Surveillance: Global Economic Data Will Hold Up, Hooper Says

And I'd like to go to a piece of this right now for Francy, for you to bring up the conversation with DFL negative interest rates and they have a punishment to them, the aggressive implementation of a new regulatory regime and the failure to create a unified homemark. It are this rating bank profitability. Needless to say, since the introduction of negative interest rates, EU banks have lost two fifths of their market value, while US banks have gained

the same amount. It is inappropriate for DFL to speak of transactions of German banks, but Francine certainly he can speak to a larger bank banking system. Right now, how do we clear this mess David, I'll tell me what first needs to understand that there in modern economies, the intermedia is financial intermedia is are key to making it work. They're not just there to take the positis and make loans,

but they allocate credit. And they's just key if if banks don't if banks are sick, economies don't do well. That's sort of a fundamental proposition. And once you see that, then you get worried because then you see the European banking system compared to the US, is in dire straits.

In all the normal metrics of return on assets, return on tangible equity, uh that interest margins, European banks are pale shadow compared to the Americans, and so it's very very difficult for them to making money, to organically raise capital, organically deal with non performing loans. And there's a history to this, of course, and sen sense. The Americans were restructured early after the crisis. In Europe didn't do that, so we had we had a lot of legacy issues

in the banking system. But this is a serious problem and and and it affects fundamental verbles like productivity. As I said before, if you have to make loans when you capital constraint, you stay with you stay with with the with the borrowers where you already have your money. You don't take it from him and give it to new borrowers, because then you've got it write down the

old money. So and that requires capital. So you have all kinds of of inflexibilities in the system that developed when you were When you were are not profitable, so profitability is important. What kind of banking system does Europe actually need? It's pretty straightforward what has to be done. We need to have a unified banking system. The only one percent of household loans come from across border. Now imagine if we talk about single markets for twenty four

hours a day. Yet the borrowers in Italy don't borrow from German banks. In German banks don't lend to Spanish borrowers, not because they don't onto it, because there's just so many hindrances going across borders. So the completion of the banking union and of the capital markets union is the first thing that has to go done. And this is where I keep criticizing the European authorities that it's so easy to do these things. I want to do these

things with monetary policy. But that's a very blunt tool to steer an economy when when you're failing to do the more elementary but also the hardest stuff, namely the completion of the single market. D David focused lend does thriank you so much? For our US audience, particularly a US drive time audience, There's no I think that's going to make you turn the channel like another discussion of Brexit. But we can do that, and we can make it

charming and lovely. Always with Anna Edwards, Chief Brexit corresponded. Anna helped the US audience here with an absolutely original phrase, an indicative vote. What is an indicative vote? Well, good morning to you, Tom and Jonathan. We're all on a on a big learning cave when it comes to Brexit. Another part at the twist and turning Brexit process for you this morning. Indicative votes. So basically the way this goes. MP spend today coming up with options that they see

for a way forward on Brexit. They suggest those to the Speaker of the House. Do you remember him, John Burgo, the one who shouts order, order a lot. He comes up with this list. The list goes on a piece of paper and then they all rank which options they would tolerate, which ones they would like, which ones they could hold their nose and vote for. And then after that process next Monday, the top few get debated and and Parliament craft some sort of preference out of all

of that. Oh, that's wonderful, except that reads like that required summer reading, seventh grade Lord of the Flies. I mean, this is not, you know, required democracy as well. It's unusual who controls this process or does it turn into something completely original for the home of constitutional law. It does seem as if a lot of what we're seeing in this Brexit process is being i mean being crafted creatively,

shall we put it up to now? What we've seen a lot is the government bringing motions and members of the opposition tabling amendments to that, and that's been the process we've been going through. But this is something new. This is something different. The government is called this something dangerous with an unpredictable precedent because it does certainly open up the floodgates for other activity like this in the future. It upends the balance between the democratic institutions. Is the

government's ache on this? Those who put this forward though, and I have to point out this is a cross bench, across party group of MPs who put this plan forward. They see this as really trying to answer the question as too okay, we know what Parliament doesn't want, but what does Parliament really want? What can parliament get behind important to note though, this doesn't mean that this is

what will come to part. Parliament will express its wishes this way, but the Executive does not have to listen to this. Theresa May and her team have been saying we can't pre commit to implement a plan that we don't know what that is. That would not be responsible. So Anna, I'm wondering whether they actually all of this mess plays into the Prime minister strategy that she gets the hardcore Brexiteers to start thinking that it's either her plan or they're not going to get anything they want.

