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With Vrbill's last minute deals, you can save over $50 on your spring getaway. So whether it's a Mountain Escape city break or a week at the beach, there's still time to get great discounts. Book your next day Now. Average savings $72 select homes only Bloomberg Audio Studios Podcasts Radio news You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app Listen on demand wherever you get your podcasts or watch us live on YouTube markets feeling optimistic for a second day around the cease fire between the US and Iran, as it is day two of that fragile agreement. But as to whether or not it can hold, that may come down to what happens in Lebanon and Israel's continued strikes against Hezbollah targets that it says still pose a threat to it from the north. Israel, of course, today saying it has agreed to direct talks with Lebanon over disarming Hezbollah, although the AFP reports that Lebanon would like to see a ceasefire first before those talks can happen. And of course there's a big question as to whether or not this was supposed to be included in the wider ceasefire in the first place. As the Pakistani prime minister who announced this agreement between the US And Iran originally earlier this week said in part in his statement that the U.S. along with their allies, have agreed to an immediate ceasefire everywhere, including Lebanon and Iran says that should have been the case. It believes Lebanon was included. That is something that the Israelis say is not the case. And we heard the same from the Vice president of the United States, J.D. vance, as he left Hungary yesterday.
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B
I think the Iranians thought that the ceasefire included Lebanon and it just didn't. We never made that promise. We never indicated that was going to be the case. What we said is that the ceasefire would be focused on Iran and the ceasefire would be focused on America's allies, both Israel and the Gulf Arab states. If they break their end of the bargain, then they're going to see some serious consequences.
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And just to underscore the confusion around this, once again, a fresh headline crossing the Bloomberg terminal from Iran's foreign minister, who says that Lebanon is an integral part of the cease fire. Clearly this is a matter of dispute and it all could impact the negotiations set to take place in Islamabad this weekend. So for more, we turn to Bloomberg's Tyler Kendall, who is live at the North Lawn of the White House. Tyler, obviously there's a lot of different pieces of this puzzle here. How are they coming together or not
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C
right now, right, Kelly, I mean, you really did a great job there just laying out all of the different headlines that we've been getting over the past few hours. But at the moment, at least publicly, this White House maintains that they are planning for diplomatic efforts to move forward ahead of this weekend's discussions in Pakistan on Saturday, led by Vice President J.D. vance, who is also expected to be accompanied by the special envoy, Steve Wykoff and the president's son in law, Jared Kushner. But of course, this meet, this main development here is that Israel has confirmed that it will take place in direct talks with Lebanon over potentially disarming the Iranian backed militant group Hezbollah. This White House still maintains that any discussions about Hezbollah and Israel's separate front in Lebanon was not part of any cease fire agreement. However, in a sign that there was this mounting pressure that it could be a roadblock, NBC News reported earlier today that President Trump had called Benjamin Netanyahu yesterday and asked him to scale back the strikes. Now, on one hand, we have reporting that these talks set to happen this weekend in Washington at the State Department. But then you mentioned that AFP reporting that Lebanon needs to see a cease fire in order to actually get to the table. So at the moment, we'll see where this goes. This White House certainly wants to see, of course, these talks move along, though, Kelly, it is important to point out that at least one of those key parts for the cease fire to go in place still remains unresolved. And of course, that is the Strait of Hormuz.
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A
Well, yeah, Tyler, I'd like to talk more about that because we heard the adamant insistence from the press secretary, Carol Caroline Levitt, when she briefed the media at the White House yesterday that the strait is going to be open, that that is the expectation that it will happen immediately. That already they said, despite what you were hearing publicly, more vessels were getting through. The data we're tracking here at Bloomberg though, doesn't show that. Right.
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C
Well, the data we're tracking here at Bloomberg shows that as of yesterday, about three ships were able to exit the waterway amid what is an 800 ship backlog. And then we did get some more news from Iranian state media earlier today on a few different fronts related the strait, but perhaps most notably that Iran says that any ships that are seeking safe passage must liaise with the Iranian military. They also had outlined that Iran is now highlighting some specific routes for safe passage in a bid to make sure that no ships hit any potential mines that may be in the primary traffic lanes. Of course, this is considered to be not the development that this White House wants to see when it comes to reopening that waterway to freedom of navigation. We can say that the German chancellor did speak with President Trump by phone earlier. He had outlined to reporters in Berlin that he told President Trump that Germany is ready to join a coalition to help secure the waterway, but that want but that Germany wants to see an international mandate first, perhaps from the the United nations as one potential option there. We know this White House wants allies to really help keep on the pressure and ensure that there can be this movement for vessels and energy commodities. Kelly, yesterday, as you well know, President Trump met privately behind closed doors with the NATO Secretary General, Mark Ruta. He was speaking to reporters in Washington earlier today. He said that NATO allies are now doing, quote, almost everything that the US Asks on Iran. We'll have to see how that develops into a potential plan when it comes to the Strait.
