Commodity Currencies are Special, Ruskin Says

I want to begin with something that's front and center for the world of politics, but certainly not front and center for global markets. And that's the potential of the government shutdown in the United States of America. When the clients call you famous and ask you what does it mean? What are the consequences? What do you say? Well, long term, no US legislative body has basically allowed this to go over the cliff in a way that disrupts the payment flow for the US. So the long term it's probably

something that will mean reverted. The short term, it can cause some noise in particularly for money markets, as the government runs up and down. It's um it's cash balances, it creates significant excess or are are less than that supply in uh in money markets and that's what's the most important short of impact. Well famous in the money markets and in the ferry front end of the treasury curve, you can get these kind of little kinks and the kind of account for when you might get a shut

down and when things will reopen again. Our swhere though, does this actually have any impact for the effects market, et cetera. Uh not really, We've done a detailed study. This has a lot to do. This with a lot of fixed income instruments and how they trade against one another, But in terms of money market directions, not that much. The thing so far famous it's a weaker dollar. It's been you know, dollar that's crept lower lower lower, had its worst year in a decade on the dollar index

last year and continues to plunge through three year. Love's on my screen, weaker against the era once again. We had someone from Deutsche Bank last week on this program saying that we could get to one thirty on euro dollar sooner than you think, Tha mus What takes us to one thirty from four on my screen? Uh? Well, one thirty is our long term target as well, maybe not as quickly as we have gone so far, but that's the direction of travel. There's a lot of things

going on. First of all, the dollar is still expensive. Secondly, police normalization is not priced outside of the US. So the fact that the rest of the world is growing quite handsomely means that there is more to pricing currencies outside of the US UM And at the same time, what is hugely important is that UH, typically when financial conditions you get this, you get weaker dollar, you get higher oil prices, you get higher youths as equity Israeli

and this is a good kind of reflationary dynamic. Good morning everyone, John Faro in New York on time, keen in London on Friday, and it's a Friday to get brief done market dynamics and of course a huge focus on Washington, but also almost weekend reading to get the next week, which will be spirited the same in the least and perhaps we'll see President Trump and Davos later.

Uh in the week theme of fiatokus with us he is with ubs Tea mus when I look at the dollar dynamics and I look at exogenous shocks, and it occur to me. One of the great exogynist shocks last year was a single headline by Donald Karney in the Bank of England where there was just one point where he said, just almost in a whisper, there is no inflation. You people see inflation. I get that. You told us an hour ago. You're looking for three ish inflation, which

is a lot. How do you get there? What is the catalyst to finally jump start a higher rate of price change? So there's a very good question. There's always to begin with. There are different things when you talk about inflation. When you're talking about underlying core PC, it's it's there's a lot of one of components that will fall off next year, and we'll take you somewhere around one point seven one point eight in core PC, which is not astonishing, but at the very least it's better

than where we are here. That's one layer. The second layer, which goes from a quarter headline, particularly when it comes to CPI against PC, is the commodities um and commodities. You know, if you compare from the middle of the year last year until the current levels, oil price have almost doubled, and that's going to have an impact which will show up in the middle of the year and we'll take headline CPI higher depending on how higher oil prices go from here you could end up slightly shy.

A three percent on headline CPI. Is that something that should scare us completely. No, it's going to be temporary, but at the same time it's going to revive some confidence because the risk was that we would continue to print that super low prints so far within that, you know, super low prints is the parsing almost on an international basis of good inflation. It's not there or service sector inflation in America. I see it in Cleveland CPI, which to me gives me much more of like the reality

higher CPI. Are we looking at inflation correctly? Is it comes over to dollar dynamics and FECs dynamics or are we are we askewed because of goods dynamics in China? I think that's a very good observation. I think that particularly if you look at goods in the US due to past dollar strength, and what's going on globally with disinflation is not just China, it's also the huge output

gap in Europe as well. When you're looking at goods inflation that has uh you know, it's about a quarter of core PC and it has been near zero for the last few years. Right, that's a huge disinflationary pressure. You need the global output gap to narrow for that to start picking up. And that's why we have not been on the side of high inflation up until recently. And when we don't expect that now either, just gradual grind higher from current levels, which should be healthy for

