Warsh to Move Markets More Than He Wants: 3-Minutes MLIV
Speakers
Mark Cudmore
— Executive Editor, Bloomberg Live / Macro Strategist
Summary
Mark Cudmore discusses the structural disruption in the Strait of Hormuz, arguing it justifies a permanent premium in oil prices. He also shares his view that the Fed will ultimately not hike rates in July despite market expectations, favoring Treasuries. The impact of Kevin Warsh's testimony and the broader shift toward a data-dependent Fed are debated.
- Oil prices need a higher structural premium due to lasting disruptions in the Strait of Hormuz.
- Both the US and Iran can disrupt flows, making shipping normalization unlikely this year.
- The Fed is live for a July rate hike, but Cudmore expects no hike, disappointing markets.
- Warsh testimony will be heavily scrutinized and may cause short-term overreactions.
- The interview touches on structurally higher supply-side inflation and its central bank implications.
- Cudmore expresses a preference for data reliance over Fed forward guidance.
Ideas
Strait of Hormuz disruption lifts oil permanently.
Disruption in the Strait of Hormuz is not temporary but structural, with both the US and Iran able to disrupt each other's flows. Shipping there will not normalize this year, perhaps ever, as alternative pipelines will be built. This requires a higher permanent premium in oil prices.
Fed won't hike rates, buy Treasuries.
The Fed is expected to be live for a July rate hike, but ultimately they will not hike, disappointing hawkish market pricing. This supports a long position in US Treasuries as yields should fall when the Fed fails to raise rates.
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Speakers: Mark Cudmore · Tickers: BNO, TLT