Reacting to PCE, GDP, and Kevin Warsh

Summary

Bloomberg Surveillance Podcast: Reacting to PCE, GDP, and Kevin Warsh

Date: July 30, 2026
Hosts: Tom Keene, Karen Moscow, Paul Sweeney, Annmarie Hordern, Jonathan Ferro, Lisa Abramowicz
Featured Guests: Tanya Fukui (MetLife), Andrew Szyroski (Morgan Stanley), Seema Shah (Principal), Paul Sankey (Sankey Research), Gil Luria (DA Davidson), Sophia Drosis (Point72)

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Overview

This episode of Bloomberg Surveillance centers on market and policy reactions to the latest US economic data (PCE, GDP), the communication strategy of Fed Chair Kevin Warsh, and the broader implications for fixed income, energy markets, and tech investment. The hosts bring in leading economists and strategists to analyze a pivotal Fed meeting, emerging inflation data, the evolving bond landscape, persistent energy shocks, and the maneuverings of tech titans in the new AI era.

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Key Discussion Points & Insights

1. The Fed, Kevin Warsh, and Market Guidance

Main Theme:

• The Fed’s recent decision not to hike rates, and Chair Warsh's opaque communication style, sparked confusion and a credibility debate in markets.

Highlights:

• Lack of Forward and Backward Guidance:
  • Tanya Fukui: “There was very little mention of economics… there was a vacuum of economic information there, economic analysis.” (02:55)
  • Karen Moscow: “He didn't even give us backward guidance, right? He didn't even tell us his rationale for what he did.” (04:29)
• Shift from Models to Evidence-Based Policy:
  • Sophia Drosis: “I think it is a bit more of a throwback to an evidence based Fed, waiting for data, waiting for information and much less focus on forecasting.” (41:16)
• Impact on Market Behavior:
  • Tom Keene: “Is everyone just mad that they can no longer front run the Fed for the first time in 15 years? That's the heart of the matter, isn't it?” (06:43)
  • Andrew Szyroski: “There's still not enough clarity from the Fed and there's still not enough term premium being built into this market for the new Fed chair.” (11:48)

Notable Quotes

• Tanya Fukui: “Deciding what not to do is as important as deciding what to do.” (02:55)
• Andrew Szyroski: “The lack of direction, the lack of communication... leads to a credibility problem which means you might ultimately end up having to hike.” (12:26)

Timestamps

• 02:06–05:06: Fukui on Fed communication and policy rationale
• 11:48–16:44: Szyroski on fixed income, Fed credibility, and market reaction
• 41:16–46:45: Drosis on data-driven Fed policy and credibility risks

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2. Latest Macro Data – PCE, GDP, Inflation

Main Theme:

• Recent economic releases showed moderating but high inflation, respectable (if slowing) GDP growth, and a generally cautious consumer not overheating.

Highlights:

• Growth Engine in AI:
  • Karen Moscow: “One of the sources of growth is AI… our superstar for this team right now.… That’s actually working in the favor of not having to burst any irrational exuberance bubbles.” (08:09)
• Disinflation in the Pipeline:
  • Sophia Drosis: “We saw a bit more of a moderation than we expected today… inflation is going to moderate in the second half of the year.” (41:53, 46:55)
• Interplay with Fed Decisions:
  • Seema Shah: “We went into the meeting not expecting any hikes at all in 2026 and even through 2027. The economic backdrop doesn’t necessarily justify a hike…” (18:52)

Notable Quotes

• Sophia Drosis: “I'm taking the message from their actions more than from their words… the hurdle is high in terms of hiking.” (43:28)

Timestamps

• 05:06–08:46: Data dump discussion (personal income, PCE, GDP)
• 41:53–46:55: Drosis on inflation and underlying trends

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3. Bond Market Ripples & Fixed Income Strategy

Main Theme:

• Concerns over “credibility risk” at the Fed, global supply, term premiums, and how volatility is reshaping fixed income allocations.

Highlights:

• Avoidance of the Long End:
  • Andrew Szyroski: “I wouldn’t be buying [the 30 year] this morning. I'd be more focused on the front end of the curve… avoiding long end bonds.” (11:48)
• Volatility and Supply Pressures:
  • “All of this is compounding… giving investors some concern: how much more issuance is the market going to have to digest and how high should we be pricing in a term premium?” (14:53)
• Yield Curve Steepening:
  • “We've had a view that the yield curve should be steepening all year. We continue to believe in that view.” (16:02)
• European Perspective:
  • Seema Shah: “If within the next month or so you’re not getting any clarity, then… risk assets are facing a considerably more challenging time.” (20:15)

Notable Quotes

• Andrew Szyroski: “The data could end up saving the Fed. But in the interim, who knows how bad it could get.” (13:37)

Timestamps

• 11:48–16:44: Szyroski on bond allocations and market risks
• 18:03–20:46: Shah on European and credit markets reactions

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4. Energy Markets in Geopolitical Flux

Main Theme:

• Energy analysts discuss why oil prices don't match military tensions in the Gulf, impacts of refining capacity, and global supply chain risks post-Hormuz.

Highlights:

• Price Disconnects:
  • Paul Sankey: “There’s this ongoing debate as to why crude prices are not higher... The answer is refining capacity limitations.” (24:24)
• Structural Changes Post-Hormuz:
  • “Can Hormuz ever go back to the way it was pre-war here?” (26:52)
    Sankey: “Absolutely not. It’s done. It’s the one and done.... The need for domestic energy, which the US has in abundance… is going to become a very important thing.” (26:56)
• Drone Warfare Risks:
  • “The emergence of drones… makes all of this refining and tanker infrastructure incredibly vulnerable in a way that it wasn’t previously.” (27:53)
• Geopolitical Realignment:
  • “At a given level, you need to make an agreement with the GCC, with the Saudis and the UAE… we're out of here.” (30:49)

Notable Quotes

• Paul Sankey: “I don't think Mr. Zuckerberg cares about our privacy. I think there's about 20 years of track record telling us that.” (38:35) (technically tech, but revealing of the episode's sharp, candid tone)

Timestamps

• 24:04–31:35: Sankey on oil prices, geopolitical dynamics, and US energy security

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5. Tech Titans: Earnings, Capex, and AI Hype

Main Theme:

• Dissecting the divergent AI and CapEx strategies of Microsoft, Apple, Meta, and implications for investors in the AI cycle.