the markets. That's the macro bank drop. How do central banks respond to the world you've just described, So for now most central banks are warning for a tighter pace of adjustment or normalization. I would add one more point

to what she said. It's also about what's priced, right, So we can talk about the front end in the US, but with the long end of the curve at two point six destined to rise, I don't know the two point seven this year in our forecast, and probably approached something, you know, slight side of three percent next couple of years. A lot is already priced in UH. The European bond market,

on the other hand, and the Japanese bond market. The yields there are to load their expensive bond markets, and the market is trying to gauge when UH these yields will adjust, when these central banks will adjust and when they adjust, UH, it's going to have an impact on those bond markets, and that translates into the currency frontloading some of that, which is part of what's happening famous US saying that the the front end in Europe that

needs to adjust more than anywhere else, the overall level of the curve and the long end as well, UH, and probably particularly outside of Germany, the curve can actually steep, and so as the front and just across countries, probably outside of Germany, the long and should adjust even further. I look, seems just just one more question if we could, uh quickly here at the linkage that we see of dollar dynamics and fects dynamics with gold. Is there any

linkage still? It seems like the old maxims are just out the door, out the window. Absolutely, But it's not just that dollar. It's also the level of real rates UH, and and real rates in the US are fair there where they should be, if not on the high side, which has been something that has anchored gold a lot more than other commodities which are a lot more closely correlated to oil the dollar as such as oil. This

is a joy. This is something John Fair and I've really looked forward to Conahegan, who I first met through aluminum. Uh is truly expert at the detailed fundamental of the softs. It's a British thing, John, you have to have a British accent to do this. It's just part of the act and it is the romance of the commodity business. Forget about something boring like oil, you know something like that.

It's it's the part that we all learned about, which is making opportunities and things like cocoa and things like coffee. Conahegan's with e DA and f Man ConA. The coffee market now seems to be multinational. It seems to be all the same physical characteristics of an agricultural commodity. What's the demand side of coffee? Look like we talk in oil demands better oil up? Is that elasticity there in coffee? Um? So No, I'm the industrial commodities like energy or I

suppose it doesn't move with economic cycles. This is a trend that's very long term. So at the moment, coffee demand globally is going about two percent per year. There was a time was actually going about three percent. This was when you were seeing the Asian emerging market in particular moving away from tea into coffee, and that's definitely been compensating for a slowdown in growth in the mature

marketers as Europe and America. But don't get me wrong, even in Europe and America, compared to consumption of sugar, which is static to maybe declining, coffee consumption is still very much, very much a desirable commodity and growing still

within that is the elephant in the room. China. And we talk about China, and you know, John Fair and I have ten or fifteen topics on China that we circle around, but we don't get down to the nitty gritty, like I understand that pork is a huge part of the Chinese inflation dynamic, and I would believe part of the China He's diet where does coffee is just one example of a soft command and he fits into China's

day to day life. So it's definitely not as a staple commodity, nothing like pork as you mentioned, or even grains. We are talking about a substitution away from your traditional tea, green tea, jasmine tea, and a marked shift from that towards coffee. And this is definitely a Western influence. So as you start seeing more and more coffee shops like the Starbucks or independent coffee shops start coming into um into China, we are seeing a lot of the middle

class consumers really tapping into that conda. I can't see John Farrell drinking sipping jasmine tea down at Fortnum and Mason and just can' I am caffeine free? Believe it? Yeah, yeah, believe it or not? Now kind of you? Instead to two important things, and it was on the middle class, the middle class in China and the consumption of of coffee. Does that extend to India as well in the urban

cities yes, so for sure. In the rural areas no, But once you start seeing the delis, the Shanghai's, the Bombays, Mumbai's, that is the country's. Those are the cities where high urban population growth is seeing a big demand for that sort of quick coffee fix, that caffeine boost, which is associated with big city dwellers. Because the big E M bricks trade of many many years ago was to go long.