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A
Well, yeah. On the subject of NATO, Tyler, I'm glad you brought it up. It doesn't necessarily seem that that meeting went exceptionally well, if you consider that the true social post that the president put out last night. Naito wasn't there when we needed them and they won't be there if we need them again. Remember Greenland, he says that big, poorly run piece of ice. Does that underscore that this isn't really just all about the Middle east and help with the Strait of Hormuz? He's still a little bit upset about that particular territory in Denmark.
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C
Well, I mean, if we take the president's words at face value there, yes, of course, Kelly. And then we should also pair that with some pretty incredible reporting from colleagues in Europe that after this meeting yesterday at the White House, a senior Naito official telling Bloomberg News that the US Made clear that they want allies to put pen to paper and actually put forward tangible plans on how they are going to help the US when it comes to the Strait of Hormuz and to meet the president's demands in Iran. So there has been this mounting pressure. Of course, President Trump has threatened to exit the alliance before. Easier said than done because that would take congressional action. But there has been reporting out that the president has some other tools that he could use to pressure allies, including, for example, withdrawing the US Ambassador to Naito or making some movements and changes when it comes to US Military bases abroad. So it will be something to watch for going forward here. But no doubt the president's frustration has been on full display. We can also say that our reporting has indicated that it's not just signals from the president who has long had this dismay when it comes to the alliance and of course, his bids to get our allies to bolster their defense to GDP spending. But actually, it has been recent comments from Secretary of State Marco Rubio that the US May need to reassess its position in the alliance that really sounded alarm bells throughout Europe.
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Of course, Secretary Rubio, who helped lead the effort in the Senate to make sure Senate approval would be required to leave the NATO alliance prior to him being secretary of State, of course. Bloomberg's Tyler Kendall live at the North Lawn of the White House. Thank you so much. Doing an excellent job keeping track of all of the headlines around the Middle East. And we want to get some analysis of the headlines we're getting today now as we turn to Natasha hall, associate fellow at Chatham House, who is here with me in our Washington, D.C. studio. Natasha, welcome back to Bloomberg TV and Radio. It's good to see you. If we could just begin, because it does seem that Lebanon is really the crux of the conversation at least today. Israel suggestion that they are open to direct talks with Lebanon over disarming Hezbollah at the very same time. I spoke with the Israeli ambassador to the UN Just yesterday, Danny Danone, who told me that the government has, has tried to do this with Israel before and Hezbollah simply right now is effectively not able to be. And I wonder if you see a realistic path forward here if it's your expectation that Israel is just going to try to continue its military operations in this front to the north.
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D
Well, yeah. I mean, things have been shifting quite a bit. I mean, right before this announcement of direct talks or potential negotiations with the Lebanese government, there were evacuation orders for some in Beirut. So things are, you know, happening at a rapid clip. But what remains to be seen is how are we going to deal with these fundamental issues that we haven't just been talking about for the past few months, but the past few years and really decades. So we're talking about Hezbollah, we're talking about the enrichment of uranium in Iran. I mean, these are common discussion points. So I don't see how we're going to work out this in a fundament, you know, in fundamentals in these negotiations. I mean, it is impossible, I think, for the Lebanese government under fire to actually be able to disarm an extremely powerful militia that has been embedded in Lebanon in the political and military fabric of for decades and certainly not in this way. I mean, imagine the number of new Hezbollah or potentially another armed group recruits that you're creating by what has been done in Lebanon. Over a fifth of the population has been displaced at this point. We saw, as you noted, you know, over 100 airstrikes in the course of 10 minutes in Central Beirut. So I don't see how we're going to get there with further escalation. Trump has already seen that that hasn't gotten him very far with Iran. And it's unclear how we're going to there with Lebanon. But I do think it would require a lot more pressure from the US Administration to rein Israel in, because what we've been seeing is quite devastating.
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A
Well, and to that notion, Israel and the US Maintain that their incentives are still aligned, that they are fully in alignment. Do you, do you buy into that, or are we starting to see where there actually could be misalignment? If we're talking about a US President who wants to be able to wrap things up in Iran and Iran that insists that that cannot be done. If this is still ongoing in Lebanon and Israel maintaining that it is in interests, their security interests for this to continue because of the threat from Hezbollah,
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D
it's hard to see what the upside is for the United States more generally from all of this. I can see the upside from Benjamin Netanyahu's point of view. He was able to degrade the capabilities of, of enemies like Iran and Hezbollah, but that's looking at it from the prism of a forever war in the
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A
Middle east, which the president does not want.
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D
Well, the president has said in campaign speeches for many, many years now that he doesn't want it. He's built a movement, the make America great again move has been irate about this war, at least certain leaders like Tucker Carlson. And so this would be devastating for Republican poll numbers, I would think, in the upcoming elections. So this doesn't seem to be in the interests of the United States, but it does seem to be in the interests of Israel. And so I think a lot of people are asking those kinds of questions. I think that Netanyahu was able to make the case, perhaps oversell the case for these wars with President Trump, as recent reporting has suggested. But I think he got a lot more than he, you know, he bargained for, essentially. And so now he's trying to walk a lot of that back. So, you know, we hope that he doesn't move forward with these promises of, you know, destroying a civilization or, you know, ongoing airstrikes by Israel on Lebanon.
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Well, of course, a lot of that could depend on the outcome of talks in Islamabad. To your point about the notion that there is especially on the right, a very firm no forever wars contingent. The Vice President of the United States, J.D. vance, has historically been part of that, and he is now going to be leading the delegation. And I want to talk to you, Natasha, about kind of the odds he's going to be facing in these talks and Iran as a negotiating partner. This is something I actually got into yesterday with the former CENTCOM commander, General Frank McKenzie, who talked about Iranians as negotiators. This is what he said.
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The hard part is ahead of us. Look, the Iranians are not great fighters.
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B
They've never been great fighters.
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E
They're brilliant negotiators, and they know how to negotiate. They grew up in a culture that is based on negotiation. They will now seek to draw negotiations out, change the terms, and create a new reality. And that's our task now, will be to take the substantive operational victory which we have obtained and turn it into something lasting and strategic.
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A
How hard is this going to be?
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D
This is going to be enormously difficult. I mean, I think the choice of J.D. vance as the. As the negotiator says a lot right there, because as you mentioned, he was probably opposed to this war to begin with. So maybe this is the softer side of the US and administration going into these negotiations. But, you know, as Mackenzie just mentioned, you know, the Iranians are very skilled negotiators. They know all of the ins and outs of the United States of motivations. They know all the details that need to be hammered out. It's not clear to me that J.D. vance, for all of his knowledge, is as. Has as much background going into these negotiations as that. And again, we're still talking about the same fundamental points. We're still talking about uranium enrichment. And so we might end up just getting right back to the JCPOA, the original agreement in 2015 that it took two and a half years to hammer out with the Iranian regime. And that's hard to believe given the number of lives lost.
- [14:13]
A
Yeah, well, and President Trump maintains that the JCPOA was a bad deal. So bad that that he took us out of it.
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D
Right.
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A
Is it possible in your mind for him to be able to get a better deal than that now with the leverage that Iran has proved, proven that it has over the Strait of Hormuz?
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D
I mean, listen, I'm sympathetic to, to the problems with the JCPOA. I worked on Syria for 15 years. I saw the devastation that Iranian proxies can bring. But it's hard for me to think that we could get to a better place at this point, given everything that's happened. I mean, the JCPOA was ran in peacetime at this point. I mean, you can say whatever you want about the Iranian regime, but just a pragmatic actor would have a lot of mistrust for the US Administration, not just for this round of fighting, but what we saw in the summer where in the midst of negotiations, the US And Israel struck Iran again. So it's unclear why the Iranians would trust the United States with regards to any kind of promises or negotiations moving forward. And I think that's going to be a really fundamental element. And back to your point of Israeli and US Alignment, I think the United States needs to figure out what it's okay with and it needs to really impose upon those those points on its, on its ally Israel, because at this point it doesn't seem like Israel is aligned with the United States with regards to that.
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A
Yeah, of course Israel needs to trust the US to represent it in these negotiations. To your point, the US May not be trusted by Iran in our final moment, Natasha, should the U.S. u.S. Trust Iran? Given, as you said, we've been having this circular conversation about enrichment and its ambitions for a long time, I don't
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D
think we should ever necessarily trust any regime. Right. That's why you have these agreements. That's why you had oversight, you know, on the Iranian nuclear program with the jcpoa. You don't just trust blindingly, you, you actually enforce an agreement that's in place in order to make sure that you have peace moving forward.
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A
All right, Natasha, appreciate you joining us with your insight as always. Natasha hall is Associate Fellow at Chatham House. I would just note some headlines crossing from NBC which spoke to President Trump. He says if Iran doesn't make a deal, it will be painful. Though he is optimistic, he says that a peace deal is within reach. We'll have more next right here on Balance of Power on Bloomberg TV and Radio.
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Stay with us on Balance of Power. We'll have much more coming up after this. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit bloomberg.com podcastoffer to learn more.
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You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship News York station. Just say Alexa play Bloomberg 11:30. We're tracking the headlines crossing the Bloomberg terminal now here on balance of power. As President Trump spoke with NBC suggesting that he's optimistic that a cease fire, a peace with Iran is going to be within reach, though he notes, or perhaps threatens that if Iran doesn't make a deal, it will be painful. The president also telling NBC that Iran is more agreeable than it showed in public. This is a narrative we consistently have been hearing from the White House in the last few days. The idea that what is going on privately in conversations is very different from the public message we are receiving from the Iranians, be it the actual points that they are trying to agree to, whether they're as maximalist in reality as they are at least saying publicly, or when it comes to the Strait of Hormuz, which of course data from Bloomberg suggests is still effectively closed to transit. A trickle of ships are getting through, all of them right now, having some ties back to Iran. Now, President Trump also addressing Israel and Lebanon in particular, as the US And Israel maintain that Lebanon was not supposed to be party to the ceasefire agreement. Nonetheless, President Trump says that Israel is, quote, scaling back its Lebanon operations and that the Israeli Prime Minister, Benjamin Netanyahu told him he'd, quote, low key it. So we want to get more into this now as well as what we're hearing from President Trump when it comes to the NATO alliance. As we turn to our political panel today, Rick Davis is with me, Bloom chamber politics contributor, Stone Court Capital partner and Republican strategist, alongside Democratic strategist Doug Farrer, principal at Maywood Strategies, and former senior adviser to FTC Commissioner Lina Khan. Welcome to you both. Obviously, the president publicly is projecting much optimism here, Rick, about the idea that a deal may indeed be reached. This notion that public portrayal versus private conversations may be very different. How can, how are we to trust? How is the market to trust? As it does seem like it is, trading on each and every headline, the headlines we are receiving. If there is such a vast difference between what they are and what's really happening.
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E
Yeah, it's hard to imagine the markets don't have a longer view backwards. You know, the rearview mirror is very short, it seems with Wall Street. You know, this is a typical Iranian ploy. We can work something out. We can make a deal deal. And then they push it off and push it off and push it off and extort exploit along the way until, at which point in time the deal you've gotten is completely in their advantage. The fundamental problem is that the original concept that Donald Trump had going into this war for regime change actually is what is really needed at this point in time, there's been such a, a mass decapitation of leadership in Iran that we can't do business with hardliners. We can't do business with people who see the US And Israel as their greatest enemy in the world. Why would we cut a deal with those folks? We need an administration that's going to bring Iran to the 21st century, create freedom for its people, and being a productive economic factor in the world that doesn't extort and exploit. So I think we're a long way from seeing progress in this, and even an outcome that's based on Iranian platforms is not going to suit the needs of the United States or Israel.
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A
Well, and it's interesting, Rick, to hear you describe as the need here Iran being brought back into the 21st century when the president, up until the cease fire was in place, was threatening to bomb it back to the, quote, Stone Ages to destroy the civilization. After having previously called for the Iranian people themselves to rise up, to take the country back, has the U.S. rick, just quickly not done itself any favors in trying to achieve that domestic outcome into trying to create the conditions for something to change in Iran?
- [21:18]
E
Yeah, I think we've completely lost sight of the original fundamental aspect of this, which is the people of Iran want a representative government. They don't have one. Now, we tried to give them some leverage in doing that, but now we've kind of forgotten that. And so we're going to go cut a deal with the Mullison again. I mean, what in the world do we think a positive outcome over the next 10 years is going to be? It's going to be Iran right back to where they started from. We're going to believe them that they're not going to develop a bomb. We're going to believe them that they're not building drones and missiles. I'm sorry. They've lost the trust of the world community and now we have to be able to put them on a path where whatever future government they have is one that we can actually deal with in an open and honest fashion.
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A
Action well into Rick's point, Doug, to, to jump in here, the idea that we could actually just end up in the same place we were before this conflict started was this just a lot of blood and treasure spent to achieve? Not much in terms of that aim.
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B
I think we've gone backwards. I mean, we replaced a rickety dictator with a young and more zealous dictator. We entrenched the Iranian Republican Guardian, their top military group, basically, as the power center of the of the country. We've handed the Strait of Hormuz an incredibly vital choke point for the economy, not just for oil, but for many other products, including fertilizer to the Iranians. So I think what we've done is gone backwards. We've also established some weakness both in our alliances and frankly, in our ability to really get at the Iranian nuclear program. And so unfortunately, I think when you go in sort of without thinking through what might happen in a war with a country that has spent the better part of 50 years preparing to respond to this sort of existential threat, you know, when you do this unprepared, you end up in a bad place. And that's where we are. And I'm really concerned how we extract ourselves from this situation without further empowering the Iranians, both in terms of raising the price of energy and getting them to relinquish control of the Strait.
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A
Well, I'm glad, Doug, that you raise the idea of US Alliances because we have to talk about Naito's today as well. Following the meeting of Naito's Secretary General Margaret with President Trump at the White House yesterday, which took place, of course, after the White House press secretary Caroline Levitt herself indicated that the president may be raising the idea of leaving the Naito alliance in that meeting with Ruta. Ruto was then post meeting asked point blank about that in an interview on cnn. Then he didn't directly answer or say that. The president didn't say that. He said this instead.
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E
He is clearly disappointed and with many NATO allies. But at the same time, I was also able to point to the fact that the large majority of European nations has been helpful with basing with logistics, with overflights, with making sure that they, they lived up to the commitments.
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A
And of course, President Trump himself on true social just last night in all capital letters says NATO wasn't there when we needed them and they won't be there if we need them again. Obviously, Rick Davis, the president has expressed his displeasure with Naito previously. It's been true during his first presidency, frankly, and it has been true in his second term thus far. But does this moment strike you as different as the alliance going to be able to, to come back from this, at least in terms of how aligned the US Was with it previously?
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E
Yeah, I think that first of all, thank goodness for Mark Ruta. I mean, we couldn't have a secretary general that fits the bill for the current relationship between Donald Trump and the Naito allies than this individual. I mean, he's clearly got a rapport with Trump that can help manage and create a productive outcome in a difficult situation. So I think people matter. And I think this is a classic example of having Mark Ruta at the helm is really an important positive aspect, too. I think we have to remember that US Congress has a say here. And they have overwhelmingly supported our involvement in NATO, including in 2026 in the National Defense Authorization act act requiring certain troop levels to be stationed in Europe as a part of our NATO commitment. And they did this because they don't want anybody fooling around with the structures that we've had in place that have created so much prosperity and peace in Europe, all that benefits the United States of America. So there's a interesting player who hasn't stuck their head up since then minute in passing that bill that is going to have a say in this and that's Congress to. You know, I don't blame the president for being angry. Europe has skated on their commitment to NATO's for a long period of time. And when he requested some assistance, regardless of whether it was, you know, after he had already taken action and gotten into a jam, it shouldn't matter. There should have been a immediate response like we had with Ukraine. When the president challenged his involvement in Ukraine and NATO members immediately got on a plane, flew to Washington, came to the Oval Office and worked out some of the problems. It does not help to have this kind of tension within the alliance.
- [26:58]
A
Well, and when you think about things that aren't helpful, Doug and Rick's point is well taken, that yes, it would require an act of Congress if we are going to to formally see the US Pull out of Naito. I think we all recognize how unlikely that is to happen. But it was raised to me on balance of power yesterday, the notion of kind of quiet quitting the alliance, even the suggestion that we may not be there for them because they are perceived to not be there for us, does a formal withdrawal matter? If you have that kind of rhetoric out there, rhetoric that is well understood by the adversaries NATO is supposed to stand against.
- [27:35]
B
It's such an excellent question. And I think, you know, just to go back to Rick's point for a second, it's true that the NATO allies had skated on their commitments to put money into their defense programs, and it was good for President Trump to push them to do that. NATO is a giant, complicated organization, but at the end of the day, it's a promise. The Article 5, right. We will come to the defense of our allies if they're attacked. There is a war being conducted, an imperial war of aggression by the Russian state on the border of NATO right now. I wonder how much the Russian apparatus, the foreign policy leadership and Vladimir Putin believe that if they encroached into NATO territory, President Trump would ride to the rescue, especially given the US Commitments now in Iran, in Venezuela, maybe in Cuba. So, yeah, it's all based on a promise and the idea that the US Will have European allies backs if the worst happens. And I think that people are fairly questioning whether or not under this regime, him the president would do that. Now, you know, the US can try to rebuild that trust. But at some point, you know, that promise being broken is hard to put back together. And that's a real threat, not just for Europe's security, but the security of the world.
- [28:41]
C
All right.
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A
We'll leave it there. Thank you for joining us. Our political panel today, Doug Farrer, actually, Doug, I have 30 seconds. Can I ask you about the DOJ suing the NFL? You used to work for FTC commissioner Lina Khan in 20 seconds. Your thoughts on that?
- [28:55]
B
Yeah, I mean, I love the NFL. I'm a Washington Commanders fan and I'm lucky to live in the area. But if you don't and you want to watch your team, you got to pay for prime. You got to pay for all different types of subscriptions. And look, this DOJ has had huge problems, lots of corruption, really weird stuff happening. But going for NFL fans favor is always good politics.
- [29:14]
A
I have to say, as a Denver Broncos fan Living in D.C. this one hits home for me. Doug Ferrer, thank you for joining us alongside Rick Davis, our political panel today here on Balance of Power. And we'll have more coming up next right here on Bloomberg TV and Radio.
- [29:27]
E
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- [30:04]
A
You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York State. Just say Alexa, play Bloomberg 1130. We'll get back to today's market activity with Bloomberg's own Alexander Semenova in just a moment. But first I want to run through some headlines as we've just gotten a new statement in from Iran's supreme leader, much to Bahama, of course, the son of the late Ayatollah Ali Hamani issuing a statement in which he says we did not seek war and do not seek it, but going on to say as we consider the prospect of ceasefire at and longer term negotiations to end the war, that Iran is seeking compensation for war damages. He is reiterating that. He also says that we are moving to a new stage in managing the Strait of Hormuz. The question, of course, is is that new stage going to look like what the situation is now? Currently, it is only a trickle of vessels getting through as Iran is still able to exact control to the extent that any vessel trying to transit the waterway needs to do so in coordination with Iran's armed forces. This is not necessarily the free flow of trade through that waterway that we were seeing prior to this war beginning. That is obviously underscoring how much there is still to figure out if there is to be a negotiated agreement between the US And Iran. The setting of the stage of that, of course, for talks in Islamabad, in Pakistan that are set to take place this weekend. There could be two sides that are very far apart, especially as we consider, and not just the Strait, but this notion of war damages and the other issues that Iran at least have said publicly that they are hoping to deal with here. All of that said, despite the work that clearly is still yet to be done, the market doesn't necessarily seem like it is waiting around. As Amy was just running us through, we are seeing a risk appetite taking hold for a second day. So let's get into that now with Alexandra Semenova, who of course is, is on our equities team here at Bloomberg and is joining me from our New York studio. So, Alex, obviously we are seeing a second day of gains for stocks, not that stocks necessarily were the ones that we saw bearing the brunt of concern over this conflict to begin with. But how much headroom do you see for this to continue even with all of the uncertainty that remains out there?
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F
Hey, Kelly. So it's really dependent on the headlines that we get. So we're seeing this rebound across Wall street really gaining traction after at first it was somewhat of a squeeze. Things got oversold, so investors started buying in. But now there's a little bit more momentum behind it. We started the day off lower earlier, but The S&P 500 notably turned higher when we got that headline indicating that Israel agreed to direct talks with Lebanon. The index is now on track for a seventh straight day of gains. This is the longest winning streak since October for the benchmark. And another positive thing to point out is that the advance is pretty broad based. It looks like 9 out of 10, 9 out of of 11 sectors in the S&P 500 are in the green right now. Energy is slumping, retreating today and the Vix also pulling back below the psychological 20 handle. So investors kind of getting a little bit more optimistic that we are moving in the right direction here. We also had data from Goldman Sachs come out today and say that long only investors yesterday were big buyers of stocks and particularly mega cap stocks.
- [33:37]
D
All.
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F
All that said Kelly, this is a fragile truce at this point. The Strait of Hormuz remains closed as you mentioned. And the longer that we go with higher oil prices, the more of a tipping point that becomes for equity returns to turn a negative later into the year. So we're going to have to see everything moving in a positive direction.
- [33:55]
A
Well, especially because when we think about those higher energy costs and the input costs just in general, that that potentially if it continues for an extended period of time, has the power, power to eat into margins, it could start affecting earnings or at the very least earnings outlooks. We're about to get headlong into that season. Alex, what should we be watching for as that gets going?
- [34:15]
F
Yeah, so next week will really big be a big test for this equity rally whether it has staying power or not. Now of course, first quarter earnings results. The the numbers that companies report for this previous quarter are unlikely to be scathed at this point by the higher oil prices. So corporate guidance going ahead from here is going to be incredibly important. What executives say during their earnings calls about impact of higher gas prices, higher oil prices on their businesses and whether or not they see inflation as a risk. And the bar is high given that analysts were actually marking up their earnings forecasts throughout this period, something that is highly unusual to see during periods of stock market volatility. So for Now S&P 500 companies are still expected to grow full year earnings by double digits. That is probably part of the reason that we haven't seen equities fall lower. Call it about 12% because the estimates vary. And for the first quarter consensus sense expects year over year eps growth of 16%. Deutsche bank places it as high as 19% which would be the biggest profit increase since COVID So very high bar. And of course, we have the big bank kicking things off. They're going to be the curtain raiser for the season. We're going to listen closely to what Jamie Dimon has to say when J.P. morgan reports on Tuesday. We also have results from Pepsi and Netflix and Johnson and Johnson. So a lot of companies kind of being bellwethers for the consumer and where we go from here.
- [35:41]
A
All right. The fundamentals may start to matter for what Alexandra Semenova just described as very headline driven market right now. She's of course, equities reporter for us here at Bloomberg. Thank you so much. And if this market is headline driven, obviously given the action we are seeing, it has been liking the headlines that it is receiving. But we did just as I mentioned, get fresh headlines on the Bloomberg terminal. A new statement from Iran's supreme leader who says impossible part, not only reiterating that Iran is seeking compensation for war damages, but that we're moving to a new stage in managing the Strait of Hormuz. What exactly is that new stage and is in is it in alignment with what the US Would like to see when it comes to the strait as outlined by the press secretary Caroline Levitt yesterday? We have seen an uptick of traffic
- [36:25]
D
in the strait today. And I will reiterate the president's expectation and demand that the straight of Hormuz is reopened immediately, quickly and safely.
- [36:35]
A
That is his expectation.
- [36:36]
F
It has been relayed to him privately
- [36:38]
D
that that is what's taking place and these reports publicly are false.
- [36:44]
A
So for more on the street of Hormuz and the implications for global energy markets, we turn to Michelle Brohard, head of policy and geopolitical risk at Kepler, who is joining us now on balance of power. Michelle, thanks for the time. Even as the White House contends that there is activity resuming in the strait, the data we're looking at here at Bloomberg would suggest otherwise. It is just a handful of vessels and all of them pretty much have ties to Iran. And Iran, of course, is maintaining that you need to have clearance and coordination with the armed services to transit this waterway. So has anything materially changed since this ceasefire began?
- [37:21]
G
We haven't seen anything materially changed. What we are hearing is the same as what you're hearing. But there was a note that came out today that IRAN would allow 15 vessels to pass through the strait. That's in comparison to over 40 vessels prior to the war. So even when the strait opens and through during the cease fire this two weeks cease fire period, 15 vessels is not very many and it certainly doesn't clear the backlog of the vessels that are sitting currently in the Middle East Gulf.
- [37:52]
A
Well, so then our energy markets right now, now mispricing what the reality actually is. We're below $100 a barrel on oil once again, at least in the futures market. Obviously we've seen something very different in the, in the physical market. MICHELLE But I wonder if, if you kind of share the optimism we've seen reflected over the last few days.
- [38:14]
G
I actually don't share the optimism in the front of the market. Sure. There's going to be, it's, it's certainly possible that part of what we've already seen has been priced into the front of the market. I think that when you look even, even like two months back because this curve is in such steep backwardation that the back of the market is certainly undervalued relative to the risks that still exist inside of the marketplace. In addition to like, even if we can assume that the straight goes back to some sort of working capacity and maybe it's 50 or 60%, that's still a significantly slower rate in a time when and every single country in the world is going to be focused on energy security and restocking their reserves. So I think that the back of the market is certainly mispriced and when I say the back, I mean like deck 26 through deck 27. I mean those, those months are certainly underpriced unless someone, unless you're expecting some sort of recessionary action that's going to happen in a global, in the global market.
- [39:14]
A
Well, and it's one thing to consider, just the idea of flows resuming through the strait is another to consider the actual production capacity of these Gulfs to states in the first place. As we've obviously seen some infrastructure damage in places like Qatar and LNG facilities. We also have seen production shut ins. That's just not a light switch that can turn on and off. Right. Michelle how long is it actually going to take for production that we were seeing to get back up and running?
- [39:39]
G
I think we'll see some countries be able to come back fairly quickly. Like the Saudis will be able to come back fairly quickly. I think that the UAE there may be some infrastructure damage that needs to be repaired but if they just shut down their wells, I think they can come back quickly. Iraq is going to take a long time. So we could, it could take a while for us to see Iraqi production come back online. And Kelly, one thing I want to mention is that Everybody's looking at the ships leaving the strait. But I think one thing we really need to focus on are ships going back into the strait. So once you evacuate from the strait and you're in, you're floating around the global world, do you want to go back into a war zone that has significant risks of the ceasefires falling apart or ships running that risk of getting, getting bombed again? So I think really the risks that we're going to see going forward are ships re entering the strait because I think once you evacuate, you probably don't want to go back in.
- [40:36]
A
Well, so then obviously what we're talking about here potentially could be, at least in the medium term, a structural change in the way in which energy is able to flow freely throughout the world. Obviously we've seen efforts toward workarounds be it the, the East West Pipeline, for example, for Saudi Arabia, efforts to kind of focus more on output through the Red Sea. Is this going to be potentially permanent, Michelle, even if we do see eventually a reopening of the strait and an ultimate long term deal reach between the US And Iran.
- [41:10]
G
Yes, because it's Israel and Iran. So I think that the risks are going to continue to remain. We're going to continue to see higher risk. People are going to be, insurances are still going to remain high. I would guess that it will take at least a year of consistent normal activity for people to feel comfortable transiting the street. I think what we're going to see in response to that are all of the countries that have been impacted are going to build infrastructure away from the street. So I think that's one thing that's going to happen is just the inflow of capital to build infrastructure to, to transit away from the strait so that they don't have access to that kind of like what the Saudis, they've been preparing for a number of years with the east west pipeline is certainly paying off for them now. I think the toll, the Iranian toll is also something that's going to change not just the strait in Iran, the Hormuz Strait, but it could potentially change other straits as well if they start charging a toll. What makes China not charge a toll or Turkey not charge a toll? So, so are we going to start to see global trade change just through just because this will set a precedent for the rest of how other choke points are valued?
- [42:25]
A
Well, as we consider you raised the Chinese, obviously Russia of course has been a large focus of conversation as well as it has been a net beneficiary of what's happening in the Middle east given its own energy products and the removal of sanctions that will we have seen what happens if we see material removal of sanctions on Iran in a negotiated agreement. How does that change thing for the global market?
- [42:47]
G
Well, Iran exports before this happened were at all time highs. So Iran barrels were still making it to the market. They just weren't making it into the market. That was for unsanctioned barrels. So Iran exported out and it went all to China. Now their barrel will move from a sanctioned barrel to an unsanctioned barrel. Similar to Venezuela. Venezuela was a sanctioned barrel. Now it's essentially a non sanctioned barrel, which means that it moves from one pool which had one buyer to a pool with many buyers. So it will potentially raise supply marginally across the across the world, assuming that China doesn't try to replace that Iranian barrel. If China continues to replace the Iranian barrel, then we will see demand for the sanctioned barrel as well as the unsanctioned barrel.
- [43:35]
C
All right.
- [43:35]
A
Interesting stuff. Appreciate you joining us. Michelle Brohard, head of Policy and Geopolitical Risk at Kepler, here with us on the early edition of Balance of Power.
- [43:45]
E
Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already at Apple, Spotify or wherever you get your podcasts. And you can find us live every Weekday from Washington, D.C. at Noontime Eastern@Bloomberg.com.