US on Credit Watch as Default Looms

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05/25 23:50 · 21.8k Views

Nour Al Ali, Bloomberg Markets Live Editor, discusses the dollar and oil as tensions over the US debt-ceiling impasse rise.

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Transcript

00:00 Nor you are no stranger to the bond market we'VE seen a lot of volatility in the last couple of months what happens in the unwind.
00:08 Well look it's an incredible opportunity obviously portrs that have been trying to hedge against or against the risks of the default and then those that are playing their cards.
00:18 On a potential agreement now obviously here you're talking about six seven percent here I mean that's basically where you know more than some corporate bonds that are being slowed by junk created companies so it shows you that there are some tensions there around those date but perhaps that's a reflection of maybe how remarkably low credit spreads are at the moment so in hindight of all of this if we're looking at twenty eleven and what happened there you saw that the Dollar searched about twenty percent that year even though we did approach those uncom.
00:49 Levels so I'm looking at the Dollar today and I'm thinking you know that's potentially it has room to search further particularly for also looking at the levels of real yields as well.
01:00 So the Dollar gaining again the Bloomberg Dollar index up up about a ten of a percent in the session today to your point nor talk to us about the real yield impact then you touched on it there and how you fold that into the views coming through from the f MC that maybe or at least the take away from the f MC that maybe get a pause in June.
01:16 Yeah absolutely look I mean if you're looking at market pricing there's still a lot of uncertainty about whether or not we're gonna get a rate hike or a pause in June just a couple weeks ago the market was expecting the Fed to cut rates as soon as June so obviously there's a lot of adjustments here and when with real yields pushing higher now they're extending and they're potentially going to as high as their twenty twenty two peak where obviously the Dollar also peaked as well at that time you can see that DeFinitely aiding the Dollar because of.
01:46 Real you it's going pushing further above two percent is something that bos well for the Dollar ADD to that market expectations of the fact potentially holding rates at a high you know at the high levels that they are or even raising rates in July and that is even another positive for the Dollar so obviously you know as a store of value right now the market sentiment are the narrative shifting towards a much more bullish you towards the Dollar this year.
02:15 So maybe some further upside for the Dollar interesting we spoke to j p Morgan asset management earlier a andeeley suggest he still thinks that there are going cuts cuts are going to come through from the freed by the end of this year ah so kind of pushing back on on that view but I know you'VE been writing about oil as well nor and br is down around one percent in the session today w t I seventy three dollars a bar after the rally that we saw on the back of the comments from the Saudi energy minister the Dollar strength arguably a challenge for oil is their further pressure there do we look ahead to to OPEC bla in a potential cut.
02:44 Look it's a really interesting time now to cover oil and look at OPEC we know that Saudi Arabia has a history of trading bars with traders particularly against short sellers and speculators there that's not new here but what's really interesting is that the market is pushing back and it puts you know OPEC plus at a very unique place potentially it could be the case where you know Saudi Arabia you know sent that warning of of watch out to those spectators right.
03:13 Tot test the waters and to see if they can flush out those short sellers but the reality of of recession you know in the probability of a us recession obviously China demand still in question really does play a big factor whether or not oil will rise this year and it also puts into question whether or not now OPEC plus will want to further raise their production cuts or ADD to the production cuts that they announced earlier this year so there's a lot to watch for here and that makes.
03:43 In person meeting early June that much more interesting nor I love the brought up the OPEC story because one of the kind of interesting dynamics I feel like we haven't the markets haven't properly explored as whether or not oil is actually trading on its fundamentals especially in an environment where you're looking for that extra yield where you'incentiveized to take on the extra risk whether it's through the commodity market or the em market are you seeing that kind of speculative dynamic show up yet.
04:10 Absolutely and you know that's always been Saudi Arabia point is that paper markets or basically the futures markets have not been trading with you know as close to the fundamentals or the supply and demand fundamentals that we see in in the physical market and that's something that you see you know in terms of time spreads you have seen now time spreads shift in to contangle recently in w t I there's obviously the question as well of the u you know the u did say that they're going to start buying and and befilling their reserves you know when w.
04:40 T I heads around the seventy level that seems To Be a comfortable level we expect that to come in sometime you know in June if that comes through you'LL see that demand obviously also OPEC is expecting Chinese demand to pick up we are seeing some numbers that can potentially help with that but so far the the narrative or the or arching narrative of the concerns about whether or not a recession is going to come to the u s globally as well is really playing out in markets and that divergs is really what's.
05:10 Holding prices at a point where you know I'm looking at my markets right now you know br at around seventy seven w I holding above seventy you know I think these levels are telling you there are still a lot of optimism but not without caution.
05:26 Okay the caution the potential headwinds for this oil market and the real yield impulsee for the us Dollar bloombergs not Ali excellent thank you very much working through some of those a key things for.