Soft commodities go along, things like coffee and meet as well, because it was going to be consumed by a rising middle class and seemingly these prices could only go higher, higher higher. Is that's still the theme here kind of or has it changed? No? I think that theme is still very much there. It's just that lately, because agricultural commodities have been so well supplied, prices have just been flapped to doing nothing. I think that the stories sort

of disappeared. But there in the middle clas Us wants to move away from carbohydrates and basic staples like wheat and rice, and they're definitely moving towards high proteins. So it's the polks, it's the chickens, it's the beefs, it's the dairies milk, and you name it high cafe. It sounds like Tom Caine. This was this was the morning you got that right, Um, John Field. This was amazing. We got through a discussion with Conor Hay without talking

about bitcoin. That's soft. Do you want to do that? No, we shouldn't do that. We did that already and she almost stormed out of she did not. Isaac Boltansky is more than interesting. Uh he is acclaimed coming out of the troubled Asset Relief Program TARP over to Compass Point Research, Ian Lucas Devas right, a hyper hyper detailed note on all the Washington dynamics. We protect the copyright of our guests.

We're not going to send you out the note, Isaac, how do you put I'm just curious, how do the two of you put your note together? It's extraordinary how detailed it is. There is a plethora of information that comes out of d C, and I think our job is to try to track all of it, synthesize it,

and make it digestible for institutional investors. If the Democrats spoke to you today, Senator Schumer and others with your your the fire hose of data you have coming in, can they actually deflect shut down over to blaming the Republicans? You know, I think Tom, the way this is going to play out is it's going to be viewed as

a pox on both their houses. And in that scenario, you have to expect a lengthier shutdown if it does occur, because, as we all know, thinking polls tend to catalyze lawmakers. And if the polls holed up, which right now they show general blame for Republicans and Democrats at around the world thirties, then neither side is going to be incentivized to blink Isaac. Right now, the markets not blinking. The market strugging this off. In terms of the price action

on my screen, Futures firmer. Yes, the dollars weak, but the dollar has been weak for over a year now, Treasury yields climbing harder. I would say that most people on Wall Street aren't really too bothered about this. I

don't see the urgency on the screen. Do you see any urgency from the clients you speak to, from the investor base you speak to, and what are they asking you about what's happening in Washington, d C. You won't hear this often from a DC policy analyst, but I have been telling clients to look away from the nonsense

in my city right now. The reality is that the market impact from a government shutdown at this point should be muted because it doesn't encompass the debt ceiling, which is perhaps the most important component of all of the fiscal fights. And as we've seen in the past, the missed economic activity will be recovered at a later point, so all the folks who aren't getting paid during this, all the contracts that get held up will be made up.

The only cautionary note within that viewpoint is I have sent some degree of of jitterariness among equity investors, and so there could be a push to use this government shut down to justify a risk off bias that was already present and maybe not a reason absolutely right. My my advice today is we've got to look past this and realize that DC has delivered on the one thing that it could have possibly delivered on, which was the

tax cuts. There wasn't much that was going to happen this year, and I feel highly confident that the debt ceiling is not going to be used in a game of chicken between these two parties. Is how many sections of the Democratic Party where there are there? I would say that within the media over the last excellent number of years, the focus has been hugely on the Republicans on the hill, and we forget about how fractious the Democratic Party has been in our history. How fractious is

the Democratic Party right now. There's an old line that trying to get Democrats to caucus together and and agree on a bill is like trying to make cats walk in line. And it's been interesting because this year, excusely, this Congress they've actually been incredibly unified. And I think it's important to note that there's a bit of a shifting of the guard going on here, and Chuck Schumer has been able to hold his party in line and

is really orchestrating um a cohesive pushback here. He's only lost one of his members in the Senate, Joe Mansion from West Virginia, a state that the President won by forty two points, and so it's actually been impressive that he's been able to hold those Democrats in line. So why does it helped me out with something? If getting the Democrats together is like herding cats, and we know how divided the GOP is right now, why are you so confident that the debt scening issue isn't going to

be an issue at all? Sure, it's a fair question. It's a it's a belief that ultimately the markets can dictate action in d C and if there is a sign that the debt ceiling is being used as a bargaining chip unfairly, there will be a market reaction. And while most Congress people don't have Bloomberg or CNB, is CNBC or any of the markets on their excusing yes,

um uh, they do have. They do see the screen when there's a three or five percent sell off, and so that's why I feel confident that the market can force action on the debt ceiling. Some came a note coming from an official, a headline crossing the Bloomberg terminal. Right now, the President United States is said to stay in Washington, d C. Until the shutdown is averted. So that can have some consequences for his trip next week potentially to Dana, Switzerland, if this hasn't been down with

by then. Yeah, and that percolated in the zeitgeist this morning. If you've seen that headline. I don't see that here in our London studios, John, but if you see that headline, that really begins to turn into news the rumor and speculation that was seen earlier. UM, I don't have any you know, I'm not doing a Michael Beschlaus act, but I don't understand how a president travels during a government shutdown. I find that bizarre. But uh, you know, we'll have

to see. Yeah, you would assume you would assume Isaac that he doesn't travel to Dava, Switzerland if the government does shut down. Is that something you would assume? I think you're absolutely right. Look, the optics of him traveling were already ub optimal, so it would be all it would be much worse given if there was a government shutdown. And then we should say, John Farrell, this is Kazia clemens Is. I'll get it right, Klemazinska. There it is

of Bloomberg. Bloomberg first word. And this is from quote unquote an official, which you know usually coming out of Bloomberg. Uh, that's got some substance to it. Averted. There it is, Isaac. What what do the Democrats want to get out of this? All of this? You know, I think I can speak for a hundred of our listeners are all sort of exhausted by it. It's your fault, Isaac. But what do the Democrats want to get out of this? Where do

they want to be? One week, three weeks, the shutdowns done, we all kiss it, makeup, We get to the dead ceiling, we all kiss it, makeup. Where do they want to be as the campaign season begins for November six? Sure Democrats recognize that this is their only leverage point this year.

Totally agree because that's the heart of the matter, right right, So they want they want it all they want to They want everything they can get realistically, if they will hope to get out of this is a deal over DACA funding for the children Health Insurance program, and I think if you get that up from the six years it's currently being offered to ten years and a deal on just DAKA, Democrats would blink. Um. There isn't much optimism about a broader immigration deal at this point. Get

me to the midterms. You get a deal on DHAKA. Is that enough to sound the electorate? I think right now this is about placating to the base, and the base of the Democratic Party has shown that the DOCA issue is important to them. It is a central pillar for them. It's also an issue that many Democrats uh

feel they can run on in certain congressional districts. I don't think that alone is enough to deliver them the House or the Senate, but I still believe that the odds heaverly favored Democrats taking the House and Republicans holding the Senate. Andrew Bishop Um is quietly legendary Eurasia group working with Dr Bremer among others. UM and we're working on sort of not only Europe, but the interdependencies of Europe and the synthesis of Europe with the rest of

the global economy. He wrote up with Courts last summer on Germany and other nations as well. Andrew Bishop with the European Briefing right now with Eurasia Group and Andres thrilled to have you with us in Chess or a miracle I believe is not going to have a government shutdown.

Perhaps you'll actually get to Dabos. What is the strength and power of the most powerful leader in Europe after a coalition battle and frankly after just the years that have gone by good morning, I think that's a good point. Mercle is, you know, sort of towards the tail end of her of her tenure, but she's strong enough, especially when combined with President mccronel to send a powerful message

to to President Trump next week. And I think that that truly the spirit behind her going once against the Davos and I believe she and McCrow will both be speaking on Wednesday, so two days before Trump. We've all been fascinated by the frequent flyer Miles on Air France and Mr mccrosben. He's been on a road like I believe I've never seen. Let's back up, what's the why why is Mr McCraw hit the road before these important meetings. I think that the main reason is that he perceives opportunity.

He sees the window of opportunity and the fact that Merkel, as you just said, is busy with domestic issues, uh and President Trump neither has the interest nor necessarily the appeal uh to really be the world's leader, you know. And so President she has seen that opportunity as well,

but he's taking a much slower approach. President McCrow is essentially doing the same thing as she, but in a in a much more opportunistic and tactical way, really trying to find little crises like when Lebanon's Prime minister was was, you know, held in in riad to to score some points. What can Mircael achieve in her final term, which is most likely to be her final term, Andrew, I think that the greatest thing she could achieve is to to maintain the German polity sort of on on a stable track.

I mean, one of the big concerns is that, you know, yet another grand coalition will further aggravate voters who feel like they don't really have a choice that all centrist parties are the same and that they're banning together. Uh. And and that's part of what's driven all of this populism in the first place. So I think the best thing she could achieve is actually delivering results that convinced

voters that centrist parties remain worth trusting. Dare I say that this term and her four terms might look back on what's going to be perceived as a lost decade. And I raised this question, Andrew because in terms of the reforms that came before her, economists are looking at Germany right now and seeing an opportunity squandered, an opportunity to really invest into the economy, to build our infrastructure and to continue the hard work that was done in

the nineteen nineties. Andrew, it seems now that the German government is very content and building up a surplus, not spending too much money and just hoping things continuous they are. Is this a squanded opportunity? Andrew? Yeah, I think the last decade is a bit of a strong term in the sense that you know, Germany has been performing extremely well both politically in terms of stability, uh and economically.

Now to your point that was partly a legacy of what had been laid down before she joined uh government. And so there is a question you're right about what comes next. I think the bigger issue for Germany. Of course everyone's been talking about investment, and that's particularly important in the tech sector. But the bigger question is, you know, how does a German economy that's highly reliant on exports continue to dominate in the world that's going to be

increasingly protectionist. Is it as simple as the euro is a fiction and they're looking at the euro that ought to be one sixty whatever, that their distortion of their domestic flows a distortion, is Madame Leguarde mentions of their trade surplus is strictly the European experiment. Uh, you know, I mean we said group look at more at the politics of the of the issue rather than the sort

of evaluation of the asset itself. But um, I think there definitely is a question about Germany's long term sustainability on that front. Yeah. And and the thing is, now that you know, the Greek crisis seems to be behind us, the real question is whether she and Macrow will be able to reform to Eurozone. And we're unfortunately not extremely hopeful about that, both because of her domestic concerns and

because they don't meet idae on that issue. We've been talking with Andrew Bishop of the Eurasia Group, UH, and in talking to when we were freely focused on Germany and and what we've been really remiss here of taking our eye off Russia. There was a point where Russia

was in the news day after day after day. And I don't mean the Mueller scandal and you know, the Muller investigation rather and all that, but just whether Russia there was play in the London press today Mr Putin uh taking some kind of ice cold baptismal baths or whatever in Russia. What is the state of Mr Putin? He's not going to Davo, Sizzy. I don't believe he is going to Davos this year. Um. And the reason why you're not not hearing about Russia is because Putin

has nothing to do. He can just sit back and relax. Everything he's been orchestrating in terms of weakening Europe to a certain extent, weakening the United States and gaining power projection in the Middle East has been working. So for him to change anything at this stage would be would be an unnecessarily unnecessary risk. Yeah, an unnecessary risk. You can just sit back and watch the folies continue or that. Then I guess it comes down to the prescriptive desire

of what the president should do in Davos. What should the president do is he approaches an important speech a week from today. So I think what President Trump is going to going to try to do in Davos is address three different audiences. The first is obviously the Davos crowd itself, with a clear message, which is, you know, the United States remains the world's leading economy. Invest in

the US, We're reliable. The second message is probably going to be geared towards this eight and it's gonna be quite different, right, It's going to be more about maybe not insulting, but trying to send a message to the global elite that they can't get away with murder, etcetera. And then the third thing is he's probably going to be trying to send a discrete message to China as well, saying, you know, you work year last year, I'm here this year, and we're we're still in the G two situation at