Highlights:

• Apple’s Patient Approach:
  • Gil Luria: “Apple has decided to not participate in the AI build out…right now it looks genius because everybody’s fighting it out spending so much on CapEx.” (34:08)
• Microsoft as ‘Adult in the Room’:
  • “[Microsoft] will accelerate Azure growth… we can do it with [only a moderate] increase in Capex… investors sorely needed [that approach].” (34:52)
• Meta’s Unclear Path:
  • “Zuckerberg is treating it like it’s his company, which it is. He has controlling interest, but shareholders don’t like that… no clear strategy of how they're going to pay for all that data center build out.” (35:49, 36:47)

Notable Quotes

• Gil Luria: “Micron is trading like the cycle is over… we’re going to need a hell of a lot more memory for that.” (37:42)

Timestamps

• 33:34–38:35: Luria on tech earnings, AI CapEx race, best buys in memory

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6. Other Memorable Moments (Lighter Tone/Context)

• Joking about the closed Hennessy’s Bar in Boston and the sentimental value of Mets-branded Point72 merch.
  • Tom Keene: “The Mets are cleaning house, aren’t they?” (47:34)
  • Sophia Drosis: “Well, you know what it’s like to be a Mets fan. It teaches you patience.” (47:48)

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Notable Quotes & Highlights (with Timestamps)

| Quote | Speaker | Timestamp | |-------|---------|-----------| | "Deciding what not to do is as important as deciding what to do." | Tanya Fukui | 02:55 | | "He didn't even give us backward guidance... He doesn't say very much about his reaction function." | Karen Moscow | 04:29 | | "There's still not enough clarity from the Fed and there's still not enough term premium being built into this market for the new Fed chair." | Andrew Szyroski | 11:48 | | "Apple has decided not to participate in the AI build out…right now it looks genius…" | Gil Luria | 34:08 | | "Inflation is going to moderate in the second half of the year… seems to me that perhaps the worst is behind us." | Sophia Drosis | 46:55 | | "It teaches you patience." | Sophia Drosis (on being a Mets fan) | 47:48 |

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Segment & Topic Timestamps

• 02:06–05:06 — Tanya Fukui on Fed communication
• 05:36–08:46 — Economic data breakdown (GDP, PCE, AI growth)
• 11:48–16:44 — Andrew Szyroski on bond markets and Fed risk
• 18:03–21:53 — Seema Shah on Europe, Fed credibility, rate hike risk
• 24:04–31:35 — Paul Sankey on oil, Hormuz crisis, energy market restructuring
• 33:34–38:41 — Gil Luria on Apple, Microsoft, Meta, AI, and memory demand
• 41:16–48:06 — Sophia Drosis on Fed modeling, inflation outlook, and the dollar

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Conclusion

This episode provided a nuanced, candid, and multi-faceted examination of the post-FOMC landscape, highlighting how a lack of clear Fed communication has introduced market volatility, revised expectations for future policy, and complicated strategies for bond investors. The global ripple effects extend into European credit, the shifting geopolitics of energy (especially post-Hormuz), and tech corporates navigating the AI arms race, with recurring calls from guests for evidence-based decision-making and transparency. The dialogue balanced macro analysis with sharp, memorable soundbites and a dose of levity.

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Summary compiled for listeners who want deep insights without catching every minute — capturing both substance and the unique tone of Bloomberg Surveillance.

Transcript

[Host/Announcer]

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[Karen Moscow]

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[Andrew Szyroski]

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[Tom Keene]

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[Karen Moscow]

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[Host/Announcer]

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[Tom Keene]

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[Karen Moscow]

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[Host/Announcer]

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[Bloomberg Announcer]

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[Tom Keene]

Tanya Fukui has one of the oddest, most wonderful paths in economics of anybody out there darkening the door at Pennsylvania and Wharton years ago with their finance ability. She staggered to Columbia and then she went out to ucla, which is one of the most twisted programs in the country. One of my heroes, Axel Leonovood was there. I mean, what you witnessed yet I should say Tanya Fukui with MetLife with us now. You're sitting there yesterday listening to this and you think about Axel Ionovood at UCLA or Clarida at Columbia or all. I mean, Lawrence Summers father at Pennsylvania. I mean, how did you distill that MBA speak?

[Karen Moscow]

Yeah, I mean that's ultimately what it was, right? There was very little mention of economics right and this was the Bloomberg quote of the day was deciding what not to do is as important as deciding what to do. But deciding how to not do anything was the problem here. I could have given you any number of economic rationales, reasons, thoughts, developed, theses of why not to hike. We didn't think there should, should be a hike, but how it was conveyed was there was a vacuum of economic information there, economic analysis.

[Tom Keene]

Are you optimistic he can escape what we witnessed yesterday?

[Karen Moscow]

He's going to have to decide whether he wants to double down on his experiment here of trying to be a next Alan Greenspan or give up and say, hey, I need to communicate better. I need to communicate my understanding of economic data, what I'm doing, why I've done what I've done. And I'm not sure he's going to give up on the experiment and that's the concern.

[Host/Announcer]

Well, one could argue that his disclosure or lack of disclosure of information yesterday or process yesterday was consistent with what he said all along, which is I don't need to hold the hand. It's not the job of the Federal Reserve to hold the hand of the markets. You guys look at the data, you figure it out. Do the same thing that we're doing.

