil purposes from Russia increase by nearly forty five percent in March. So basically, does Russia just get back their entire export capacity that they had in India before the United States started putting pressure on your.
DELI probably yes. Now the big question there is what happens when the war ends. Will those waivers expire at among those waivers are supposed to expire at the end of April. Now, when the war ends, will those sanctions be put back into place or not? And my hunch here is that once you lift the waivers, once you lift the sanctions, it is pretty difficult to go back and implement in them again.
I remember when the Red Sea was shot basically for months, and tankers and cargo ships didn't want to go through it because it was going on with the who thies even if the United States Jorge is able to reopen the Strait of Hormuz, when we'll go back to quote unquote normal.
That's the key variable here. I don't think that, first of all, the scenario of the US is coating vessels. We don't see appetite from shipping companies to take that option at all right now. The mechanism is still not in place, and we don't think that this.
Is likely to happen anytime soon.
So to me, the only way forward for this street door foremost to be reopened east through two channels, regime chinch which at the moment doesn't seem very visible, and the other one needs to through US fire.
Stay with US. More Bloomberg surveillance coming up after this. So here's the lass this morning. Crude climbing even as President Trump vows the lower prices with a massive release from the US Strategic Petroleum Reserve. Lebby cancel a PIMCO with this to say, the longer this conflict plays out, the more ugly the political environment may become. Lebby John's surround the table, let me good morning, it's going to see you. What do you make of the policy response so far? Yeah, so I think.
I mean, the expectation was that there would be a dramatic release from the strategy petroleum reserve, and of course that's what we have seen. I do think that, as your previous guests have pointed out, that is only so effective. In terms of other tools, the president is pretty limited. There are obviously Russian sanctions that he can tweak with a little bit of that last week export controls that's really an extreme, some modifications or exemptions to the Jones Act.
But outside of this is sort of all nibbling around the edges in terms of really addressing the what it looks like maybe one hundred dollars oil and of course then the price of gas, which is really the issue politically, domestically. And this is exactly the opposite of what Republicans plan was for twenty twenty six. It was going to be
all about affordability. It was going to be pushing their agenda, even if maybe they weren't able to get things done, they were going to be at least rhetorically talking about it. And now that's been completely kind of undermined by this.
We came into the new year with the White House squarely focused on affordability. How do they change their message now going into the summer and going to the midterms where it's clear the House likely is going to flip. But I'm talking to people who think that there is a chance Republicans lose the Senate.
Yeah, So, I mean again, I think this is sort of their their sort of best laid plans here, have you know, gone a bit of rye. I mean, I think what the hope is is that this is going to be able to be finished right going into the summer months now. Of course, I mean it's it sounds sort of flippid, but you know, wars or conflicts are easy to start, much much harder to finish, particularly given the complexity of this of this region. So you know
that intention, of course, may not be realized. I do think though, just you know, again, you saw a little bit of this yesterday with President Trump trying to get back onto that sort of affordability you know mantle. But again, I mean people you know, voters are are or not I'm not stupid, right, they see what's happening. The price of the p I just can't reinforce this enough because if you go back to spring of twenty twenty two, and you had, you know, almost five dollars oil June
of twenty twenty two. The president's approval reading President Biden at that point, I mean, it took a huge hit. And they're basically inversely correlated. If you look at the graph of a presidential approval rating versus the price of gas,
these things, you know, gas and groceries. People really care about these kitchen table issues, and so you know, people may not be paying attention to exactly what's happening from a foreign policy perspective and in terms of some maybe the wins that the US may ultimately achieve, but they really do care about the price of the pump. And this is going to be a big, a big headwind going into the.
And Biden was then forced to abandon another foreign policy priority, which was to make Saudi Arabia or Muhammed ben Salmon a Priya, and he actually went to Jetta. When it comes to potentially what the US is going to have to or the Ministration is going to have to have Congress for is their appetite for more or defense spending going to the maternal This.
Is going to be a very difficult vote, I think, I mean that what it looks like is that the White House is preparing what's called the supplemental package. You know, could be fifty billion dollars, could be more. Honestly, just given sort of the pace of spending and the extent of the conflict, they will probably you know, as Anne Marinos, they usually like to add sweeteners in order to get that sixty votes.
That's what they need.
In the Senate, Republicans only have fifty three votes right now, so you kind of by definition you need eight Democrats because Paul will probably vote against it. It will be a very difficult vote, and it just means that more deficit spending, right it means that we could see a supplemental and sort of the one hundred billion dollar range, you know, potentially. So I think it's going to be a very very
tricky vote, you know. I think going back though to your excellent point though about the Senate, and this is something we've been looking at. Two big indicators going into the midterm elections that sort of have correlated with previous election outcomes. One is just called the generic ballot, sort of the general view of one party over another, and the other's an enthusiasm gap. How enthusiastic are one set of voters over another, and you know, the generic ballot,
it's sort of plus five for Democrats. That's sort of like pointy to a fine night. Probably the House flipping, but Republicans keeping the Senate. The enthusiasm gap, however, that is suggesting a wave of election, and so that is just those are just two variables to sort of look at as we go into the midterm election. But to your point, I think that the conventional wisdom Republicans would
keep the Senate because of that challenging map. For Democrats that could be thrown out the window again the longer this persists.
The Iron War has definitely taken a lot of the energy of everyone's agendas recently, but the government's still impartial shutdown, and if you want to travel, not only is it going to cost you more because of higher oil prices, but also the lines are going to take you potentially substantially longer because TSA agents are not showing up.
What are they going to get reopened?
Yeah, I mean, this is I think fault on both sides, honestly, and Republicans and Democrats you can probably say that about a lot on Washington.
These days, you.
Know, and again, the people's view of Congress just in general, it's like at you know, all time lows, and this is just going to make them more angry, right, I mean this again, and this is just if you the way to sort of disenfranchise voters is to like make things that used to be more convenient less convenient. So again, price of the price of gas, now if you can afford, you know, an airplane ticket, which is obviously going to be higher now, making you in a way in line.
So you know, I think we all hope that there is some resolution, but it does feel a little bit intractable because of what Democrats want on the ice.
Now.
I think that politically speaking, if you look at sort of the breakdown of President Trump's approval readings, one issue where he did consistently pull above water was on immigration,
and that has changed over the last three months. And you were already seeing this this pivot away from some of this more the stronger rhetoric about deportations to kind of a softer Jetlar immigration approach, and so you could actually I think you could sort of see the White House trying to kind of come to a deal on this on immigration to sort of maybe pivot some of that that more draconian.
Right I turn around is crazy there.
This is the Bloomberg Survendments 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.