Surveillance: Phase One Deal Will Be Cosmetic, Coronado Says

couple of weeks. I want to bring it down on BMP Para, our chief US economist and head of Markets three sixty North America. Good morning, tit down morning. Let's talk about it, shall we. We've had a massive sentiment shift in global markets over the last couple of months. We've had the bears over the weekend finally starting to capitulate. What's your message at the moment. So I don't think

we're out of the woods here here. Um As as Tom just mentioned, both the various fair now casts on our own now casts are suggesting that this quarter is going to shape up to be a pretty ugly one. Uh And it's my view that the weakness that we're going to see this quarter is actually going to spill over into next How does it spill over? Because that's the distinction of the bulls and the bears here on GDP growth is the spillover effect? How does it spill

over into the next quarter? Um? It Basically the consumer um is, while it's going to be resilient, it cannot remain immune from this big a synchronized global manufacturing downturn. We saw this back in two thousand fifteen sixteen, where we saw two quarters of very subpar growth. I think we're going to see it again. What about export import dynamics? Um So, Yeah, with x US global growth the weakest

we have seen in five years. Uh um, we think that exports are going to get a and John, this is killing Forget about imports and trade war export of American product? What do you export to? You know that that just that partial difference Menchel in the next year. So what does it mean for the FED view? I'm going to quote your research and our view FED policy will shift from mid cycle adjustment to an extended the patient easing cycle of one hundred and fifty basis points.

Put some meat on those bonds. What does that mean so precisely, What that means is we see another round um of insurance cuts sort of coming something along the lines of basis points. Once the FED realizes, uh, that it's not going to be just one quarter isolated quarter of weakness but against bill, when do we stop? When do we stop calling them insurance cuts? When we're back down to zero? I have to wonder, you know, at

this point we're entering into accommodative. Major central banks increase the balance, She's by the most in October since December. Why isn't that going to fuel perhaps a bookcase. So I think it actually is supporting sentiment right now, but we have to remember that Marthy policy works with a lag uh and uh. While I think the markets are very happy that the previous sort of cycle of insurance cuts has been successful in reducing the downside risk of

a recession, we think of that again. The weakness that's spilling over into services into consumers will mean that the FED is going to have to um enter another um short and and patient, yes, but still never less another easing cycle. Is it back to ston Fisher's ultra accommodative because the chart would suggest so. If you get the number of right cuts you're talking about, right, and that's

exactly the context that we're working here. We are over reliant upon central banks to do everything, um and every single time the markets could so then what was that? Well, this is important. What was the headline last week? One of the FED speakers, maybe it was Powell, you were doing a John in one headline talked about asset bubbles. You know they didn't use that language, but is now twenty eight asset bubble. I think we'll no hindsight whether

it needed is a bubble or not. Um. I do think that there is some underlying strengths within trend growth in the economy that suggests that, you know, maybe in the long term of these equity levels are justified, but certainly in the shorter term data. I sort of see a lot of people, uh, you know, breathing size of relief that the trade deal is almost there, and I'm frankly sort of switching my head here saying you're starting I'm on a triple. Ever, did you see how he

answered that question? That was like BMP message very pause pause, He's got his look in the future. Ever, Crater will know in this can I get to the take from UBS. Okay, UBS of one of the banks, one of the group over the last couple of weeks, over the last week, that has raised that global equity upgrade. They've lifted things. So I'm Morgan Stanley, JP, Morgan and UBS. This is the UBS take, and I want you to pick out

the bit that you would push back hardest. Done. UBS c IO Mark Hafully saying the following, we upgrade on one. The US China trade negotiations have made progress to Central Bank accommodation has increased. Three earnings expectations of fallen, and four there are tentative signs of economic stabilization. Of those four points, what are you pushing back on the most

at the moment? Probably number one and number four. Um, I think that first on the US trying to trade talks, yes, uh, the prognosis looks reasonably good for there to be a phase one deal. But that's because Phase one contained all of the easy stuff and all the harder stuff has been kicked off to to phase two. And speaking with my former colleagues both at State and at US TRUM, I don't I don't see a reason why we should be any more confident about a phase two than we

were on the competencive deal six months earlier. What are they saying? How that? How how that ended? Those conversations with the former colleagues. What are they saying. So they're saying, UM that Uh, you know, of course the boilerplate language that you know, negotiations continue, and they can't specify any any details. But they did emphasize how important it was, both to Ambassador Lightheiser and to the U S general negotiating stance, that there be an enforcement mechanism to ensure

that the commitments of the Chinese make are indeed actually executed. UM. And that remember had tripped up the deal before. UM. Again, I don't see why we should be more optimist. So these are officials working in the administration right now. They're essentially telling you that if we don't have an enforcement mechanism, we don't have a deal. That's right, UM. And an Ambassador Lighthiser has been very public about that, both in

testimony before Congress as well as in general. UM. It's understandable, UM, given the context. But that sort of means that they're going to really have to wrestle out this very difficult sort of aspect to the negotiations before we can really see an end to US China trade policy concertainty. And that is not including all the other aspects around geopolitics and rountic oology around you know, Hong Kong, Roan Shinjong

that is also heating up the temperature drum. Thank you so much, Daniel, and thanks to this morning the Interview of the day on a RAMCO and you can do this with Ellen Wald the Atlantic Council Global Energy Center. Her book Saudi Inc. Is definitive. I take it back to Robert Lacey and his book on the Kingdom of Saud of years ago. Saudi Inc. Is just absolutely superb Ellen. This deal is not working out the headline this morning they're going to cancel the London road show, They're not

going to do a New York road show. What do institutions know that the retail in Saudi having this force down their throats don't know? What do we know where

we're saying we're not doing this transaction? Well, I think that the institutions, at least outside Saudi Arabia know that this is a an I p O that's being forced for um in many ways political reasons and that it's a company that's controlled by an absolute monarch who may not, in fact probably will not, given its history, make decisions about the company that are in the best interests of

the company. And these institutional investors, these foreign funds, know that if they're invested in this, they will have absolutely no legal recourse when when the government decides to use the company for its own own purposes. You know when Ali Baba came out, I remember the up war over Grand came An Island accounting. Um, your epilogue is for

their sons. Do the sons of the Kingdom of Saud have legit accounting for a Ramco or can you suggest that we actually don't even know what the balance sheet is. I think the balance sheet is probably I think that the accounting is probably pretty solid going here. I mean we we we knew going into this that Saudi Aramco was the most profitable company in the world. We didn't know quite how much. I think the accounting is pretty solid.

It's really the decision making that's the issue. And the biggest question is the reason that Saudi Aramco has been so profitable over the years is precisely because the sons of avdilosis. Even so, left the company alone, They let it do its sting. They left the oil men make the best decisions for the long term profitability of the company, and that helped the country. Now that's not necessarily the case. In fact, the spines are increasingly clear that this isn't

going to be the case. And that really what this next generation of sons, the grandsons want to do is they want to gut the company for their own purposes. Want That isn't a good sign for investors who want to make money on this, Helen, Why is a Ramco going ahead with this I p O if we can call it that to raise billion dollars They targeted a hundred billion dollars. They're getting it from their local investors with leveraged cash. Apparently, why not just call it a

day and and do it another time? Yeah, And and I really I've been saying that they should do this, particularly after the attacks on on Upkake and whole racism, and you know, this is a really good opportunity to take a step back, take a breather, and reevaluate the merits of this, because it's not going to bring in the kind of foreign cash they were looking for. And so what the i p O has essentially become is a transfer of wealth from Saudi financial institutions, wealthy Saudis,

Saudi businesses, and Saudi just just general Saudi citizens. It's become a transfer of wealth from them to the government and that's going to tie up a lot of capital in this i p O. They couldn't be used for all sorts of other actual economic diversification in the country. And then can we call this Saudi Arabia's version of a billionaires wealth tax? M um, except that it's not

all for billionaires. You've also got regular Saudis who are taking out mortgages on their homes, they're selling other stocks, they're they're borrowing money to invest in this. So it's not it's not just a billionaire wealth sex it's it's basically attack. Now they will get equity in this company, but it's going to be locked up for at least six months, and that's gonna mean there's very little liquidity after the shares start trading, and um, it could we

could see the creation of a bubble. And then if other investors say they do end up getting these Russian or Chinese cornerstone investors. Those people might start selling within these six months, whereas regular Saudias can't or are incentivized not to. And we could find that after an initial bump up in price, it could drop like a stone. Could this be a threat to social stability and explore

that a little bit further. Yeah, that's that's the next question to ask is what's going to happen with political and social stability in Saudi Arabia Because this i p O was promised to them politically, was promised to them as both something good for them and good for the economy, good for their their future prospects, and if that doesn't pan out, there could be issues, especially in a region that is now basically on fire with UH with protesters

who are protesting the lack of economic opportunity, and this could really bring this to the fourth Saudi Arabia has traditionally been you know, very very stable. People have really not been interested in protesting. I mean, I think during the Arab Spring they had a protest with maybe five protesters. But when you're talking about people's livelihoods, different different issues arise and and we could definitely see some social instability as a result. What is a Ramco do with the

billion dollars? Well, Ramco is not actually getting the twenty five billion dollars, which is which which is the irony of it all. Ramco doesn't need twenty five billion dollars. They're spending forty billion dollars on Capex. You know, they don't need this money. It's the Saudi government that's getting it. Uh. And what is it the day think they're going to do with billion dollars? I don't think this is really

about the billion dollars. This is about the fact that they want to sell shares and more shares of Ramco, put more shares on the market later to generate cash when they need it for their interesting and somewhat bizarre uh project megaprojects. And so it's not necessarily about the billion they're going to get now. It's about the shares that they're going to sell and the money they hope

to make on it later. Self. Bank gets on the phone straight after the I p O gives him a call, said you've got some spare money, can we invest it

for you? Is that where this is going to Well? No, I think it's very and I think that's a really important point, particularly after the zaniness of Off Bank in their combo with Yahoo Japan and I think it's called live z company whatever this weekend, I mean this this this a Ramco, which was so prestigious when we were kids, like to have a job with a Ramco, was this huge deal, etcetera. To consult with them whatever? I mean, do they understand there's a rule book out there institutionally

you have to go by. Do do you have any research within Saudi inc That they understand their rules of the road in bringing a transaction public? Well, this is a really good question, and it seems that a Ramco. Ramco was pretty well well versed in these issues. I mean,

they got their books in order. It's really I think from from what I hear from courses and inside, is that the political that the monarchy who's pushing this, whose idea this was, it was not getting good advice, is being advised by people who are not specialists or experts in I p O s. And that that's one of the reasons that it really was bungled and kind of done in a very backwards, non traditional way, that that frankly foreign investors really aren't interested in this could have

been great. This company is great. This I Peo could have been great had they had they done the right way. Ellen will thank you so much. I can't say enough. Saudi inc. The Arabian Kingdom, pursuit of oil. I'm just extraordinary, extraordinary book. Have you ever been to the O two

out in Greenwich? What do you see that actually went there for the Olympics And they do like big concerts and all that there out there's the Intercontinental which is where they held this conference today where the elite meat degree eaten, the Kennedy show up, labor parties. Jeremy Corbyn was over there. He caught up with Bloomberg's and Edwards in London in the last hour or so. I'm pleased to say that Ann Edwards joined us on the phone to talk about that interview. Anna, great to have you

with us on the program. So let's discuss it. Jeremy Corbyn according to the polls over the weekend, falling further behind the Conservative Party led by Boris Johnson. What did he say about closing that gap? Yeah, he says he can close the gap. He says he's enjoying and trying

to close that gap. And that's best done by getting out there in campaigning, which is no small feet when it's getting colder and darker and wester the closer we get to election on December the twelve here in the UK, and so just that, yeah, just catch up on the polling.

There were three over the weekends that gave the Conservative Party in Boris Johnson a double digit percentage point league over Jeremy Corbyn, although the Labor Party are also always quick to remind us how much damage they did for threason aids lead back in two thousands and seventeen. Other parallels here Anna before between now and he's seventeen, and the gap, the distance between the two parties coming into

the election. Well, the similarity is that we started with a situation where the Conservative Party has a big leave and that's why both leaders to Evenate and Boris Johnson feel that they can take these gambles of getting us into early election situations. But that's maybe where the parallels end. I mean, Boris john a very different campaigners. Certainly the Conservative Party believe Boris Johnson is a very different campaigner and he certainly hasn't been losing right up to this point.

You know, you're our best student of this. Okay, it's CBI. Everybody trots up to you know, get the corporate message and all that, and they're preaching to the business community. Is the nation transfixed by this election? I mean, compared to all the other elections you've covered, how does this one line up so far? Yeah, there's been a lot of talk about how this has This campaign hasn't really

taken off yet. And to be honest with you, after the intensity and the drama around Brexit and the deadline at the end of October, it almost felt like the country needed to take a break at the beginning of November. Those things have had a slow start. But last week with the announcement that we got of the intention to provide free broadband from the Labor parties, that's something that did capture the country's imagination. If you like it, you'd start.

We also haven't had the manifesto yet. We wait till Thursday to get the Labor Party manifesto and the Story manifesto. He's coming in sort of drips and drabs, if you like. It's slowly being released. I think they're trying to maximize media coverage. So yeah, things are slow. Well, Brexit is one issue and it's definitely dominated the headlines, but the spending plan that Jeremy Corbyn put out possibly having a bigger effect on confidence. How is that reading and what

did you have to say about that? Yeah, I mean that he refers you back to the extent of their spending colleges and the numbers that they put out there. He says that's very trumps sparent. Everybody can see what they plan, and he says that we're going to see a scale of investment never seen before in the UK, if,

of course he's Prime minister. The other thing to bear in mind is even if he does manage to somehow become against the polling evidence become Prime minister, that might have to be in some sort of confidence as the Blay arrangement with other parties who have their own criteria around spending in their own manifesto pledges. So it isn't necessarily as simple as taking his manifesto and turning down into into a reality if he is in down in

the Street. But certainly the guilt markets have all been pretty transfixed by this idea that whoever we get as Prime minister, we're going to end up with a lot more physical stimulus in the UK, which is a real about face from over the last ten years or so talking about austerity, austerity, austerity and belt tightening and the virtue of all of that. And now we do seem

to be in a very different era. And let's wrap things up by talking about monetary policy shown we Governor Carney is said to leave at the start of Did you speak to Mr Corbyn about the future of the Bank of England? I did, and I said, you know, you'll have a lot to decide if you are Prime Minister on December the thirteenth, you have a lot to decide that one of the things will be whether you ask Mark Arne to stay for another term. Remember he's

supposed to leave on the steady one to January. And he said all he could tell me was that they have a very good relationship the Labor Party with Mark Arney. I asked him again and he told me again, all I can say is you have a very good relationship. As if that's perhaps holds some deeper meaning to judge

for yourself when you see the exchange. He then did say he's made no commitment to anybody posts them of the twelve very good and Edwards, thank you so much on the campaign travel driving forward our television coverage in the London early morning in her wonderful work on the politics of Europe and the United Kingdom. Right now, Julia Carnado joins us from macro policy perspective. Julia, we don't usually talk to you about generations of the market across

the three minute span, but we'll go there this morning. Um, Julia, I'm kidding folks. We're gonna get a huge disparity between a FED patient and pausing and others really stepping up a slower g d P and the FED that will still remain active even towards ultra accommodative. How do you fit into that mix? Well, I think the FED is is justified in taking a pause right now. It was a little surprising how strongly they signaled that their on hold.

I think that what we'll see in the minutes this week that reflects some dissension on the committee, some divergence of views, but the data do show some stabilization. I think. I agree that the optimism has gone a little far to hang a lot on these first round trade talks, which are really in substance pretty cosmetic uh and and the global growth picture. Sure, we might be stabilizing, but that's far from saying that we're heading into a new renewal of growth. So I think there's a lot of

uncertainty about the growth outlook. I was struck by a Bloomberg Economics projection about the effects of the trade wars on the US and the global economy. The biggest drag comes from the uncertainty does that go away even if we get a trade truth. So yeah, I think you're right that that's that's exactly where where we need to focus right now, because we see it in the investment data.

Right there's a there's a divergence between the market sentiment that has really taken signal from every sort of hint of progress in the in the phase one trade talk and what actual businesses are dealing with on the ground, which is a tremendous amount of uncertainty that they're judging to be sort of a semi permanent feature of the landscape, that they're going to have to reorganize global supply chains, they're going to have to manage these political risks, and

that's not something that's you know, conducive to productivity and profitability. So I think that there is a divergence between what's happening on the ground and the mood swings in the market. Judy, just to get the audience on top of the lettuce reporting worldwide around the trade story. This is coming from the Beijing bureau chief over at CNBC see I quota on Twitter. At the moment, the mood in Beijing about

trade and the deal is pessimistic. A government source tells me China troubled after the President said no tariff roll back, and she goes on to explain just a little bit more just how important is tariff roll back to ultimately get some kind of truth between the United States and China. Ja. I mean, to be honest, it's hard for me to see a very meaningful and enduring truth because the issues that divide the US and China are not easily resolved.

So again, this phase one promised to be mainly cosmetic um and it's hard for me even to see how the Trump administration is going to really concede to rolling back existing tariffs and giving up that leverage, and how Beijing is going to give up on any kind of meaningful assurances on intellectual property. So I really don't see how we can make a meaningful progress that eliminates that really lifts of this uncertainty. What is your GDP called

twelve months forward? Well, I think we've got well, so we've got trend growth in in the US, so we're right now tracking below trend on Q four, we're around one and a quarter percent, reflecting some of the drag from on investment um. But and we've got trend growth in in now. That's presuming that some of this monetary

accommodation is able to do that. The uncertainty tax and the rubber really hits the road with with the global stabilization that Jonathan alluded to at the top of the broadcast Julie over the weekend with a beverage of May and somebody asked me, if we have one percent GDP growth a year one and a quarter percent, what portion of America is in recession? I mean, if it's not distributed equally, what percentage of Americans are enjoying recession with

a sub two percent GDP statistics? The answer is a lot. Well, yeah, I mean, I think what we've seen the the good thing that we've seen as the resiliency in the labor market and even the sort of lower tear of the wage earners really enjoying some wage gains in a strong job market, and that's held up despite what has been a recession in the manufacturing sector. So I think if you are in the manufacturing sector, you are seeing layoffs,

you are seeing a tougher environment. But if you're in the service sector, things have still been pretty good and that rebiliency has been very encouraging. Julia, Thank you so much. Julia Carne out of Macro Policy Perspectives this morning, Paul, this is great. It's always good to talk precious metals. I mean, all that's going on there, but particularly if they can gaze at the two carrots special from Tiffany's

and as a gemologist, tell you if you did hope. Okay, how often do we talk to somebody on the South Side that's in actually like big time gemology. I don't know this. I mean, our next guy covers absolutely everything, FX, commodities, medals, uh, you name it. She covers the Georgette Boulet uh, senior effets and precious metal strategist at a bien Amro, joining us on the phone from Amsterdam. I believe, Georgette, thanks so much for joining us this morning. Let's start with

the medals. You know, just looking you know at gold. Um, you know a lot of people's I'm just not sure what to do with gold here? What is your thought? Thank you very much for having me. Yeah, the gold market is looking a bit for direction. And the thing as well is is that we are currently close to an important support and that's around fourteen fifty UM. We have been much higher. And the thing now in the gold market is that investors are very very long gold.

They hold already gold from speculators to other investors and expecting higher prices UM. And yeah, they still hope to see it further this year. The only thing is is that we had some here and there's some new supportive news on gold prices, but as everyone is already positions for it, the problem is that it's not pushing prices

much higher. So the biggest risk we have in the near term is that we get some price correction further on gold prices, meaning lower towards at least fourteen hundreds, and then you you only need a very small amount of position liquidation of all the big positions we currently

have in the market. So so I would say near term there's quite some correction risk and then fourteen hundreds is probably then easily reached and then um, yeah for next year, I'm more positive again, expecting sixteen hundreds in the end of next year. So it's interesting. The one of the things about commodities is people are trying to get a sense of where the dollars. Is there any

bare case out there for the US dollar? Um. Now, for commotities, especially for precious matters, the direction on the dollar is very important. It's in a way, yeah, a kind of currency. Most of the of the gold market is trading as a proxy currency so far. By the way as well, UM and yeah, to see a very big move in coal prices higher allow della will be very welcome. Uh, this is not something we have seen

this year. Dollar has done relatively well. Gold prices as well, So there are more drivers than only the dollar, but the dollar is a crucial one. The other one is um, Yeah, what the expectasies are in the monetary policy for UM and as well as how many government bonds are yeah below zero and currently, especially this year, gold got quite a boost on the fact that yeah, monetary policy moved towards easing. We talk about fat but also easy being

in other central backs. At the same time, you've quite a lot of government bonds yielding negative rates, and then gold with er rate is attractive. So then it's not really the save haveing story, but more the urn which is which is playing out here George plus Sweeney asking all those responsible adult questions. I'm just going to weigh

in here before the holiday season. When you see like fancy gold ear rings like the Tiffany Schlumbers a rope six row ear clips for six thousand, eight hundred dollars, what's the markup of the gold there? I mean you're a gemalogist plus doing gold at a b N m row. What's the markup on jewelry and gold? Um, that very much depends on how much what kind of two repeace it is, But overall I would say, you know, there

is quite a markup on that as well. If you if you look at and to Repeace and you calculate how much grams or I'm there, you know the market press shouldn't roughly know how much is also designed because a lot on the Jewish side, there's also a lot of designing which yeah, yeah, consumers also pay for you see that Paul's news you can use exactly. I just sorry did by the way, Georgia, I think Tom just clicked and that's now in his cart here, so it's

not in my all right. So, um energy one of the things just looking at oil, um, looking at Brent at sixty two barrel. You know, there's a lot of questions here about demand, global demand. What is your view on global oil at this point? Um, we expect that. Yeah, you have two major forces currently going on on the old market. On the one end, Yeah, people are getting more concerned about the global outlook and therefore did an

amount expectations for oil are more towards the downside. At the same time, we have experienced quite monsortity in the Middle East and also there you get a bit more risking on old price. So and these two main factors, Yeah, keeping all prices a bit yeah, relatively stable. No, no strong directional move so and and and we don't have a strong directional movie either on on all prices. Um. So I would say around these levels and a bit higher. George app A, thank you so much for joining us.

We really appreciate your thoughts on across the whole wide array of wide A. Right, we didn't get the coffee or sugar or aning that kind of fun stuff. George Apple, A, B and M R. Seniors and metal strategists. 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