[Karen Moscow]

The problem with that is that the markets are trying to figure out what the Fed is doing at all points in time or what the Fed will do at all points in time. And in the absence of a vacuum, we start analyzing. I guess in Greenspan's time, people analyze the fatness of his briefcase. That's what we're going to go back to do. If he doesn't actually communicate, at the very least two things. He, he didn't even give us backward guidance, right? He, he didn't even tell us his rationale for what he did. And he didn't. He doesn't say very much about his reaction function.

[Tom Keene]

Tanya Fukui with this. I heard that phrase a lot yesterday. Reaction function. I had to look it up. Tanya Fakui with us with the Metropolitan Life, working with Drew Madison. Just absolutely spectacular. We're going to continue this conversation and as she said, we've got to get to the next step. Guess what that is? The economic data we're going to see right now, the usual dump. Personal income, personal spending, those key PC without questions, maybe. Chairman was new at the press conference yesterday. The data. What do you think, Paul? Think he was front running the data?

[Host/Announcer]

I don't.

[Tom Keene]

I'm guessing he did not, folks, but we'll see. Look at GDP annualized 1.5% gets my attention as well. From 2.1 to 2.0. And now off of that survey, 2.0, 1.5%. We say good morning to all of you as well. Something we're trying right now. Bloomberg.com/ask radio. Bloomberg.com/Ask radio. We're rolling this out. Carol Massar had a tantrum, said I have to do it first.

[Host/Announcer]

Okay.

[Tom Keene]

So they did it last night with the tech thing with Mandy. Did a great job, and they got a huge response. Good morning around the world to Bloomberg.com subscribers and terminal users who can now come in. I'm going to be honest. We're going to vet the questions. Okay. You know, if they ask me, you know, do I really hate the Yankees that much, we're not going to do that question, unfortunately. We got a wicked smart question this morning. This is from Andrew at Wisconsin. Oh, like, I think he's, you know, Madison Economics is pretty good. You got to believe Andrew's doing this from the classroom. And with Tanya Fukui here, we could do this with Matt Life, because it's great. It's about the parlor game.

[Host/Announcer]

Yeah.

[Tom Keene]

What you and I, we remember what it wasn't as stupid as is now. Is everyone just mad that they can no longer front run the Fed for the first time in 15 years? That's the heart of the matter, isn't it?

[Karen Moscow]

I think that's, that's what Warsh is trying to get around. He's trying to wean the markets off of excess dependence. And I do think there's a point there where we perhaps did too much forward guidance. We got into forward guidance because rates were too low, rates hit zero Fed funds, and we had to sort of say, well, we continue. We'll continue to have zero for a while. Right. That, that was the origin, origin story of some of this forward guidance. Right. And now we are a little bit too dependent on forward guidance. But we still need to know why the Fed did what they did, that, you know, backward guidance, so to speak, and what are they gonna do under different scenarios. They've tiptoed down that path. But I would have liked to have seen some reaction function articulated by Warsh. Doesn't have to say what he thinks is gonna happen, but what are the things that he worries about? Is he worried about wages? Is he worried about the labor market?

[Host/Announcer]

None of that was addressed the economy by not raising the rate yesterday. A lot of folks say that's fine, that's actually decent. The data's not there. This economy's not over Heating does that jive with what you're looking at the

[Karen Moscow]

data percent 100% I think what's what's actually been interesting is the you know one of the the source of growth is AI that's sort of you know the our superstar for for this team right now. Right and that is has been a little bit self correcting right now. There's a bit of introspection in the markets. There's a little bit of concern there a little bit of shaking out of of winners and losers a little bit and that's been doing its thing that's actually working in the in favor of not having to burst any irrational exuberance bubbles. The consumer is not overheating crazily

[Sophia Drosis]

it

[Tom Keene]

should be okay holds your hair don't go away. Stay here. Andrews are asking on deck from Morgan Stanley we're commercial free to you across America and worldwide a special edition of Bloomberg Surveillance after what we witnessed yesterday. Thank you so much Andrew in Wisconsin for that question. Really really actually foundational question right now. Bloomberg Surveillance this morning brought to you by IBKR trade election climate and economic outcomes with IBKR Prediction markets right alongside your stocks and your options earn interest on your position and receive $1 per contract. If you're right. Learn more at ibkr.com predictions okay, I'm going to go walk with Anna Wong later. We're going to do that with Tiny right now and basically what I'm saying folks is what we have is a threat, a war, an argument or whatever you want to call it between people that don't want to do traditional economics. If you're Tiny Fuku and you're at ucla did you study under Axel Leonovud?

[Karen Moscow]

No, I don't know if he was there at the time.

[Tom Keene]

He probably wasn't there. He's coming from Trento over in Italy. Axel Leonova folks is one of my heroes. I was so honored to interview him a number of times is Milton Friedman once said to me Leonard Vood is the guy who came out of the trenches and took on that 1960s certitude of Keynesian policy. He was the angry guy bulletproof academics. Is this just a war against whether it's Robert Lucas of Chicago or Clarita and what's called DSGE or some, you know, somebody new winning John Bates Clark. Is this just a discussion about we need to end economic discussion at the Fed and just let the markets go.

[Karen Moscow]

I think that's what was I think that's the direction that was wants to head in. Is that really is it accomplishing that though I think there's different, there's better ways of accomplishing that if there, if there is if that is a question because ultimately the markets are really still trying to understand and they're, they're taking the indication from, from you know, all the other folks that are speaking. Waller Logan.

[Tom Keene]

Right Hammock is we got to go. Is, is somebody emails and thank you for this again, thank a subscriber at Ask Radio. Tiny, it's simple. Is Drew Mattis okay?

[Karen Moscow]

He's okay, he's okay. I mean he, he, yeah, he, he did leave early.