That is exactly the subject of the most recent modcast. If you've not heard of this, Jonathan and Tom, this is the Jacob Reese Marko, I'm sure you have heard of, the leader of the e r G, the sort of breakaway part of the Conservative Party, far on the right side, the brexiteer side at the Conservative Party. He does a podcast called modcast he releases this morning, and it makes that point. But the choice, there's a continuum of choices, and May's deal, he says, he is better than no

deal at all. He said it before and last night he said he would be tempted to hold his nose and vote for the reason May's deal if this was the best chance of getting any kind of Brexit. And so what's interesting about indicative votes is that they could paint a picture of the way forward, or they could just be used to whip the E r G and

other holdouts into supporting Thereason May's deal. In the end, Okay, I'm lost and thank you so much, greatly appreciate it, and can't say enough about her work on the green at Westminster. She has been absolutely extraordinary. What Jack far and I love to do is to fold like six of the Zeitgey stories at the moment into one lovely story.

And John, we can do that with Jennifer Bailey, vice president of Apple PA yesterday who got up and introduced the Goldman Sachs Apple Titanium credit card, and there in front of thousands of Apple fans, you know, the Apple idiots, was the Titan card and across it. It's a Jeffrey Curry not let me get away with that. Did you just call the Apple fans the Apple idiots? You know, the fan boys, the fan boys, they're all into it.

And there was David Solomon there, and there's the titanium Apple card and it says across a commodity guru Jeffrey Curry, Jeff carries with us. But Jeff Curry can always say that you've got an Apple if X I do. But but, Jeffrey Curry, titanium and credit. What is titanium used for? I prefer the precious medals over these rare earth metals, but platum but not titanium unfortunately. But it's but but they're like they're different from gold. I get that. What

did you do with palladium and platinum um? They go into autocats and because of the VW problem um the demand for diesel cars collapse and the platinum goes into those. And then at the platinum price went down and we buy more gasoline cars in lieu of the diesel cars and palladium. And so as of yesterday, are you're covering titanium? Not yet? Not yet? So, Jeff the question used to be what's going on with China just OSCA commodity strategists. Now it's which commodity do I look at to understand

what he's going on with China? Woke me through a Jeff Well. In general, the policy in China has become much more selective, Like if you look at their how they stimulated housing this time around, they went in city by city, credit worthy by credit worthy, and so you end up with these very idiosyncratic stories. Now, in terms of thinking about the current environment, the one thing we've learned is they won't step aside and let the economy collapse,

nor are they going to turbot charge it. So really what it does it creates a relatively benign outlook, like our outlook for steel demand in China this year's flat ere overyear. I think that's really the core outlook going forward. But that reluctance not to step aside has that also made it more difficult over time to boost the economy when they need to know when two thousand and fifteen and sixteen they did it in the large scale, and they did it again back in was it twelve and thirteen?

It looks different this time though, Jeff, They've been trying to stimulate the economy, for one, and there are very little signs of it actually stimulated the economy. Well, I mean, if you got rid of the tail risk, you know, you look at you know, the the underlying um economic growth is somewhere in that five and a half to six percent growth range, and they've taken down their targets. Does dr copper work anymore? Really important question about you know,

what do you follow for China? I mean, the regression from two thousand and ten is not pretty No, it's not. But but if you look at um what copper was primarily used to create that electrical grid system in China, and infrastructure projects are slower right now. As a result, demand is slower for copper and other base metals right now. Do you have a good handle on various industrial demands? I mean, I mean we run into in oil all

the time, supply, supply, supply. Nobody really wants to measure demand. Is it truly measurable? Well, you get an implied demand that I think it's pretty close to it, and it's consistent with the underlying economic data. But I think the key here is durable demand, whether if it's houses, autos, in the developed markets or infrastructure in China is a lot lower today than it was five ten years ago, and that's primary reason why copper and the rest of

the metals complex is lower. So Tom's brought up an interesting point about DR copper. If DR copper along has a PhD, and I cannot believe what the inversion of the yield curve is used to tell me, or is telling me? Now, what is the signal that I get from price? Where do I get signal from price anymore? Well, if you look at the prices across the complex, they're sitting pretty much on their equilibrium values. We got coppers

a little bit stronger UM, but more broadly UM. Most of these prices are telling you it's kind of a mid lean type story, consistent with the underlying fundamentals. And one of my great charts I put this out years ago. It's the old c R y c RB indexes, ancient stuff folks, back to the fifties, and I adjust for inflation and the answer is cop blended commodity prices now, Jeff Curry, are back to where they were in on an inflation adjusted basis. We haven't broken that cycle, other

than the one off commodity boom. What's the house call at Goldman Sex, I'm breaking this deflationary cycle. Well, if you take the non energy, which a CRB is primarily composed, it's bacing. That's that lack of Chinese demand for capex commodities. The op x commodities like oil looks a lot better. So it offsets that chart and makes it slightly tilt up as opposed to tilting down. What's your calling oil right now? Have you revisited that seventies seventy five? The

market is really tight today. You know, we got million barrel per day deficit forward curves in backgradation, so it's a rock solid story right now. However, you got a relatively barry story going into because of the pipe capacity, and as a result, we think this markets can remain back. This is on w T I s Brent, I was gonna send us a big job from what we are now. That's still eight dollars. That's a big move. Well, from fifty to seventy five, I was thinking that that was

a little bit, but from sixty whatever. Jef, last time you were with us, we talked about gold, and I think a fourteen hundred dollar price target on gold. Are you still there is how we're still looking for? Definitely? Um, you know most of the evidence coming in on central bank buying is there. Um. The Chinese bought in both December as well as January ten tons Um, you have a dovish fed Um. You know the flying the white mate right now is really what's going on with the

US dollar. But you take the the underlying fundamental picture and you get a stronger e M, which looks to be the case ex China. Um, that's the tail wind that you need to push gold up to fourteen we viewed as a grain higher as opposed to is the house view still for a week a dollar from here? And what undepends that? Jeff? Yeah, I mean it's you know, the situation in Europe is probably about as bad as

is it's going to get at this point right now. Um. And if you look at the dollar against the e M x China, it's it's it's much weaker than what it was last year. Jeff created John Ferre and I need to be in Vienna April eighteen or seventeen. In April eighteen, do we need to be there for the OPEC meetings? I mean, do we need to be there for all the excitement of OPEC now. I think I think the big question with OPEC right now is the exit strategy and when they're gonna start talking about it,

our rexit strategy. From Vienna Aprilt Tomas just trying to arrange a vacation. I don't think it's going to be that exciting this April. This is this last time. Jeff is great to catch up with you. Now you've got to run to TV. So thank you very much, Thank you. Come back when you can say, Vienna looks lovely in April, just for a night, just for a night. Jeff went once in I was six, just killing us. So when Jeff, when Jeff goes to Vienna after that getting started, just

emailed in and said, you'll be lucky. You'll see Vienna Virginia. Christina Huper here with Investco, their chief global market strategist, to help us reset this morning. Let's look back first, how did you reset on December of last year. Well, we recognized at that point that the FED may actually be feeling more flexible and maybe beginning to pivot um. But having said that, it really wasn't confirmed for a while, and so I don't think that man any adjusted portfolios

because of that slight indicate. But on the south side, they're report December rather December, they're doing it for three weeks of December. You gotta rip that up, throat and waste basket. What's your new twenty page report when you speak to invest Goo shareholders. Well, clearly it's a much more accommodative environment for risk assets because of the FED pivot. But the caveat is if economic data holds up, because that's really the concern because this pivot was so abrupt,

was so dramatic. What it does is raise very significant concerns about the state of the global economy. So we're gonna need to follow the data closely before we really have a solid picture of what is to come this year. Um, my expectation is that we will see the global economic data hold up, that China stimulus, for example, will power the Chinese economy and enable them to hit that six to hit six and a half percent target? Is that very easily? That is my call. Your call is a

six percent plus China GDP. That is correct. That is lonely Joe, Well, that's China is called as well and typically what China's call is is what growth will be as lonely as you'd expect. I think that the thing that I find really hard to reconcile right now is why the rates market would begin kind again pricing get a rate cut at the same time that risky parts of credit continue to rally. A question I asked this morning, is an environment where the FED needs to cut is

not typically an environment where risk performs well. So I think something's got to give. Either the rate cut doesn't happen, or the credit market needs to adjust and adjust quickly. Which one is it? Christina? From what you're saying, you just don't think the right cut happens. I don't expect a rate cut to happen. I know that the probability is going up if we look at FED funds futures, but we have seen a decoupling between expectations and FED policy,

so I wouldn't be surprised if that continues. I just believe that the economic data will hold up fairly well. I'm not telling you we're going to see very strong global growth, but it's not going to be as bad as many expect. As the treasury market the coupled from the domestic growth story. Uh, it has to a certain extent. But I think that that is to be expected given just the abrupt change that the FED made that set off all kinds of alarm bells and has made many

investors wonder what's going on. So we have to wait for the data to appear to really confirm views. So when does that actually come? Because there was an immense amount of faith that China would be able to stabilize the situation, that we would see it stabilized as the year progresses. Are you seeing any of that in the data at the moment, not particularly, although it's not terrible. I think what we're likely to see is improvement as

we move through the spring into the summer. What gives you the confidence because I have a lot of confidence that the Chinese government, when they want something to happen, they make it happen. Um. They have a lot of stimulus that they're throwing at this fiscal, monetary administrative and I believe it will ultimately result in grow. I want to point out that within what we saw the last number of days, John, that we heard the same thing

in a different way from Dr Shepherdson Pantheon. Absolutely that within the I mean, I'm sorry, I'm looking at the Bloomberg screen and it's not giving me Christina Hooper's story right now, but she's looking out to a restorative process. I'm catching up with Wackin Fouls of PIMCO a little bit later, and their cyclical outlook came out a couple

of days ago, flatlining at the new neutral. And ultimately their take is what I think many people's take is now that the swing factor in the global economy is China and what happens with China later this year. They also share that faith that we will have a little bit of stability there, we will have a bottoming out process that begins as the year progresses. Christina, some people don't buy into that. How do you convince them when you speak to clients. Well, one argument is to just

point to the US China trade war. It behooves China to stimulate its economy so that it can last through the U S China trade wars until the US capitulates. That is an incredibly powerful incentive to throw stimulus at the economy right now. So if I believe that, the next question is how to express that in financial markets? If I believe that China is going to stabilize, then I'm looking at the markets right now, I'm thinking, well, actually,

European equities have already having a decent year. Chinese equities are already having a different decent year. Likewise, with credit markets have fixed income in Asia, in Europe? Where do I get value? Where should I push that view through that China is going to stabilize and things will be okay? Is it on the short side and rates? Is it

long in equity somewhere? What should I be doing? I see opportunities and equities, and we have a significant amount of altility, so there's an opportunity to buy on the dips, both in the US and emerging markets equities. Although I focus on Asia, E m interesting. Christina Hooper grets to catch up with you, Investco Chief Global Markets, trying just on a really interesting morning til an interesting wickip price

action to well, the interesting Waka price action. But what's interesting about it is where we are and where the mood is. I mean, right now, John, if we created a dot plot today and with the market perception of it, it would be an original dot plot. It would would Let's be clear about that. I mean the market could could have its ound dot right now on the FMC del plant, you know what I mean. The Christina, they don't move. I know you've got to get up and leave,

but but Christina, I think this is critical. And then I went back and looked at two years of dots, which you could do on the Bloomberg, and the slopes

have all changed. I mean, the view out for the fancy people at the FED is radically different than it was two years ago, right, absolutely, But I think that has a lot to do with the fact that this is a policy prescription essentially created in a vacuum by each individual member of the f o MC, So it doesn't reflect group think and the kind of consensus that goes along with Actually, but our listeners don't have a

luxury of group think in consensus. They're just scared stuff and they missed the rebound January February and Cell, what are you doing to allocate right now for those that didn't enjoy up eleven. Well, we're encouraging them to take a long term view, which means that right now central

bank policy is relatively accommodative. Although I would say that one area I do worry about and We've already seen a run up there as European equities just because one thing that not many people is talking are talking about is that Marrow Droggy leaves this position at the end of October. So he's essentially a lame duck, and so no matter what kind of stimulus we see coming out of the e c B, we may not see markets to Christina Uper, thank you so much with Investco. 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