Episode summary
Euro and Oil Contagion Risks | Bloomberg Surveillance
Bloomberg Surveillance
· · 32 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Steve Chiavarone, Martijn Rats, Sheila Kayaoglu, John Lovallo
Summary
The discussion framed the current market as one where inflation risk is still outrunning growth risk, which makes equities look healthier than bonds, currencies, or commodities. The guest from Federated Hermes argued that higher rates and a weaker bond market have not broken the earnings story, because the largest growth companies and high-end consumers remain relatively rate insensitive. He also said Europe is missing the biggest economic transformation of the last 25 years and is therefore more exposed to debt repricing than the United States. He expects the S&P 500 to move from 85 to 10,000 to 11,000 over the next few years.
On commodities, the Morgan Stanley strategist said oil should be understood through crude, shipping, and refining disruptions together, with diesel as the key price signal. He argued that tight refining margins, deferred maintenance, and damaged supply chains could keep diesel and related fuel prices elevated for several quarters, even if a high-price cycle eventually becomes self-correcting.
The airline and housing segments were also tied to rates and fuel. A Jeffries analyst favored Delta on a near-term basis and said airline margins are being driven by segmentation and network strength. UBS’s homebuilding analyst said mortgage rates above 7% are a problem, but homebuilders can offset some pain by cutting content, shrinking footprints, and buying down rates; he sees the group as closer to trough than peak pain.
Key takeaways
- The Federated Hermes guest said the market still favors equities because inflation risk remains above growth risk, and he expects S&P 500 earnings visibility to stay strong.
- The guest argued Europe is underweight on innovation and earnings power, making it more vulnerable to higher debt costs than the United States.
- Morgan Stanley’s strategist said the tightest part of the oil market is diesel, not crude, and warned that deferred refinery maintenance could keep prices elevated for quarters.
- Jeffries’ analyst said Delta is the favorite airline into earnings season, while United remains a longer-term thesis and American lags on margins.
- UBS’s homebuilders specialist said 7.57% mortgages are a problem, but the sector can protect demand by decontenting homes and buying down rates.
Notable quotes
“as long as you're in an environment where the risk to upside inflation is greater than the risk to downside growth, that is a profoundly equityhealthy bond unhealthy setup”
“What we're living through right now is the earnings story of our lifetime. It's the margin expansion story of our lifetime”
“So the way to think about the oil market at the moment is sort of what can people afford for diesel and then think back”
“our fear is is that we have to live with these high diesel prices for a good couple of quarters to come”
“the average home builder right now is offering an incentive that's equivalent to about 10% of the mortgage”
How the episode opens
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Chris, I'm beyond strong today. This is really with all the reading I did. There was a reading weekend. Alexis, — It really was. You were immersed, Tom.
I was immersed with Vet Bill on the couch and you know in Kennely. It was just great. Steve Shiverone is the right person to speak to right now.
Long ago and far away. Steve, you and I looked at an equation that's too long and has too many Greek letters. And the answer is row squar is a summation of omega squared row 2 summation.
Summation. Yeah. Yeah.
Yeah. The math of diversification just seems to be thrown out the window right now. What is the to-do list for Americans shell shocked in bonds, currencies, commodities as they try to maintain an equity ownership?
Yeah, I'd say as long as you're in an environment, if you want to simplify it, Tom, as long as you're in an environment where the risk to upside inflation is greater than the risk to downside growth, that is a profoundly equityhealthy bond unhealthy setup. And that's been the setup we've been in really for the last six years. Now, it's accelerated this year, but I I think that's the story that you have to be in the asset that can pass along the inflation and that eats nominal earnings and those are equities and they're the only game in town right now.
And folks, I know you're bored by it. And Michael Darter with a brilliant note this weekend on nominal GDP and nominal revenue down the income statement as we see Pepsi this week and JP Morgan the 13th.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- euro contagion risks
- oil risk premium
- middle east conflict
- fx risks in europe
- rising interest rates housing
Companies and tickers mentioned
- FHI
- MS
- JEF
- UBS
- Federated Hermes
- Morgan Stanley
- Jeffries
- UBS
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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