at at worst. But that's the heart of it. And I get the privilege speaking with Dr Bremer Eurasia Group as we begin our year with the Eurasia Group. Top risks. You just use the word discreet. This is not a discreete center of message, is it. No? I'm not sure he's going to be discreet per se, but no, no, yeah, I definitely wouldn't go for a discreet actually. Um, but he's he's going to be trying to tailor his message

that I do believe. And I think there's a difference between the President being loud spoken, uh and him not being strategic. And he actually is quite um, you know, quite a great communicator if you think in pure strategy terms. So I think he's going to be nuanced in his tailored messages. Boy, I wish I could climb on board that My answer, I don't have an opinion, folks, about what the President is going to do with Davos other than it's to me it's beyond unpredictable what he will do.

What will you listen for from his entourage? I believe he's bringing two d and twenty two people with him. I'm kidding, folks, but it's a huge entourage, is I mean? Basically in my right, Andrew Bishop America descends on Davos. Is that an exaggeration? Yeah? So, I mean the United States has regularly sent a fairly large delegation, especially on the business side, to Davos. So the big change here is the president's visit. I think the last time was

in two thousands. That's really the big change. That the huge American contingent isn't particularly surprising in terms of what what we're gonna be looking at is whether he's in

a sort of dissonance visa vias entourage. I mean, you know, there's a clums not a clumsy, but there's just this odd new soul this morning of whether the president, given the shutdown, and I mean the president getting this Sunday or getting to Monday, forget about jetting over to Geneva zero wherever in heading up uh two Davos, will he go if there's a shutdown. I find it unimaginable that he will travel if there's a shutdown. But am I wrong on that? First of all, I think he you know,

he could go even if there's a shutdown. I'm not really that he is the kind of person to actually canceled as plans for that reason. But but more importantly, I think it goes the other way around. I think, um, we're more likely to see Republicans uh not cave but you know, compromise on the doctor issue in order to avoid a shutdown, or in order to sort of pass a very short term cr that will allow the presidents to go to Davos without a wrinkle. The US dollar

trading at the weakest level in three years. Here to help us understand what's going on is Alan Ruskin. He is Deutsche Bank's global head of G ten FX strategy and he joins us here in our eleven three oh studios. Alan, thank you very much for being here. So what what explanation are you offering clients and customers about the weakness

of the U S dollar and its pervasiveness. Well, I think what we're seeing as a continuation of what we saw much for much of really last year, and last year's story was one where, um, particularly after the French election, you had a rerating of the euro both in terms of political risk and then I think, you know, coincident to that, really a rerating in terms of what was going on on the economy side of things, and the market has been also reconsidering what's going to go on

in terms of ECB policy and the changes in the retreat from really emergency easing that you've had in the ECB, and is in fact um much more intent in terms of trading off that than what we see from the Federal Reserve. Well when do you think, when do you think we're going to find out? I mean, it is just just going to use to trade at these levels until that is resolved. Um, we you know, it seemed to be frontloading a lot of the euro positive news

so far. So we definitely see um a more constructive view on the euro early in the year than we might have anticipated. Really, it's you know, it's it's one where Um, if there is going to be challenges to the view, I think it will have to come more from the dollar positive side than the euronegative side. So in that sense, sometime later this year, the market will I think pricing more fed tightening than they're currently pricing in and that could be you know, a moment in

which the dollar we actually get some relief. Is there a bet now, alan Is there a trade as there are a consensus trade, as there a big bet being placed,

not as big as you might think. I think, you know, we started the year with Euro leverage positions um fairly flat, surprisingly so, and it was really asset managers that were long Euros, and that was more a story I think of building up long euro exposure, particularly as it relates to equity markets, and particularly as it relates to hedge ratios. The foreigners heade ratios were way too high in Urine, They're now wanted some Euro exposures. I think that was,

you know, a shift we saw last year. This year, in the beginning of this year, you are seeing some build up in leverage positions and as we know, that can be more fly by night as it were, so you can get a squeeze of that position going forward. I really agree with you that everybody what what Pim and I saw ellen end of the end of the year was massive ambiguity, uncertainty, lack of belief in calls, and it seems with a vengeance that slammed it in

the last three or four weeks. Do you sense that at Deutsche Banker now look at George Sarah Ellis's publish call on stronger Euro People are really starting to stake our territory aren't they much more so? Tom, definitely, Yeah. I think we've had internally obviously much more debate really on the framework behind currencies. And I would say I've had really, you know, for at least in years since

two thousand and eight. So that tells you something about the uncertainty in terms of the actual underlying forces driving currencies right now. But I think people have staked things out. We've seen in the past, of course, that the first couple of weeks of a year are not necessary, you know, indicative of underlying trend really, so I think one has to be a little bit cautious, and I think one would be definitely cautious if those leverage positions move up,

you know, another nights. Really I think that, you know, that's that would be a cautionary sign Alright, so we've got your call there. I want to just step back for a second. Commodity based currencies. I know your G ten strategies, but where where does the commodity play come into into focus? For for for traders, well, I think the Euro is still very important because pretty much everyone

gets caught in the draft of the Euro. The Euro is more more or less the anti pole of the dollars, so it's on the other side of the dollar and it sort of drags everyone with it. So that creates a natural propensity for the dollar to be weaker. But I think the commodity currency side has had quite a special story over the last month or so. Around the middle of December, commodity prices went crearly weak, and then they went on a real race to the top side.

Lead in the no small pot by oil, but it was more than oils based seven right now for w T. I yeah, But I think what we feel there is that, if anything, we're gonna see some topping out in terms of sending the energy complex because at these kind of oil prices, US supply is going to kick in. You're gonna say, as riccounts going up again and constraint to the top side and beautifully said, and that goes to this word, folks, with the word I use in lectures,

this responsiveness and the fancy Ruskin word is elasticities. There's a new elasticity in oil supply. Are those same elasticities out there in other commodities? Like if you look at Brazil, Allen and you want to play Brazil, are the responsiveness is of copper the same as they used to be. No, I'd be shous there really. I mean, you know a lot of these other commodities need huge capital expenditure UM to really lift up supply, and there needs to be

spare capacity. And I think you know they're on the oil side, you know that there's plenty of spare capacity at the right price. Effectively, Yeah, I think you can say that less confidently with most other commodities. And I want to just turn attention to politics and the reaction that currency markets have when elections surprised. And I know, for example, if you go back to the second election for Theresa May in seventeen and the calls for the British pound what it would do as a result of

the election. What election now do you most look at, and what are the different scenarios that you're gaming. Well, in the political sphere, obviously we have the shutdown story here in the US. I think that's does that really matter to me? Not really. I don't think I think it tends to any enthusiasm that you could have in the dollar theoretically at least, or it sounds good, yeah, but I don't think that's that that's obviously not the

big one. Um, there is a big story in Germany of course, right that the spd A is still voting as to whether you know, they're prepared to go in with sort of a grand coalition with Merkele. Merkele is the bulk that holds the euro together to some extent and in terms of at least political terms. And is it surprising to you that there isn't as there isn't a lot of cacophony as Tom would say, or a

noise about the lack of a of a government in Germany. Yeah, I think it's a sense sense that when it all comes out in the wash, Merkel will still you know, be chancell effectively and it'll all be good. So I think there's an optimistic view there. Um, you know what that future government will look like. Is it a grand coalition? Is a so called Jamaica type coalition is still in question and I think but the feeling is that Merkel will come through in the end, even if you have

another election. So that's a big one. And then the Italian election in March and early March. I think that's that's certainly one that could get the market more interested. But there's nothing quite like the French election that we just had. You know, obviously last year, I think in terms of having ramifications for the currency market. Ellen Ruskin with Deutsche Bank PIM, I'm glad you mentioned cacophony because every time I say a four syllable word, I get

paid extra. I don't know if you knew that. That's why I rely on you. Yeah, you know, we go to four syllable words as we can. Kcomphony off the Oxford English Dictionary. Ellen Ruskin has it on his desk. We have it on the Bloomberg terminal. Sixteen fifties six was the first citation for cacophony. Um, I want to go Allen, and I don't want to get you in trouble here with your compliance people, So you know, dance around this observation, which is you remember when foreign exchange

strategy hedging speculation was of a different beast. All you guys drove red ferraris and wrote out written tickets and everything was done over the phone. The world is changing in PIM fox and I saw that this week with a thick trading at the different banks. And I don't want you to speak at all about Deutsche bank that would be inappropriate. But for the younger people listening who want to be Ellen, Ruskin and Alan, there are a lot of them. Is there a future in the ballet

of foreign exchange? Oh? Absolutely, I think at least in the strategy area. UM. I think there's still room for people for thought process where neural networks, having quite caught up with really the cacophony of forces driving currencies, it still kind of need people in a sense. I think

that's that's sitting in the case. UM. At the same time, I think when you look at, at least on the cell side, UM, electronic trading is sidley taking hold in a way in which there are few and fewer spot traders, for example, I think that would be a pattern that one can say across banks. UM. So it really depends where you are, you know. I think you want to be at the more knowledge end of the industry. UM. And that's probably the same for pretty much every industry.

You know. I think him of what you and I saw this week with the banks, and you're wondering, is it a one off? You know, they had a bad quarter in trading. I get that, but or is there something bigger going on here? Well, the banks are turning into commodities. So with all due respect, Alan, I mean, you know, a lot of the services that banks offer are now being threatened by the advance of a technology, whether that is for the retail customer, even for the

institutional customer. I'd be curious to know your thoughts about bitcoin. Everybody's talking about it, and it just defies real explanation because I keep hearing bitcoin, I'm not so sure, and then the next sentences, Oh, but blockchain, that's great, that's a fabulous thing. And I always try to put the too together, and I confess I'm much smart enough to do so. I don't have any for syllable words for it.

I think you summed it up perfectly there. I think people, I think have question marks about bitcoin as an asset if you look at the underlying value in terms of you can't you know same Coessentially there's nothing they are really I mean, that's that's very very difficult to assess.

Which you can see is volatility, right, and the extreme volatility makes one think that this is not you know, this is not the new gold as it were really in terms of a stable long term acid or it's not there yet it might not be there for a long long time. I think to your point in terms of blockchain as a technology, I think that you know, there's the perception that that can be used in a variety of different industries. I think Kodak has obviously put

their foot forward. UM, So I think there's some logic there within the sale is big moves. Guys like big figure moves and that are are we at a point where we could see big figure your moves or do you just look at like we look at a damping vix or we look at dampen FX follow it's another quiet year, where do we see big figure moves? So I think the arbit on that is still the bond market and the things not the central banks, No, I

think less. I think if the bond markets don't respond that much to the central banks, then as we saw so far in terms of fair tightening, then I think that's less problematic. I think a couple of issues in terms of bond markets which suggests there is more volatility in the air. Um. One of them, of course is inflation, and I think that is starting to turn up just slightly. I think there's just enough force. I just gotta tell you, Alan, you just got a twenty percent increase in the cost

of your Amazon monthly membership? Did I? Yeah, everybody, everybody did. Everybody that's signed up Amazon has raising the price of the prime monthly membership by nearly twent How is that not inflation? Yeah? No, I think you know, there's questions about what inflation we're measuring. Obviously, there's a lot of acid inflation, for one thing, So I think, you know

there's that as an issue for central bankers. But I think even in the metrics that we use core PC really, which is the central banks focus, I think you'll see the beginnings thereof some uptick. You're seeing a little bit on the wage side. You see lots of headlines about the tax reform passing on or getting passed on too higher wages really, so I think that's going to be important.

You're going to see it in terms of demand. We saw a soft patch and inflation in the middle of last year that related to what was happening about eighteen months prior to that in the economy. As the economy has improved, so I think you're going to start to see some pick up there. And I think to the point in terms of a weeker dollar and stronger oil. All those forces are effectively saying, look here, um, it's

going to all error to the top side. Now, if you get a little bit of inflation and the central banks are not adding to their balance sheets in the same way, then those two forces, I think, in combination are actually going to tighten things up as far as the back in the bond market, and it's going to create more volatility. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio