Surveillance: Suez Canal Remains Blocked

numbers for you, because the numbers are important. Nine point six billion dollars worth the traffic a day going through that very very important waterway. That's according to estimates from the likes of Lloyd's, and the estimates around the amount of ships that are waiting to get through there right now varies. For us here at Bloomberg, what we're tracking about a hundred and eighty five vessels as of yesterday, I think Lloyd's estimating that's about a hundred and sixty five.

What we need to figure out is what is on these ships and how bad could things get and how bad could things get quickly? So let's do that right now with Alan gelder Wood Mackenzie, Vice President of refining, chemicals and oil markets. Now, Alan, we all know about the proliferation of just in time supply chains that came out of Japan and really really gained traction in the United States of the eighties and beyond. So, but it's important when things like this start to get blocked up.

I guess my question to you, Alan, is when things get critical? Is it days? Is it weeks? And critical

for who and wear? It's a really good quote. It's a really good question and becoming a bit more relevant given the news of ship unblocked, but the satellites and mid sure it's still layer until certinceing the timing, we think the biggest impact we're seeing from all the vessel tracking that we do is really around some bulks and contain and container shipping, in which case it's all of those things that moves on containers, which it's basically across

the whole global economy. We see less of an impact on sort of oil, oil products and l en G, but those things sort of the impact on those gets bigger if we're still in this situation in a few days,

so the blockage will have lasted about a week or more. Yeah, And then the reason I go to these questions because I think it's too easy just to put up the pretty pictures and let's say, look at this digger trying to get out the big ship and talk about that for a number of ads for business people, for I think for international traders right now, looking at this situation, they want to understand how important it really is and

when things get critical. So from your perspective, when you see that straight through the Suez Canal, I'm trying to understand what is on the ships and what can be rerouted. One and two if in the oil business, the pipelines around there you can use instead, how much capacity is there, how much alternatives are they're out there to try and tackle some of these issues. If this issues is still around for another week or so, we think of think of all, there is the Suma pipeline from for the

south up the city career in the north. That's there's plenty of capacity there. The oil market in Europe, there's plenty of crew, there's plenty of products. Because we're lockdowns are being extent. Lockdowns are being extended, so we don't see a problem in sort of Middle East crewed making its way to Europe. We're not really seeing much diversion, plenty of stock, there's some issues potentially going the other way.

It's more products. It may be petrochemical feedstocks because they tend to flow for the Mediterranean through the Sewers Canal and anto Asia seen some price action there. And then you've also got some sort of Russian crewed Caspian crew that comes out the Black Sea that often goes some of that goes through the Sewers Canal. That will be restricted with seeing some of those differentials moving, but it's

relatively small. The oil market isn't isn't a big deal um llen g. If we'd last a bit longer, becomes a bit of a problem. But in terms of the l energy market, the good thing is actually now this is the shoulder season where demands relatively low. But if the canal still is blocked, some people have to make a decision do they go all the way around the Cape Cape Cape Horn and that adds nine days, in which case the shipping market gets tighter and that will

then get ultimately get reflected reflected in pricing. We think at the moment, the market sitting and waiting and hope looking fingers crossed on the news that the whales should be cleared like Monday, Tuesday next week. That's some of the news that's been gone, but we need to see Alan John was talking about people wanting to talk about that digger next to the big ship, and frankly, I'm among them. I also am curious about the conversations in

the cockpit of this massive shipping container ship. The reason why, though, is a bigger issue, and that is the exhaustion after people bought more and more goods to enable themselves to hunker down during the pandemic at a time when there were more people who are out of commission not able to work. Can you talk about the larger story about stress points at some of these shipping centers, the idea that people are exhausted, they have been stranded at sea

for days, I mean for months. Frankly, there have been stories that does that concern you in a longer lasting way, and the oil market and the chemicals market. I think it's one of those things that's largely gone hidden, actually, the coronavirus global pandemic, the lockdowns there are there have been mariners that have been at sea for Argub eighteen months, Argue eighteen months or not, and I still have no means of getting and have no means of getting home

so working. So how much fatigue played in the played in this incident, I wouldn't want to speculate, but if you look at it, we've got supply systems and supply chains that are under quite quite a degree of stress. And if systems under stress, then mistakes and accidents happen. So it's something that the industry needs to be I think he's very the shipping industry is very aware of

and he's trying. He is trying to resolve, and I'd love to catch up again about this because if this does continue, as you know, it can take about a month to get a container ship from say China over to the UK for India Mumbai over to Europe as well, I can say anywhere from twenty to thirty days too, And I think at some point you have to start thinking about what that root is gonna look like in the months to come for some of these big, big

journeys with these massive ships. And it's great catch up, So we appreciate your time as always. Alan out of there of Wood Mackenzie, let's bringing Mamma Dunis now Counter editor in chief Mohammed Let's start there the perceptions of a rival superpower, how we should engage a rival superpower. What have you learned in the polling you've done recently well?

Within our World Affair survey that we conducted in the second of the first half of February, we basically asked Americans about the favorability of perceptions of a series of nations UM. What we found is a record low in favorability of China, and this trend goes back to the nine Today of Americans say they have a favorable view of China. In this UH pole, we also ask about perceptions of who the greatest enemy is of the United States.

In the past, North Korea got a lot of attention back in eighteen when there were a lot of UH missile launches and rhetoric going back and forth. This year was the highest record ever and this trend goes back to two thousand and one, where forty percent of Americans viewed China as UM the greatest enemy that the United States currently faces. It's interesting that half of Americans also perceived China's economy to be the leading economy of the

world UM. And when we ask Americans about the critical threats to the vital interests of the United States. China is one of the many actually areas where there is agreement on both the right and the left in terms of viewing its economic rise as a threat to the United States. So seventy eight percent of Republicans say it's a critical threat of Democrats and about six and ten

Americans overall. Mohammed always think language is important. Whenever we talk about is tompict try to use the words Chinese Communist Party and talk about the government and not the Chinese. And I know a lot of people do that innocently, without malice. They will refer to China as the Chinese

and not the Chinese Communist Party. But the reason I think this is important right now is because I do wonder, at a really tense moment for the Asian American community and the deep issues, deeply upsetting issues that are being increasingly highlighted over the last several months, whether there is a risk of conflating the issues around the Chinese Communist Party and they bleed over and spill into and exacerbate

maybe much more nastier cultural issues here at home. Absolutely, and it's a now more important time than ever to really make that distinction, and I'm happy to give me the opportunity to do that. UM. First of all, in terms of favorability, Americans on the whole really do distinguish between sort of China and just Asian people in general. The data actually hand that out. Japan has one of the highest favorability ratings of any country we ask among Americans.

Taiwan's favorability reading is on par with Israel. UM. So the notion that the favorability of China or Chinese policies in specific with trade, and we have data to show that that's really where the concern is with the vast majority of Americans certainly shouldn't be read to mean, UM, suddenly that everybody in America or of people in America

have negative feelings towards Chinese people or citizens. UM. Of course, we've seen a series of very horrific hate crimes UM, not only in Atlanta, but many smaller ones across the United States. It's not really new UM for the United States. But what we know from the past, UM is that take trade, for example, Americans are very positive on trade. They tend to be very positive on trade with most countries that have a major trade relationship with the United

States Mexico, Canada, the EU, etcetera. But they consistently had a less positive perception of the trade relationship with China in particular. So we definitely don't want to conflate these two issues, um first and foremost, because human beings, of course should always be treated as such, a not a reverberation of policy. Somebody in Muhammad in the United States, I can comfortably uh say that I strongly believe in that.

But in addition to the fact that these issues are real um their longstanding and a lot of the you know, rhetoric that we saw even around the COVID virus um had likely agged on some of that concerned. But that doesn't change the fact that most Americans still know the origin of this pandemic wasn't China. There's a huge issue with the World Health Organization and information about the origins of it. So the issues are real, but it's absolutely essential,

of course, that we separate policies from persons. Mohammed, we only have about forty five seconds. What is the implication of public feeling right now in the United States? Increasingly that China is the biggest economic threat. Is it military action or is it just more support for actions down in Washington, d C. I think overwhelmingly Americans view this really as an economic challenge. Um from the perspective of public opinion. Obviously there's a huge security element to this.

But the more that we ask Americans about the trade issues, the more that we find most of them actually focused on it. For example, when we ask about the situation between the conflict between China and Taiwan, only of Americans view that as a critical threat to the vital interests of the United States versus, of course the economic rise of China. What an important conversation. How mud stay close and come back soon. I'd love to push this one further.

How M a junist there the Gallup editor in Chapehan principal Global Investors chief strategists from over at Principle. Let's start there, Sama, Do you think the cycnical tries breaking down or just taking a pause? I think it's taking a pause, But I have to say that that the number one question I've received in the last week from investors is it is the cyclical trade getting a bit too frothy? And when do we know when it's time

to shift. So this is already very pertinent in people's minds, and I think one of the reasons is is that the market is very much one sided. In the last few weeks, it's very much, you know, very optimistic about GDP growth, very optimistic about reopening the vaccines, and you know, as we've seen that a lot of people really concerned about inflation rather than COVID, and you know what, COVID hasn't gone away. So I think this is a good reminder.

But really the underlying story is still one of very strong fiscal stimulus eventual reopening, even if the timing isn't too certain seeming. What I've found fascinating, it's just the lack of differentiation through much of the year until recently we came into the year in the conversation and we said repeatedly on this show with you two was around synchronized global growth. But the vaccine rollout has been anything but synchronized globally, and the outlook for growth has been

anything but synchronized as well. When it comes to the upgrades to expectations, we've seen the revisions over the last couple of weeks, Yet what have we seen. We've seen US banks up for good reason, US yeld tire. We've seen European banks rally too, even though we're told that the outlook for European growth is inconsistent with the move we saw from yields. That was from the e c B, not from me. We've seeing e M equities do well as well, even with China and Chinese growth and credit

impulse rolling over and growth maturing. Do you think that the breakdown in the cyclical trade on a global basis needed to consolidate before we can start to look at some real differentiation between regions as we start to build out this year again, Yeah, absolutely, I think you know increasingly the big question is you know which one is going to be the winner because not everyone, unlike we've experienced in the last year, not everyone is going to

be doing particularly well. And as you said, that vaccine roll up is probably going to be the game change of picking out who's gonna be good and who's gonna be bad and kind of I was listening to some of your discussion earlier about Europe, and yes, you it will accelerate, that vaccine roll up will accelerate, but they are falling further and further behind, and by autumn they absolutely need to get their house in order, because that

is when we're also expecting another way. So I think, you know, you really does have a task on its hand. And from a macro perspective, you know, Europe, even in the second half of the year, I wonder if it's really going to be able to catch up with the US. See how much are you actively changing your guidance in terms of what you think people should be investing in. Yeah, we we have in the last few weeks we have reduced our allocation to emerging markets concerns again about the dollar.

You know, we came into this year expecting generally everyon to be on level terms a week a dollar story, and you know, we've seen that narrative significantly change along the lines as we've seen the fiscal stimmers package be introducing the US. We've also reduced allocation to Europe that was a little bit before the end of last year.

Um and also maybe you know, reconsidering some of the small cup moves, we do think that maybe it's gone quite far and needs to take a little bit bit of time of retrenchment before we get back in that one, What are you looking at to decide whether or not there's going to be more retrenchent retrenchment in the Russell two thousand, is it an idea of the retail investor and are perhaps being as present? Is it the idea that oath isn't going to necessarily accelerate as quickly as

people have thought, or are the signposts? I have to say, I don't think it's that straightforward as maybe it has been. You know, we really need to start looking at the evaluation indicators. A lot of the position the retail investor is clearly very important here. I think one of the things is is that there's been so much market complacency around this cyclical trade um that some of those concerns inevitably start creeping in. And that's what we're seeing at

the moment. I think it may last for a few more weeks before we will probably be a little bit more confident about getting back into some of those more

cyclical areas. When you say complacency, are you're looking at various trades here in the United States or on a global basis of regional story, Well, it's come to your point is that it's been there was so much consensus view coming into this year about which ones are gonna do well, about the cyclical trade, about the value trade, um and inevitably, when you've got a consent to such a significant consensus move, there is going to be a moment where things start to break down. And I think

that's where we are. But you know, we we want to look at it as a long term investor. Generally, we want to be looking at the fundamentals, and to us, the fundamental story is still very strong for the US, but of course you need to start having a closer look at the regions that I think you're investing in that that's where the dispersion is going to show up.

I've been asking the impossible question, Seema over the last couple of weeks, and Lisa, you and I have been talking about at LEASA where the growth expectations are peaking and you have no way of knowing that right now, But we've had a series of guests on this program who have said not yet. We think we can still surprise to the upside. And I've just seen a data point on US retail foot traffic rising fifty eight percent last week from a year earlier. This is the base effects.

We're going to start to see this a whole lot more, least in the months ahead. The base effects will kick in. And even though a lot of this is highly predictable, I think a conversation you and I have had repeatedly is how surprised some people will be by some of the numbers we might see in the next two months. I'm saying that July four the sort of the key moment, Seema. Can you weigh in and where you think the expectations

are based on equity pricing right now? Do you view that people have baked in all that optimism, that increase in that base effect that John is talking about, or do you think the equity treators will also be surprised by how good it is. I think there is actually some surprise yet to come on the upside. And I think, you know, if we just even turn our minds back to about two or three months ago, there is still a general view that some of the cruise liners would

never get back up on ship. You know, where would the demand realistically come from. And what we're hearing more and more is that people are just desperate to go out and do the stuff that they were not able to do so. I think there could be certainly some upside surprises to come. Just to have a look at the price of flights domestically here in America through the summer,

to get a view on where things are going. Seema good to see a Seema Chanda, Principal Global Investors Chief strategist Nathan sheets Page and fixed Income chief economist and had a global macroeconomic research Nathan, let's start here a conversation which we touched on about ten minutes ago, which I don't think we've talked about nearly enough. The previous administration when they talked about taxes, they weren't talking about the wealthy, although some people down in d C wish

they had have done. They were talking about supply side issues, investment in America, and maybe that was coming, maybe it wasn't. I'm not in the position to talk about that enough of my opinion, Nathan, do you think we need to have that conversation right now? Again? I think at a minimum, what we need to do is be aware of the supply side, and I think the UH, the case to consider tax increases given where our fiscal position is is UH is compelling. There's also a case for various kinds

of regulatory interventions. But as we do that, we also need to think about how business is going to respond and the implications of that for the business environment. And I very much here kind of a demand side perspective of the economy articulated frequently, and demand is critical, but in order for the demand and to be mad, we

also need the supply side to be strong. And balancing those considerations I think is critical and I think would be helpful in our debates they have more of that kind of supply side perspective at the end of the day, affirms corporations or not the enemy. They've got to be part of the solution if we want to have the job creation and the growth that we all desire. Nathan, Unfortunately, that's not been part of the conversation on one side

of the political for a long long time. And Algreaby that started with the former president back Obama, when he turned around to the business community and said, you didn't build this, so let's talk about that a little bit more.

I want to understand what you saw as an outcome of the corporate tax cut from several years back, and whether it's simple as simple as reverse engineering that and saying this is what happened, will happen if you, Hi, Kick, can you help me understand that particular situation just a little bit better. The corporate text cut was a powerful

experiment that I think was cut short. Through two thousand and eighteen, we were maybe starting to see a few hints of strengthening in investment and maybe some increases in corporate sentiment. But then President Trump came with the trade war and just quashed uh those uh, those early games, and so we never we never really found out. So in the event, we didn't get the investment that they were arguing. But it's not clear if they had had

a different policy mix. More broadly, whether we might have where whether we might have seen that I I I think it is Uh. It was a huge missopportunity where President Trump implemented half of policy and then just basically

killed it with the trade wars. Nathan, can you elaborate a little bit more, because at first, Blush, it is counter in two for the trade war to lead to less development at home, you would think that it would lead to more That was the goal, given the fact that it would become more expensive to do business overseas.

Why did it have the opposite effect. I think we saught on a daily basis through that period in the equity market, it was a source of uncertainty and h many firms in the US economy, the reality is are dependent on imported intermediate goods, and especially the firms that are likely to lead the way an investment, and they don't know what they're going to have to pay for

for the products they use in production. H It's very difficult for them to make business decisions, and they certainly don't want to talk about expanding the scale of production UH in that in that environment. So it's a systemic source of uncertainty and particularly particularly hits UH input prices hard. I mean kind of the bottom line is, as many were arguing the trade war, I'm sure it had some adverse effects on the Chinese economy, but it also had

some important adverse effects on the US economy. Just going forward, there's a question about the costs of rejiggering some of the supply chains, Nathan, and this has to do not only with trade policy, but just in general of some of the fragilities that have been exposed in just in time shipping and packaging in the wake of the pandemic, How will that factor into economic growth into inflation, given the fact that it will be retracing some of the

growth in globalization than the cheaper goods that we saw resulting from that over the past couple of decades. I think that one of the messages of the last five years, both the trade war and the pandemic, is that many firms have concluded that the war world is a very risky place and it behooves them to have more diversified supply chains. Some of that might mean bringing at home, but some of that may mean diversifying it out of

out of China and UH. In addition, they need supply chains that are going to be more robust to a whole range of shocks, and that's likely to mean higher

inventory levels UH for firms going forward. Now. I think the implication of that is that inventories they have been so small in recent years, with this just in time inventory management, inventories are likely to be larger than they have been, and they are likely to become like in the seventies and eighties, maybe not to that extent, a similar qualitatively UH more of a driver of business cycle

dynamics interesting in recent years. Nithan, it's fascinating. I had that conversation with PepsiCo the SAFA a number of months back, and that's gonna be a rioting, compounding thing to watch. Nathan Shake, it's gonna catch up Paging fixed Income, chief economist and head of Global matro economic Research. This is

the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg