Global Data Pod Weekender: Another week into the unknown

Welcome to the JP Morgan Weekender. I'm Bruce Kasman and with me this week is Joe Lupton. Hey Joe. Good afternoon, Papa Bear. How are you doing? I'm tired and confused. Um among other things. But you just sat deranged and confused. Uh I I guess where I'm kind of coming at this is that, you know, we have I I think on one level

a tension in what we're seeing, which is there's this building drag from the energy supply shock. And as we look at that in you know, think about what kind of adjustments to make to our forecast. we're kind of balancing that against a global economy that's been doing better as we turn into the new year. And we we have had this conversation and and should have the conversation about how

how these two things balance against each other. Um And I you know, I can get into a conversation that says, Okay, the the you know, the drag from keeping oil somewhere close to a hundred for a couple of more months and then coming back down to something close to where the forwards are now. um would be one where the overall drag on growth this year is pretty pretty modest. But I think this is this conversation is just missing the bigger picture here, which is

that we are starting to enter into a more dangerous phase here. The you know, the conflict doesn't look like it's gonna resolve itself immediately. I mean, I don't wanna come out here and say I understand

what's going on on the ground or with politics, but it doesn't feel that way. Um, we're seeing more damage being done to energy, uh uh infrastructure. And I think uh the combination of the concerns about um a more extended uh uh kind of constraint of oil and natural gas flowing from the Strait of Hormuz

both raises concerns about much sharper price increases. It raises concerns about quantity constraints starting to become a a factor. Um and it also is now starting, and this is perhaps something I I certainly hadn't expected this week.

is now starting to play out in financial conditions where interest rates are moving up as we're now beginning to price in uh central bank tightening. So the bottom line from my point of view is um that we uh have uh more reason to be concerned about tail risk, even as that balance between, hey, what does a hundred dollar oil price do and what is the actual numbers on the ground mean are kinda, you know, not far from offsetting. I'm not suggesting they are fully offsetting.

So that's kind of what's on my mind. And I know we will get into the the central bank story, but I'll stop there and let you kind of, you know, give your two cents to start us off.

Well, I think We we kind of do a couple things, right? So we we there's a point at which we have to start moving into thinking about how what's the damage gonna be from this. And as uh uh I think you noted we're starting to put some of this stuff into our forecast. Um, you know, my my take is we're we're far too kind of timid in the way we're we're pushing through um kind of forecast changes here. I fully agree we shouldn't spend a lot of time on this because

you know, things are s very fluid. But I I I do think in the coming kind of week or two as this thing is sustained, we're gonna have to really start taking uh kind of a hatchet to to to some of these numbers. Now how much is gonna be an open open question. Uh a hatchet. That's a that's a that's no that was a harsh number. I knew you were gonna jump on that. I don't mean like

Well I mean but but let's let's be honest here, Bruce. I mean the I the scenario that we're thinking about is a hundred dollars per barrel uh I in the in the second quarter, then ninety and then eighty. That alone would take a half a percent off the level of GDP globally. So far we've only done I just looked it up by the way. You were saying two. It's only one ten.

Um one tenth, but okay. Fair enough. Um and and so we have raised inflation a lot more. We've raised it six tenths, our models would say eight tenths. So I the the the funny thing is I feel like our team is

being very reactive to the inflation numbers, but being incredibly agnostic and reluctant to kind of push through the case. But Joe, I mean let me let me sort of just I I I I don't want to focus on this part of the conversation'cause my thinking would be Let's say you thought that you should be taking growth down by a half a percent because of this, and we're only one tenth down.

Part of that is the better uh news on growth that we're we're seeing. Uh yeah, I think that is part of it. But I'm so if the difference here if we say let's add Um, let's add uh let's take a tick or two off that five tenths from uh better growth momentum at the start of the year. Then we're talking a few tenths. It's not

It's it's almost a rounding error. That's not that's not the important year is a little more than rounding error. I certainly if that's all we were talking about, but what I wanted to get into was not on the actual point numbers, but to say

A hundred dollars per barrel assumes things start improving right now, right? I mean we're already at a hundred and ten and I don't the every news feed that comes through. Suggests this thing's gonna last longer. Or improving right now, it could it could improve a month from now and still very hit that number. Um I mean I again I just I I I want to say I don't feel this conversation gets us very far in addressing the bigger issues, which is

whether or not some of these magnifying nonlinear elements of the story are going to kick in. I think You know, and here I'm kind of agre I'm leaning into your I'm kind of including all of that in it, Bruce. I mean, I'm not sure. Right. That was my starting point, which is my my point of all this was to say my starting point is that we haven't done enough to a very benign type linear shock. We're still not doing enough yet. But the difference there is small. Um so I mean

I'm I'm torn here, Bruce, because like I think last week I was asking you when should we start making revisions? You said I don't want to make revisions at all. And then suddenly this week we come in, you're like, oh, we should start pushing through some revisions. So we're starting to do that in a very timid way.

Um, I you know, I I don't know when are we gonna start making more changes? I like is it after one week? Is it after two weeks? Um Well I think we we uh I think when we're talking about um the potentials for nonlinearities for things that magnify. So again, what I'm saying is look, if we're gonna say that our team should have been two tenths lower on twenty twenty five GDP growth.

You and I might have been, you know, kind of comfortable seeing that happen, but it's not an interesting conversation. Yep. We're saying when is it that we start to think about things that are happening here that are going to significantly magnify these effects? That's really the conversation. And I don't think we're there yet, but I think we have every reason to be worried about certain things. And let's sort of identify what those certain things are. There's at least

three or four things that are on my mind. One being um that a hundred dollar oil price could be off by fifty percent or even more in a world in which your um uh removing anywhere between five and ten million barrels a day from uh uh energy supply globally. Those those numbers as you know in the way we tend to to think about it should get you much higher than one hundred should be twice as big as fifty

Yeah, so there should be more like a hundred and fifty dollar uh crude oil. So we have that risk that the st the size of the price shock. begins to to increase in a way that um itself is not only uh increasing the drag, but starts by itself to have certain nonlinearities associated with it.

I think it becomes a lot harder for consumers to do the normal smoothing. Um, I think it has a much greater chance of having a a negative impact on on sentiment. But that's not the only one here. I think there at least two others that

uh I wanna kind of mention. One is that Um, you know, when I when I talk about the energy shock from a US point of view, uh people oftentimes want to highlight the fact that the US is an energy producing sector. It's got a large energy producing sector. And I think I think from the point of view of the price shock Um, I don't think that's gonna help you very much in the short term because I don't think you're gonna get investments or output increases that that are gonna by any way

offset the purchasing power squeeze to energy consumers, both businesses and households that do that. But I do think the fact that the US is a a a net energy exporter Uh the fact that um we might be sitting here with uh a prolonged period of disruption to supply does help us an awful lot because we're not exposed and whoever else is in energy. Yeah, I think in the medium run, if you start changing policies around to kind of force energy product

To stay in the US and and we have to be very careful because you and I are not kind of there there's little commodity ex stuff that we are not. But You know, I I think if we can start to like focus things like natural gas. And you saw this in Russia Ukraine, right? I mean the US obviously did not get the same type of hit. Exactly. This was a Western European story because of those constraints that came in the natural gas sector. And right now I think we're the

the central focus is is more as you look at Asia here, um, there still is reasons to be concerned about Western Europe as well. But Asia's the yeah, and what we were musing on a little bit earlier, um Is the question, our team in Asia is telling us, yeah, these are potential uh nonlinearities, but there's a reasonably good buffer in crude oil prices.

uh certainly in China, but also in some of the other uh big, big economies in the region. And while natural gas is a bigger vulnerability that there is actually uh some cushion here, cushions that may last. as much as a couple of months here in terms of preventing the supply constraints. So that's a big call if it it at least gives you um

some time here to w see this thing get worked out before it really starts to become a serious problem. But it's it it's a problem for Asia. It might be a bit of a problem in natural gas. For Europe, uh it's not a problem for the Americas to to speak of in that in that regard and and possibly a couple of other uh energy producers outside the Middle East. But you know, so that's that's one issue. Asia's the one that is

is the most exposed here and they have varying degrees of of reserves of this stuff. If you want to look at L and G then you'd probably say Taiwan is the most vulnerable, then maybe Japan and then Korea probably have I'm talking like weeks here, like levels of weeks, right? So Taiwan maybe a a a a few weeks. Um Uh, you know, Japan maybe kind of four to six weeks of kind of deeper reserves. Um, I think Korea maybe as much as you know a couple months.

Um but you know, th this is a region that I think it relies very heavily uh on on the Middle East. I think that what is striking to me is that you hear a lot of chatter about

Oh well this is you know, Russia Ukraine was also one of these situations where it was like this existential threat and this shock. that, you know, all the different commodity channels that we hadn't known about or appreciated. Uh, and yet we kind of made our way through that. So I keep grappling with like, well,

What's different? One key thing that I think is different. I want to finish. I w I want to finish. I want to say in that environment, you had Russia that was actually very much willing to export its resource. This and so it was by the allowance because uh you know the US wanted that oil on the market, you had this kind of generally this free flow of of oil coming out there. This is very different, right? Iran is actually in the driver's seat and they are deciding to shut this thing down.

And so that to me is a is makes the Russia-Ukraine story uh you know quite a bit different. The other thing that I think was different was that you are in full blown recovery mode over that period. And central banks, if anything, were were caught on their heels where they kind of rates were were actually quite low. You had a lot of fiscal stimulus still in the pipeline. You had a lot of monetary stimulus still in the pipeline. And so when you put those together.

uh I think the comparison to right now is is is very different. I just feel like we're a lot more vulnerable from a global cyclical position than we were during the the Russia uh Ukraine event. So those comparisons I think don't don't Well I mean, I think that's a good thing

It depends on which part of this we want to talk about. I'm gonna step away from where we are cyclically and and where is the the broader inflation outlook for a minute. What I think to me is relevant in this part of the conversation at least. Russian oil never get off the market in twenty twenty two. There was a fear that it was gonna come off the market, but we never really had an energy supply shock of any

What we did have though is we did have a careful Bruce. That's that that's not right. I mean when you say an energy supply shock, you had a a massive existential energy supply shock in natural gas to Europe. Well that's that's exactly what I was gonna say, is that that is a relevant part of the story in terms of thinking about it now, which is you had a natural gas uh shock, which did affect supply, which did of course.

have a much bigger price effect and is a reasonable thing to think about in terms of how you got through it. Um, and the fact that Europe didn't go into um, you know, a deep downturn off of that. That part of it is relevant for uh the current conversation, I think.

Well, I mean yes and no. Definitely the the all the downstream factors, whether it's kind of natural gas or it's naphtha or it's sulfur, uh, you know, the helium, I mean all these things that seaborne trade coming through all the petro industry, petrochemical industry. Is gonna feel the pain in a way that we don't really think about at our global macro level because these things all move together, but suddenly these things start to

uh, you know, start start to matter. I think one thing that, you know, was different on the natural gas side from right now, and you're trying to say that they're they're kind of similar because this is a is a real still a real threat, is that you had infrastructure Destroyed like significant infrastructure destroyed in Russia Ukraine, right? I mean, you had Nord Stream 2 that was blown up.

Um and effectively you had, you know, Europe saying we are done with the the kind of the relationship. Um so far, you obviously this week's news of the the Qatar energy. uh field being hit. I think We're in a kind of tit for tat mode. Uh, you know, uh Iran is saying if you hit us, we're gonna hit you. And in the meantime, we're gonna keep the straight closed forever and the wire to just hitting the wire now as we're talking is that Iran is sticking with this hard line position on the straight.

Um You know, but le leaving aside the the straight, I think the infrastructure part of this is still a you know, uh uh it's a threat, but um it could get a lot worse. And I don't think it's as bad as what was what was happening in Russia Ukraine on the natural gas. side. It's not, but that's the risk, of course, is that that is becomes what this event turns out to be, maybe more focused on

on the Asian economies. Um, without getting into the broader macro backdrop of what twenty twenty two was, which had very different um uh developments in place.

Um let me switch gears here a little bit now. Yeah, can I just I you know, in terms of switching gears, I I think We we all agree and we started this by saying it's really hard to kind of forecast this thing and what we should do with our with our own economic forecasts and so forth and we really struggle with how to how to kind of lay this stuff out in a world of such great uncertainty that's evolving so quick.

One thing that is happening is financial markets have to discount this stuff and that is going through to interest rates and central banks are kind of having to I was gonna go. That's what I wanted to go to. Yeah, central banks are having to react to this as well. And you know, frankly I'm I'm a little um uh Surprised uh at some of the responses that we're we're seeing uh so far. I think you less so, uh or maybe even your you're you're think they're doing the right thing, but I I

My my sense was always that central banks look through supply shocks. I understand that we're um, as I've been saying for a long time, five years of above target inflation. You know, you have to worry about inflation expectations. So I'm sympathetic to the US side. The the fact that you know the Europe is Um Western Europe is the place that's seen the most pressure. Um, you know, with outright hikes in there seems

I mean frankly, quite quite crazy. And I I think, you know, ECB is like here we go again. They're g they're gonna, you know, make similar mistakes like le like they did. They're gonna hike and if inflation is bad enough. that it has to get them to hike, then I think inflation's bad enough to push them into recession and they're gonna be cut.

So I I I I don't understand this this dynamic. You can you can paint me on that side and you know, our team is looking for hikes in April. Um that seems very, very early. Um I'll I'll take the other side of that, but uh I'm happy to I think you're I think there's I think there's two points here, at least two points.

Um, you know, from my point of view, there's the the immediate issue, and this is where I am somewhat surprised, especially in the context of our guys now thinking we're gonna get hikes in April, which is it's still as our conversation up till now very early in this dynamic, there are clearly two sided risks here. You're not sitting in a world in which your inflation anchors are really uh we we can debate the Bank of England perhaps a little bit more than the E C B, but for the E C B for sure.

Your resilience measures moved up, right? The one year, one year in in uh in uh Euro area. Moved up everywhere. Well that makes sense. You've got an energy part s side of it. One year I guess. Yeah. Yeah.

I I well I don't wanna interrupt your flow, but I I'm just still I'm shocked by the one year, one year, right? I mean, I would think I don't know why inflation should get this extended pass through and and you know the uh the the the the E C B zone models show this like what they publish this week like I'm really scratching my head over this and maybe I don't appreciate how index

the the euro area economy is. Maybe it is like an EM economy, right? The the EM economy of old where everything was indexed so inflation just immediately jumps into the long run underlying inflation and inflation expectations become unanchored and the E C B just doesn't have a good handle on that. It feels a like a very EM response. And the irony of all ironies is the EM

is actually not they're they're not reacting this way. In fact I if actually the the irony of all ironies is that Russia cut today. Like the one country that you would have thought is actually getting some growth benefit.

I do think that there's a reasonable case to be made that in the face of this kind of a shock in a world in which your anchors are not really at threat here, uh in a world in which policy stances are not super easy like they were in twenty twenty two. that you at least give this some time to play out. I don't have any problem with the central bank saying, Hey, we're gonna be, you know, very uh attentive to our inflation targets, uh, we're gonna tighten if we need to.

I think that's that's fine, but I think you wait till you see the nature of the event in this world where there is um clearly two sided risk. Having said that, if we follow the forward curve on energy, and I'm not arguing that's what we're gonna do, which is to say that this is a shock which doesn't blow the world up and starts to fade sometime in the next couple of months.

But it doesn't bring us back to where oil prices were and it doesn't um uh prevent some disruptive effects feeding through to things like food prices and others. Um, I think there is a reasonable case to be made that central banks are gonna need to tilt talkish and inflation's gonna be the the inflation impulse is gonna be negative as soon as oil prices start coming down. The headline inflation. I'm talking about the core inflation, Zo Joe.

Headline. But the but the level of prices will be higher, the core inflation rates could be higher from already start high starting points.

I mean this is the thing. Maybe you're maybe the as I s maybe Europe is just indexed. Maybe, you know, people are gonna say, Oh well Well well that's not quite that's not quite true, Joe. I think if you If you think about this event as a potential event that's has some impact on supplies chains and things of that, it's not hard to think about a world in which we start to not not putting twenty twenty uh two into the picture in the same frame. But it's not hard to think about a world where

we begin to put some upward pressure on goods prices globally. Right. But then what happens when when immediately starting in the second half of this year, oil starts coming down? Don't you get the negative impulse? But you don't have oil going or back. I mean, it doesn't matter, it's still a negative impulse. I understand it's a negative impulse on headline, but the elevated level of core and the disruption level of core prices, core inflation.

Will not stay elevated, right? It shouldn't, right? You should get a one-off. I mean, here's the here's the funny thing about this, Bruce, is that I No, this is not right, Joe. This is not right. I don't agree with you on this. I feel like for the past year. You know, we've been more on the hawkish side uh for a while. Ma I don't know, maybe where I am relative to you on that. I felt like we've both been on the hawkish side.

And the argument everyone from all Fed officials, Waller certainly, uh all the way through the marketplace was, hey, tariffs are a one-off. We don't need to worry about them at all. The level of prices go up and stay there. So it's not going to have any effect on underlying inflation. I would argue, and I think you were arguing too that

You know, tariffs are kind of they get into everything, right? So this this does run the risk of actually lifting inflation expectations. So we need to be a little bit more careful about. But neither here nor there, markets didn't want to hear that. Central banks didn't want to hear that. Certainly the Fed didn't want to hear that.

And it was just it's a one off. Now we get something that is clear But I'm not I've never said it's just a one off, Joey. I'm saying to you that if you push oil prices up and keep them up, even if they don't stay at their peak. If you have an effect on uh agricultural prices and other things and you don't and you don't damage growth in a big way, if we're talking about numbers which are in that range of three seven clouds, could easily find ourselves in a b picture.

where there's a modest uh increase in core inflation. And your starting point for that is that inflation is elevated in most places. Now you can argue, and I I think it's perfectly reasonable to argue. That if the E C B is sitting here in six months time and core inflation is running two three or two four instead of their earlier expectation that it was going to be two this year, whether that's a reason to tighten policy. I I I would personally say no.

But I understand who these guys are and this is the way they tend to react to those things. Right. I don't think the Fed is gonna spin off a half a percentage point of growth. Why why is there no why is there no effect of that on inflation?

Well, first of all, we don't know what the effect on growth is and we come back to this issue of what the momentum is coming in. But I they y you have to at least give give a reasonable case to the idea that these things are not going to be uh neutral on inflation. I I understand that there is Are you are you like saying there's no there's no scenario you can think in your mind where we can't where we're sitting here six or nine months from now.

And core inflation is is showing signs of being higher. Like I think any scenario in my mind that gives me uh Sufficient inflation to cause an underlying core inflation problem is going to be inflation that drives growth down enough. that you're gonna unwind whatever that underlying But you're but you're you're totally losing one side of the distribution, which is as was the case in twenty twenty two.

People were surprised at how strong growth was in the face of that. And and an important part of the important let me f let me finish. You you have not been letting me finish today. An important part of the dynamic in twenty two is we were surprised at how strong demand was and how it interacted with these supply chains. Implicit in the way you're talking about things is you've already built in weak growth.

You've already said growth is going to be weak. So therefore there can't be any positive inflation dynamic. If global growth stays trend, which would be consistent with a half a percent drag from what our baseline is, I don't see why you could not have a A modest but clear cut pickup in corn. And I'm trying to go off I'm trying to put myself in the shoes of the central banks that are now going one eighty on me. And I la just it was it was only a couple of months ago the Fed cut twice.

Because they felt like the the economy was was in. But let's let's just let's just be careful here. That's very different than twenty twenty. The Fed did not talk about tightening this week, Joe. What's that? The Fed did not talk about tightening this. You say it's a one eighty. The Fed was very

neutral in its perception of how this energy price shock is going to be felt. What the Fed did do this week, and I think it is important, is it started to reflect the fact that the inflation numbers coming into the year were somewhat firmer.

Uh the growth numbers were somewhat uh stronger. And they did react to that, but they didn't change the floor. I shouldn't I shouldn't be as hard on on the Fed because I think the Fed is the one that is being kind of actually following the advice you kind of pushed, which was you should just sit on your hands and be a little cautious. I have two problems. One is I have the market reaction of what they're saying about the Fed, which has just gone what now 75 basis points?

Up they've taken out because of I mean close to seventy five. They took out the from sixty to now we're up ten. Yeah, about seventy five bases. In a world where Just three months ago the Fed was cutting because they were worried about the labor market.

You had kind of Yeah, but the the let me channel my let me channel my inner Joe Lupton here. Since you wanna handsome Bruce. You've been sitting here for God knows how many years saying if inflation stays at three percent, the Fed should be hiking. Yes. That's me, Bruce. That's me talking about the markets. I I don't I I I despise hypocrisy, right? And I don't like the way the markets are suddenly sh putting in seventy-five basis points.

be what for what looks like a supply shock. Anything that's going to be a big enough supply shock like that is going to make me more worried about growth. It's going to be the same type of one-off shock that the tariffs were. But just be be careful now. Even with everything that has been repriced on the Fed, the Fed is not being priced to have a hike. Uh am I mistaken?

It's it's it's positive in terms of the pricing, but the the ch implied change in Fed policy rates between now and the end of next year, unless I'm reading it wrong, is about nine basis points, which not as not even a it's not even a half of a height. Right, but th you just said they're not pricing the hike. They're not. They're pricing less than a half of a hike.

Well, but I still p the point is look, I don't want to get hung up on base points. The point is we were we were at minus sixty and now we're at plus eight. Well, I think the point here in some basic sense and I think we come back to it. is in an environment in which um the data has been stronger on growth, uh the inflation news has been firmer, and even before the um um even before the dynamics on um

uh oil came in here. We have been now looking for a cl basically a three percent core PC inflation rate this year. We didn't think there was a real case for the Fed easing. And you could argue what's going on is the market is is interacting some of the potential risks around the energy price shock with just generally a macro environment, which is making it less reasonable to have that sixty basis points.

uh priced in. Remember also this week we've gotten news that there's a decent chance Walsh is not going to be in the Fed um for for a while. Maybe. Yeah. I I but I think these are things that matter. You're you're thinking that everything that's going on here is because of the way they're responding to the energy price shock. The US the I would argue that the Fed messaging was was important this week in a in an environment

in which basically they said, Let's leave this energy stuff for a while to think about but there's other things going on. There's their view on where underlying inflation is. There's a view on what the supply side is doing. There's there's things that are going on here that are having an impact on the Fed that are

uh independent of the s the energy shock, which you should have an impact on the markets. Then you got the politics that's going on here and then you got the energy shock. But don't, you know, don't don't like get crazy about the market. That's responding to multiple things here. And anyway, neither you nor I or the market is yet expecting the Fed to hike this year. Yeah. Yeah. I mean yeah, and and the the funny thing is like we're spending a lot of time on the Fed. As I as I said earlier, I I

I have less I certainly have less issues with the Fed. I mean the market pricing we can we you know, I feel like the market has repriced correctly for the wrong reason. So I so my bottom line is that I can see scenarios. where a Central bank that has an asymmetric reaction function, very sensitive to inflation hikes this year.

And I could see the E C B and the Bank of England hiking for that reason. Yeah, and I but I have a hard time b understanding is why they would start so quickly and do it in April. That's my problem. Well, I I have a problem with them them hiking when they're probably gonna be cutting within a few months. It's they're just gonna be you know, it's like pulling a trichet.

So I you know, I again I keep saying if it's a shock that's big enough w that should warrant, you know, some concern about underlying inflation expectations and underlying core inflation staying elevated.

uh it's probably a shock that's gonna be big enough to actually hurt growth. I mean what's remarkable is if you look I mean Greg sent around a model that the staff has where you get this pass through on core inflation, which is, you know, pretty darn large, positive, you know, two, three years out, and you have like a negative one percent output gap. It's like they they have no Phillips curve in their model. There's no there's no damage for on inflation from this negative output gap. And

Again, as I said, maybe this is just such an indexed economy that like, hey, inflation goes up, everyone automatically gets wage increases and it just passes through and But the but wait wait a minute. I mean the E C B's got um In in the scenarios that they're doing and the staff forecast, they got inflation two tenths core inflation two tenths higher this year, right? Yeah. And I think it's something it stays there next year, if I'm not mistaken.

Is that I mean I is that so unreasonable a forecast where you're not hitting growth in a significant way? You can argue well they should have hit growth a lot more. That's that's one arc. Exactly what I'm saying. Yeah, but you y again you're not you're not arguing On you know, what you're arguing is not about their reaction function. You're arguing about their forecast. You're saying they're not negative enough about growth.

Yeah. And and and to some extent it starts to get um I would argue about their reaction function. I would not but a central bank that's seeing a three tenth Rise in core inflation should be a good idea. I was gonna say it gets epistemological in the sense that, you know, what you write down for a growth forecast in response to a shock kind of is a reaction function, right? Uh you know, you're basically saying like I'm gonna ignore what this is gonna do to grow.

Uh and I'm only gonna focus on the No, but the but the point is you you're saying the shock is big. It's not big. They're basically downplaying the shock on both inflation and growth. They only have two tenths on core inflation this year and they only have I don't even know what they have on growth. It's pretty small.

My point is you don't have a big effect in either direction and then you're biased towards towards towards hiking, which I don't you know, I don't know why you should do that, except for the fact that you're the E C B, right? Ha ha ha.

But anyway. Uh Orange. Which you never gave me, by the way. Yeah, I did. I even I even outlined uh gave it on the on the weekender. Uh the strength of the consumer, which definitely impressed us. Um Maybe this will be a case too. I'll we'll get Greg on here and uh if they if they uh hike in April Well, I would be surprised if they hike in April also, but I'm got too much.

What? He's gonna get two oranges? One from you and from me? I think that's fair,'cause I I don't think they're gonna hike in any but I wouldn't be surprised if they hiked in June, given um, you know, macro Developments that don't really I think by June oil prices are either this is resolved and oil prices are moving back down to seventy into the sixties.

And they're not going to be talking about this or if oil prices are still at 110 and natural gas prices are starting to be much bigger concern, you're going to be talking about potential recession. You think oil prices at one ten are gonna cause a recession? No, no, sorry, sorry. I shouldn't have said one ten. I'm talking about that one that one twenty-five to one fifty range that you and I start to get very uncomfortable. Yeah, I'm very uncomfortable already, but um let's uh let's right now.

Yeah, I'm uncomfortable. I just think there's too much uncertainty and too much tail risk in the world right now that I don't quite know how to how to gauge. Um So anyway, let's leave it here. Um we do get uh what what is interesting and just to end on maybe the the positive note where we started, which is the The momentum in the first quarter was was was pretty strong, right? And everything is kind of pointing in that direction. I guess other than the US labor market, but noisy data. Um

You know, the our CapEx now caster by the way is is running upwards of seven percent globally now. So and it kept revising up over the course of the over the as the the kind of weekly and day data. Um, so that's strong. And then I was gonna end with the fact that we do get the flash PMIs next week, which will be interesting to watch. I was a little

I don't know what I what I should have expected, but I've been noting the Fed surveys have been really positive, right? They're not look they're not showing any hit from from the uh from the war yet. And Um our look at the European uh uh obviously Japan, because I think the US business sector is still Uh somewhat uh removed from this, at least in its initial state.

what are they seeing? If there's any sentiment component, I I don't think you can underestimate the shell shock of the electorate of the of this war kind of being Well the reality is both the Philly and and Empire Yes. I I agree. That's a surprise. I I'm not surprised by that. I don't think we should extrapolate that, but I think it's gonna be more interesting See what we get in the European surveys where to that note I think we are forecasting US up and the rest of the world down.

Yeah. So we'll see. Okay, let's leave it there. Um By the way, well you know there is you're not gonna let this thing end, are you? Well I do wanna say this is kind of news is that a an important part of the support through the first part of this year was gonna be the fiscal refunds coming. Consumer and it's very early, but the refunds are kind of surprisingly not showing up yet. Um, I it I don't want to overstate it, and I know you definitely.

It but uh we are about halfway through the refund period and uh with the biggest chunks still to come. Uh but you would have thought you would we it we're talking about what, a hundred and twenty billion? I I don't know what the number.

You should be seeing that. We're not seeing it yet. So I I'm surprised by Yeah, I'm not gonna go down this row, but there's a complicated set of questions as to how this stuff may or may not show up in the Well the one thing I've been thinking about on this is that I wonder if we've not fully appreciated the tax taxes being paid on uh realized capital gains last year.

Yeah, what um what I was gonna say is that you're only counting refunds. So to the extent that there's a significant No, my point is if you are getting a set of forces that are forcing you to pay capital gains taxes that shifts you from someone who's a refunder to someone who's a payer, you could still have that tax cut in the data. You're just not getting a refund.

Yeah, but at the end of the day, all we care about is we we were looking for a big refund lift. We were looking for income to be up. Well... Income's not gonna be up as much if we weren't appreciating the drag from capital gains taxes. Okay, but just be aware it's a separate it's not that you didn't get the refunds, it's just there's an offset to it.

No, I'm not no, you could argue well the tax cut isn't Oh maybe. I don't know. So anyway, let's leave let's can I le can I end now? Yeah, I guess so, Bruce. I just I just like talking to you. All right. Let's let's leave it here. Thanks everybody. And hopefully we can continue this conversation next week on the weekender. Take care.