[Tom Keene]

Tiny Fukui, thank you so much. Really, really appreciate it. This morning we get lucky as we had Michael Purvis earlier to start the show scheduled. Anders is Rosky with us with Morgan St. Stanley who's you know he's been dude folks but he's really encyclopedic from full faith and credit over to the fancy stuff with all of his heritage out of Eaton Vance and Morgan Stanley in Boston. Andrew, can you buy the 30 year full faith and credit this morning?

[Andrew Szyroski]

So I wouldn't be buying it this morning. I'd be more focused on the front end of the curve and quite frankly for the, for the reasons you saw yesterday, which is that we, there's still not enough clarity from the Fed and there's still not enough term premium being built into this market for the new Fed share. And so I'd be avoiding long end bonds. We've been avoiding them all year and yesterday's press conference didn't give us any more confidence to go into them despite the backup.

[Host/Announcer]

So what was your take from yesterday's news coming out of this? Federal Reserve, I mean Fed Chairman Wash getting some criticism for lack of disclosure, but it's kind of been his call all along here. I don't know.

[Andrew Szyroski]

Yeah, look, I don't think the Fed made a mistake by not hiking rates. I think that was, that was what they should have ultimately done. I think we had a weak inflation report report in the CPI earlier this month. We had a weaker payroll report. So I think if he had justified the hold with for those reasons and saying we want a little more time, I don't think you would have seen the bond market sell off and the equity market sell off. We did. I think instead of just kind of coming out in kind of vague terms and talking about maybe that let the market do the work for you. I think that's the problem that the bond market and risk markets ultimately had because then it leads to a credibility problem which Means you might ultimately end up having to hike when you, when you weren't going to have to a few weeks ago if the data kept coming in your direction. Now you're kind of introducing credibility into the equation, which is a big problem for the Fed.

[Host/Announcer]

So I mean the bond market, I mean as you mentioned, Mr. Wash said that he's letting the bond market do the heavy lifting, which it certainly is. With the 10 year now at the 467, the 30 year at 521, even the short end it's still at four and a quarter. So I mean the bond market is in fact doing the work of the Fed historically. Is that a problem?

[Andrew Szyroski]

No. I mean, look, the bond market and equity markets certainly yesterday tightened financial conditions. That's something that would at the end of the day be going in the Fed's favor to kind of counter some of the other inflationary forces. But I think that the lack of direction, the lack of communication, we know it's going to lead to more volatility and if we're in some void, then you don't want to let this get too uncontained. And I think that's the thing where all of a sudden you saw certain analysts out there estimating that hey, maybe the 30 year goes to 550 now and can kind of gap there quickly. We saw how quickly it just moved 13, 14 basis points yesterday. And I think there's concern of if we're not going to get any discussion from the Fed then how high can this go, how quickly? So I'd still be avoiding those long end bonds but again I think that the data could end up saving the Fed. But in the interim, interim period, who knows how bad it could get.

[Tom Keene]

When you see these dynamics of all the, you know, all the stuff, Andrew, that you're expert at, when you see price movement, is it working in a non panic rational way or do you worry about jump conditions where somewhere out there that I don't understand the fixed income market could unravel?

[Andrew Szyroski]

Yeah, I think that, you know, it's certainly concerning how, how quickly this can escalate. And the issue for the Fed and the US Market is that it's not just, it's not just here in the United States that we have this kind of massive issuance and kind of massive deficits. You know, the era of austerity in Germany and Europe is over. We have China, who's exporting bonds, we have these mega cap hyperscalers that are issuing, you know, hundreds of billions of bonds. So all this is kind of compounding on itself and giving investors some concern of like okay, how, how much, how much more issuance market going to have to digest and how high, how high should we be pricing in a term premium? So I think that that's the thing is that this is a bit of a different situation than we've had the last decade because there is so much more supply coming everywhere. And so the market's not just trying to count, not just trying to figure out where, where rates should be in the United States, but it's Europe, it's China, it's, it's Japan and then it's the spread that you're getting on these kind of mega, mega cap tech companies, tech company long bonds too.

[Host/Announcer]

Andrew, as an active fixed income investor, did you come into the office today with thinking differently about your portfolio than you did maybe yesterday morning?

[Andrew Szyroski]

We've had a view that the yield curve should be steepening all year. We continue to believe in that view. I think the one thing that's changed in my mind is that I didn't think the Fed was going to have to hike for the rest of the year. I thought that the data itself, if the war in Iran can just calm down oil prices are the main thing that's driving inflation and chip inflation there as well. But I thought that if they just kind of could stall a little bit, that could give them enough time for the data to come in their favor. I think the one thing that's changed now is this Fed credibility and they might also end up having to hike in a situation just to kind of regain that credibility. I think that's the one thing that's changed in my mind that didn't exist 24 hours.

[Tom Keene]

Final question, Andrew, did you have a chance during the World cup to go to Hennessey's Bar? What a bombshell. They're closing Hennessy's Bar. Definitive iconic in Boston. Did you have a chance to go there like for the whole Scotland thing in the World Cup?

[Andrew Szyroski]

A true institution. And, and we're really sorry to see it go between that we still have the bell in hand here but we are sorry to see all the, all the Scottish people leave. They had, they were walking around town with their kilts and, and we miss them and hope they come back real soon.

[Tom Keene]

It's great. And plus Hennessy, they're going to transfer the Bloomberg terminal that they have at the bar over. Very good bar. Bar 23 is going in there. Whatever. Andrew, thank you so much. Andrew Szyroski Invest Morgan Stanley there on fixed income really important. The futures up 44, we're commercial free through the sovereign with a great lineup to come to help you understand what we witnessed yesterday. Francis Donald will join us from rbc. Michael Ball on short notice. I think he's on vacay.

[Paul Sankey]

Okay.

[Tom Keene]

And he's coming in. He's rocking it. Michael Ball will be with us. And now joining us here is Seema Shah with principal and she's just magnificent at synthesizing the transatlantic arc from London. Seema, how was this digested yesterday in the City?

[Seema Shah]

I think it was digested in the same way that it was in the US which was a lot of confusion, confusion and some concern with regards to clarity, to the clarity that Chair Wash was providing and real question marks about whether he's genuinely committed to that price stability goal that he continued to talk about. So I think there's been some, I don't know if it's necessarily going to stick, but certainly there are questions and concerns that maybe the Fed will have to address within the coming weeks.

[Host/Announcer]

Sima, how do we've got this Fed presumably on hold, but the expectation is it will have to hike soon. If that's kind of the case and we had the ECB hold steady here today, how are you approaching these markets today? Anything different from maybe the last day or two?

[Seema Shah]

Well, I guess the only thing that's different is that we went into the meeting not expecting any hikes at all in 2026 and even through 2027. And the reason for that was just that the economic backdrop doesn't necessarily justify a hike yesterday. But of course there is a risk that you see continued high energy prices and then that feeds through inflation expectations and underlying inflation. The same debate that I think everyone is having, I think the added dimension that came from yesterday is that let's say that we do see continued move up in energy prices, maybe not very significant, but at least that inflation doesn't trend down as much as the Fed would want. The fact is that because the bond market is really questioning that credibility, it almost to a point starts to raise the prospect the probability of head of Fed hikes later down the line because they need to react in order to put that credibility back into the market and then suppress that bond yield movement higher. So actually I think the probability of hikes is actually increased over the next 12 months off the back of yesterday.

[Host/Announcer]

So next steps here for the credit markets here. I mean does it change the way you're thinking about credit risk here at all in the bond market?

[Seema Shah]

Not at this stage, but it's certainly something that we want to watch. I mean, typically when you're seeing 30 years and other parts of the bond, the yield curve moving up, things do start to get a little bit messy.

[Bloomberg Announcer]

Now.

[Seema Shah]

We're at the early stages. I don't think it's the time to react, certainly within 24 hours of the FOMC press statement. But we need to see some talk. And if within the next month or so you're not getting any clarity, then certainly then I think we could be moving to a stage where markets generally risk assets are facing a considerably more challenging time. If they're still questioning the credibility of the Fed, then that will make the, I think the arithmetic pretty difficult for risk assets abroad. Across the, across the market.

[Tom Keene]

Sima, from where you sit and synthesize this, you rocked at the London School of Economics. You made it through their freshman year math exam. Full disclosure, I actually Mick Jagger didn't pass it.

[Host/Announcer]

Is that right?

[Tom Keene]

It's all right, Seema. Shock killing it at LSC. You're 21 years old. You're walking into Her Majesty's treasury to help them out. I mean, you know, you're the real deal. Seema, is this the distillate of the president just really doesn't want economist economists to do central banking.

[Seema Shah]

Look, it may well be. I mean, I think that was one of the things that came out. Look, go back three or four weeks. I think the market had finally started to discard this idea that the chair wash was going to be the mouthpiece for President Trump. I think fast forward to today and those question marks are back. You know, does chair wash want to keep rates unchanged? Because that's President Trump's perspective. I think there is a question and I think it needs to be dealt with. I want to hope that this is a truly independent Fed, but I think it's now up to the central bank to really come out and reaffirm that commitment that it is genuinely focused on price stability.

[Tom Keene]

She says it so politely. Yeah, it's elegant. Everybody else is in an uproar. Seema Shah is gracious. Seema Shah with principal thank you so much. Stay with us. More from Bloomberg surveillance ones coming up after this.

[Host/Announcer]

Support for this show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English, like if The Vix hits 25. Buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my Direct index. You approve of the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors, LLC. SEC registered advisor complete disclosures [e-mail] disclosures

[Seema Shah]

AI is entering its most consequential phase where scale, safety and sovereignty will determine who leads and who lags. Join Bloomberg Tech in London on November 2nd and 3rd as global leaders across business, finance and policy examine the defining trade offs shaping the future of AI. Thank you to our presenting sponsor, Salesforce and supporting sponsors Ida Ireland and Schneider Electric. Learn more at BloombergLive.com TechLondon.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

Paul Sankey's people caught up and had a tantrum. He can't cancel. So we've got Sankey here and Houthis and Saudis and all the rest of it. So you're sitting in front of a bunch of fancy people, which is the way Paul Sankey rolls. What's the number one question fancy hydrocarbon people want to know from you right now?

[Paul Sankey]

Well, I think there's this ongoing debate as to why crude prices are not higher, right? Because the military situation in the Gulf is developing in a way that's not great. And obviously the main focus of that is Saudi Arabia. Looks like we've got some peace in the uae, we've got a settled situation in Lebanon. And then of course you've got an absolute beating that the Ukrainians are handing out to the Russian oil infrastructure. So I think the answer to the question is refining capacity limitations and so there's not the ability to use more crude to bring down product prices. And you've got to remember that wholesale gasoline is right now $140 a barrel. So I think people are looking at the wrong oil price.

[Tom Keene]

In fact, this is critical. Tom's been feature in this young chunk Chin in China off the desk in Singapore. Our oil People, they only go to Oxford and Cambridge and lse. And so he comes up with the ICE Brent Distillate refinery. Explain to our audience by looking at The Wawa at $4.20, isn't the way to look at this? You got to look at ICE gas oil in Europe.

[Paul Sankey]

No, I slightly disagree. I mean, I think for 20, the wall is 1, 6, $70 a barrel, right? So when you think about it in those terms, and then you know, Brent's at 90, we've got a $70 refining margin. And I say that's a margin, that's not a price. So you know, we've had Valero, for example, printing $12 this morning in their results. So I think a year ago they made one or two. So it's just a question of how people look at it and they just focus on crude oil. But when you think about what happened in Hormuz, you shut down 6 million barrels a day of refining capacity. That's demand for crude. And China, of course, shut down 6 million barrels a day of oil, crude oil imports. So there's been quite a big pressure when you combine it with the SPR and the emergency releases, all crude oil. And then you see this enormous price that we're paying. For example, jet fuel hasn't been far off $200 a barrel. What's fascinating as well, Tom, is people are still flying and driving. So there's been a really interesting thing there. And another thing I'd highlight is long term thematic is the separation of the North American oil market from the global. Basically because you can't buy Chinese EVs in North America, you've taken away the EV subsidy in North America. So what's happening is Tesla can't give away a Tesla. So what you're seeing here is actually a situation where we're looking like we'll remain a very oil dependent economy. The rest of the world will actually do everything they can post Hormuz to get off oil even more than they already were.

[Host/Announcer]

Can Hormuz ever go back to the way it was pre war here?

[Paul Sankey]

Absolutely not. No. I mean it's done. It's the one and done. And you know, you've seen that with the Houthis in the sewers, you know, that three years now we've been at 50% of previous volumes. It's just too much risk. And the one thing about the Hormuz, you know, is it's a, it's the one incontrovertible, if that's the right word, choke point. So every Other choke point, globally, there's an alternate with Hormuz essentially as pipelines. But for lng, you just for example, Qatari liquid natural gas, I don't see a solution other than the Hormuz. So they're going to have to make some sort of agreement with the Iranians. The other thing people miss is if you look at where the US Navy is, it's not in the Strait of Hormuz. Those aircraft carriers are way, way out in the Arabian Sea, which is actually limiting our ability to bomb, which achieves basically nothing in my view. So it remains a horrendous mess. The other thing I'd highlight is two things. One is Ukraine had a drone attack on Siberian refinery the other day. That's 1,800 kilometers, actually miles. I think it's a long way. And the other mystery at the moment is that a US owned gas floating storage vessel in Egypt was blown up by a drone with no one claiming responsibility for that. But that was another thing. That was a very strange outcome. Bottom line is the drone, you know, the emergence of drones, the emergence of Ukraine as a global superpower in drones, makes all of this refining and tanker infrastructure incredibly vulnerable in a way that it wasn't previously. And the need for domestic energy, which the US has in abundance, domestic infrastructure, heavily defended, is going to become a very, very important thing, more than it was previously. And in that regard, the Americas look in very good shape.

[Host/Announcer]

What does Iran want, do you think, from an energy perspective? In theory, I think economically they would want the Strait open to move their oil and their products. Is there a way to negotiate with them? To really, just from an economic standpoint say let's just open this up because it's good for everybody, including you guys.

[Paul Sankey]

I mean, I think what I would say is this a Suez moment for the US that like the UK you just have to exit. The reason I would suggest it's the right thing for to do is because at a given level this is religious. You know, Iran and the Iranian proxies are all Shia and Iran against Israel is like, are you going to really solve a religious war that goes back, you know, possibly, you know, in the case of the Shias, a thousand years, but you know, generally longer. And what are we doing in that theater when we've got our own oil and gas? Is an open question. What's really interesting here is it seems like the UAE has made peace with Iran. You'll notice there's no attacks right now going on in the uae. And of course Dubai historically was a Persian trading post. So there's a very close relationship there. What's not good is that you're now getting the U.S. bombing Iraq, which is where the Shias are attacking the Saudis. And it's clear that the Saudis have a major issue here that they have to resolve. Having not really had great relations historically with Iran in the way that UAE or Qatar has.

[Tom Keene]

I want to close the loop on this. We're going to have to go here. Paul Sankey, we got to get you back shortly here. There's so much going on you mentioned, and for a lot of people, this is ancient history. For you and me, it's not 1956, Sir Anthony Eden blew up his career over Suez. Folks, we're not going to make this a history lesson. All you got to know is a prime minister of the United Kingdom went down in flames.

[Paul Sankey]

Yeah.

[Tom Keene]

How does President Trump extricate himself from the Sanky complexities you just gave us?

[Paul Sankey]

Well, I think they have actually in real terms, because the US Navy is out of the Gulf and we, you know, for example, the base in Bahrain is on a skeleton crew. You know, we've actually been forced by military pressure. So I'm not believing a whole lot of what I'm hearing, frankly, from the US Administration about what's happening in that theater. I think it's going very poorly. So at a given level, you need to make an agreement with the gcc, with the Saudis and the UAE is, look, we're at it. We're out of here.

[Tom Keene]

We've got to go out. This is like World War I. It's like, you know, T. Lawrence coming over, looking at the Suez Canal. We have to make an agreement from the Truchall States up to Kuwait and indeed even Iraq to extricate herself.

[Paul Sankey]

And you know, what I always said, Tom, right at the beginning is Trump has to immediately fly and see Xi and talk to him and sort this out. That's the only way you can sort it out is with Xi. Trump delayed the visit to Xi, didn't agree a whole lot. And then days later, she met Putin. As you know. Now she again is the only guy that czar out if you want to do it with, you know, another superpower, but you're going to have to concede an awful lot to China.

[Tom Keene]

So Paul from the Jersey Shore emails and says, get this guy back soon as. Can you come back like next week?

[Paul Sankey]

I see you invited me back next week because I'm then going to Norway for a couple of weeks. So I'll drop back in next week because there's a lot to talk about. Yeah.

[Tom Keene]

Thank you. Thank you, thank you. Definitive is an oil analyst, Paul Sankey, with his own shop. I can't say enough about his work over the decades as well. Stay with us. More from Bloomberg Surveillance coming up after this.

[Host/Announcer]

Support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge On Public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market market paid for by

[Tom Keene]

Public Investing Brokerage Services by Open to the Public Investing Inc.

[Host/Announcer]

Member FINRA and SIPC Advisory Services by Public Advisors LLC. SEC registered advisor complete disclosures [e-mail] disclosures

[Tom Keene]

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 podcast offer to learn more.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

Gil Larry was thrilled to have with us today to pick up the pieces off Microsoft and Matter and look today to Apple. Gil, I want to take you back to April of 2025. Apple is up 100%. That's called a double 70% annualized. What were you thinking about Apple on Liberation Day? It's all going to end. Tim Cook's a failure and China is going to crush Apple. What was it like back at that debacle for Apple at like 160 a share?

[Gil Luria]

Well, Apple has decided to not participate in the AI build out to be cautious, careful and wait for the outcome before it commits to anything. In a year ago that looked like a terrible idea and right now it looks genius because everybody's fighting it out spending so much on CapEx, right? We don't know who's going to win? Whose model? Open closed, anthropic, open air, Google and Apple's above the whatever wins they'll use in their phones.

[Tom Keene]

Microsoft proved yesterday they have a formula. What is the distinction of Microsoft and CapEx spend versus the other eight mag seven stocks Paul Sweeney owns that Microsoft

[Gil Luria]

came across as the adult in the room yesterday. Here we are, we're going to accelerate Azure growth, By the way, $100 billion business that accelerated from 39 to 43% will accelerate to 45%. And we can do it with just increasing Capex. We don't have to increase it significantly, which is what Google said last week. We'll increase Capex, we'll keep building these data centers, but we're going to do it responsibly to match the growth. And here we are with growth accelerating very nicely. And by the way, it's impacting other parts of Microsoft business favorably. So they just came across as the adult in the room, which is what investors sorely needed after what Google said and what Meta said last night.

[Host/Announcer]

All right, let's go to Meta. If Microsoft's the adult in the room, let's talk about Mr. Zuckerberg and maybe some of his messaging yesterday. What is the AI call for Metta here, do you think?

[Gil Luria]

Well, then Mr. Zuckerberg is treating it like it's his company, which it is. He has controlling interest, but shareholders don't like that. They gave him plenty of opportunity last night to say, hey, look, I can turn around and rent out some of my excess compute capacity for billions of dollars a month, just like Elon's doing at Space X. And it's going to be a windfall and that will help me raise less capital and continue the build out. And instead he was very circumspect. He said, well, you know, there's a few ways I can monetize. We can sell more ads, we can sell enterprise. We would have a personal assistant, but I'm not going to really tell you how much of each or what's more important. And investors are frustrated because they're continuing to increase their capex spend revenue missed. And there's no clear strategy of how they're going to pay for all that data center build out. So investors just walked away, feel like Mr. Zuckerberg is doing whatever he wants and we shareholders are left holding the bag.

[Host/Announcer]

Feels a little bit like the metaverse here. I mean, what is the stated plan from Meta here? Is it to. Is it to build a standalone kind of an app, a tool itself, an OpenAI type thing, a clawed type of tool itself. What's the stated plan, at least?

[Gil Luria]

Yes, right now they're still in that race of trying to have a better model in open and anthropic, which, by the way, is highly unlikely. But their ultimate goal is to give us a personal assistant, a friend, an AI friend that we can talk to, get advice, have them do chores for us, run errands for us. That's the vision that they're proposing. They're pretty far from that, but that's the main thrust of what they're headed towards. That's why they want to have the best model.

[Tom Keene]

30 seconds. Then we got one final question. 30 seconds. Gil, do you have a single Best Buy? Right now?

[Gil Luria]

Micron. Micron is trading like the cycle is over. And what we heard from Microsoft is that there's adults in the room, and we're going to continue to build that data centers, do more AI, and we're going to need a hell of a lot more memory for that.

[Tom Keene]

Okay. So, you know, in terms of coolness points, and I love that they're in Santorini for this ad. Gil. Laura, have you tried on or do you own a pair of the $799 Meta display glasses? Ray ban.

[Gil Luria]

No, my. My son's telling me that it's a violation of other people's privacy. So they're not very popular right now, and I'm not going to do that to them.

[Tom Keene]

Okay, you'll do it next week. Seriously? That's a huge deal. I mean, do they have any sensitivity at all that if Michael Barr Wore the Meta display 799 glasses, it would ruin Alexis Christopher privacy?

[Gil Luria]

I don't think Mr. Zuckerberg cares about our privacy. I think there's about 20 years of track record telling us that.

[Tom Keene]

Gil, thank you so much. Reporting from Gil laureate D.A. davidson. Stay with us. More from Bloomberg surveillance ones coming up after this.

[Host/Announcer]

Support for this show comes from public.com. if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on Public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like if the Vix hits 25, buy a put option on the S&P 500. Or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions, and executing your strategies exactly. As defined, an investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors LLC SEC registered advisor complete disclosures [e-mail] disclosures the Bloomberg this Weekend

[Bloomberg Announcer]

Podcast News, politics and the lighter side of Bloomberg the cutthroat competition to get

[Karen Moscow]

a gig on a cruise ship.

[Host/Announcer]

They get to enjoy all the amenities

[Sophia Drosis]

and a one week contract can pay

[Tom Keene]

like thousands of dollars for them.

[Karen Moscow]

I know this is a good gig.

[Bloomberg Announcer]

Yes, like you're booked through six months

[Karen Moscow]

and you could pay your bills for like a year and a half.

[Paul Sankey]

You may get norovirus

[Bloomberg Announcer]

the Bloomberg this Weekend Podcast subscribe today on Apple, Spotify or wherever you listen. You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

We start strong on this moment of interest for the Fed with Sophia Drosis for years at Morgan Stanley holding court right now at.72 and we're thrilled and well timed to be with us and of course all of her academics out of Michigan years ago. How much does Chairman Warsh not like people like Ned Gramlich? I mean the bottom line here is it's a war against models in economics, isn't it?

[Sophia Drosis]

Well, good morning first of all, and I think it is a bit more of a throwback to an evidence based Fed waiting for data, waiting for information and much less focus on forecasting. And perhaps that reflects the difference in this chairman compared with, you know, the other recent chairs that we've had that have had more of an academic lean and more confidence in forecasts and using forecasts as a guiding principle.

[Tom Keene]

Will he be model based? Can he dare be the excellence of Michigan, I think of Betsey Stevenson policy based? What will be the Warsh framework?

[Sophia Drosis]

I think the Warsh framework is evidence based. I think that he will be watching the data as they come in and deciding what is the correct policy path, gauging whether the economy is in transition. And I thought the data this morning were quite interesting in that regard. While inflation is very high, the level of inflation is quite high. It has been moderating. We saw a bit more of a moderation than we expected today. So my sense is that he's being cautious when we can potentially be at an inflection point.

[Host/Announcer]

Is he running the risk of losing some credibility with the marketplace? Because the trading action yesterday I think was a little erratic to say the

[Sophia Drosis]

least, was quite an eye popper to see the 30 year yield rise as much as it did. Certainly there's that narrative out there. But I would also be a little bit careful about reading too deeply into the price action considering that there was an unusual amount of uncertainty heading into this decision. Typically the Fed signals very clearly what they're going to do. We don't have a lot of variation in futures. We did have a fair amount. So perhaps some of that was investors kind of clearing the deck after quite a bombshell of a, of a press conference.

[Host/Announcer]

So I'm sure you got a lot of emails and a lot of IMs for Ibs from your traders saying now what's the Fed going to do? The way pencil in a September hike, a December hike, does he sit on the sidelines for maybe an extended period of time? What would you, what's the message from you here?

[Sophia Drosis]

Well, I am taking the message from their actions more than from their words. And so looking at the committee as a whole, this was a committee that still had an easing bias in April even though inflation was running at a higher rate and it was a committee that didn't hike in June. I know it was the chair's first meeting, but I think the data were more compelling for a hike. And now what we've seen is a couple prints of inflation coming in a bit lower, the labor market showing a bit more of a moderation as well. And so to me, looking at their actions, it says to me that the hurdle for at least those nine other FOMC people is high in terms of hiking.

[Tom Keene]

Sophia Drossos with us. We're going to go to Kevin Hassett at the White House here in about five, six minutes as well. Thrilled to have Sophia Drossis of 0.72 with us today. Kevin Gordon emailed it from Schwab and we were talking about domestic final sales. Folks, that's a wonderfully important statistic. I learned that from Bettina Dalton years ago at Fidelity. The GDP number was some bit soggy as Sophia just mentioned. Nominal GDP was, I believe to be polite, over 6% fold in the oomph of the economy from combined inflation in real gdp. And now Chairman Warsh can manage a supposed decline in nominal gdp.

[Sophia Drosis]

Yes, well that nominal GDP print probably speaks to ongoing health in corporate profits. As you know, corporate profits are coming off.

[Tom Keene]

It's Got an AI overlay?

[Sophia Drosis]

It does. But you know, I would say that the issue with the AI, the capex boom continues and the chair mentioned that yesterday, it's quite strong but a large component of that is imported so the potential for it to create overheating domestic conditions seems a bit less to me compared with other capex cycles.

[Tom Keene]

We got to go back to Morgan Stanley here. I mean, okay, you know, we got

[Gil Luria]

to go way back.

[Tom Keene]

I'm sorry Steve, I got to, I got to go there. Audrey Child Friedman was on. Did we as an outlier yesterday have the dollar finally break? Is this a moment where this shocking dollar resilience even with higher rates finally turns around and we get with a lack of credibility dollar weakness.

[Sophia Drosis]

So I think the dollar is going to lose a little bit of interest rate support and has of course the market has repriced seeing that the Fed didn't act on the accumulated high level of inflation at the last two meetings. So the market's extrapolating that a bit forward in terms of the reaction function. But we also need to be cognizant of what other central banks are doing. So the ecb, the ECB last week declined to hike and also stated a bit more of an open ended path. So perhaps they will not fully meet the amount of tightening that's priced in. And other central banks might be sounding a bit circumspect. And we had the bank of England this morning, they held rates. So the question to me is the Fed may have come across a bit more dovish than some people expected but I think that this is a broader trend among central banks now as perhaps they contend with energy prices at higher levels which also has a detrimental impact on growth. The trade off isn't very clear here.

[Host/Announcer]

So what is the underlying inflation? That's one of the questions I think the market's asking. How do you view, do you have

[Tom Keene]

it 0.72 a disinflationary vector?

[Sophia Drosis]

Well, I do think that inflation is going to moderate in the second half of the year where we were in the first half of the year. We're seeing already some moderation in rents and in services and, and I think that there will be a bit more of that in the pipeline. Obviously this morning we saw a below than expected move in inflation. So it seems to me that perhaps the worst is behind us. The issue for the Fed now is though they might want to wait and though maybe the data gave them a little bit of luxury of the time to wait, I don't think they can tolerate any acceleration going forward.

[Tom Keene]

Good news, Paul. I was so worried. I see a list of people move it out of 0.7 to Freddie Peralta, Clay Holmes, AJ Minter, and I don't see Sophia Droz's name on here. The Mets are cleaning house, aren't they?

[Sophia Drosis]

Well, you know what it's like to be a Mets fan. It teaches you patience.

[Tom Keene]

What is it like in the trading show?

[Sophia Drosis]

I love my Mets merch. It's co branded Mets and Point72. But yes, as you know, a lot of economists love baseball. So that brings a little added fun to it.

[Tom Keene]

Sophia, thank you. Thank you so much for coming in today. Just hugely valuable all point seven two. Thank you Mr. Cohen. And in all. And it's still, it's still the medicine, they'll recover.

[Bloomberg Announcer]

We think this is the Bloomberg Surveillance Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 7 to 10am Eastern on bloomberg. Com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.